Deconstructing Localism

This note looks at the substance behind the idea of localism as presented by Local Government New Zealand (LGNZ). Is it the redemptive promise of a brighter future, or is it the siren song putting local government at risk of becoming little more than a delivery mechanism for central government?

Introduction

Localism has become something of a mantra; the promise for local government of a bigger brighter future playing a much more substantive role in the provision of needed services to its communities. It’s been presented as far more than simply enhancing the role of local government. Rather, localism is presented as the key to improving productivity and underpinning New Zealand’s future prosperity.

Let’s look at its origins. In July 2019 LGNZ released “Reinvigorating local democracy: The case for localising power and decision-making to councils and communities”, a discussion paper prepared jointly with the New Zealand Initiative. It provides an extensive and in many respects useful overview of practice in other jurisdictions and among other things stresses “The adoption of new and innovative mechanisms through which citizens can participate in making decisions about their towns, cities and communities”.

At its heart though is this statement from the then president’s foreword: “We are seeking an active programme of devolution and decentralisation.” In support it draws on extensive research by the OECD which the LGNZ paper states found that “a 10% increase in the level of decentralisation is associated with an average increase in per capita GDP of 3 per cent (Blochliger 2013). In short, decentralised countries tend to be wealthier than centralised ones.” The paper is available at: https://www.oecd-ilibrary.org/taxation/decentralisation-and-economic-growth-part-1-how-fiscal-federalism-affects-long-term-development_5k4559gx1q8r-en

Examining the evidence

LGNZ’s commitment to localism as described in its discussion document represents a major multi-year commitment to a specific policy objective intended to reset the relationship between central government and local government. It’s just plain common sense when making that kind of commitment to be satisfied that what you’re proposing is consistent with the evidence.

The OECD paper identifies two different types of decentralisation. The first is revenue decentralisation; providing one or more additional sources of revenue over which local government has discretion in terms of how and on what it is spent. The second is spending decentralisation; one or more government services are devolved to local government along with the funding for their delivery.

LGNZ’s emphasis is on the transfer of services. The OECD paper strongly favours revenue decentralisation. It reasons that spending decentralisation may be quite tightly mandated or regulated possibly to the extent that local government is simply the delivery agent for what is still effectively central government policy.

Of much greater significance, in assessing the evidence, is what the OECD puts forward as the causal relationship between an increased proportion of public sector expenditure at the sub-central level, and productivity.

The LGNZ paper assumes a simple causality; a greater proportion of public sector expenditure through sub-central government should mean improved productivity. The OECD paper sets out a very different causal relationship.

Revenue decentralisation gives sub-central governments discretion over expenditure. The OECD evidence suggests two principal drivers for how that discretion is exercised. First expenditure decisions are focused on improving the competitive position of the district of the entity making the expenditure - very explicitly focusing on expenditures it believes will attract businesses and people to relocate. Secondly, the additional expenditure goes very much into improving educational services. Increased productivity is directly related to improving educational outcomes.

In practice the OECD paper is not an argument for devolution or for increasing the proportion of public expenditure passing through local government as such. Rather, it is a strong argument for increasing investment in education in order to grow productivity. The importance of the role of sub-central governments comes from their focus on competing to attract people and firms to relocate (or stay) and the recognition that improving the quality of education (human capital) is one of the most if not the most effective means for doing so.

The implications

First, LGNZ has no strong evidence base for the argument that devolution of services to local government will increase productivity.

Next, the lack of any emphasis in the policy on what services should be devolved and why is a danger in itself. It opens up the way for central government to use LGNZ’s stance on localism as a license for offloading services it would prefer not to be involved with.

Two spring to mind, both of which could be presented as central government recognising local government’s inherent advantage through being closer to its communities. The two are aged care (both support for ageing in place and for residential care) and care of children; essentially the current role of Oranga Tamariki. Both these services have been devolved in the UK from central government to local government.

Aged care is an excellent illustration of the risk. All the evidence suggests that demand is rising and will increasingly be beyond the ability of the public sector, at whatever level, to cope in the sense of ensuring everyone’s reasonable service requirements are satisfied. That said, the idea that communities should be responsible for ensuring appropriate aged care for their older residents is likely to have strong appeal.

There is another and serious risk. The experience of local government in England (not the whole of the UK as Scotland and Wales have responsibility for local government under their devolution arrangements) provides a salutary warning. The major devolution from central government was spending devolution - services devolved along with associated funding (through what was known as the revenue support grant). Not only did this expose local government to ongoing intervention by central government regarding the management of devolved services; it also carried with it a major financial risk as the associated funding was not entrenched.

The austerity program of the Conservative led government which came to office in 2010 resulted in major cuts to and eventually removal of the revenue support grant program but without any withdrawal of the devolved service obligation. A number of English councils as a result have entered into the equivalent of bankruptcy, and a number more are known to be on the brink. Spending devolution is simply too risky.

A further factor which seems not to have been considered is whether devolution of one or more major services to local government makes any kind of practical sense. Assume for the moment that one object of devolution is to make a worthwhile shift in the relative proportions of public sector expenditure passing through central government and local government.

To make any reasonable impact devolution would probably need to at least double from 10% to 20% the proportion of public sector expenditure carried out by local government. What are the organisational implications of this? For councils themselves this would not be incremental change; it would be major and explosive growth itself likely to put the services involved at significant risk.

Would scale necessarily mean devolution had to be to the regional level, or to consortia of district/city councils? To what extent would or could devolution grant discretion to vary the nature of the service depending on the circumstances of the different areas to which the service had been devolved?

What about communities?

LGNZ’s discussion paper set out this statement on the importance of empowering citizens and communities “Critical to solving many of the challenges communities face is the need to utilise the wisdom, knowledge and input of the citizens and communities affected by those challenges. New Zealand’s future social and economic performance will need our towns, cities and regions to thrive; for this to occur we need to harness the disruptive benefits that comes from empowering citizens and communities.”

In the five years since that statement was made virtually nothing has been done of any substance to give effect to it notwithstanding the fact that councils throughout that period have had more than sufficient statutory powers (some would argue obligations).

This is the case despite the clear evidence of distrust in councils arising from the fact that communities believe their councils do not listen to them, and their voices are not properly taken into account. From a strategic perspective, this is a somewhat bizarre situation given the importance for the influence of councils of having the confidence of their communities.

The consequence of the failure to live up to the approach set out in the LGNZ statement was made very clear at the LGNZ conference when the Prime Minister presented himself as having a mandate to represent ratepayers rather than elected members. That his approach was rejected by the great majority of delegates to the conference but almost universally endorsed by every media and other commentator is compelling evidence local government needs to rethink how it connects with its communities.

Localism understood

Globally think tanks and other research centres concerned with issues of local government and local governance have long been focused on the importance of empowering communities and enabling a strong community voice over decisions which affect that community. As just two examples from a very long list:

·???????? Locality, an English think tank with a strong focus on communities, in 2017 released the report of its Commission on the Future of Localism. The Commission, chaired by a former head of the home civil service, declared “Localism must be about giving voice, choice and control to communities who are seldom heard by our political and economic institutions. Localism should enable local solutions through partnership and collaboration around place, and provide the conditions for social action to thrive.”

·???????? New Local, widely regarded as the leading English think tank on local government, for some years has been making the case for what it terms the community paradigm. In the reissue of its original publication on the community paradigm, reflecting the lessons of the pandemic, New Local states “Many more people working in the public sector have seen with their own eyes the impact of empowered communities. More importantly, they are coming to realise that handing more power and resource to communities is not some optional ideal, but an absolute necessity given the scale of the challenge ahead.”

The emphasis on empowering communities is more than just a reflection of the widespread interest in the importance of promoting local democracy; it is reflective of what is happening at a community level. It is nearly 50 years since Portland Oregon became the first of a number of US cities to support the emergence of self-identifying communities (communities whose actual boundaries are defined by the people of the place themselves). Most recently and of very real relevance for New Zealand is the Scottish legislative initiative to support local place planning by self-identifying communities.

Another practice which also involves facilitating communities to come together for decision-making about their place is participatory budgeting.

The evidence from experience is now very clear. Empowering communities is an important underpinning for local democracy and an essential element in maintaining an acceptable balance between the power of central government, and the place of local governance. Contrary to commonly held beliefs by people in local government who have yet to experience empowered communities, effective community empowerment strengthens the council’s social licence, enhances the standing of elected members (and council officers) and produces significant fiscal and other benefits for a council.

Critically, in conditions such as the present with central government’s apparent determination to micromanage local government, councils need the proactive support of their communities (for evidence of the shift to more micromanagement see the local government forward work program at: https://www.dia.govt.nz/diawebsite.nsf/Files/Proactive-releases-2024/$file/Material-related-to-Local-Government-forward-work-programme.pdf )

Conclusion

LGNZ’s misunderstanding of localism has left the sector highly exposed to continuing government intervention.

It is even more of a problem for the communities which councils represent than it is for the sector itself. There is increasing evidence of the importance of having communities closely involved in the design, targeting and delivery of major services, and in helping shape decisions on some of the most serious challenges New Zealand faces. Consider just some of them.

Despite the centralising tendency evident in Te whatu ora, it is widely understood across the health sector that managing for health outcomes, especially in areas influenced by the social determinants of health, demands a strong community voice and involvement. This is a view echoed in just about every serious piece of public health research.

Challenges such as dealing with climate change, including managed retreat, and with emergency management all highlight the importance of community involvement.

It is overdue for LGNZ to pivot from its present approach, understand what localism really is, and join in the move to ensure all New Zealand councils embrace and embed the practice of empowering communities in the spirit of ‘voice, choice and control for communities over decisions that affect their place’.