Is bigger better?

Given the push for local body amalgamation the New Zealand Initiative’s latest research, The Local Benchmark: When Smaller is Better, makes interesting reading.

The researcher says: “Communities are better off with small councils. Competition between small councils is good. We are seeing Auckland struggling to be efficient and address issues effectively and in a timely way. Globally, council amalgamations have proven to be an expensive mistake and are inefficient,” says The New Zealand Initiative Executive Director Dr Oliver Hartwich. 

“Since 1989 government in New Zealand has used a bigger-is-better strategy to make local government more responsive. But our global research shows that bigger councils have slowed decision-making and are less responsive to local needs.

“We need to learn from international experience, where all around the world councils are backing out of their amalgamation mistakes.

“In the Netherlands and Switzerland, local authorities can number in the thousands. Instead of dragging on efficiency, diversity of councils enhances it, with Switzerland and the Netherlands rated as the 1st and 5th most competitive countries by the World Economic Forum.

“The critical factor in the Swiss and Dutch have is local government competition. There, councils have a strong incentive to attract new residents because it means more revenue. As a result they try to make it easier to build a house, or open a new factory. In New Zealand we lack these kinds of incentives,” says Hartwich.

The report studied local government in Canada, the Netherlands, Switzerland and the United Kingdom to find out if their structures helped or dragged down local council efficiency. The research shows that where councils have been merged into unitary authorities, or where central government has too much control, local government performs poorly.

For example, the city of Montreal’s annual operating cost rose by C$400 million after it merged 28 municipalities into a single council. Similarly, in the United Kingdom central government intervention has been unable to fix long-standing unemployment and social problems in northern cities like Manchester despite spending billions on turning them around.

The Montreal and UK examples contrast with the performance of the Swiss and Dutch. 

Other key findings in the report show:
Highly centralised countries like the UK are devolving decision-making power to local government to boost economic growth and cut government spending;
By giving local government greater freedom, small Dutch councils have been able to solve scale problems for themselves using shared service agreements; and
Countries that devolve power to local government keep these arrangements in place through a constitutional process or formal contract.

The report was written by Initiative Research Fellow Jason Krupp