Reforming Local Government: Consolidation, Cooperation, or Re-creation? [1st ed.] 9789811565021, 9789811565038

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Joseph Drew

Reforming Local Government Consolidation, Cooperation, or Re-creation?

Reforming Local Government

Joseph Drew

Reforming Local Government Consolidation, Cooperation, or Re-creation?

123

Joseph Drew University of Technology Sydney Moonbi, NSW, Australia

ISBN 978-981-15-6502-1 ISBN 978-981-15-6503-8 https://doi.org/10.1007/978-981-15-6503-8

(eBook)

© Springer Nature Singapore Pte Ltd. 2020 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Contents

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Reform Local Government? . . . . . . . . . . . . . . . . . . . . . . Local Government Size, Shape and Number . . . . . . . . . . . Local Government Finance and Reform . . . . . . . . . . . . . . The Problem of Leviathan . . . . . . . . . . . . . . . . . . . . . . . . Local Government Professionalism, Accountability and Responsiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 Stated and Actual Reasons for Local Government Reform 2.6 How Reform of Local Government Can Serve the People Best . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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A Comprehensive Theory of Local Government . . . . 3.1 Theories of the Morality of Local Government . . 3.2 Theories of Restraining Local Leviathan . . . . . . 3.3 Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Theories of the Economics of Local Government 3.5 A Comprehensive Theory of Local Government . Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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31 33 38 42 44 50 51 52

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An Introduction to Reforming Local Government 1.1 My Background . . . . . . . . . . . . . . . . . . . . . . 1.2 Who This Book is For . . . . . . . . . . . . . . . . . 1.3 A Metaphor for Government Finance . . . . . . . 1.4 Theory and Reforming Local Government . . . 1.5 Book Outline . . . . . . . . . . . . . . . . . . . . . . . . 1.6 Go Forth and Reform . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Why 2.1 2.2 2.3 2.4

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Shared Services and Other Co-operative Arrangements 6.1 Pecuniary Benefits Associated with Shared Services 6.2 Pecuniary Costs Associated with Shared Services . . 6.3 Determinants for Shared Service Success . . . . . . . . 6.4 Combatting Costs in Shared Services . . . . . . . . . . . 6.5 A Quick Word on Outsourcing to Business . . . . . . 6.6 Selling Shared Services . . . . . . . . . . . . . . . . . . . . . 6.7 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The Ideal Remit of Local Government . . . . . . . . . . . . . . . . . . . . 7.1 The Case for Less Local Government . . . . . . . . . . . . . . . . . 7.2 The Case for Greater Decentralisation and Hence More Local Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 Education—An Example of Subsidiarity in Action . . . . . . . . 7.4 Subsidiarity, Local Government and Reform . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The Ideal Political Institutions of Local Government 8.1 Sortition Then and Now . . . . . . . . . . . . . . . . . . 8.2 Sortition, Subsidiarity, and Local Government . . 8.3 Practical Sortition . . . . . . . . . . . . . . . . . . . . . . . 8.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Ideal Financing for Local Government . . . . . . . . . . . . . . . . . . . . . . 139 9.1 Types of Local Government Goods and Services and Appropriate Own Source Financing . . . . . . . . . . . . . . . . . . . . . 141 9.2 Intergovernmental Grants and Subsidiarity . . . . . . . . . . . . . . . . 148

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Boundary Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Concepts and Boundaries . . . . . . . . . . . . . . . . . . . 4.2 Why Amalgamations May Not Deliver Completely on the Promises of Proponents . . . . . . . . . . . . . . . . 4.3 Boundary Change for Dummies . . . . . . . . . . . . . . . 4.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . Appendix 1 Some Observations on Aristotle’s Approach to Government Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Selling Boundary Reform . . . . . . . . . . . 5.1 Costs of Selling Boundary Reform . 5.2 The Tools of the Boundary Reform 5.3 After Sales Care . . . . . . . . . . . . . . 5.4 Concluding Remarks . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . .

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9.3 Debt . . . . . . . . . . . . . 9.4 Fiscal Institutions and 9.5 Concluding Remarks . References . . . . . . . . . . . . .

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10 Conclusion . . . . . . . . . . . . . 10.1 Is There a Better Way? 10.2 Why I Believe . . . . . . 10.3 Our Choices . . . . . . . . References . . . . . . . . . . . . . .

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Chapter 1

An Introduction to Reforming Local Government

Abstract An oft-cited refrain of the advocates for local government is that local government is closest to the people and therefore serves the people best. This asserted closeness may be the case geographically, but I question how many people feel that they are close to their local government in a more substantive sense. Do we really feel that local government serves us, or are we instead in a more subservient relationship wherein we are coerced to give over portions of our wealth which are then spent on programs and assets that we have little say on? This chapter explores the reasons for why one might feel that local government requires reform. To do so, I make recourse to a personal finance metaphor which pervades much of the remainder of this book and briefly outline some of the major tenets of theories upon which later chapters will be founded.

I wince every time I hear the refrain that local government is closest to the people and serves the people best, not only because I don’t believe it is true for me, but also because it is symptomatic of the slogan based rhetoric which sees local government and local government advocates stuck in an interminable rut. As long as slogans dominate debates on local government there will be no room for critical thinking and no cause to dream about a better relationship between the people and their local government. Are we really close to local government? Certainly in a geographical sense I am much closer to my local government in Tamworth, rural New South Wales (Australia), than I am to the state government 430 km south east in Sydney, or my federal government 700 km south in Canberra. But in terms of policy and politics I know very little about my local government—for instance, I confess that I can’t name a single Councillor and I have no idea of the policies of the various local government politicians (although I suspect the generic policy is to convert my local government tax money into future votes). I can however name quite a few of my state and federal politicians (local members, Ministers and shadow Ministers), and could expound for some time on various policies. This is probably surprising for those who know me as a high publishing local government scholar (and I should probably be ashamed of my ignorance about my local government), but I think it is pretty typical of most

© Springer Nature Singapore Pte Ltd. 2020 J. Drew, Reforming Local Government, https://doi.org/10.1007/978-981-15-6503-8_1

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citizens. Otherwise stated, I am not close to my local government in any substantive sense—and I suspect you are not either. Nor do I think my local government serves my interests best. Like most people that I meet down the street in the big smoke of Moonbi (population 500, 22 km north of Tamworth) I am very critical of council (a term synonymous with local government in Australia) waste and perceived mismanagement. For instance, anyone who has talked to me in the past 6 months knows that I am deeply unhappy about the new $2 million skate park built (across the road from the existing skate park) in Tamworth.1 It’s not that I have anything really against skateboarding—I just can’t see how so much expenditure is justified when most of us in the local government area are living with third world standard public services (dirt roads, no tap water nor sewer services, and often no rubbish collection). Incidentally, the Japanese have a lovely term for political capitalisation (turning government spending into votes) of this sort—park barrelling (the Americans call it pork barrelling)—which seems to occur the world over. Indeed, it seems like the only time I have anything to do with council is when they demand money from me, on a quarterly basis, to pay for things I mostly don’t use, or even agree with (or when I try to do battle with the bureaucracy—getting building approval, for example, was a nightmare). I am sure my local government (and yours also) feel that they are close to the people and serve the peoples’ interests well, but I wonder who these ‘people’ are. As I have shown, I am not one of these people—I neither feel engaged with my local government, nor served by them. I also imagine the far majority of my readers are in a similar position (although I suspect local government politicians and staff may feel differently about their relationship with local government). When did you last feel that you had an effective voice in influencing local government decision making? When did you last vote in a local government election and know who the candidates were, and what they stood for? Perhaps more importantly—could we ever be close to our local government and could we feel well served by it? This is the question I hope to answer in the following pages.

1.1 My Background As much as I like the idea of academics being value-free unbiased pursuers of truth, I don’t really think that any of us could ever legitimately claim to be so. We all bring a particular perspective to our work that is the product of our experiences, interests, and education. 1 In

truth a lot of this money came from a state government grant just before the last state election (I imagine they might have us believe that the timing was sheer coincidence). However, the costs of maintaining the skate park will dwarf the capital costs of construction pretty quickly. Moreover, it would be nice to think that a local government would have the moral fortitude to ask the state government to direct their grants towards providing essential and basic services, rather than becoming complicit in a pretty obvious case of park barrelling.

1.1 My Background

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I have been a local government taxpayer for just over 26 years in Australia. As a taxpayer I honestly don’t mind paying my share for necessary public goods (goods which are non-rival and non-excludable like local government roads). However, I often find myself voicing discontent with paying local government taxation to provide goods of a more private nature (such as the pilots school my council runs at a loss), and subsidies that are ill-targeted (everyone seems to get the same subsidy irrespective of need) and ill-conceived. I also find myself despairing of some of the prima facie ‘crazy’ decisions of my local government (not just the skate park). Moreover, I find local government to be both the most intrusive and most unhelpful tier of government—although I don’t think that it need always be so (maybe I am just a special case). I know a lot of very good people work incredibly hard in local government and I appreciate their commitment enormously, however, as an institution local government doesn’t work well for me (and possibly it is not even working well for those working for it). I am also a local government academic and a frequent consultant to local governments, peak bodies and regulatory authorities. Over the last decade or so I have been working closely with financial data and this has given me the general sense that a lot of local governments, in both Australia and abroad, are not financially sustainable. I have also been involved in a number of local government public policy debates—on matters such as forced amalgamation and implementation of performance monitoring regimes – and this has given me further cause for concern. Often public policy interventions in local government appear to have been ill-conceived and poorly executed with the result that the said interventions have generally made matters much worse. Indeed, I have often been painted as an anti-interventionist but this is not accurate at all (as you will discover in the following pages)—I just object to poorly conducted interventions. My education background has also influenced my thinking on local government reform. My first degree was in physical mathematics, followed by theology, then accounting and finally a doctorate in economics. As a result I am a very mixed up person (I mean this in a nice way), and my diverse publications in public administration, politics, natural law philosophy, accounting and economics probably reflect my varied training. It is liberating not be constrained to a particular discipline in my work or thinking and I have always prided myself on innovative and provocative scholarship. It would undoubtedly be a safer and nicer career path to stick to a little niche and largely restrict myself to citing (in an approving way) the work of some giants in my field. However, I am not interested in doing things the easy way—I want to shake things up (a lot) and put a new twist on old thinking—and hopefully do a little good before I depart this world. Indeed, I hope by the end of this book that I will have you re-evaluating things you never thought to question. A final matter to note is that I am an Australian scholar, and hence my writing will sometimes be influenced by my knowledge of Australian local government. However, the ideas and theories developed in this book apply to just about any local government jurisdiction, so my Australian perspective shouldn’t be problematic for my readers from abroad.

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1.2 Who This Book is For This book is for anyone who is interested in local government—which should be all of us given that we all contribute in some way to funding local government and we all benefit in varying degrees from local government goods and services. Hopefully, you will have noticed by now that this is not a dry academic tome written solely for the purpose of career progression, stoking my ego, or stoking the egos of the giants in my field. I always planned to write this book in a more conversational and engaging tone which will reveal how I really think on a range of issues associated with local government. I’d like to think that this book will be as engaging to read as some of the books of my intellectual heroes—Maimonides, Hirschman, Riker, Aristotle, Coase—who have proved that it is possible to write on important matters without putting one’s readers to sleep. So perhaps this book is also for those who find straight talking refreshing and engaging. Obviously local government scholars and students will find this book useful for their work. I also hope consultants from the major consulting houses will also read this book (particularly the first six chapters), so that they might learn to use economic ideas and evidence correctly and thus save a lot of people a lot of grief as a result of poor public policy making. Perhaps more importantly regulators and decision makers who read this book will get a better foundation for making public policy on local government and be thus better able to spot some of the appallingly bad work that they regularly pay over the odds to receive. This book is also for the discontented—for those who also sense that local government is not quite as close to the people as it claims to be and maybe could serve the people better. Things don’t have to stay the way they are—we can do better and if enough people read this book and understand the amazing potential of local government then perhaps we will.

1.3 A Metaphor for Government Finance A big motivation for most local government reform is to arrest the concerning decline in local government financial sustainability. Clearly a bankrupt local government cannot serve it people best. I therefore spend much of my time in this book investigating the efficacy of various remedies proposed to arrest waning financial sustainability. In one of his seminal works Buchanan (1975) uses the metaphor of gluttony leading to obesity to explain the problem of Leviathan government (government which uses its coercive powers to expand budgets against the wishes of its citizens). I really enjoyed the metaphor and tried to come up with something witty myself (I was thinking of alcohol consumption), but sadly I failed. The best I could do was the boring, but probably more serviceable, metaphor of personal finances.

1.3 A Metaphor for Government Finance

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Local government finance (indeed, this metaphor, like most of the book applies equally to any tier of government) can be compared to one’s own personal finance. We all know (but many choose to ignore reality) that in the long run expenditure must be matched by income. When we live beyond our means (for example, frequent fine dining) then we either have to neglect other important responsibilities (say, servicing our car), or alternatively take on debt (credit cards). Notably living beyond our means generally involves satisfying our wants (which is always much more appealing and fun) whilst ignoring generally less exciting needs, or drawing on future expected income (via debt). For day-to-day consumption—food, travel, entertainment—it is important to mostly live within our means because failing to do so will eventually leave us in a financial mess. Either, the neglected needs will come home to roost with significant consequences (such as when our hypothetical car simply no longer runs due to delayed servicing), or the costs of servicing the debt becomes too high (and doesn’t leave one with enough funds to provide for life’s basic needs). Indeed, banks are often reticent to lend money to pay for things which will be quickly consumed (because people will have less motivation to service the debt afterwards) and often ask many questions to ensure that the person wishing to receive the loan has sufficient capacity (a good job and manageable obligations) to repay the debt. However, for most of us debt is unavoidable—particularly for major purchases such as houses and other long-lived assets. We must borrow money, which essentially requires us to set aside a portion of our future incomes for a long period of time. Moreover, in order for us to borrow from our future we accept that there is a cost to be paid—not only in the loss to consume future income, but also the cost of finance (interest rates). But when the asset is likely to have enduring value—rather than merely an instant of gratification—it seems perfectly reasonable to tie our future selves to the servicing of debt. We are however depending on a future which can never be certain—that we will keep our job (or maybe receive promotion), that wage rates will rise (which eases the pain of repayments over time), and that we suddenly won’t be faced with important and unplanned needs (such as new dependents). Notably, when it comes to our personal finances we generally make the decisions (or perhaps we do so jointly with our spouses), and we generally bear the consequences. Local government finance faces a similar (oft-ignored) reality. Expenditure must, in the long run, be met with sufficient flows of revenue. When a local government lives beyond its means (did someone say a second skate park in Tamworth?), then other important responsibilities (roads, water pipes etc.) are neglected or debt must be taken on. Otherwise stated, by fulfilling our desire for wants (skate parks are much more fun than roads), we neglect needs (things like safe drinking water and sanitation), or rack up debts (which must be repaid by future local government taxpayers or the Debt Fairy (which a lot of governments apparently seem to believe in)). Where things differ tremendously is that for local government finances the persons generally making decisions—local government politicians and executives—may not fully bear the consequences. For example, a Councillor in the town area is unlikely to bear the consequences of third world standard services for rural properties 20kms or more away. Nor will a Councillor necessarily have to bear the consequences of

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bringing forward future income—higher taxation or lower funds for discretionary spending in the future—especially if he fits the stereotype of pale, male and stale (he will cease to be a Councillor or probably even a taxpayer long before the debt is repaid in full). However, other aspects of debt are similar to our personal finance metaphor— when a debt is taken on local governments are still betting on keeping their revenue sources (hoping that some services won’t become redundant or forcibly divested), future increases to revenue (which will be harder to come by in a taxation limitation environment or if wage increases and inflation stay low) and that they won’t be suddenly faced with important and unplanned needs. That is, there is still a risk involved in local government debt, even though the risk might not be acknowledged by the people making the important decisions. Throughout this book readers will be directed to consider various local government matters in terms of the personal finance metaphor. I believe referring to our own circumstances should help us to make more morally defensible, responsible and financially sustainable decisions about local government remits and budgeting. In the rhetorical logic that is kal vahomer—if it is important to be prudent in our personal finances than how much more is it important to be prudent in our community finances (Holtz 2017). Otherwise stated, what is good for the citizen gander, should be good for the local government goose!

1.4 Theory and Reforming Local Government As an academic, I spent most of my early years conducting empirical work on jurisdictional level data to answer questions about the association between various characteristics of local government and fiscal performance. Indeed, I spent some time on investigating the question between local government size and technical efficiency (the optimal conversion of inputs (money and staff) into outputs (local government goods and services)). Typical of my breed of academic my focus was on the numbers and I barely gave a thought to theory—which is shame because generally examining the numbers can only tell you what has happened in the past, whilst theory can shine a light on what should happen in the future. I have written elsewhere that local government is in need of a comprehensive theory which combines economic, political and social concepts to describe what local government could and should be (see Grant and Drew 2017). Indeed, in the past I did put forward what I considered, at the time, to be a comprehensive theory of local government, but I now see that much more can be done in this area. If done well a comprehensive theory of local government can guide our decision-making so that over time local government does get closer to the people and does serve them better. Of course getting a group of academics to agree on a theory (or anything for that matter) is an imposing task. In Chapter 3 I take on this task in detail. For now, I will just outline the major strands of thought that permeate the remainder of the book.

1.4 Theory and Reforming Local Government

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The theories that I employ can be grouped into three categories. First, there are economic theories of local government—such as Olson’s fiscal equivalence, Oates’ Decentralisation Theorem, Tiebout’s sorting—which aim to describe efficient delivery of local government goods and services. I am sure that many people might feel that these theories are sufficient, but I disagree. It is important for local government services to be delivered efficiently, but that is far from the purpose or potential of local government (if we were only concerned about efficiency alone then we would probably leave local government services to the market). It is also important for local government to be responsive to citizens. Thus, my second group of theories look at how political signals might be sent to local government and will include a discussion of Brennan and Buchanan’s work on constraining Leviathan, recent work on applying sortition (government by lottery) to local government, as well as Hirschman’s seminal work on Exit, Voice and Loyalty (which in one sense also overlaps a little with the economic strand). One might have efficient local government that is responsive to citizens, but still be stuck with sub-optimal outcomes from local government if there is no guidance on the appropriate remit, acceptable level of intrusion, and assistance for local government. Our third strand of theory therefore looks at what local government ought to be with reference to two principles derived from natural law philosophy2 —the principle of double effect and the principle of subsidiarity. In other work, I have explicated at length on how each principle might be applied to local government. The principle of double effect is unique in setting out how to resolve the conflict between the ought and the must and is a pragmatic way of responding to the notion that government should not cause avoidable harm (a sentiment expressed powerfully in Dahl’s (1970) famous work After the Revolution). The principle of subsidiarity, on the other hand, focuses on the need to strike a balance between two very important concepts— human dignity and the common good. Dignity refers to the right of persons (and very importantly) associations (including local government but also other associations such as the family) to pursue their existential ends without undue interference. The common good is the help accruing to persons as a result of their co-operation and it is important to understand that this common good is greater than merely the sum of the various contributions (Messner 1952). Moreover, the principle also outlines both positive obligations (the need to provide help and assistance to persons and lesser associations with genuine need), and negative obligations (the prohibition on subsuming the functions of persons or lesser associations) that aim to preserve the plurality of human social forms. A comprehensive understanding of subsidiarity (see Chap. 3) stands in stark contrast to the minimalist interpretations found in much of the fiscal federalism literature (that merely assert that services should be provided by the lowest level of government that is capable of doing so) and will be very important as we go about developing a vision for reformed local government. 2 Natural

law philosophy harks back to at least the time of Aristotle and asserts that ‘right’ action can be determined by observing nature and using practical reason. There is a natural law tradition in all three monotheistic faiths also, which asserts that divine revelation is also a way to understand right from wrong.

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1 An Introduction to Reforming Local Government

In Chapter 3 I will deal with each of these strands of theory in far more detail in order to arrive at a comprehensive theory of local government. For now it is sufficient that the reader be forewarned of the types of ideas that I intend to draw on throughout the book to explain why extant reform practices fail to deliver close local government which serves the people best.

1.5 Book Outline Most chapters can be consumed as stand-alone products, although they are written with the intent that they be read in the context of the entire book (and I am sure my publisher would much prefer you to buy the book). Below I set out the major themes of each chapter in an effort to demonstrate to my readers how I intend to tie all of the disparate ideas together. Part I of the book sets out the problems facing local government and the theories that have been employed in the past to try to explain the problem and suggest solutions. Chapter 2 sets out the case for reforming local government. There are many problems with local government (and probably all tiers of government) that require redress. Corruption scandals are probably the most visible motivation (certainly according to the media), but there is also a growing sense of disillusionment with government reflected in low voter turnouts and the rise of various populist movements. More importantly, from my perspective at least as a public finance scholar, many local governments have either gone insolvent or are on the precipice of insolvency—indeed one can even google up a local government bankruptcy map for the USA. When it is just a few local governments in trouble, then few will care (except for the local government employees that lose their jobs and the local government citizen consumers who have their services abruptly reduced or discontinued)—however, as more and more local governments get into financial problems then it will have serious implications for nation states (who often have to stitch together a bailout) and their economies. Yet another motivation for reform is that existing boundaries may no longer make sense due to developments over time. In most cases boundaries were set hundreds of years ago before the advent of motor cars, telecommunications and modern work and shopping practices—and contemporary patterns of behaviour may see people regularly residing, working and shopping in different local government areas. The problem with this is that people may regularly be using the services of local governments to which they contribute no taxation (the free-rider problem). I also consider the rise of local Leviathan which fulfils the ancient prophecy of government which treats its ‘subjects as beasts, according to the violence of their own wills and inclinations ….. as wholly carried away with the lust of power’ (Josephus Flavius in Whiston 1987, 156). Where appropriate data is available I provide facts and figures to sketch a picture of the current state of local government both in Australia and abroad.

1.5 Book Outline

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In Chapter 3, as noted earlier, I seek to develop a more comprehensive theory of local government which goes beyond mere economic considerations to also consider appropriate political structures, remit, assistance and powers. The bulk of this chapter will be given over to exploring extant theory. After we have done so, then I will propose a more comprehensive theory of local government and explicate on the practical implications that arise from it for local government reform. Part II sets out the conventional responses to solving the problems of local government and describes how these approaches might be competently employed. Chapter 4 sees me turn to a topic that I have written about extensively—local government boundary reform. In my part of the world local government amalgamation seems to be considered to be the ‘go to’ reform solution for all problems. As a result forced amalgamations occur every few years. One might think such frequent amalgamations would result in public policy architects having a good appreciation of the important theoretical concepts and a clear understanding of the outcomes likely to be achieved. However, sadly this is far from the case. It is also the case that local government reformers generally do a very poor job of selling the reforms. Surprisingly there is very little extant literature on the rhetoric and heresthetic (political manipulation) required to successfully sell local government boundary reform. In Chapter 5 I examine the question of how to sell local government boundary reform with reference to the nascent literature. Specifically, in addition to examining the rhetoric and heresthetic of boundary reform, I also make a case for the importance of evidence and ethics with reference to the theory of local government developed in Chapter 3. A hot topic in the academic literature, and an increasingly prevalent practice, is co-operation in local government service provision. In Chapter 6 I deal with two types of co-operation: shared services (where two or more local governments get together to jointly produce a given service) and public–private partnerships (where local government engages the market to provide services). The former is usually proposed as an alternative to amalgamation, whilst the later is more orientated to achieving efficiencies in service provision. Personally I think that neither option is as rosy as their advocates might suggest, but they still warrant consideration as part of a potential reform package aimed at moving people closer to their local government and serving them better. I also explore what is required to sell co-operative local government, which to the best of my knowledge has not been considered in the literature. In Part III of the book I abandon conventional and headline reforms to look at innovative approaches to addressing the problem of not only local government, but also government in general. In Chapter 7, I investigate the matter of legitimate local government remit. I outline the inequity and damage done to human dignity and local government finance when local government oversteps it’s bounds. I also draw on our personal finance metaphor to explain the importance of first pursuing bona fide need satisfaction before even considering the provision of wants. I also discuss some of the areas which local government is often missing in action on and explain why it is important for the institution to engage in these fields also.

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1 An Introduction to Reforming Local Government

In Chapter 8 I look at the question of how local government can be truly close and responsive to the people (and thus serve the people best). As Brennan and Buchanan described many decades ago our system of majoritarian democratic representation leads to some very undesirable outcomes and may often give rise to local Leviathan. Thus in Chap. 8 I propose the use of bi-cameral sortition as a way of placing a check on entrenched power imbalances and ensuring that the people (rather than politicians and their associates) are served best by local government. In Chapter 9 I explore how to finance local government. Drawing heavily on our personal finance metaphor I explain why it is critical to levy taxes and fees appropriately. I also explicate at length on the moral hazard associated with local government debt as well as discussing some appropriate ways to issue and service debt. I finish the chapter by discussing extant fiscal institutions designed to arrest the decline of local government financial sustainability and explain how some of the other proposals I have outline in the book could be used to make them more effective. In Chapter 10 I conclude by considering how the aforementioned reforms could work to bring local government closer to the people and serve them better.

1.6 Go Forth and Reform Hopefully, dear reader, I have you excited at the prospect of reforming local government! The next step is to read on and equip yourself with the concepts and skills so that you can pursue efficacious reform. But this, I am afraid, will be the easy part. Convincing others that things can and should be better will still be a challenge for you to overcome. However, I do believe it is possible—just as I believe it is possible to have sustainable local government that serves the needs of people more and the wants of politicians less. Maybe reform will be through baby steps, rather than a bold and drastic overhaul of local government. I can’t predict the future, nor do I want to. All I seek to do is paint an outline for how things could be better, and turn the task over to much more talented and politically astute people such as you to make some of these dreams come true. Go forth and reform!

References Brennan G, Buchanan J (1989) The power to tax. Liberty Fund, Indianapolis Buchanan J (1975) The limits of liberty: between Anarchy and Leviathan. Liberty Fund, Indianapolis Dahl R (1970) After the Revolution? Authority in a Good Society. Yale University Press, New Haven Drew J (2018) How losers can turn into winners in disputatious public policy: a heuristic for prospective herestheticians. Aust J Polit Sci. https://doi.org/10.1080/10361146.2018.1520195

References

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Grant B, Drew J (2017) Local government in Australia: history theory and public policy. Springer Palgrave, Singapore Hirschman A (1970) Exit, voice and loyalty: response to decline in firms. Harvard University Press, Cambridge Holtz B (2017) Rabbi Akiva; sage of the talmud. Yale University Press, New Haven Messner J (1952) Social ethics. Natural law in the modern world, trans. J J Doherty. B Herder Book Co., St Louis Oates W (1999) An essay on fiscal federalism. J Econ Lit XXXVII: 1120–1149 Olson M (1969) The principle of fiscal equivalence: the division of responsibilities among different levels of government. Am Econ Rev 59(2):479–487 Tiebout C (1956) A pure theory of local expenditures. J Polit Econ 64(5):416–424 Whiston W (1987) The works of Josephus. Hendrickson Publishers, Massachusetts

Chapter 2

Why Reform Local Government?

Abstract A number of reasons for reforming local government have been proposed by public policy architects over recent years. These include, inter alia, the desire to reduce the number of local governments, a supposed need to increase the size of local government, efforts to enhance efficiency and redress waning financial sustainability, a desire to improve the quality of local government political representatives and executives, as well as to address voter disengagement or disillusionment with local government. In this chapter, I link these reasons to the reform options that will be covered in the remainder of this book. Notably, I also canvas my growing suspicion that local government reform is sometimes undertaken for reasons far removed from those articulated. I conclude by reflecting on how the various reforms might be expected to bring local government closer to the people and serve the people best.

Local government reforms can be motivated by a number of factors (sometimes more than one, and sometimes contradictory in nature). One group of motivators are associated with the size, shape and number of local government and these tend to result in prescriptions for local government consolidation (also referred to as amalgamation in Australia; see Chaps. 4 and 5). A second class of motivators relate to the finances of local government—calls for greater efficiency or fears regarding financial sustainability—and these matters tend to result in prescriptions for either consolidation or co-operation (Chap. 6), or sometimes both. Notably there are other important measures that might be taken to address concerns about local government finances and I discuss these in Chaps. 7, 8 and 9 of this book. The third class of motivators relate to the perceived professionalism of local government actors and a desire to make local governments more accountable and responsive to communities. Prescriptions to address these concerns can include consolidation (Chaps. 4 and 5), changes to political institutions (Chap. 8) and alterations to the remit of local government (Chap. 7). By far the headline reform of local government (the one that has attracted the most media and scholarly attention) is local government consolidation, therefore I start my brief review of the classes of reform with a discussion of size, shape and number.

© Springer Nature Singapore Pte Ltd. 2020 J. Drew, Reforming Local Government, https://doi.org/10.1007/978-981-15-6503-8_2

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2 Why Reform Local Government?

2.1 Local Government Size, Shape and Number When considering the possibilities for reforming local government it is important to get a sense of how particular jurisdictions compare to peers abroad. All too often— and I am guilty of this as much as anyone—we tend to focus myopically on our own system of local government which may lead us to believe that what we experience in a particular country is ‘normal’. For instance, if I was to take the claims of my state government at face value then I would be inclined to think that our local governments are quite tiny (Drew 2018). However, if I were to look at Fig. 2.1, I might easily rethink my ideas about the size of local government which, if we exclude the extreme outliers (Ireland, Korea and the United Kingdom), is actually on the upper end of the average population size distribution. Indeed, if instead I look at the geographic size of Australian local government (Fig. 2.2) I could not help but conclude that we have by far the largest local governments in the OECD (and probably the planet). This all goes to show that the rhetoric of proponents for local government reform often does not bear up to close scrutiny and thus underlines the importance of orientating oneself with reference to other local government systems. I imagine similar surprises await my readers from abroad—assuming they come from OECD countries where reliable data is collated—as they check out how their local government jurisdiction stacks up against international peers (and perhaps as you reflect upon some of the rhetoric of local government reform proponents). 250,000

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Fig. 2.1 Average population size of local government, OECD. Source OECD (2018)

2.1 Local Government Size, Shape and Number

15

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Fig. 2.2 Average geographic size of local governments. Source OECD (2018)

Increasing the size of local government is often a cited motivation for local government consolidation. Specifically, it is argued that there is a need to increase population size in order to reap economies of scale (savings predicated on reduced average unit cost as output increases—see Chap. 4 for a detailed discussion), or so that local government will have sufficient capacity to undertake large projects, or in order that it might prove a better partner for higher tiers of government. As we shall see later, these arguments tend to ignore important limitations such as diseconomies of density and diseconomies of scale but do resonate strongly with the political class, citizens and the media. Indeed, the ‘bigger is better’ dictum seems to be firmly embedded in marketing culture—we upsize our fast-food meals, and phone plan so why not local government? —which must surely assist the rhetoric of proponents of consolidation. A supposed need to increase the geographic size of local government has also been used as motivation for consolidation. Spatially larger local government may help to facilitate more coherent regional planning and capture spill-over effects (indirect effects of one local government on another). Certainty where patterns of behaviour (travelling for work, school or shopping) regularly involve persons moving between two or more local government areas there is some merit to the argument in these instances. In addition, larger local governments may also help to bring about more equitable outcomes for residents if goods and services within local government areas are distributed evenly. That is, inter-jurisdictional inequity will be largely erased if services are harmonised following consolidation (although whether or not this is an economically efficient outcome is an entirely different question—see Chaps. 3 and 4). Moreover, large local governments might prove to be better partners for higher tiers of government wishing to roll out large-scale programs. For example, co-operative efforts between various tiers of government to better manage riparian systems are

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2 Why Reform Local Government?

likely to be far more straight-forward when the catchment and waterway lie wholly within a single local government area. Large disparities in the size of local government, which we saw in Figs. 2.1 and 2.2, are ultimately reflected in huge differences in the number of local government entities making up each jurisdiction. For example, in Ireland there are just 31 local governments, but both the Unites States and France have over 35,000 entities. I imagine local government scholars in Ireland must envy the wide datasets that can be employed by their peers abroad (31 local governments are barely enough to conduct a robust regression). However, I also imagine regulators and stakeholders in the USA and France must dream of the simplicity of dealing with less than one tenth of a percent of their current numbers of local governments. Large numbers of local governments are difficult to regulate, oversee or co-ordinate but also pose great challenges for national enterprises that must traverse different sets of local government rules and bureaucracies in order to do business. Indeed, it is more than a little ironic that Australia regularly engages in the blood sport of forced local government consolidations on the claim that ‘put simply there are far too many councils chasing far too few resources’ (Independent Local Government Review Panel (ILGRP) 2013), when other jurisdictions have far more entities but rarely execute consolidation reforms (see Fig. 2.3). As we have seen size, shape and number arguments tend to lead to proposals for local government consolidation. Concern for the state of the finances of local governments are also often invoked to justify consolidations (although it might be

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Fig. 2.3 Number of local governments. Source OECD (2018)

2.1 Local Government Size, Shape and Number

17

noted that these concerns also lend themselves to the promotion of co-operative arrangements) and I now turn my attention to this second class of motivations.

2.2 Local Government Finance and Reform As I disclosed in Chap. 1 my abiding interest lies in the financial sustainability of local government. There have been a number of high profile local government financial failures in recent years (for example Detroit) and even more low profile failures (you probably haven’t heard of Central Darling Shire in remote New South Wales, Australia) which probably should be getting people a lot more concerned than what they are about the state of local government finances. Clearly when local governments fail financially, they can no longer serve the people best. Generally, the response to local government financial failure is the sudden and abrupt cessation of ‘non-essential’ services (in Central Darling Shire it was claimed that this included the cemetery and the aerodrome used by the Royal Flying Doctor service; Drew and Campbell 2016), and the scaling back of non-discretionary services and asset maintenance. Typically, Administrators are appointed to take over the local government, jobs are shed, and political representatives suspended. The knock-on effects to the local economy can be dire particularly when the local government is a major employer and major consumer of local products. In addition, the bailout also often involves increases to taxation and changes to intergovernmental grant allocations (which must come at the cost of other local governments except for the very unlikely event where the entire quantum of grants is raised). In sum, financial failure brings misery to local communities which might be expected to extend for many years (Administrators were initially appointed for seven years in the case of Central Darling Shire, but this has now been extended by a further three years). In Chap. 1 I introduced the personal finance metaphor which underlines the importance of ensuring expenditures are met with sufficient revenues and that debt is used for useful long-lived assets, just as most of us endeavour to do with our personal budgets. Failure to meet expenditures with sufficient revenues will ultimately end in disaster for both personal and local government finance (at least in the former case one can optimistically hope to win the lottery or receive a bequest from a wealthy relative, but no such lifeline exists for the latter). Borrowing for consumption (that is, borrowing from our future income) is imprudent (it is a bet that future income will continue or improve) and in the case of local government immoral, (because it forces future generations to pay for something that others have already consumed). However, if expenditures consistently outstrip revenues, debt is inevitable (asset maintenance is also often delayed which is another way of passing on future costs to the next generation of local government taxpayers). On the other hand, borrowing for useful long-lived assets may be acceptable under certain conditions—the most important being that the current generation of taxpayers immediately starts repayments at a rate at least equal to the expected rate of consumption of the long-life asset.

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2 Why Reform Local Government? 9.00

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Fig. 2.4 Local government revenue (Excluding Grants) OECD Countries, 1995 to 2016. Source Adapted from OECD (2019)

We can gauge whether our local government finances are consistent with the personal finance metaphor by briefly examining expenditure and revenue data. In Fig. 2.4 I have plotted the mean, median and quartiles of local government revenue, excluding grants and expressed as a proportion of GDP, for all of the OECD local government jurisdictions where financial data was available over the period from 1995 to 2016. It would be fair to say that revenue has remained pretty flat over the past two decades, except maybe for the third quartile of local governments where there has been a slight uptick in revenue take since 2010. By itself, this graph tells us relatively little—except that maybe most local government taxpayers should be content with the relatively stable nature of their obligations (this stability often occurs as a result of taxation limitations which legislate a cap on the increases to taxation that local government may make). However, when we examine Fig. 2.5 we can start to perceive a problem. Local government expenditures over the same period have generally risen, certainly since the turn of the millennium (except for maybe the first quartile of local government jurisdictions). This leads to the situation illustrated in Fig. 2.6 where most local government jurisdictions are seen to have a negative balance over the two most recent decades. This negative balance must be met with either debt, or assistance from higher tiers of government via grants. In Fig. 2.7 I show that debt has been increasing for most local government jurisdictions since at least the last decade. Moreover, it should be noted that these aggregate level statistics tend to hide special cases of acute distress, which often may be worse in rural, remote and economically deprived local government areas. In sum, the fiscal behaviour of our

2.2 Local Government Finance and Reform

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Fig. 2.5 Local government expenditure OECD Countries, 1995 to 2016. Source Adapted from OECD (2019) 0.00

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Fig. 2.6 Local government balance (Excluding Grants) OECD Countries, 1995 to 2016. Source Adapted from OECD (2019)

local governments seems contrary to prudent behaviour suggested by our personal finance metaphor. Eventually, there will be a reckoning to be had and some local government regulators, apparently anticipating this reckoning, have turned to reform to arrest prima

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Fig. 2.7 Local government debt OECD Countries (% GDP), 1995–2016. Source Adapted from OECD (2019)

facie declines in financial sustainability. Consolidation has been the principal instrument of reform, although as we will see in Chap. 4, it is far from certain that it is efficacious. The logic behind consolidation as a method to address waning financial sustainability mainly lies with the hope of capturing economies of scale (savings that are supposed to occur when output increases), although rarely are the supposed economies actually measured in a reliable and robust way. Moreover, proponents of consolidation aimed at saving money through bigger local governments unfortunately neglect economic theory which suggests that not all local government functions will be amenable to economies of scale, and also predicts constant returns to scale (no change to cost as output increases) and diseconomies of scale (when costs actually increase as output is expanded). Furthermore, economies and diseconomies of density are rarely considered (but hopefully will be in the future after people read Chaps. 4 and 5). The upshot is that consolidation may do little to address the underlying cause of waning financial sustainability and may just serve to paper over the cracks (by consolidating unsustainable local governments with slightly more sustainable peers) and thus set us up for even bigger financial failures in the future when the bigger, still unsustainable, local government finally falters. The main alternative to consolidation are co-operative arrangements. Cooperation between two or more local governments, and co-operation between local government and private enterprise have attracted a fair deal of scholarly attention of late. Generally studies have focussed on the savings that might be had when a single service is produced co-operatively and mostly the literature has been supportive of arrangements. Personally I am dubious about the supposed savings arising from

2.2 Local Government Finance and Reform

21

co-operation and believe that studies on co-operative arrangements between local government entities have neglected some very important local government level costs (see Drew et al 2019), whilst studies relating to private enterprise arrangements have forgotten that the long term goals of the two types of institutions are completely incompatible (local governments are about equity, responsiveness and transparency but private enterprise is about profit). In Chap. 6 I review the risks and benefits of co-operative arrangements and evaluate their likely success in arresting the decline in the financial sustainability of local government.

2.3 The Problem of Leviathan The problems of budgetary expansion, and suspect financial sustainability are not isolated to local government. In the next chapter I will describe the Leviathan hypothesis developed by Brennan and Buchanan, which observes the reason for expanding budgets and prescribes devolution of functions from higher tiers of government down to local government as part of the solution. It is therefore important for my readers to get an idea of the scale of the problem posed by Leviathan-like government that consumes huge levels of resources, and thus poses a significant threat to the dignity of persons and associations (see Chaps. 3 and 7) now and into the future. Figure 2.8 illustrates the size of total government (the sum of federal, state and local government as applicable) budgets over time. In terms of trends expenditure as a proportion of GDP has been relatively stable over the last two decades and one

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Fig. 2.8 Total government expenditure OECD Countries, 1995 to 2016. Source Adapted from OECD (2019)

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2 Why Reform Local Government?

might consider that there is little cause for concern. However, if one looks instead at the size (rather than merely the trend) of total government expenditure for OECD countries, one is likely to be stunned. In 2016 government spending at the typical OECD country was around 44% of GDP (measured by either the mean or the median). France had the highest level of government spending at an eye watering 56%, and Ireland the lowest at 27% of GDP. Unfortunately the OECD dataset only goes back to 1995 for most countries. A few exceptions (Finland and the United States) go back to the 1970s and suggest that large increases to government spending occurred during these post war years. For example in 1975 Finland had total government spending in the order of 38%, but by 2016 this had reached over 55%. Similarly in the United States of America (excluding local government spending data which was not recorded) levels rose from 34% in 1970 to almost 38% in 2016. This goes to suggest that Leviathan-like government (see Chaps. 3 and 7) arose some time ago notwithstanding the fact that it has been relatively stable in the last two decades. More troubling, from both a moral and financial sustainability perspective (see Chap. 9), is the significant increase in debt which has been taken on in order to fund the expanding government budgets (see Fig. 2.9). Debt as a proportion of GDP has risen alarmingly, especially in the last decade, and especially for the top quartile of indebted governments. Moreover, the typical OECD nation has increased debt from around 77% of GDP in 1995 to over 93% in 2016 (as measure by the mean). The most indebted OECD countries were the United States of America and Japan, each with total government debt over an astounding 233% of GDP. I will spend some time considering the problem of debt in Chaps. 3, 7 and 9, but for now let me just observe that few of us would be comfortable with these sorts of increases in debt in our own personal finances (especially if debt was accrued for goods and services immediately

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Fig. 2.9 Total government debt OECD Countries, 1995–2016. Source Adapted from OECD (2019)

2.3 The Problem of Leviathan

23

consumed as is often the case in government spending) and even fewer of us would have been impressed had the earlier generation left us with such a heavy debt burden. As much as I would like to focus predominately on local and total government finance, there is one more class of major motivators for reform that does certainly warrant a mention—the desire to improve local government professionalism, accountability and responsiveness.

2.4 Local Government Professionalism, Accountability and Responsiveness The professionalism and dedication of most local government staff, and some local government political representatives, is generally outstanding. However, from time to time calls are made for reform predicated on attracting more skilled staff to the sector. You have probably noticed a pattern by now and thus will not be even slightly surprised by the fact that this objective is said to be attainable through consolidation. The argument goes that larger local governments will allow for a greater level of specialisation and prove more attractive to better skilled staff (presumably mostly because larger local governments offer higher wages, which of course runs counter to the financial sustainability argument for consolidation that I outlined a few moments ago). Moreover, local government reform proponents have also promised us better skilled and more effective local government political representatives (see, for example, the ILGRP 2013). It seems all things are possible through consolidation! Personally, I find the claims rather unbelievable and certainly not consistent with what I have observed following consolidations (see Chap. 4). Years after our last round of consolidations I have found that the far majority of senior executives and politicians are the same senior executives and politicians that I knew prior to the reform. To be sure there are less of them—but the quality (as are the faces) remain largely unchanged. Moreover, one really has to wonder whether consolidation is the most efficacious method to improve the quality of executives and elected representatives. It would seem far more efficient to reduce the barriers for persons contemplating a move to the sector (for instance, in Australia local government generally only recruits from within its own ranks—I once applied for a Chief Finance Officer position at a very small rural local government and didn’t even rate an interview despite having been a former bank executive and possessor of a doctorate in local government finance). If the sector refuses to entertain selecting executives form outside of its ranks, then education (designing suitable tertiary courses and encouraging their completion) is another avenue to improve matters. Ditto for political representatives. Another possibility is to increase the mobility of government staff—not just between local governments but also between tiers of government—which could be expected to pay large dividends to the sector over time.

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2 Why Reform Local Government?

Indeed, enhancing and expanding the powers of our local government political institutions might also be expected to improve matters. As we will see in Chap. 3, our system of majoritarian democracy has long been identified with some important negative outcomes (see, for example, the seminal works of Buchanan (1975)). Taking measures to ensure that our political representatives are more representative of the community could well improve the accountability and responsiveness of the sector (especially if supported with appropriate training; see Chap. 8). Thus, it is fairly easy to see that the proposed remedy is often not the most effective way to bring about a cure to the asserted problem. This makes me wonder if it is wise to accept the stated reasons for reform at face value.

2.5 Stated and Actual Reasons for Local Government Reform At the risk of shocking my young or naïve readers I must state that I can see no compelling argument to make me believe that the stated reason for reform is necessarily the actual reason for local government reform. Perhaps I am a cynic (what an optimist calls a realist) or perhaps I have read far too much of William Riker’s seminal works (or watched too much Yes Minister), but looking back on the last major reform to occur where I live, I just don’t believe that the stated reason was in fact the true goal. Riker (1986) in The Art of Political Manipulation introduced the neologism, heresthetic, to describe a suite of political manoeuvres which are said to allow politicians to pull off surprising wins against all odds. Unlike its cousin rhetoric (the art of persuasion), heresthetic seeks to tap into latent preferences in order to bring about the heresthetician’s goal (notably, heresthetic also does not have any pretensions about ethos). For example, if the goal is to seize political control of contentious town planning one is unlikely to try to persuade voters of the merit of the proposal (because this strategy would have no chance), but instead camouflage the seizure of power. For instance, one could raise the spectre of forced consolidations in the sure knowledge that the media, citizens, scholars1 and local government politicians would be so passionately engaged on the debate that they may not even notice the removal of much coveted local government planning powers. Indeed, by raising the need for more coherent regional planning (the larger geographic local government argument) as a motivation for amalgamation it may even prompt opponents of consolidation to suggest the development and transfer of powers to regional planning commissions. Perhaps a hypothetical government of the day could then appoint a loyal party member (maybe even the wife of the current Prime Minister) to be the CEO of the planning commission and thus secure their goal without anyone (certainly not the media or scholars) being any the wiser. 1I

admit that I too have been so caught up in some local government consolidation debates that I have probably entirely missed heresthetical manoeuvres.

2.5 Stated and Actual Reasons for Local Government Reform

25

I won’t confirm for my readers that I drew my inspiration from real-world events surrounding the forced consolidation of New South Wales (Australia) local governments by the Baird Liberal state government in 2016, and the establishment of the Greater Sydney Commission (Chief Commissioner Lucy Turnbull, wife of former Liberal Prime Minister Malcolm Turnbull) which now largely controls planning in Sydney. I will let you make up your own minds on that score. However, my example does go to show that the reason we are provided with may not always be the true motivation for the political act of reforming local government. There have been claims that consolidations are also executed to gerrymander local governments to the advantage of the political party holding the higher tier of government, or to provide payback to local government political representatives who held up or opposed state agenda in the past (Drew et al. 2016a, 2016b). These alternate heresthetic explanations are all plausible and probably all preferable to believing that anyone in an important position in government actually believed that the amalgamations would save money (i.e. they were incapable of critiquing the silly business cases produced by various consultants). For my part, I prefer to believe that my politicians are devious rather than dim-witted.

2.6 How Reform of Local Government Can Serve the People Best Reforms manipulated for the unspoken agenda of higher tiers of government are unlikely to result in local government serving the people best (except for the people who are state politicians and their associates of course). However, this does not mean that local government reform should not be pursued. As I related in Chap. 1, and elsewhere, I have often been portrayed as an anticonsolidationist. This is not true at all—I actually think local government consolidation is one of many useful tools for saving local government (often from itself) and bringing it closer to the ideal of serving the people best. Indeed, I will spend a further two chapters of the book describing the merits of consolidation, outlining a theory for morally defensible and successful consolidation and proposing a way forward to sell consolidation. Therefore, it seems reasonable to suggest that it is not consolidations that I have a problem with, but rather poorly thought out and clumsily executed consolidations that I object to. Moreover, there are many more tools that could be brought to bear on the problem of unresponsive, unsustainable, and at times ineffective, local government. These tools will be detailed in Chaps. 6 through to 10 and warrant careful consideration as both individual reforms to local government, but also as a potential suite of reforms. Furthermore, when such reforms are genuinely pursued for the benefit of the people, are debated openly rationally and honestly, and informed by rigorous research and theory, then they might indeed prove successful. Certainly it can be agreed that reforms progressed as a result of a genuine desire to improve circumstances for

26

2 Why Reform Local Government?

citizens must have a greater chance of making a positive difference than reforms motivated by one or more of the seven deadly sins (I am thinking of greed, sloth, wrath, envy and pride in particular). The starting point, it would seem, is to come to an understanding of the purpose of local government, and further to an appreciation of how this purpose might be realised. In short, we seem to be in desperate need of a comprehensive theory of local government. In the next chapter, I will briefly review some of the major strands of local government theory before proposing what I believe to be the missing element to extant reforms—the somewhat elusive comprehensive theory of local government.

Appendix See Tables 2.1, 2.2 and 2.3.

Table 2.1 Number and size of municipal governments, 2017–18 Country

Number of local governments

Average population size

Median population size

Average geographic size (km2 )

Australia

562

43,568

12,605

13,707

Austria

2,098

4,166

1,790

39

Belgium

589

19,177

12,045

51

Canada

3,959

9,166

950

706

Chile

345

52,980

18,205

2,146

Czech Republic

6,258

1,688

420

12

Denmark

98

58,459

42,850

438

Estonia

79

16,657

7,707

550

Finland

311

17,670

6,060

977

France

35,357

1,885

435

16

Germany

11,054

7,449

1,710

32

Greece

325

33,181

21,062

403

Hungary

3,178

3,088

815

29

Iceland

74

4,541

880

1,355

Ireland

31

151,078

122,900

2,206

Israel

255

33,504

Not available

85

Italy

7,960

7,617

2,430

37

Japan

1,741

72,831

31,300

215 (continued)

Appendix

27

Table 2.1 (continued) Country

Number of local governments

Average population size

Median population size

Average geographic size (km2 )

Korea

229

223,782

146,520

434

Latvia

119

16,476

6,595

523

Luxembourg

102

5,727

2,520

25

Mexico

2,463

49,644

12,730

795

Netherlands

380

44,816

26,515

89

New Zealand

67

70,448

32,400

3,954

Norway

422

12,408

4,715

721

Poland

2,478

15,507

7,540

124

Portugal

308

33,524

14,380

299

Slovak Republic

2,930

1,854

655

17

Slovenia

212

9,739

4,730

95

Spain

8,124

5,720

565

62

Sweden

290

34,218

15,435

1,405

Switzerland

2,222

3,768

1,370

18

Turkey

1,397

57,240

8,595

551

United Kingdom

391

167,898

132,240

620

United States

35,879

8,969

Not available

249

Source OECD (2018) Table 2.2 Local government expenditure and revenue by OECD jurisdiction, 2016 Country

Expenditure USD billions

Revenue % GDP

% Public expenditure

USD billions

% GDP

% Public revenue

Australia

27.2

2.3

6.5

28.4

2.4

7.3

Austria

37.6

8.5

16.8

37.3

8.5

17.2

Belgium

37.2

7.1

13.3

38.2

7.3

14.3

Canada

140.1

8.6

20.8

138.9

8.5

21.2

Chile

15.5

3.7

14.5

15.7

3.8

16.5

Czech Republic

37.4

10.2

25.8

41.2

11.2

27.9

Denmark

66.1

97.8

34.8

65.0

98.8

35.2

Estonia

3.7

9.4

23.1

3.7

9.5

23.6

Finland

53.4

22.4

40.2

52.4

22.0

40.7

France

308

Germany

321.1

11.1

19.8

311.4

11.3

21.3

8.0

18.0

327.7

8.1

18.1 (continued)

28

2 Why Reform Local Government?

Table 2.2 (continued) Country

Expenditure USD billions

Revenue % GDP

% Public expenditure

USD billions

% GDP

% Public revenue

Greece

10.2

3.5

7.1

11.1

3.9

7.7

Hungary

15.8

6.0

12.9

16.5

6.3

14.1

Iceland

2.1

12.4

27.2

2.1

12.5

21.5

Ireland

7.0

2.0

7.6

7.3

2.1

8.1

17.6

5.5

14.0

17.9

5.6

15.0

Italy

331.8

14.3

28.9

337.7

14.5

31.0

Japan

833.0

15.5

39.7

833.1

15.5

43.5

Korea

260.8

13.9

43.1

266.9

14.3

41.3

Israel

Latvia

4.8

9.5

25.5

4.9

9.7

26.0

Luxembourg

2.9

4.9

11.7

3.1

5.2

12.0

44.7

2.1

8.6

45.7

2.1

9.1

118.6

13.8

31.7

119.2

13.9

31.6

7.5

4.4

11.1

7.4

4.3

11.0

51.9

16.9

33.2

50.7

16.5

30.1

Mexico Netherlands New Zealand Norway Poland

12.9

31.3

136.6

13.1

34.0

Portugal

17.9

5.7

12.6

19.4

6.1

14.2

Slovak Republic

10.8

6.6

15.8

11.8

7.1

18.1

Slovenia

5.5

8.2

18.2

5.7

8.4

19.4

Spain Sweden Switzerland Turkey United Kingdom

134

97.4

5.8

13.7

107.7

6.4

16.9

121.4

25.0

50.6

119.2

24.6

48.5

39.7

7.4

21.6

39.5

7.4

21.3

66.6

3.4

10.3

72.1

3.7

10.8

281.2

10.0

24.2

271.4

9.7

25.1

Source OECD (2019) Table 2.3 Budget balance and debt for OECD local government jurisdictions, 2016 Country

Budget Balance USD billions

Australia

Debt % GDP

USD billions

% GDP

% Public debt

1.2

0.1

Austria

-0.3

-0.1

18.5

4.7

4.9

Belgium

1.1

0.2

26.7

5.7

4.7

Canada

-1.2

-0.1

157.8

10.3

9.1

0.3

0.1

Chile

(continued)

References

29

Table 2.3 (continued) Country

Budget Balance USD billions

Debt % GDP

USD billions

% GDP

% Public debt

Czech Republic

3.8

1.0

6.9

3.7

7.5

Denmark

1.0

0.4

31.7

10.8

20.6

Estonia

0.1

0.1

0.9

4.2

31.9

Finland

-1.0

-0.4

28.9

12.7

16.8

France

3.4

0.1

262.2

11.2

9.0

Germany

6.6

0.2

166.3

4.8

6.6 0.6

Greece

0.9

0.3

2.0

1.1

Hungary

0.8

0.3

1.3

1.1

1.1

Iceland

0.0

0.1

3.5

16.2

17.4

Ireland

0.3

0.1

5.6

1.9

2.3

Israel

0.3

0.1

6.6

2.2

2.8

Italy

5.9

0.3

192

10.8

7.0

Japan

0.0

0.0

1563.1

Korea

6

0.3

56.7

4.2

7.6

Latvia

0.1

0.2

1.9

7.4

15.2

Luxembourg

0.2

0.3

1.3

2.3

8.2

Mexico

1

0

Netherlands

0.7

0.1

79.8

10.8

14.3

New Zealand

-0.09

-0.05

11.0

5.9

11.5

Norway

-1.2

-0.4

65.2

Poland

2.6

0.3

23.4

34

18 5.3

15.3

42.4 7.3

Portugal

1.5

0.5

14.4

7.4

5.1

Slovak Republic

0.9

0.6

2.4

2.8

4.6

Slovenia

0.1

0.2

1.3

3.0

3.1

Spain

10.3

0.6

53.1

4.3

3.9

Sweden

-2.2

-0.5

79.0

16.3

27.4

Switzerland

-0.2

0

65.4

9.8

23.4

Turkey United Kingdom

5.5

0.3

-9.8

-0.3

23.3 231

3.1

9.8

9.6

7.9

United States

References Buchanan J (1975) The limits of liberty: between Anarchy and Leviathan. Liberty Fund, Indianapolis Drew J (2018) How losers can turn into winners in disputatious public policy: a heuristic for prospective herestheticians. Aust J Polit Sci. https://doi.org/10.1080/10361146.2018.1520195

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Drew J, Campbell N (2016) Autopsy of municipal failure: the case of central darling shire. Australas J Reg Sci 22(1):81–104 Drew J, Grant B, Campbell N (2016) Progressive and reactionary rhetoric in the municipal reform debate in New South Wales (NSW) Australia. Aust J Polit Sci 51(2):323–337 Drew J, Kortt M, Dollery B (2016) Did the big stick work? an empirical assessment of scale economies and the queensland forced amalgamation program. Local Gov Stud 42(1):1–15 Drew J, McQuestin D, Dollery B (2019) Good to share? The pecuniary implications of moving to shared service production for local government services. Public Admin. https://doi.org/10.1111/ padm.12575 ILGRP [Independent Local Government Review Panel] (2013) Revitalising local government: final report of the NSW independent local government review panel. ILGRP, Sydney OECD [Organisation for Economic Co-operation and Development] (2018) Subnational governments in OECD Countries key data OECD (2019) OECD Fiscal Decentralisation Database Riker WH (1986) The art of political manipulation. Yale University Press, New Haven

Chapter 3

A Comprehensive Theory of Local Government

Abstract This chapter sets out a comprehensive theory of local government which clarifies the purpose of the institution as well as the structures required to ensure that its remit is achieved but not over-reached. To do so, I first explore the reason for local government and the danger that it poses to its citizens as well as the various theories proposed to counter this danger. Following this, I explore additional theories of local government with emphasis on the most economic design of the institution. I then propose a comprehensive theory of local government which borrows from the best of the extant work to explain both the purpose of local government and how this purpose might be safely realised. I conclude with some remarks on how the comprehensive theory of local government is an essential foundation for any local government reform aimed at ensuring the institution is truly closest to the people and serves the people best.

Before one can even begin to arrive at a comprehensive theory of local government, one must first provide an acceptable answer to a fundamental question—why have government? Quite possibly, you have never asked yourself this question, having assumed from the multiplicity of governments which intrude on many aspects of your life that it is an ontological state. But the truth of the matter is that persons were not always governed throughout history, which in turn suggests that government evolved to meet a specific need which presumably continues to exist to this day (hence the continued existence of government). According to my youngest son—Samuel aged 10—government exists to tell us lies, stop us from doing what we want to do, and commit acts of evil (no, he has not read Adams & Balfour’s Unmasking Administrative Evil). According to my eldest son—Thomas aged 12—government exists to steal our money and make politicians and their associates wealthy. I have a fair bit of sympathy for both of these perspectives—as I imagine do my readers who are not elected representatives or executives of government—which is why I have related each of them. However, if government existed only for its own benefit (to the detriment of its subjects) then surely we would have overthrown the institution some time ago?

© Springer Nature Singapore Pte Ltd. 2020 J. Drew, Reforming Local Government, https://doi.org/10.1007/978-981-15-6503-8_3

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3 A Comprehensive Theory of Local Government

Natural law philosophers answer the question of why have government, by asserting that government exists for the common good. That is, we have government because we cannot achieve our highest good without the help and co-operation of others. Natural law philosophy harks back to at least the time of Aristotle and relies on the observation of nature and the application of practical reason to determine the right order of things. There is also a natural law tradition in each of the three great monotheistic faiths, which insists that the right order of things can also be discerned (more efficiently, in fact, according to Aquinas) through the revelation of G-d (Emon et al., 2014). However, I understand that many of my readers may not be comfortable with the latter means to knowing the right order of things, therefore I will take the longer, and admittedly more fun, path to making my point about the need for government. I have a small farm in rural Australia at which I keep a herd of goats (as well as many other animals). As individuals my goats can accomplish many things— they can find grass to eat (or they could do if we weren’t in the midst of the worst drought in 120 years), they can beg food from any suckers who happen to walk near their paddock and they can run and seek shelter in the case of inclement weather. However, they cannot attain other ‘goods’ in their lives without the co-operation of fellow goats. For instance, they probably wouldn’t be able to preserve their own life without the safety of the herd (goats need the safety of numbers to turn and face-off predators) and they certainly can’t preserve their species without interacting with the opposite sex. However, once my goats interact with others then problems emerge. What happens when the choice of one goat differs to another? Who should get the tastiest grass (or better still dandelions which are the goat equivalent of candy)? Who should exercise authority? Quite quickly a need emerges for a government of sorts. Now I am not saying that my goats all got together in their barn one night and drew up a constitution (an organisational agreement in the language of Aristotle)—I am not quite that eccentric. However, I do know from observation that there is indeed an organisational structure that determines the answers for the big questions in my goat’s lives that I have just related. Moreover, it is a structure that all of the goats consent to (when there are changes in the herd the structure is often tested, but then it settles pretty quickly). It is in fact an aristocracy (in the terms of Aristotle) where the best of the goats rule for the common good. This aristocracy is currently led by Jonquil (our oldest doe and matriarch of the herd1 ), and Herod the Great (our buck). In most matters Jonquil decides what the herd will do—she is the one that decides when they will eat, where they will eat, which tree they will sit under as they chew their cud, and who will be milked first in the morning. Herod mostly follows the lead of Jonquil, except when it comes to matters of defence (it is his job to lead the face-off on predators), and deciding when and who will procreate. If one goat decides to make a personal choice which goes against the best interests of the herd, they are quickly brought into line by a strategic nip or head butt. 1 It is not a matriarchy though, because over the years Jonquil has lost the right

usurper (but somehow always manages to bounce back).

to lead to a younger

3 A Comprehensive Theory of Local Government

33

Now why do my goats persist in their ‘government’? Because the help accruing from others is more than the sum of individual contributions. Otherwise stated the government persists for the sake of the common good (Messner, 1952). Sure, there are times when individual goats might buck the system (pun intended) and in the most extreme case even go it alone. But they always come back because they cannot achieve their highest goods without the help of others. Natural Law theorists essentially make the same argument. Humans form government to pursue the common good. There are many things I can do myself—grow food, build and seek shelter—but also many ends that I could not possibly achieve by myself. Shortly I will spend some time explicating about the appropriate remit of government (and local government in particular) but for now let us agree that government serves the common good. For example, without government I would not have a road to drive on—maybe some farmers would build tracks along their boundary fence to serve their own needs, but a contiguous road network wide enough and of a suitable quality to satisfy all needs (trucks included) probably wouldn’t exist without government. However, there is a cost to government and the cost is to the dignity of persons (and persons in association). Dignity in natural law philosophy refers to the right of persons to pursue their existential ends (be all they want to be) without the undue interference of others. The cost can be remarkably high as predicted over two-and-a-half thousand years ago when government was established for the nation of Israel: [they] will use their subjects as beasts, according to the violence of their own wills and inclinations, and other passions, as wholly carried away with the lust of power (Josephus Flavius in Whiston 1987, p. 156).

Maybe, and hopefully, your local government hasn’t intruded upon your human dignity quite so much. But how do we decide what is too much, and why it is too much? To do so, I contend, we need a moral theory of local government.

3.1 Theories of the Morality of Local Government The Principle of Subsidiarity is located within the natural law philosophical tradition and posits an ontology of plural social forms starting with the family as the most basic of associations. The argument goes that each association has a specific munera (function) which it can contribute to the common good, and that if we allow these social structures to be subsumed or wither away then we will all be poorer for doing so. Unfortunately there is a long scholarly tradition of minimalist interpretation of the Principle which has caused a good deal of confusion (although this has been redressed of late—see Golemboski, 2015, as well as Drew and Grant 2017). The Principle proper is a moral theory about the right assignment of powers and thus how the dignity of persons (and persons in association) can be balanced against the needs of the common good, and it stands in stark contrast to the minimalist interpretations

34

3 A Comprehensive Theory of Local Government

that simply assert that government goods and services should be provided by the lowest tier of government practicable. Indeed, the Principle of Subsidiarity presumes only an instrumental role for government—that is to protect and foster the common good, which is the sole justification and legitimacy for government (Drew and Grant, 2017). Otherwise stated in a Subsidiarity model of society, power and competence would be properly invested in a multitude of associations, and government would only take on tasks when it could ‘prove that its jurisdiction rightly reaches so far into the lives of those persons and associations whose good is more intrinsic than its’ (Finnis, 2013, p. 156). Assuming this burden of proof could be enforced there would be little room for government of any type to evolve into Leviathan (government that uses its coercive powers to exploit citizens—see the next section). This negative obligation imposed on greater associations (including government) not to subsume the functions which rightly belong to persons and persons in lesser association is probably the most recognisable aspect of Subsidiarity. Indeed, transgressing this negative obligation is described as a ‘grave evil and disturbance of right order’ (Pius XI, 1931, paragraph 80) akin to communal theft. This may seem a strong statement until one fully appreciates that subsuming functions of lesser associations causes them to wither and become irrelevant and ultimately deprives all of us of the particular munera that they once contributed to the common good. On the whole, the negative obligation of subsidiarity suggests a remit for local government that is focussed on goods and services which can’t be provided by persons themselves, or by persons in smaller associations. This would largely see local government with a smaller remit focussed mostly on a subset of local public goods and services. Public goods and services have the characteristics of being nonexcludable (you can’t stop me from using them) and non-rival (my use doesn’t appreciably reduce the amount of the good or service that others may consume). Things like local roads, public hospitals and government schools. There is also a positive obligation arising from the Principle, which is sometimes overlooked—the need for greater societies (including government) to provide subsidium (help) to lesser associations when they are temporarily unable to produce their munera. It is stipulated that this assistance must be provided in a particular way (so that it becomes superfluous as quickly as possible) and only for the case of bona fide need. These conditions ensure that greater associations don’t subsume functions by stealth (by creating the conditions for dependency) and also (consistent with natural law philosophy) that resources are not detracted to satisfy mere wants. The positive obligation to provide subsidium explains how services currently provided by local government, beyond its legitimate remit, could continue to be available to persons following divestment. Contrary to some interpretations, subsidiarity is not about vacating important social endeavours, but rather protecting the common good by ensuring that power and competence is held by multiple associations rather than concentrated in a potential Leviathan. Sometimes this may mean that a local government needs to establish and strongly support lesser associations, which is probably a far harder task than simply subsuming functions.

3.1 Theories of the Morality of Local Government

35

Moreover, the Principle of Subsidiarity asserts that multiple associations should be situated as close to the need as practicable. It is argued that associations closer to the need have a greater moral claim for intervention, a higher stake in ensuring that intervention is efficacious, better knowledge of the problem and the cost of intervention, and closer moral proximity. Moral proximity is important because it makes clear the relationship between donors and recipients of subsidium and helps to ensure reciprocal responsibility (that the recipient understands that they must also continue to help themselves). A good example of local government exceeding its legitimate remit, according to the Principle, is the provision of local government childcare which occurs in many jurisdictions (I did warn you in Chap. 1 that this book would be provocative). Now the association that is closest to the infant is the family and in natural law philosophy (and in practice) there can be no doubt that the family has the greatest moral claim, knowledge and stake in ensuring that the infant’s needs are satisfied. Moreover, the family has the closest moral proximity to the infant, there are bonds of familial love, which the infant responds to by producing behaviour likely to please their parents. When I was young, almost all infants were raised by their mother who would typically stay at home until the child began school (this is also what my wife did, much to the dismay of some of her female friends). Now the opposite is true, and most infants are raised by child-care workers during business hours. This is undoubtedly a more efficient arrangement, and certainly assists families financially (especially in view of generous government financial subsidies). However, one would be hard pressed to argue that it is in the best interests of the mother, child or society in most instances— when government subsumes the legitimate role of the family association then some of the family’s munera are lost to the common good. In particular, the ‘side-effects’ of collaboration are lost—for example the strengthening of bonds of love through shared experiences.2 No doubt there are special cases where government might be more competent than the family or where the family temporarily cannot perform its function—what is needed in these case is loving support and care (which may include financial support to enable the family to give up paid work). For instance, I am old enough to remember when church organisations ran mothers groups and playgroups and provided direct support to families in need. This support provided at a closer level, with loving kindness and tailored to a full knowledge of the particular need, was surely more effective than what we have today (Sirico, 1997). Indeed, my experience in working with local governments to correct financial distress over many years suggests to me that in most cases the symptoms are the result of exceeding the legitimate mandate of government. Rarely do local governments go broke as a result of providing for bona fide needs that cannot be met by smaller associations. Instead, what seems to typically tip local governments over the edge is providing for wants or exceeding their mandate. Moreover, it seems that people, 2 This

sort of example is what has prompted Hittinger (2003, p. 280) to correctly remark that ‘it is only when we identify goods of common activities [collaborative side-effects] that we can discover a principled limit to the power of the state as well as to the subcontracting (or ‘outsourcing’) mentality characteristic of markets’ and some local governments.

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more and more, are becoming confused about the difference between ‘needs’ and ‘wants’. Take, for example, the elaborate aquatic parks that one finds in even the smallest of rural local government areas or the many and varied community festivals said to be ‘needed’ for the social infrastructure of local government. Forty years ago local governments in my part of the world didn’t have these elaborate aquatic parks and festivals every few months, yet we survived just fine and moreover probably had a closer sense of community than we do today (we’d go to a friend’s house to play in the pool, for example, and local churches and clubs (such as scouts) provided us with plenty of community events). Thus, these skate parks, aquatic parks and festivals are clearly wants, not needs. As we know from observation of nature needs should be satisfied before wants. Moreover, as we know from our personal finance metaphor, it is not prudent to satisfy wants until (the admittedly far more boring) needs have been satisfied. Most of us are prudent when it comes to our private finances; however when it comes to government spending often common sense seems to fly out the window and we look to our wants first before our needs and impose upon others to satisfy our own desires (why should all local government taxpayers pay to provide a want for a small subset of the population?). Indeed, even if local governments have the capacity to satisfy wants it may not be the best thing to do if a lesser association is competent to provide the good or service. Not only does locating a good of service with a lesser association bode better for efficacious intervention (through better knowledge of what is required and a higher stake in seeing it’s success) but it also ensures that competence and power remains diffuse (and thus discourages the rise of Leviathan). A good example of a want being provided at an inappropriately high level of association is the tourist promotion work done by a lot of local governments (yes, I know this is another provocative statement, but please bear with me). In my former local government area (population 10,000) the council spent hundreds of thousands of dollars promoting tourism, which included constructing a building, staffing a tourist information centre, and advertising the merits of tourism in the area. Presumably the targeted beneficiaries of this work were mainly the local retailers and one or two tourist ventures. However, it is not at all apparent to me that they did indeed benefit from the work—first, because I observed over many years that it attracted few if any tourists, and second, because all the retailers would close up shop from Saturday midday and all day Sunday, which is precisely when one might have expected tourists from outlying areas. Presumably because the retailers didn’t even operate at times most likely to benefit from tourism it was either not a need, or the tourist attracting endeavours were not deemed by retailers to have been effective. Moreover, as it turns out the local government in question was not in a financial position to provide for wants anyhow (it wasn’t even meeting many needs). But let’s for a moment assume that the want was supported by the retailers and was affordable. Who were closest to the issue, had the best knowledge of what retail tourists might be desiring, and had the greatest stake in ensuring that money spent would be efficacious? Who would have had the greatest moral proximity (it certainly wasn’t the residents, many of whom were farmers, who probably weren’t even aware of the quantum of money being spent on tourism and generally saw tourists as a nuisance)? The retailers and tourist operators of course. It

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is pretty clear to me that had the persons closest to the problem been involved in the tourism efforts (a tourism association comprised of stakeholders), and asked to make some direct or matching contribution to same, then both the types of promotions and outcomes of promotions would have been very different (merchants would have at least ensured that they were open to benefit from activities). So, what is the outcome of local government that goes beyond its remit and subsumes the functions which should rightly be located with lesser associations? First, inequity is visited upon donors forced to give up their wealth for the benefit of other concentrated groups of persons. Second, it encourages Leviathan—not least because politicians and executives can accrue power and votes and hence maximise their utility (but not the taxpayers). Third, the intervention is less successful than it might have been had persons with a better knowledge and higher stake in success been involved. Fourth, we will see more local governments fail financially as predicted almost a century ago: with a structure of social governance lost, and with the taking over of all the burdens which the wrecked associations once bore, the State has been overwhelmed and crushed by almost infinite tasks and duties (Pius XI 1931, paragraph 78).

There is one more moral theory which has a large bearing on the process of local government, in particular—the Principle of Double Effect (PDE). This principle, also derived from natural law, sets out how decisions should be made when there is a conflict between the ethical ought and the economic must (which we will consider in more detail shortly). The sad fact of public policy life is that interventions designed to achieve one state of affairs may bring about entirely different outcomes than intended or undesirable side-effects. This is particularly the case for questions about local government remit, as we have just discussed at length with respect to the Principle of Subsidiarity. PDE (Aquinas around 1274 CE) draws on the first self-evident precept of natural law which is that good is to be pursued and evil shunned (Summa Theologiae, 1–2, question 94, article 2) and was originally devised to answer the question whether it would be an offence to kill a man in self-defence. Since this time PDE has been employed many times in the field of medical ethics, business ethics and at least once in relation to public policy (Drew et al., 2017). It is a pragmatic way of deciding on right conduct when it is foreseeable that an act (for example public spending on a local good or service) may result in foreseeably bad side-effects (such as allowing lesser associations to wither away). The morality of the act is based on two principal criteria—intent and proportionality—and a useful formulation is: It is morally permissible to undertake an action when one foresees that the undertaking may bring about at least one state of affairs, such that, if this state of affairs were intrinsic to the action undertaken, the action would be rendered impermissible, if and only if (i) the ‘bad’ state of affairs is not intended but brought about as a side-effect (and that all efforts have been made to mitigate the undesired side-effect) and (ii) there is a proportionally grave reason for undertaking the action. (Drew et al., 2017).

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Notably, PDE accepts the probability (but not certainty) of bad side-effects if the ultimate end is both good and of grave concern. This distinguishes it from utilitarianism (sometimes referred to as the greatest good for the greatest number) which is only concerned with the ultimate ends, and not the means to the ends. Its focus on process rather than outcome is thus particularly salient to the day-to-day business of government. Moreover, the stipulation that it applies only to grave concerns ensures that potential bad side-effects are only entertained for weighty, not trivial, matters. What is a weighty matter in the scope of local government? Surely, the common good must rank first given that it is the source of government legitimacy. What then are some examples of bad side-effects? Perhaps subsuming the munera of a lesser association, or seizing the wealth of one person (through taxation) for the benefit of a defined group of others (as per Buchanan’s contention3 ), or concentrating power and competence in one body with disproportionate coercive powers. Thus, under PDE it may not be morally licit to increase my taxes (certainly a bad side-effect from my perspective) to pay for a country music festival (for example), but it would certainly be fine to levy higher taxes in order to pave a road. In PDE we therefore see again a clear distinction between ‘wants’ and ‘needs’ plus a more explicit recognition of the rights of donors. Moreover, PDE acts to confirm the local governments’ power to tax, but sets limits on the purposes to which taxation should be applied. However, it is one thing to know right conduct from wrong (certainly an important starting point), but an entirely different matter to ensure that good is indeed pursued and wrong shunned. To do so, I contend, we need some theories for restraining local Leviathan.

3.2 Theories of Restraining Local Leviathan Leviathan was the sea monster mentioned in various books of the Judeo-Christian bible said to instil fear into the haughty and proud. In the mid-seventeenth century Hobbes applied Leviathan as a metaphor for government, and in the last half of the twentieth century Buchanan revived the term in a pejorative sense. As we have seen, government is here to facilitate the giving and taking of munera (gifts) that is the common good and can thus be a very positive aspect of our communal lives. However, government can also turn into a monster of biblical proportions, visiting all kind of evils onto its’ hapless citizens. There are two possible approaches open to the prudent persons who recognises the need for an institution to administer the common good—either to (i) establish mechanisms through which to bring about recuperation in a local government that has developed Leviathan-like characteristics, or (ii) to build-in safeguards against the emergence of Leviathan in the first place. I deal with the former first in line with the chronology of the development of these theories. 3 ‘Standards

of behaviour that he (sic) may not have selected, including overt acquiescence in the confiscation through taxation of goods that he treats as his own’ (Buchanan, 1975, 186).

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So, what can one do if one’s local government has evolved into a local Leviathan? According to Hirschman (1970) there are only two options available to bring about the recuperation of any organisation—one can either try to influence for change without leaving (termed ‘voice’), or leave (which he calls ‘exit’). Many of the political and economic theories, both before and after Hirschman’s seminal work—Exit, Voice and Loyalty—draw on this dichotomy and we will return to it a number of times over the coming pages. According to Hirschman (1970) both voice and exit can bring about an end to objectionable states of affairs and could therefore provide hope that a local Leviathan could de-evolve back into a domesticated beast of service to its masters. The mainstay of political scientists, who believe in democracy, is voice exercised through the ballot box. However, I am rather sceptical of the potential for this kind of voice to bring about true change—many of the local government elections that I have witnessed over the years have been uncontested events, and where I have had a choice I have rarely (if ever) known anything about the candidates. Moreover, because elections occur infrequently, on a bundle of goods, with promises that probably won’t be kept—and because my one vote out of 43,000 means I have little chance of effecting change anyhow (but it does save me paying a fine for not voting which is why I turn up)—I really don’t hold much faith in democratic electoral voice. Another option is to use one’s networks and voice complaints directly (the last time I tried, my Councillors didn’t bother to reply, but my Mayor did tell me he was too busy to care). Friedman (1962) tells us that this kind of voice is cumbersome, and has a low probability of success. Thus, from my perspective, at least, voice holds little hope for restraining a local Leviathan. If voice is unlikely to be a winner, then I could follow Hirschman’s advice and just leave. This would swap a remote possibility for effecting change with a near certainty. But is there a better option (I moved from my former local government in part to escape an objectionable state of affairs, but found to my dismay that the new local government was in fact worse)? Can people afford to move (taxes and real estate agent fees run into tens of thousands of dollars)? What happens when the nearest local government is some distance away (80 km in my case)—what does one do about work, children’s education, and friends? Exit too does not seem such an attractive option. Moreover, exit may help me out of my disagreeable predicament but may do little to bring about recuperation in local Leviathan. The theory contends that management of the errant organisation (in our case local governments) will fear the loss of members and concomitant loss of revenue and take measures to redress the disagreeable circumstances. However, would a local government really miss a few people (I imagine Uralla local government breathed a sigh of relief when I left because they no longer had to answer tricky questions about their accrual accounting practices and taxation limitation gaming)? Would it make a difference to their revenue (probably only marginally at worst4 )? Indeed, because it is the most quality sensitive people who are most likely to leave (in Hirschman’s terms the ‘alert’), exit actually 4 In

a taxation limitation environment based on unimproved land allocation of tax imposts, one person leaving would have no effect (the land still exists and is owned by someone).

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poses little threat to local Leviathan (and probably helps it grow further by removing some pesky obstacles). The last part of Hirschman’s (1970) work looks at the matter of cultivating loyalty. This aspect of the work is often overlooked—many papers using Hirschman’s theoretical framework don’t even mention loyalty—which is a bit of a shame because loyalty is both a critical ingredient for recuperation as well as part of the prize for redressing an objectionable state of affairs. According to Hirschman (1970) there are two kinds of members in organisations—the ‘alert’ and the ‘inert’. The alert are quality conscious, well-resourced and motivated to effect change—the inert, on the other hand, may not be sufficiently resourced or motivated to agitate for change. Hirschman (1970) argues that to bring about change there must be a relatively large base of the inert. It is contended that if everyone was alert and chose to voice then there would be far too much noise being projected at the errant management which would end up sounding like an indecipherable gabble. Alternatively, if everyone was alert and chose exit, then there would be no-one left to petition for change and too few resources left for management to effect it anyhow. Thus, a relatively small but loyal group of the alert may be the best way to ensure change. Further, Hirschman (1970) argues that when the alert perceive that voice has a reasonable chance of being heard, then people will be much more optimistic about the future of the organisation and hence much more inclined to show some loyalty. The trick, it would seem, is to build a reason for people to hope. This account of Hirschman’s (1970) work shouldn’t be interpreted to mean that I don’t think exit, voice and loyalty are important for taming Leviathan, but rather that current political and fiscal institutions are not conducive to the effective use of exit and voice. Buchanan (1975) appears to have largely thought the same thing and his response was to call for new fiscal institutions, smaller and more governments, and greater decentralisation of government. What came to be referred to as the Leviathan hypothesis mostly focussed on how hapless citizens might protect themselves from central governments who essentially acted as revenue maximising monopolies with strong coercive powers. However, many of the ideas can be equally applied to Leviathan-like local government. Buchanan and various co-authors emphasised the importance of federalisation and decentralisation of government in order to enhance competition and thus constrain the profligacy of government political representatives and bureaucrats. According to Buchanan there are three kinds of people who venture into politics. The first are the ideologues who believe that government (rather than other associations) should be used to achieve various social objectives—well-meaning (but dangerous as we will see later) do-gooders if you like. The second class of politicians are those who seek fame and acclaim, and who enjoy having power. The third are those who seek to profit through kickbacks and by furthering their own interests (and the interests of their associates). For my part, and with respect to the particular context of local government, I think that Buchanan may have omitted two other important categories of politicians: (i) those who seek to merely protect their own interests and those of their associates, and (ii) those who wish to earn some extra income for relatively little work. The former of these two groups contrast to Buchanan’s profiteers in

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that they would likely feel that they are on stronger moral ground and therefore might pursue protection of their interests more openly and with more vigour. For example, one often finds large numbers of farmers on rural councils which probably explains why farmers often receive a heavy discount on their rate of taxation relative to other business enterprises. The second class of political representatives, that I believe is unique to local government, is an outcome of the typically low honorariums that are paid in many small local government jurisdictions (especially rural ones) and the fact that many council meetings occur in the middle of the business day. This tends to result in a predominance of grey hair in most local government chambers (with important implications for attitudes to debt as we shall see in Chap. 9)—certainly in small and rural local governments. In all cases, Buchanan argues that the kind of person attracted to government is precisely the kind of person likely to seek, or be indifferent, to revenue maximising behaviour. For instance, the ideologue will need to raise revenue to pay for their pet social programs, and the ‘pensioner’ representative, who perceives their position as a way of augmenting their income, may be more focussed on their own needs than in interrogating the decision-making of their peers. Notably, Buchanan also sees bureaucrats as an additional set of revenuemaximisers. Their power in the organisation, and often their salary, is largely based on the size of the budget that they manage. Thus, this group—who also get to vote and thus contribute to the selection of political representatives sympathetic to their cause—are likely to be avid empire builders at further cost to the poor taxpayer. To combat these strong forces for profligacy Buchanan proposes federations made up of many autonomous sub-national governments, delivering a relatively large range of goods and services, and competing for mobile factors such as capital and labour. He believes that providing more choices for citizens will enhance both exit and voice. Exit is enhanced through more options and easier emigration (if one does not need to move so far to escape a local-Leviathan than the problems such as finding work and schools may be mitigated through commuting). Moreover, it is contended that voice is also amplified by a multiplicity of governments—mainly because one vote has more power in a smaller government, but also because it is believed that people will be able to extend moral empathy more easily to smaller groups of fellow citizens. In addition, it has been claimed that more governments facilitate democratic laboratories—citizens can see what is being done in different jurisdictions and voice for similar initiatives in their own. However, Buchanan does not rely only on exit and voice (as per Hirschman) but also advocates for constitutional constraints on government. In particular, he was a strong advocate of fiscal institutions such as taxation limitations and balanced budget legislation. Taxation limitations put a cap on increases to taxation that local governments might levy, and balanced budget legislation requires expenditures to be met with sufficient revenues. Both ideas in theory are relatively sound, but in practice clever politicians quickly work around the spirit of the fiscal institutions and some unanticipated deleterious consequences tend to dominate (I deal with the problems and potential of fiscal institutions in far greater detail in Chap. 9).

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I am sympathetic to a lot of the very fine work done by Buchanan and colleagues but feel that it comes far short of a remedy to the problem of Leviathan. Indeed, there is some evidence to suggest that decentralisation may lead to bigger gross resource appetite (see the appendix) and if this is in fact the case then the prescription may have simply replaced Leviathan central governments with local Leviathans. Part of the problem, I believe, is the absence of a tailored remedy to the political institutional problems associated with majoritarian democracy, and I offer my solution to this below and in Chap. 8. Buchanan claims that federalism can protect individual sovereignty and economic freedom as long as the central government doesn’t concentrate too much power or competency (and provided sub-national governments keep their autonomy). But how exactly do we stop them from doing so?

3.3 Governance How one decides to constrain local Leviathan and ensure moral local government really depends on ones’ responses to three very important questions: (i)

What is one’s belief in the power of extant institutional constraints to act as an effective deterrent? (ii) Who does one believe to be most competent for decision-making? (iii) Does one value one’s own time? As I have already outlined, I have little faith in the ability of extant fiscal and regulatory institutions to constrain Leviathan. Balanced budget laws, debt caps, and taxation limitations are all routinely violated by clever politicians and executives keen to circumvent the spirit of the rules—this is borne out by the financial data that I presented for Chap. 2. With respect to my second question, I believe (as did Aristotle (but not Plato)) that most citizens are competent to make decisions about how they will be governed. I imagine that both you and I believe that we would both make better decisions than our peers, but overall I think we can agree that their decision making powers are generally satisfactory. Third, I value my time enormously, as I imagine do you, and have no wish to be consulted on each and every decision that my local government makes, forevermore (that is why I have never advocated direct democracy ideas which would see me voting on each decision of government). So, what seems to be needed here is at least one more institution (beyond what was advocated by Buchanan), that has power invested in everyday citizens, but doesn’t require each and every citizen to be bothered every time a decision needs to be made. I believe the ideal institution for meeting these criteria is a bi-cameral sortition house that would act as a check on the power of entrenched political and bureaucratic interests (see Chap. 8 for an extensive discussion on sortition).

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Sortition is an arational method of choosing which harks back to the very time that the warnings were made about Leviathan-like government that I cited earlier (eleventh century BCE with the selection of King Saul by sacral lot). It has the advantage of introducing equality of opportunity to serve on government, tends to produce selections that are broadly in line with the cognitive and socio-demographic diversity of a population, and is (initially at least) non-dependent and non-factional. As a result, when implemented to select a bi-cameral house, it is ideally positioned to combat political capitalisation and corruption as well as bring some balance to keep in check the motivations which cause people to run for political office. Notably, I advocate that the first chamber would still be occupied by elected representatives to keep some of the advantages of democracy (electoral competition, political career paths and electoral accountability). The sortition chamber, in my vision, would be invested with veto powers to block objectionable spending decisions (which did not concur with the common good or over-stepped the legitimate mandate of local government) and ensure that fiscal institutions (of the type advocated by Buchanan and his followers) were actually observed (see Chaps. 8 and 9 for a comprehensive description of the plan). Moreover, regular rotations (along with a prohibition on serving more than once) would considerably reduce the time burden on citizens, as well as protect the independence of the house. Indeed, a sortition house enhances voice—errant management have to listen to a political institution invested with veto—and exit options (see Chap. 8 for details of how a sortition body might exit from objectionable political leadership or local government boundary structures) and thus responds nicely to Hirschman’s ideas on how to bring about recuperation in organisations. It is also positioned nicely (especially if supported by a clear constitution) to ensure that local government does not overstep its legitimate mandate (Subsidiarity) and does not bring about avoidable harm (PDE). In Chap. 8 I will outline some evidence which supports the contention that citizens are both willing and competent to serve in such a house. For now, however let me observe that what would be asked of members of a sortition house would be a number of simplified uni-dimensional decisions of the type that advocates of democracy claim voters are meant to do every few years when they go to the polls. If you don’t believe that appropriately designed and incentivised sortively selected people could function as described here and in Chap. 8, then you probably don’t really believe in democracy as much as you might claim that you do. Thus far we have illuminated what government ought to do, and some ways to prevent government from doing what it ought not. However, we haven’t answered a question that still lingers in the background—what is the most suitable economic structure of local government?

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3.4 Theories of the Economics of Local Government In this section I will survey probably the two most important economic theories with relevance to local government (Fiscal Equivalence and the Decentralisation Theorem), as well as describe what I like to refer to as the Santa Claus illusion. Fiscal Equivalence Mancur Olsons’ (1969) (pre) model of fiscal equivalence considers the most appropriate structure and boundaries for three specific types of goods and services— private goods, public goods and quasi-public goods. Private goods are things which are both excludable (I can stop you from consuming something) and rival (my consumption of the item means that you cannot consume it). My cup of macha tea that I am sipping as I write this chapter is a good example— the supermarket could exclude me from consuming it (if I wasn’t prepared to pay then I wouldn’t have been allowed to take it home), and once I have finished drinking this cup then you will not be able to consume that particular tea bag either. Olson sticks with his economic brethren in asserting (not bothering to argue for such an ‘obvious’ conclusion) that the only economically efficient way of delivering these goods is through private industry. When a private good item is priced correctly, both production and consumption will be efficient (companies won’t produce it unless they at least cover their costs of production, and tea drinkers won’t buy it unless they gain at least the amount of satisfaction from drinking it as they could have gained from other uses of the money). Public goods, on the other hand, are much harder to produce at economically efficient levels because, as I have detailed earlier, they are both non-excludable and non-rival in consumption. This means that people who have not paid for them can use them (and be guaranteed winners from the transaction), but also due to the coercive powers of government people can be forced to pay for them without having any wish what-so-ever to use them (guaranteed losers from the transaction). To ensure that the numbers of winners are the same as the number of losers, Olson (1969, p. 483) concludes that there must be a ‘match between those who receive the benefit of a collective good and those who pay for it’. Notably this ‘fiscal equivalence’ doesn’t guarantee that people won’t be worse off (their marginal benefit may still be lower than their marginal cost), but at least it sets up the conditions for the possibility of equal numbers of winners and losers. Because the beneficiaries and funders of each public good are likely to be different, Olson proposes a separate authority (rather than government) for each type of good. This, of course, would be very impractical (do you really want to subscribe to hundreds of public authorities for the hundreds of different services you use), and assumes that there are no economies of scope to be reaped. Economies of scope refer to savings that can be made when one organisation uses the same factor inputs (say buildings) to produce more than one good and is an important limitation to cooperative arrangements that we will cover in Chap. 6. However, Olson does consider another type of savings which has been afforded far more consideration than is

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warranted—economies of scale (see Chap. 4 for a much more detailed discussion of this often misconceived economic concept). Economies of scale refer to the idea that average total costs of production for some items are expected to initially decrease as output is expanded. This may occur due to advantages of size such as specialisation of staff, greater purchasing power, and better use of spare capacity (in plant and equipment), and savings may range from almost negligible to substantial (a fact often ignored—see Chap. 4). However, economies of scale (if they occur) are not predicted to continue forever, although consultants in local government reform seem to believe that they do. After a certain level of output (likely to vary for each kind of good) theory predicts that a relatively lengthy domain of constant returns to scale (the average cost remains constant as production increases) will emerge. If production is pushed even further then diseconomies of scale (average total costs increase with expanded production) will appear. These diseconomies of scale arise principally as a result of reduced transparency and difficulties co-ordinating relatively large numbers of staff. I illustrate this potential association in Fig. 3.1. Olson, unlike many theorists considers both the effects of economies and diseconomies of scale on his prescriptions for economically efficient delivery of public goods and services. The presence of potential economies of scale is said to be of no consequence (which stands in stark contrast to modern reformers of local government who slavishly pursue any potential economies) because if fiscal equivalence has been met then making local governments larger will serve no useful purpose (it will just guarantee that there will be more losers than winners). Diseconomies of scale, on the other hand, are said to warrant smaller local governments (a sentiment Average Total Cost

Economies of Scale

Diseconomies of Scale Realised

Nett savings possible up to this output level Constant Returns to Scale

Combined Output

Fig. 3.1 Economies of scale in service production

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not inconsistent with Buchanan’s prescription) to minimise costs, without changing the balance of losers and winners. The last type of goods are quasi-public goods which are things that have characteristics of both private and public goods. Here it seems that Olson is thinking of public goods from which one can be excluded (such as borrowing library books), and his prescription (not well articulated) is to set boundaries such that production costs are minimised. In sum, the effect of Olson’s work is to set out an economic rationale for what should be obvious to most people with a moral compass—that those who benefit from the provision of a public good or service should contribute something towards its cost. Unfortunately, simple concepts aren’t always obvious and people will tend to ignore the true costs of anything if it is in their favour. Economists tend to refer to this as fiscal illusion—the failure to accurately perceive the cost of a good or service. However, because sometimes cost isn’t even recognised as a salient factor, and because other undesirable moral consequences arise, I prefer to refer to this as the Santa Claus illusion. Every year millions of children around the world create wish lists of things they want from Santa. Unlike other times of the year, there is no moral condemnation of greed, indeed it is encouraged (by the media and by parents) and considered to be part of the wonder of Christ-mass. Nor is there any rationality about what goes on the list—no thought about the long term value of the item, its utility, maintenance costs and generally no thought of how long it might last. As long as it will provide some instant gratification, it’s on the list (notably boring things like clothes and school books would never make it to a Santa wish list). Nor is there any thought about who must ultimately pay for the item—it’s Christ-mass after all and we have credit cards precisely for this purpose. To my mind this is a lot like local government funded discretionary goods and services. Want a skate park (see Chap. 1)? Then sure, put it on your wish list and local government will deliver. No need to be bothered by thoughts of greed either— it is enough that you want your skate park and the media will be sure to celebrate the opening of the ‘present’ and the ‘magic’ that it creates. And don’t worry about the cost of maintaining your skate park, how many people will actually use it, or how long it will be desirable—this is about instant gratification not long-term utility. Moreover, certainly don’t put any needs down on the wish-list for local government (such as paved roads or water infrastructure)—that’s not fun at all and will only serve to spoil the day—this is about fulfilling dreams not the uninspiring plod of the every day. Indeed, this is why we have debt and local government bonds after all. In my household this never happened—from their very first Christ-mass my children knew that there was no such thing as Santa, and that we could only provide what we could afford and not satisfy every dream. Moreover, we emphasised the importance of long-term utility, our disapproval of greed and the value of the ordinary. Now before you damn me as a scrooge who destroyed Christ-mass let me say that I am fairly confident that my children won’t blame everything that happens in their later lives on the ‘trauma’ of being told the truth about Santa. Indeed, I have

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lots of photos to attest to the fact that they enjoyed the day just as much as any other child, and many of the gifts given over the years still work. The difference is that my children knew that they had to keep their wish list reasonable, and that ultimately it was their parents that had to save through the year to purchase the items. I believe that citizens could also grasp the concepts that my kids had mastered by the time they were toddlers. We should be able to make it plain to citizens that taxpayers have to ultimately pay for goods provided by local government, that not every want can be satisfied, that there is a cost to maintaining things, and that it is not prudent to put dreams on the credit card. Otherwise stated we should be able to communicate the true cost of discretionary public goods and services and ensure that people are prepared to pay the cost (not transfer the cost as debt to others—recall the alarming increases to government debt that I illustrated in Chap. 2), and thus put a stop to the Santa Claus illusion. Working out precisely how much taxpayers are prepared to pay for local government goods and services has been an enduring problem in the literature. One solution proposed to this problem—Tiebout sorting—relies on an extreme application of ideas on exit, which I find neither plausible nor helpful (but must be mentioned because most people seem to believe that it is true). The underlying idea behind Tiebout’s (1956) Pure Theory of Local Expenditures is that one can understand the price that citizens are prepared to pay for local public goods through reference to location decisions made in a pseudo-competitive market made up of multiple competing local governments. The mechanism is that people will vote with their feet—that if they are not happy with the quantity and quality of local public goods at the priced charged then they will simply move elsewhere. As I have noted earlier, exit is far from a costless act and one really doesn’t know whether one will ultimately experience buyer’s remorse until it is too late. Sure, there are comparative data on local governments that one could study to get an idea of the value to be had elsewhere, but does anyone really do so? I certainly didn’t, despite the fact that the data was already downloaded on my computer. Instead, location decisions are more frequently made on the basis of available work (Tiebout implausibly assumed we all live on dividend income to avoid this ‘complication’), location of friends and religious institutions (including private schools), climate (a big factor for me), availability of suitable grazing (probably not a factor at all for you), and presence of a range of retail outlets (particularly important for rural citizens such as my wife). Local government? Important, but by no means decisive. Moreover, in property based taxation jurisdictions (further exacerbated by intergovernmental grants) it is quite possible to enjoy the full basket of goods at a much lower price than other citizens, which means that location decisions probably don’t tell us that much about the true price an individual is willing to pay. In addition, if this vote with your feet metaphor really did reflect behaviour it would be a sad thing for society because the poor probably would be excluded from joining communities with high quality services (even if they could afford to sell up and move from their current home). However, Tiebout sorting is not entirely without merit. It does serve to bring to our attention that people do tend to be distributed homogenously with respect to capacity to pay and preference for services, (although I believe it has

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more to do with natural endowments, historical antecedents, waves of immigration and government policy than it does foot voting). Moreover, this sorting evolves over decades, not years, and therefore doesn’t do much to help us answer questions about the appropriate level of service provision or taxation. Sorting does, however, amplify the effect of the Decentralisation Theorem (indeed Oates, brought Tiebout’s work out of obscurity in explicating this theorem in 1969). The Decentralisation Theorem shows that ‘it will always be more efficient (or at least as efficient) for local governments to provide Pareto-efficient5 levels of output for their respective jurisdictions than for the central government to provide any specified and uniform level of output across all jurisdictions’ (Oates, 1972, p. 35). Notably, Oates (1972, p. 34) precedes his discussion of the theorem with an account of the perfect correspondence principle which explicates upon the importance of setting boundaries such that ‘the jurisdiction that determines the provision of each public good includes precisely the set of individuals who consume the good’. The Decentralisation Theorem hinges on two important aspects of defined, and more or less homogenous, communities—(i) different tastes for public goods and services, and (ii) different benefit–cost outcomes. If different communities have different preferences for local government goods and services, then decentralised provision that can better tailor goods and services to the particular tastes of specific communities, will prove more economically efficient. Moreover, if there are not only different benefits, but also different costs, in providing local government goods and services for particular communities, then it stands to reason that any benefit–cost analysis will produce different recommendations for specific communities. An example, based on the provision of green waste rubbish collections quickly alerts us to the economic benefits of decentralised provision. Tastes for green waste collection are likely to be vastly different between high density urban communities and their more suburban peers. Providing green waste collections to the former is probably a waste of money (depending on how popular indoor hydroponics have become), but likely appreciated by those regularly dealing with lawn clippings and the like at the latter. Similarly, the cost–benefit tests are likely to be very different— providing green waste composting and mulching facilities in an inner-city area is likely to be expensive (where land has a high value and transport costs could be substantial), but relatively cheaper for suburban areas. Thus even if high density residents suddenly started producing appreciable quantities of green waste, the cost for providing a dedicated rubbish service would stand in stark contrast to the cost for their suburban peers and thus likely lead to different decisions about whether or not to roll the service out. As you will probably have perceived by now, the Decentralisation Theorem becomes more important depending on the relative homogeneity within a defined community and the relative heterogeneity between communities. This is why sorting by persons amplifies the gains in economic welfare that might be had from greater decentralisation of government. 5 Pareto

efficiency has been reached when any policy change cannot increase aggregate economic welfare without reducing the economic welfare of at least one person.

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There are, however, some limitations of the Decentralisation Theorem that should be recognised. First, it assumes that there are no economies of scale. Many have naively interpreted the theorem as suggesting that the presence of economies of scale will act as a floor on the size of a local government. This is not necessarily true because the potential savings from economies of scale may be rather insignificant with respect to the savings that might be had by better tailoring goods and services (see Chap. 4). Moreover, there are other ways to capture economies of scale (Chap. 6). Second, Oates’ theorem only actually makes a case for decentralised provision of goods and services, not decentralised government (as is almost always claimed). It is quite possible that bureaucrats could tailor goods and services to the particular needs of communities and it is only when we insist that citizens should have an electoral voice in how goods are provided that we come to a reason for decentralised government. Third, Oates’ (1972) seems to have a very rosy picture of political representatives and assumes that they will pursue the interests of their citizens rather than their own (or being indifferent to citizens). In this last regard the work of Buchanan is particularly important. Notably, the Decentralisation Theorem is compatible with the Principle of Subsidiarity (indeed as I have endeavoured to show throughout this chapter, the various theories are compatible with each other and thus capable of being synthesised into a comprehensive theory of local government). Lesser associations—preferred for the delivery of most common good endeavours—are invariably small and homogenous (one doesn’t join an association unless one has a lot in common with its members). Therefore, the tastes and preferences of lesser associations are likely to be similar, and because an association will tailor its goods and services to the needs of its members, and their willingness to raise funds, economic welfare is likely to be maximised by lesser associations. Indeed, because lesser associations generally have little by way of coercive powers not only will winners and loser be balanced, but there is a very high chance that there will be few, if any, losers. Moreover, the losers that might arise will be altruistic sorts who have chosen to lose for the greater good and their sacrifice will be transparent to all. Now I am not, by any means, suggesting that all public goods and services can or should be provided by lesser associations (sometimes there is a need for coercion, structures that can capture economies of scope or scale, and the negotiating and co-ordinating powers of political representatives), however, I do see that there are many instances where delivery of services via lesser associations might be preferable to local government delivery.

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3.5 A Comprehensive Theory of Local Government At the very start of this chapter I promised my readers a comprehensive theory of local government that would specify the purpose, structure, remit, and protections that should be part of the institution. To get to this point I have reviewed theories of morality (Subsidiarity and the Principle of Double Effect), Leviathan restraints (exit, voice and loyalty, as well as fiscal institutions), governance arrangements (bicameral sortition), and economic structures (fiscal equivalence, economies of scale, the need to address the Santa Claus illusion, Tiebout sorting, and the Decentralisation Theorem). It is my contention that I can take the best from each of these ideas, without leading to any internal contradictions, and thus arrive at a comprehensive theory of local government that can guide our various explorations of reforms throughout the remainder of this book. A comprehensive theory of local government stands in stark contrast to extant work which generally only looks at one aspect of local government (for instance economics, or political structures). Moreover, reference to a comprehensive theory of local government is important for local government reformers because its observance will make it far less likely that reforms aimed at addressing a particular aspect of local government will have unintended side-effects for other critical components. The history of local government reform is littered with unanticipated and unwanted side-effects so the theory which I outline below seems to fill a very important gap: The purpose of local government is to strike a balance between human dignity and the common good by either supporting smaller associations or providing goods and services when no smaller association is capable of doing so for bona fide need. Local government which is as homogenous as possible and as small as regular patterns of activity will permit (as well as the need to match winners with losers) will maximise economic welfare by engaging in co-operative arrangements when significant economies of scale are possible. Small size is presumed on the basis that it will confer greater transparency, moral empathy, higher stake in seeing efficacious solutions, and better tailoring of goods to the needs of the local community. Furthermore, it is recognised that informed 6 citizens are the most competent to guard against local Leviathan, protect the dignity of persons and associations from avoidable harm, and should therefore be supported by appropriate financial and political institutions which allow for effective voice and exit in an economic manner. At the outset our theory states clearly the purpose of local government (to foster the common good), the limit to its remit, and the size and construction of its boundaries (this is covered in more detail in Chap. 4). The theory then goes on to acknowledge the importance of efficiency in service delivery and states how this desirable trait can be addressed in co-operative arrangements if deemed sufficiently significant (Chap. 6).

6 Informed

about the difference between ‘needs’ and ‘wants’, who pays for the goods (and how much), the cost of maintenance, and the prudent use of debt. In sum, informed citizens are those who are not labouring under the Santa Claus illusion.

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Moreover, the advantages of small size in terms of transparency, effectiveness and moral empathy are given due attention (further explicated in Chaps. 4 and 7). The need for citizens to be informed and not labouring under the Santa Claus illusion is also recognised and dealt with in further detail in Chaps. 8 and 9. Moreover, the need for appropriate fiscal institutions are acknowledged and explored in further detail in Chap. 9. In sum, our comprehensive theory of local government will be a constant companion for us in the remaining seven chapters of this book. It shines a guiding light on the path to how local government might be reformed in order for it to become truly closer to the people and serve the people best.

Appendix Buchanan and others have suggested that greater decentralisation of government can constrain Leviathan. In the following table I present some statistics that seem to suggest that greater decentralisation, may in fact, be associated with greater budgetary expansion. I follow the method employed by Oates (1985) and calculate the spearman correlation between various measures of size of government (revenue take, tax take, and debt) and the degree of decentralisation (share of expenditure by local government). Spearman correlations gauge the degree of association between ranks of pairs of data and is appropriate for non-linear monotonic data. Most of the results in Table 3.1 are positive and statistically significant, which suggests that as decentralisation of government grows, so does Leviathan. A reasonable conclusion from this data is that decentralisation may not be a solution to Leviathan and may instead replace a Leviathan central government with lots of local Leviathans.

Table 3.1 Spearman correlations between resource appetite and relative decentralisation, OECD Countries 2016 Variable pair

All OECD countriesa

Non-Federations

Revenue-take of entire government (G), Share of Expenditure by Local Government (E)

rho = 0.3614 n = 27 prob > |t| = 0.0640

rho = 0.4610 n = 21 prob > |t| = 0.0354

Tax-take of entire government (T), Share of Expenditure by Local Government (E)

rho = 0.3083 n = 27 prob > |t| = 0.1177

rho = 0.4571 n = 21 prob > |t| = 0.0372

Debt of entire government (D), Share of Expenditure by Local Government (E)

rho = 0.7923 n = 25 prob > |t| = 0.0000

rho = 0.7564 n = 20 prob > |t| = 0.0001

Source Drew, J (2019) a Where data was available from OECD database

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References Buchanan J (1975) The limits of liberty: between Anarchy and Leviathan. Liberty Fund, Indianapolis Drew J (2019) Can local government by lottery increase democratic responsiveness? Policy & Politics In Print (9/8/19) Drew J, Grant B (2017) Subsidiarity: more than a principle of decentralisation—a view from local government. Publius 47(4):522–545 Drew J, Grant B, Fisher J (2017) Re-evaluating local government amalgamations: utility maximisation meets the principle of double effect. Policy & Politics 45(3):379–394 Emon A, Levering M, Novak D (2014) Natural law: a Jewish, Christian & Islamic dialogue. Oxford University Press, Oxford Finnis J (2013) A response to Harel, Hope and Schwartz. Jerusalem Rev Legal Stud 8(1):147–166 Friedman M (1962) Capitalism and freedom. University of Chicago Press, Chicago Golemboski D (2015) Federalism and the catholic principle of subsidiarity. Publius: J Federalism 45(4): 526–551 Hirshcman A (1970) Exit, voice, and loyalty. Harvard University Press, Cambridge Hittinger R (2003) The first grace: rediscovering the natural law in a post-Christian world. ISI Books, Wilmington Messner J (1952) Social ethics: natural law in the modern world. Transl J Doherty, B Herder Book Co, St Louis Oates W (1972) Fiscal federalism. Edward Elgar, Cheltenham Oates W (1985) Searching for leviathan: an empirical study. Am Econ Rev, 75(4): 748–757 Olson M (1969) The principle of fiscal equivalence: the division of responsibilities among different levels of government. Am Econ Rev 59(2):479–487 Pius XI (1931) Quadragesimo anno: reconstructing the social order and perfecting it comfortably to the precepts of the Gospel in commemoration of the fortieth anniversary of the encyclical “Rerum Novarum”.Australian Catholic Truth Society Sirico R (1997) Subsidiarity, society, and entitlements: understanding and application. Notre Dame J Law, Ethics & Public Policy 11:549–579 Tiebout C (1956) A pure theory of local expenditures. J Polit Econ 64(5):416–424 Whiston W (1987) The works of josephus. Hendrickson, Massachusetts

Chapter 4

Boundary Change

Abstract Boundary change is a divisive and politically risky venture as attested to by both the large scholarly literature and the political corpses of those who have attempted it in the past. However, boundary reform may also be a necessity—particularly if one is responsive to a comprehensive theory of local government which seeks to bring the people closer to their government and serve them best. In this chapter I review the key concepts that inform the optimal size of local government. Notably these concepts—adequate capacity, the need for homogeneity, the desirability of fiscal equivalence, and a cognisance of economic efficiency—are responsive to the purpose of local government and the structure required for it to carry out its appropriate remit. I then outline the various reasons why amalgamations tend not to deliver completely on promised savings, with particular reference to the special case of rural amalgamations. I conclude with a ‘dummies guide’ to local government boundary reform, which in view of recent public policy disasters seems to be desperately needed.

In Chap. 2 we examined some of the main motivations for local government reform and found that invariably amalgamation is touted to be the remedy for all ills. Have too many local governments to regulate? Then amalgamate. Alarming declines in financial sustainability? Amalgamate. Want more professional and responsive representatives and executives—then, you guessed it—amalgamate. As I have already related, most of the reasoning for this prescription is flawed—if amalgamation is indeed the remedy to every problem then we should amalgamate every local government in each country, and we could all be living in Nirvana. The logic of many amalgamation proponents is clearly reductio ad absurdium. However, the fact that amalgamation is often abused and misused doesn’t mean that boundary reform isn’t an important component for reforming local government. It just means that we need to take some care in the execution of this divisive venture. As I noted in Chap. 3, one important thing that we must do is to conduct our public policy interventions with reference to a comprehensive theory of local government—less we slowly, and unwittingly drift away from our ultimate goal of a local government which is both close to its people and serves the people best. In the previous chapter I outlined the major theories relevant to local government © Springer Nature Singapore Pte Ltd. 2020 J. Drew, Reforming Local Government, https://doi.org/10.1007/978-981-15-6503-8_4

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and showed how we could borrow the best insights from each and combine them to produce a comprehensive theory worthy of our reform efforts (if you skipped Chap. 3 then now is the time to flip back to it). There are four size-dependent aspects of local government that have a bearing on its ability to serve the people best—adequate capacity, homogeneity, fiscal equivalence, and cognisance of economic efficiency (you will note here that I only claim that we should be cognisant of efficiency—not slavishly devoted to it like most boundary reform architects appear to be). In the next section I will spend some time explicating on the concepts which are relevant to each aspect. Following this I will survey the various neglected costs to amalgamation which explains why reality often doesn’t measure up to the promises of reform architects. Thereafter I construct my dummies guide to boundary reform, which sets out the main things that need to be done to competently execute amalgamations. I conclude with some observations on the importance of planning to the success of boundary reform ventures and in the appendix provide some insights into ancient thinking on the size and shape of government boundaries.

4.1 Concepts and Boundaries By far the most dominant size-dependent aspect of local government in boundary reform debates is the idea of economic efficiency. This was not always the case (see the appendix to this chapter) nor would I argue it should be the case. But because it has basically dictated policy on boundary reform for decades it seems appropriate that I start at this point. Economic Efficiency—Economies of Scale Most amalgamation proposals are predicated on efficiencies that proponents claim will arise as a result of economies of scale. The idea goes back to at least the seminal work of Adam Smith (the father of modern economics; 1776) who in the Wealth of Nations wrote, among other things, about the marvels of specialisation for increasing the productive powers of labour. Smith (1776, p. 5) tells us that ordinarily a person ‘with his utmost industry, [could] make one [haberdashery] pin in a day, and certainly could not make twenty’. However, with specialisation in the various tasks required to make a pin (cutting the wire, sharpening the end, soldering on a head etc.), ‘each person…[could] make a tenth part of forty-eight thousand pins in a day’ (Smith 1776, p. 5)! Now I confess that I have never sat down to make a haberdashery pin, but I do feel that the two-hundred-and-forty-fold increase in production asserted by Smith (1776) may have been something of an exaggeration. Nonetheless, it is true that some jobs can be made more efficient through breaking larger tasks into components at which staff can specialise. As a result of this specialisation that can be accomplished with larger scale, and also better use of excess capacity and greater buying power, it is

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reasonable to suppose that the average cost per unit may decrease as output increases for some functions—which is what economists refer to as economies of scale. Now, if you find yourself stifling a yawn you are probably in good company because it seems to be at this point in the first lecture of Economics 101, that most students (certainly the ones that go on to become local government reform architects) must tune out or take a nap. For economists don’t believe that all functions are amenable to economies of scale, nor do they suppose that these savings will continue on forever (like some sort of magic pudding). This is because many functions can’t be sensibly split into different tasks in which people might specialise—for example, I wouldn’t be impressed to find out that the local government parking inspector job had been specialised (one person to walk about and find illegally parked cars, a second person to write the ticket, a third person to put the ticket under the windscreen wiper…). Moreover, other tasks quickly exhaust any potential economies (either because the task has been broken down into the minimum number of sensible steps or because there was little spare capacity or savings to be made from buying in bulk). After economies of scale have been exhausted, economists expect that a lengthy domain of constant returns to scale will emerge whereby the average total cost doesn’t change at all as output expands. If things are pushed even further, then diseconomies of scale can be expected (whereby the average total cost actually starts to increase in response to expanded production). These diseconomies of scale occur in response to a decrease in transparency (as the size of output increases so do the number of staff and it becomes relatively more difficult to detect underperformers and those taking unwarranted perquisites) and difficulty in co-ordinating large numbers of employees. However, many local government amalgamation proponents cling to the idea of economies of scales as if it were a religious doctrine. The argument is made that amalgamation increases the number of units of production (which is true) and therefore that amalgamation will increase technical efficiency (which may be true for some functions, but probably isn’t). The potential for diseconomies of scale is rarely acknowledged, nor is the fact that a lot of functions don’t even have potential for economies of scale in the first place. For example, in a careful study of New South Wales local government researchers found that just four functions were amenable to economies of scale, and where this did occur economies were exhausted at relatively small scales (Fahey et al. 2016). Another problem with the economies of scale argument is that not all economies are worth chasing down. Optimal scale (the point at which economies of scale are first exhausted, up to the point where diseconomies of scale emerge) may save significant amounts of money per unit, or relatively little. In the former case, it may warrant millions of dollars of expenditure to try to capture these economies, in the latter it would be foolhardy to pursue. Strangely enough, the size of the expected economies is rarely estimated in the literature—instead most of the focus has been on the optimal size of local government (the point at which costs are minimised). To illustrate the importance of remedying this neglect, in Fig. 4.1 I show two curves—in both cases the optimal size is 20,000 residents, but clearly in the case of curve A the potential savings are miniscule whilst for curve B they are more substantial (the potential savings is given by the slope of the tangent to the curve). It thus would make little

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Fig. 4.1 The importance of the steepness of curves

sense to spend millions to amalgamate councils aiming for the optimal population size for curve A, but may be sensible to do so for curve B. But alas things aren’t quite this simple. In all likelihood different functions will have different optimal scales. Consider the four functions in Fig. 4.2 for instance. Function A has an optimal scale of 20,000, function B has an optimal scale at 5,000,

Fig. 4.2 The different optimal scale of functions problem

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function C has no potential economies of scale and function D has an optimal scale at 50,000. So, what to do? Do we aim for a size of 20,000 and thus fully reap economies for function A, but diseconomies for function B, and very little savings for function D? Or do we instead aim for 50,000 and reap the full savings for function D, but certain diseconomies for functions A, and B? Indeed, the decision-making calculus will get even trickier if we have different steepness of the curves for each function as is likely (see Chap. 6 for a possible solution). As if things weren’t already complex enough there is yet a further matter to consider with regards to technical efficiency—population density. As is the case for scale, some functions may show changes to unit cost in response to population density. Savings may occur for some functions as density increases, but additional expense may occur when density increases beyond an optimal point. I always illustrate the point with reference to rubbish collection in my local government area. For small acreage properties, there is a relatively long drive between bin pick-up points (maybe 200 m or more); in town there is much less distance to drive between bins (maybe 20 m or so), and right in the very centre of town where there are some unit complexes multiple bins may be collected at a single pickup point. Clearly costs will reduce as the distance between bin collection points reduces—this is an example of economies of density. However, eventually density becomes so large that costs may start to rise again due to congestion and the like (for instance if Tamworth suddenly attracted multiple blocks of high rise apartments, then traffic and congestion in these areas might, in fact, increase the time to collect the rubbish)—this would be an example of diseconomies of density. Now boundary reform architects can do little about density in the short run (amalgamation does increase scale but won’t change density at all). However, this does not mean that they can forget about the effect of density altogether because economies or diseconomies of density may interact with scale effects to produce different technical efficiency outcomes than what might otherwise be expected. Clearly any empirical analysis that might be done to estimate the optimal scale to guide amalgamation programs must also explicitly control for population density. The good news for public policy architects (but not for the poor communities that ultimately suffer) is that all these complexities arising from economic theory don’t introduce any additional work for the analysts trying to decide which local governments should be amalgamated—because typically decisions are made with no robust empirical analysis at all! It is hard to believe that state governments would go into billion dollar reforms, such as mass forced amalgamation programs without robust empirical evidence, but this is what indeed has occurred in most instances in the past (certainly in Australia anyhow—see Drew and Dollery 2014). Moreover, few public policy architects seem to stop to think about whether technical efficiency is really a goal worth pursuing in the first place. Invariably when amalgamations are being sold to the public economies of scale are raised as a selling point and citizens are told that these savings will be used to reduce local government taxes, provide more services and provide better services (Drew et al. 2018). Now there are at least two problems with this sales pitch. First, if one saves money and then directs the savings to reduce taxation or produce more or better-quality goods

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and services, then one really hasn’t altered the nett fiscal position at all. It reminds me of a gambling addict who celebrates his wins but forgets about the losses. Saving money to only spend it immediately achieves little—it merely swaps one set of wants (smaller local government) for another set of wants (lower taxes or better services). Moreover, it must be remembered that ‘efficiency’ is often a sanitised word for what is really meant—sacking (dismissing) some staff—because most savings are predicated on using less staff to produce the same level of combined services. No doubt the person whose job is sacrificed on the altar of technical efficiency wanted to have the means to feed their family, and it is not immediately clear to me why their wants should take a back seat to the wants of others. The second problem with the efficiency argument is that it confuses the purpose of local government with the purpose of profit-maximising business (Drew 2019). It is not the overriding purpose of local government to be efficient. Certainly I (and I imagine you also) don’t want inefficient local government (although I am largely resigned to this fate), but nor would I approve of a local government which put the value of technical efficiency before much more important concepts such as equity, accountability, and due process (others might add democracy, but I am not such a big fan of this—see Chap. 8). The misguided focus on efficiency comes about as a result of policy being made in a vacuum (which is why the comprehensive theory of local government in Chap. 3 was so important). Holding elections isn’t efficient (a lot of money is spent for very little output), but would most people seriously consider getting rid of elected representatives? Nor is emergency responses to bushfires and the like efficient (much more ‘efficient’ to respond during normal work hours and save overtime, or to call for tenders for providing relief supplies rather than going out immediately and purchasing what is needed). But would anyone be willing to say that local government should respond to emergencies at a much more stately pace in order to be efficient? I could go on forever, but hopefully the point is now abundantly clear—a myopic pursuit of efficiency risks defeating the whole purpose for having local government in the first place. Homogeneity Our earlier work on exploring theories of local government brought up the very important idea of community homogeneity (see my discussion of Tiebout Sorting and the Decentralisation Theorem in Chap. 3). If communities are relatively homogenous then it is easier for local governments to tailor goods and services to the standard required by residents. In Chap. 3 I used the example of green-waste rubbish collection to demonstrate that economic welfare is enhanced when services are provided at the level desired by most residents. Another example might be the vexed issue of water fluoridation. When a local government area is more or less homogenous in its taste for fluoridated water (excuse the pun), then providing fluoridation will be much more welfare maximising than if the community is split on the issue. For instance, the hippy village of Nimbin is located in the local government area of Lismore, New South Wales, that is dominated by a large working-class town area and extensive rural lands. Now it is

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likely that our happy hippies in Nimbin would be appalled at the idea of drinking fluoridated water (an acquaintance of mine once told me that fluoridation is a government conspiracy to destroy a persons’ third eye and I imagine many residents in Nimbin might feel similarly). But the townspeople in Lismore may well think that ingesting a heavy metal in order to avoid the dentists’ drill is entirely reasonable. What to do? If the council adds the fluoride to their water it will simply be wasted on the residents in Nimbin (because they will likely buy bottled water or drink rain water to avoid it), but if they fail to add fluoride to the water then the residents in Lismore may be exposed to unnecessary drilling. Either way, everybody’s welfare can’t be maximised under conditions of uniform provision within this single local government area, and this is yet another example for why community homogeneity is important. Moreover, in heterogeneous communities, political voice can often go missing in action. Democracies work on sheer numbers and the winner invariably takes all (Riker 1988). If there are significantly diverse but immaterial numbers of voters in a given area, then it may be the case that their preferences are not represented by someone of like mind in the council chamber at all. For example, particular religious affiliates and ethnicities are often missing in council chambers where I come from. Now I am not suggesting that a typical ‘male, stale, and pale’ councillor can’t advocate for a young LGBTIQA+ Hare Krishna from, say, Nimbin—but it is certainly the case that they will find it more difficult to fully understand the needs of such a non-typical demographic. Indeed, this desirability of community homogeneity tends to act as a limiting factor on size. Analysis of economies of scale might suggest the ‘remedy’ of amalgamation but if the adjoining local government areas are comprised of vastly different communities with very different tastes, then amalgamation might well end in disaster (a good case study is the de-amalgamation of Delatite shire which occurred as a result of an earlier amalgamation of two completely different demographics; Drew and Dollery 2015). Fiscal Equivalence It is also important to remain mindful of the desirability of fiscal equivalence when designing local government boundary change1 interventions. One does not need to be intimately acquainted with the work of Mancur Olson (see Chap. 3) to understand the desirability of ensuring that those who are supposed to benefit from a local government good or service are actually part of the local government area (and hence pay towards the cost of the said good or service). It is just plain inequitable for people to regularly use local government goods and services without contributing to the cost of them, nor is it fair for people to pay for something they can’t reasonably be expected to access (did someone mention Tamworth skate-park?). Economists point to the sub-optimal efficiency outcomes likely to arise from not matching those 1 There is a subtle difference between amalgamation and boundary change. Amalgamation refers to

the consolidation of local governments. Boundary change can be much more extensive and might include amalgamations and de-amalgamations. The comprehensive theory of local government probably suggests de-amalgamations as much as amalgamations, so I have used the term carefully and where appropriate.

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who pay to those who benefit—but I think most people (excluding my political representatives perhaps) intuitively understand that it is reasonable for people to contribute only to the goods and services that they are likely to use. Fiscal equivalence becomes particularly important in the case of satellite towns, in suburbia or rural areas. For example, in my former local government area (Uralla Shire) I imagine the far majority of the employed residents lived in Uralla but worked in the Armidale local government area 25 kms away (as did I). This was mainly owing to the fact that whilst the house prices were far cheaper in Uralla there was very little work there (Armidale is around five times larger and has a university, decent shops, and a number of state and federal government agencies). Now, situations like this are demonstrably unfair and economically sub-optimal—why should Armidale residents be paying for roads and the like while Uralla residents get to use them essentially free of charge? Of course, there will always be some mismatch, as suggested by Olson (1969), unless we are prepared to have a different authority for each individual good or service. However, this mismatch should be minimised as much as practical by carefully considering typical commuting patterns and the like.2 Adequate Capacity Thus far we have looked at economies of scale and density (which may suggest both upper and lower limits on boundary size), the desirability of community homogeneity (which probably acts more as a ceiling on boundary size), and fiscal equivalence (which also acts as a ceiling on boundary size). However, there is one further consideration that must be made, and this is unique in view of the fact that it generally acts as a floor on local government size—adequate capacity. Adequate capacity is a concept which is getting much more frequent airings in local government amalgamation debates of late. It is often ill-defined and ill-applied. Adequate capacity has been given to refer to inter alia greater staff capacity and specialisation, greater fiscal capacity, better ability to conduct regional planning, and more credibility for partnering with higher tiers of government (Drew 2018). I buy the argument about staff capacity and depth—small councils like my former local government really struggle to fund or attract specialists such as engineers and the like. I also accept the argument for better regional planning—although I think that regional planning organisations can address this just as effectively as boundary change (see Chap. 6). However, I do not accept the arguments about fiscal capacity, or the credibility for partnerships. As we have seen from our personal finance metaphor, as well as our discussion of sustainability in Chap. 2, bigger local governments don’t necessarily translate into better financially resourced local governments. If one amalgamates two local governments which collect less revenue than they expend, then one simply ends up with a bigger financially unsustainable local government. However, it may sometimes be the case that small surpluses per taxpayer will be able to be put to better use in larger local governments (because they clearly result 2 Mismatch

is not just related to road expenditures. Some other examples are spill-overs for neighbouring local government areas sharing a main water source (river), or for use of a single regional airport.

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in larger discretionary funds), but the presumption that bigger local governments will have more fiscal capacity seems to ignore the facts that they also have more units to produce and that fiscal capacity is ultimately a function of the incomes of the residents living in a local government area (Ladd and Yinger 1989; and these don’t change just because we draw the local government boundaries differently). With respect to credibility as a partner for higher tiers of government this may be true, but it is appalling if it is (it would seem to suggest that low population size and population density local governments are doomed to be neglected by their state and federal politicians, which might explain the third world living standards in rural local government areas in Australia). In sum, local governments do have to be big enough to facilitate sufficient staff capacity and in the absence of regional planning authorities’ size might matter. Amalgamation architects should therefore be mindful of capacity floors—as they should of the following matters which tend to mean that amalgamations rarely deliver completely on their fiscal projections.

4.2 Why Amalgamations May Not Deliver Completely on the Promises of Proponents As I have already mentioned, one big reason why amalgamations don’t deliver on their promises is because boundary reform architects usually neglect to do any empirical analysis to guide decision-making. Instead of understanding the optimal size and potential savings for various functions and selecting amalgamation partners accordingly, it seems that architects instead rely on ‘gut feeling’ and guesswork. The chances of selecting suitable amalgamation partners whilst empirically blind is probably about the same chance as I would have of typing the rest of this book accurately with my eyes closed—we should probably be more surprised by the relatively rare amalgamation success stories, than by the litany of disasters. This should not be construed to suggest that I think financial motivations should be the reason to pursue amalgamations—for, whilst consolidation can improve financial sustainability it shouldn’t be the main reason for this type of intervention. Instead we should be guided by a comprehensive theory of local government, whereby amalgamations are seen as one tool for making local government closer to the people and of better service to them. However, having said this, it is invariably the case that amalgamations are sold on the basis of some fantastic financial savings and it is therefore reasonable for us to digress for a few minutes to consider the various reasons why reality often doesn’t quite measure up to the promises. Essentially, the failure of amalgamations to deliver, is the failure to acknowledge costs tangentially associated with the amalgamations. The first of these costs is a likely acceleration in spending prior to amalgamation (because amalgamations are always carried out part way through the financial year in Australia—no doubt to make it very difficult for anyone to analyse their short-run success (or otherwise)—I

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don’t yet have any concrete evidence to support what I have observed and heard from senior local government executives about to be subjected to amalgamation, however I also have no reason to doubt my own eyes and ears). Typically, local government executives and representatives have a pretty good idea that their council is about to be amalgamated (in Australia the boundary review process required to facilitate amalgamations means that executives have concrete evidence of the Minister’s plans six months or more ahead of the axe falling (in addition to the rumour mill)). In addition, local government executives and political representatives have far more knowledge of the local government finances than do regulators. Add to this the desire of many incumbent representatives to seek re-election for the new council in a context where there are likely to be far more candidates than seats, plus the need for executives to try to keep their job despite competition from the incumbent executives of the amalgamation partner entities, and the potential for profligate spending seems pretty clear.3 Indeed, agents might reasonably rationalise that spending the community’s money on the community, prior to it being seized as the combined assets of a new amalgamated community, is the moral course of action to take. Moreover, the longer-term consequences of spending may well be problems that someone else will ultimately have to deal with. Thus, it is not unreasonable to expect that there will be an acceleration in discretionary spending prior to the execution of amalgamations. The second set of neglected amalgamation costs are unexpected staffing expenditures. As I have already noted, most of the projected ‘efficiencies’ arising from amalgamation relate to savings in staff expenditure. On paper these efficiencies seem plausible and easy to reap. However, during and immediately after the amalgamations these efficiencies are literally given a human face, and people find that the decision to destroy someone’s working life is much harder to carry out in practice. Moreover, it is often the case that legislation prohibits sackings (dismissal of staff) for a certain period following amalgamation, or that the state government is forced to make a deal of this kind with trade unions to limit workplace disruption (see, for example Drew et al. 2016). During this period of employment protection, management get to know the ‘efficiencies’ as people and this makes redundancies in the future even less likely. Indeed, evidence suggests that staff expenditure might actually increase following the expiration of the period of protection (McQuestin et al. 2017), probably as a combined result of reticence to lay-off people that one knows and the implicit incentive for staff to find reasons for why they should continue to exist after the expiration of the period of employment protection. In addition, staff expenditure may also rise slightly as a result of the costs to recruit new executives, and the need to pay executives at the newly amalgamated entity higher rates than might have been paid at the former pre-consolidated local governments. Typically, as the responsibilities of executives increase, so too does remuneration. Thus, we should not be surprised that executives at an amalgamated 3 In Australia when the amalgamations are announced, political representatives and senior executives

cease to have a job while the local government goes into a period of administration. When the administration period is over, former executives and political representatives may wish to regain positions at the amalgamated entity. However, in an amalgamation of two local governments there are typically at least twice as many executives and representatives than there are positions.

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council will be awarded high rates of pay and this will cause an unexpected expense if amalgamation architects have neglected this likelihood. The third category of neglected expenditure is the cost to harmonise service levels and infrastructure provision. Typically, the service levels and infrastructure of amalgamated local governments may differ. For instance, local governments may have different frequencies and types of rubbish collection and different facilities (such as heated swimming pools and the like). Once the local governments are amalgamated it is not unreasonable for citizens to expect that all residents who belong to the same new entity might receive the same level of local government goods and services—that is, there will be an expectation from residents for harmonised services. Moreover, in all likelihood service levels will be harmonised upwards—it would be very difficult to tell residents from a former local government area that their services will be reduced because of amalgamation, and one can’t really hide wide disparities in local government goods for long. As an aside, prior to the most recent local government forced amalgamation program in Australia I spoke with a number of local governments and communities and warned that the cost of harmonising services and infrastructure up to higher standards would likely erode any potential savings that existed on paper in the Minister’s amalgamation proposal. A few weeks ago, I received a phone call from some executives and representatives from an amalgamated rural local government saying, ‘everything you said would happen, did’. I take no satisfaction in being right, because predicting this neglect to account for harmonisation costs has meant that the projected financial savings have actually ended up instead as a deterioration in finances (relative to pre-amalgamated levels) which is a terrible—but entirely avoidable—outcome for a community which was already struggling to be financially sustainable. There are also a number of accounting expenses that are typically neglected by amalgamation proponents. Write-offs and write-downs are common after boundary change and reflect unrealistic fair values that might have been assigned by previous administrations (for example, works by local artists are often valued very optimistically), or unsuitable rates of depreciation accruals (that become evident when the redundant assets are sold for values far below book value) (Drew and Dollery 2015). In addition, it is likely that the harmonisation of depreciation schedules applied by the pre-amalgamated entities might also result in unexpected ‘expenses’. As has been shown in a number of papers now, depreciation accrual practices vary tremendously between local governments and even within a single local government over time (Drew 2017). When local governments with disparate depreciation practices are amalgamated it is likely that there will have to be some adjustment to deprecation accruals over time. These likely adjustments will be reflected in the depreciation expenditure and thus affect the impression of financial sustainability for the amalgamated entity that arises as a result of the accounting process. Unfortunately, there is no extant empirical work that I am aware of in relation to this likely accounting expense, but it does seem an area well worth investigating. The fifth and final category of neglected amalgamation costs relate to the purchase of new buildings, equipment and systems which inevitably happens a few years after

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amalgamations have been executed. Certainly, in the case of the three amalgamated local governments that I have lived in, one of the first acts of the new council was to build new council chambers. Conceivably these building projects came about as a result of the need to house the additional staff that belonged to the former preamalgamated entities after it was realised that it would not be practical to have them sitting in separate offices that may have been 100 km or more apart. This is clearly a significant expense which I have never seen included in any of the business plans by amalgamation proponents. Another substantial cost (which is acknowledged more frequently, but usually grossly under-estimated) is the need for new software and computer systems to replace incompatible systems from the former pre-amalgamated entities (an expense which sometimes runs to millions of dollars). Yet another cost (never acknowledged by proponents of amalgamation to the best of my knowledge) is re-branding for the new entity—all those letterheads, and signs on buildings, plant and equipment must be changed and this can attract considerable expense (Robertson 2016). In addition, staff training and team building exercise inevitably follow on from amalgamations—and you guessed it—are never included as part of the projected amalgamation costs. It can thus be seen that there are substantial costs associated with local government amalgamation that are routinely neglected by proponents. Perhaps these costs are neglected because otherwise the business cases for amalgamation wouldn’t stack up. Or perhaps the costs are neglected because non-specialist consultants, who are often little more than weapons of mass expertisation for hire, are completely ignorant of what actually transpires after they finish totting up their assumptions which underpin the business cases. We will probably never know for sure (especially given the aversion to post-amalgamation studies that might cast light on the reliability of amalgamation proponent projections). However, what is certainly the case is that these costs do represent real risks to the long-run financial sustainability of amalgamated entities and thus should certainly be considered very carefully well before the execution of amalgamations. Why Rural Amalgamations May Struggle Even More to Deliver Sustainable Benefits Rural local governments are very different creatures than their urban peers. They often have a far greater remit (in Australia rural local government also generally provides water and sewer services), are a major source of employment, and act as a provider of last resort (to correct the neglect of business (market failure) and higher tiers of government). In response to the relatively large role local governments play in their lives, rural communities are generally much closer to their local governments and take a keen interest in any attempt to force change. For all these reasons, amalgamation is generally more strongly resisted in rural communities than it is in urban areas. There is a genuine fear that amalgamation will destroy jobs and destroy the lifeline of rural communities and given what has occurred in the past this seems to be a reasonable concern (those who doubt this might visit the former local government area of Manilla, New South Wales, which was swallowed up by Tamworth Regional Council and now resembles a derelict ghost town). Typically, after amalgamation has been executed most staff are relocated to

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the larger of the two or more towns. Initially staff, loyal to their local communities, commute long distances to work but over time travelling 100 km or more per day wears thin and staff sell their properties and move closer to their new workplace. A number of relatively high incomes are then lost from the smaller rural communities and this has knock on effects throughout the local economy. As more staff spend more time in the larger rural town, visibility and consciousness of the smaller town also diminishes and services and programmes begin to suffer. Smaller rural communities also find themselves politically disenfranchised from the first amalgamated local government elections onwards. Politics is a game of numbers and smaller communities will hold less sway at the ballot box, resulting in fewer local government representatives. The small communities then become irrelevant in most majoritarian decision-making processes. This disenfranchisement and neglect is generally not deliberate and merely the logical outcome from merging two rural local governments. Matters are further exacerbated by high levels of homogeneity within rural towns and high levels of heterogeneity between rural towns. My city slicker readers probably think all rural towns are alike—but nothing could be further from the truth! Each rural town tends to have its own culture and specific industries (often different types of farming ventures) responding to particular topography and climate, but also to hundreds of years of tradition. For instance, my local government area of Tamworth is beef country and light industry, whereas my former local government area (Uralla Shire) is merino sheep country with a high level of employment at the nearby Armidale university. I sense my city readers rolling their eyes and saying, ‘so what?’—but these differences in industry and interests really do result in very different cultures and an underlying antipathy which can be quite surprising. Indeed, my family was never accepted by the Uralla community (because my kin originally hailed from Tamworth way) and as soon as I finished working at Armidale I ran back down the hill to my own kind where we have been embraced warmly and are much happier. Rural communities really are that xenophobic! Amalgamating rural local governments where valid fears about neglect and centuries-old levels of antipathy dominate clearly runs counter to the Decentralisation Theorem (Oates 1999) and our own Comprehensive Theory of Local Government. Communities with very different tastes, and large distances between centres are unlikely to ever realise the lofty predictions of savings made by decision-makers in capital cities who think all local yokels are the same and that local governments are merely boundaries drawn on a map. Any savings predicted by city decision-makers quickly go up in smoke as a result of long commutes for local government to provide goods and services, as well as efforts to appease disgruntled residents that have quite disparate tastes. There is one other weighty problem that is ignored by most boundary reform architects and only recently came to my attention as a result of working with some struggling rural local governments. Generally small rural local governments have staff who are skilled and dedicated workers well-suited to their small and relatively uncomplicated local government. The presumption is that these key staff will make a smooth and more or less immediate transition to working in a much larger and more

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complex local government organisation. However, the truth of the matter is that many will fail to make the transition - they won’t be sufficiently skilled, experienced, or motivated to cope in a larger organisation. What follows is chaos and/or resignations as people seek to deal with a situation that was not of their making and beyond their capacity. As key staff leave, institutional knowledge is lost and matters deteriorate even further. If key positions can be re-filled (which they often can’t), the incoming staff often lack the deep connexion and commitment to the local community which is absolutely critical to drive the high levels of efficiency required to keep rural local governments (which generally have low revenue capacity) afloat. A similar problem also seems to emerge in the ranks of the Councillors. I have found, by working with rural communities, that many Councillors are unprepared for the complexity that faces them at a much larger entity and often incapable of resisting the temptation to still think in terms of ‘them and us’, when making decisions. These problems are rather ironic given that the premise for many rural mergers is that it will make it easier for local governments in these areas to attract suitably qualified staff and Councillors! However, I have first-hand knowledge through working with recently merged rural Councils that this is indeed a very real problem, and hence yet further reason for why rural amalgamations will often fail to deliver sustainable benefits.

4.3 Boundary Change for Dummies Thus far we have looked at the important concepts pertaining to boundary reform, as well as some of the neglected costs of boundary change that often result in reforms falling far short of their promises. I have also spent a good deal of time criticising the efforts of some consultants and local government amalgamation architects, so it is only fair that I now devote some space to spelling out precisely what should be done in order to realise reform that brings local government closer to the people and serves the people best. It has been put to me that the subtitle of this chapter is somewhat provocative. Perhaps it is. But I think it is long past time that attention is called to the fact that many boundary reform architects are clearly in desperate need of a dummies guide to boundary change. If I have to ruffle some feathers to finally call attention to the social and economic vandalism of some of the disastrous reform efforts that I have witnessed then so be it—perhaps if I gain their ire sufficiently then prospective reform proponents might put a little more effort into their work in the future to prove me wrong. This can only end well for everyone. There are seven steps to conducting boundary reform, which on the whole I think are rather self-evident. The first step must happen some years before amalgamation is even entertained, because residents will inevitably compare new entities to their old ones, and if these earlier examples were unsustainable and unreasonable then it will be a difficult measuring bar to reach. What is required here is to first set sustainable service levels, within the legitimate remit of local government that are truly tailored

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to the tastes of residents and matched with sufficient revenues through the appropriate mix of taxes and fees (see Chaps. 7 and 9). In short, there is a need to first follow the fiscal and service elements of our comprehensive theory of local government and thus dispel fiscal illusion and Santa Claus fallacies. Only then will residents be able to make reasonable comparisons between the costs and benefits of their new local government entity, and what they were sustainably able to receive beforehand. A failure of reform architects to force residents to confront the unsustainability of what they received before often leads to disappointment and may give rise to destructive behaviours such as advocating for de-amalgamation. The second step is for reform architects to repudiate existing boundaries entirely (Oates 1999). Generally, boundary reform is executed by amalgamating entire local government areas together—this is certainly far easier in administrative terms (there is no messy carving up of assets and liabilities between one or more portions), but very unlikely to result in homogenous communities that reflect people’s actual patterns of behaviour. Things change, cars replaced horses, technology displaced old industries, and thus the boundaries drawn centuries ago may no longer be relevant to how people behave in the present. In most cases existing boundaries will not reflect how local economies function and how people commute for various local government goods and services and it should thus be the presumption that extant boundaries will be an unsuitable basis for considering the shape of new local governments. Moreover, when new entities are formed out of whole parts of former local governments it almost invites residents to keep their former identities, for representatives to vote in blocs to advance the interests of residents from their former local government areas, and in time to advocate strongly for de-amalgamation (Drew and Dollery 2015). Far better to scramble the egg, dispense with former allegiances, and thus allow the community to shape a new cohesive identity. The third step in the process should be completely unsurprising—boundary change architects need to do their homework. If pecuniary savings are part of the motivation for reform, then robust empirical work must be done to ascertain the ideal configuration to achieve close to optimal scale. If the motivation is instead to draw boundaries around homogenous communities that capture the relevant benefits and costs (Oates 1999) then careful research should be undertaken to identify these communities and patterns of economic behaviour. I would have thought it rather obvious that rigorous research, informed by a comprehensive theory of local government, must be a pre-requisite for successful reform—however, as I have already related actual practice leads me to suspect that the obvious may be rather obscure for many. Moreover, it must be emphasised that we are talking here about rigorous evidence—not the infantile efforts made in the most recent Australian reforms, for instance. Here the ‘evidence’ was an insult to the community’s intelligence—interviews of hand-picked respondents who had benefited from previous amalgamations (who not surprisingly told us that they were wonderful events), and business cases that rested entirely on unsupported assumptions sans any evidence (Drew and Grant 2017). No matter how one dresses up business cases without any evidence and which prominent consulting brand stands behind them—they can never be any more than a guess and should never be taken seriously by any adult.

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The fourth step is for boundary reform architects to meaningfully consult with all stakeholders in the affected communities. True consultation stands in stark contrast to what I have witnessed in previous amalgamation reforms whereby only the parts of written submissions that agree with the architects are published, and where community meetings only give a fraction of the community the right to speak for a maximum of three minutes in the middle of the day when it is known that many working age people can’t attend. This kind of consultation is a sham—a regularly practiced sham in a range of public policy areas to be sure—that shows little or no respect for citizens. As I noted in Chap. 3, one either believes citizens are capable of making informed decisions and having a real say in the running of their lives, or one believes that citizens need to be ruled by their betters. I suspect the organisers of the sham consultations, which I have witnessed on an altogether too frequent basis on a range of public policy issues, subscribe to the latter. Maybe they are right (although I sincerely hope not), but they should at least be willing to stand by their beliefs instead of pretending to listen and engage. Elsewhere I have written that the only way to truly receive the informed assent of the community is to conduct a citizen jury with well-resourced and randomly selected representatives who can hear the reasoning for reform and inquire more closely, without all of the hysteria and hyperbole normally associated with amalgamation debates by media (Drew et al. 2018). This is still my position. Proponents and opponents of reform should be able to articulate good reasons for their position and a citizen jury is a forum likely to facilitate this sort of reasoned debate. If boundary reform is a good idea, then proponents should have no trouble convincing the community that it is the case. If they can’t do so, then clearly one or more of the following propositions must hold: (i) it is not a good idea at all, (ii) the proponents of reform aren’t good communicators, or (iii) the citizens do not have the capacity to evaluate the arguments correctly. If the first proposition is true then the boundary reform shouldn’t proceed, if the second is the case then the proponents need to be replaced, and if the final proposition is held then we had best go out and find ourselves some philosopher kings and forget about self-government and democracy altogether. The fifth step of boundary reform is to attend to the ethical dimension of the public policy intervention and provide acceptable levels of compensation where appropriate (Drew et al. 2017). Boundary change can lead to large transfers of wealth. Consider for example, an amalgamation between a local government that has zero debt, and an equal-sized local government where the debt is $2,000 per taxpayer. Without efforts to mitigate injustice, the previously debt free residents will inherit a share of $1,000 in debt per taxpayer. Now if the debt is for local government goods and services that have already been consumed, as is likely to be the case, then this is a morally outrageous act. Even if the debt is putatively associated with infrastructure it may well still be morally suspect (see Chap. 9). The only just outcome is to mitigate the transfer of wealth with appropriately targeted compensation, and to also allow the residents to which the debt burden will be shifted to have a binding say on the matter.4 4 If

you don’t agree with the sentiment that people shouldn’t be forced to take on another’s debt associated with items already fully consumed, then please do get in contact with me via the publisher

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The sixth step is to allow citizens to have a voice on the matter of amalgamation—preferably through an efficient yet robust means such as a referendum. If proponents of boundary reform are aware from the outset that the measures will only pass with the consent of the citizens, then they will be much more inclined to engage respectfully with the community throughout the process. Moreover, a successful referendum is likely to bring closure to the debate and significantly constrain options for disgruntled residents to later pursue destructive de-amalgamations. In addition, voice should also be heard after a reasonable time has elapsed (say three full financial years) following amalgamation. It is critical that an inquiry is made regarding the success, or otherwise, of the amalgamations and that the voices of both those who won and those who lost are heard. Unfortunately, robust independent inquiries are extremely rare following episodes of amalgamation. As a result, we know very little about the determinants for success in this intervention, and there is little opportunity for decision-makers to receive feedback and act on the feedback to arrest undesirable side-effects that may occur as a result of the amalgamation. Moreover, a firm commitment to an independent and robust post-amalgamation inquiry puts consultants and amalgamation architects on notice that their work will ultimately be assessed and may perhaps encourage them to make more plausible and prudent assumptions in their planning in order to save themselves considerable embarrassment down the track. The final step in an amalgamation process is to commence operations on the new local government with a comprehensive review and renegotiation of service levels. Typically, when amalgamations take place service levels are imported from the constituent local governments, generally at the highest level that existed previously. However, this practice may result in service levels which are not consistent with resident needs especially if previous levels were not tailored to the needs of residents or were the result of political capitalisation. As Friedman told us many decades ago the problem with government is that once a program is established, whether it proves successful or not, it is continued forevermore because people in government and the community acquire a vested interest in its continuation (Friedman 1993). Immediately following amalgamation is a great time to renegotiate service levels with the new homogenous community and ensure that they are consistent with both expectations and willingness to pay.

4.4 Concluding Remarks As can be seen, competent boundary reform requires a lot of planning and a lot of work. I imagine most prospective architects would shy away from such a lengthy and complex boundary reform recipe. However, as several recent reform failures have made abundantly clear, the alternative of rushed amalgamation programs based as I would love to go back to Japan as a tourist next year to attend the sumo bashos, and I am more than willing to force you to pay my credit card bill at the end of the trip!.

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on gut feeling is quite likely to result in unacceptable social, economic and political casualties. If boundary reform is deemed to be important by decision-makers, then it is only reasonable to put in a serious effort reflective of the supposed importance. Local government, the community they serve, and the people whose lives are inevitably turned upside down because of the reform all deserve better than sloppy policy made on the run. Moreover, it is also the case that some specific thought and serious effort must be put into selling the boundary reform to the citizens. I have touched on this idea slightly during this chapter in emphasising the importance of genuine consultation and voice. In the next chapter I will expand on the idea some more with reference to the various costs involved for the public policy salesperson and the heresthetic, rhetoric and evidence required to successfully sell boundary reform.

Appendix 1 Some Observations on Aristotle’s Approach to Government Size Few are aware that the problems of optimal size and shape of government are matters which were first studied in antiquity. Even fewer will be aware that many of the solutions that I have posed to this thorny problem were preceded by the writings of Aristotle some 2,340 years ago. Aristotle was writing about the state, not local government, however many of his ideas are eminently applicable to the problems that we have been examining thus far. Aristotle’s view of the purpose of the state is consistent with the principle of subsidiarity and the comprehensive theory of local government that I developed in Chap. 3. He defines the state as ‘an association of similar persons whose aim is the best life possible’ (Aristotle 1992 [fourth century BCE], p. 413). Sound familiar? Essentially Aristotle says that states should be composed of homogenous populations for the purpose of helping people to achieve their existential ends. This makes the state instrumental to the ends of persons, which is consistent with my outline of subsidiarity made in the previous chapter. Furthermore, Aristotle (1992, p. 413) makes plain the advantages of homogeneity and the need for a number of governments—because ‘different sets of people seek their happiness in different ways and by different means, and so make for themselves different lives and different constitutions’. Otherwise stated, we need a plurality of associations so that we can tailor government goods to the particular tastes of homogenous groups of residents (the Decentralisation Theorem that we discussed in Chap. 3 echoes this idea). Moreover, Aristotle has quite a bit to say about the optimal size of government. He too criticises those who ‘judge greatness by the number of people living in it [the state] ….[because] one ought to look not at the numbers but at capacity’ (Aristotle 1992, p. 404). Now clearly Aristotle hasn’t referred to optimal scale and the search for efficiency as I did, but he has made plain that determining boundaries for government must be more than an exercise in arithmetic (or econometrics in our case)—we need to

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also think about capacity as a floor on size. Furthermore, Aristotle goes on to state that there is also a ceiling which he associates with the need for transparency. Specifically, Aristotle (1992, p. 405) states that ‘citizens should know each other and know the kind of people they are’. He also acknowledges the desirability of transparent size in order to prevent free-riding in expressing his concern that otherwise ‘it becomes easy for foreigners and aliens resident in the country, to become possessed of citizenship, because the excessive size of population makes detection difficult’ (Aristotle 1992, p. 405). Admittedly, I referred to the need for transparency to prevent free-riding and the taking of unwarranted perquisites by staff—but the sentiment is largely the same. Aristotle (1992, p. 405) sums up his argument about optimal population size by remarking that ‘the best limit of a state: it must have the largest population consistent with catering for the needs of a self-sufficient life, but not so large that it cannot be easily surveyed’. Aristotle also had a bit to say on the geographic size of government, which is associated with population density. This consideration is largely missing from modern scholarship but is of critical importance to the success of rural and remote local governments in particular. Aristotle (1992, p. 406) states that ‘in a country that can easily be surveyed it is easy to bring up assistance at any point’ which is a good reminder of the fact that distance does have a bearing on the costs and capacity of government. It may make sense to draw boundaries over vast distances if population size alone is the principle consideration, but if one considers the need to actually traverse large distances to deliver services then it becomes a far less attractive proposition. It seems to me that boundary reform architects in capital cities have somehow neglected the fact that vast distances in rural and remote areas require lengthy commutes (and associated cost) to service. Perhaps if they read Aristotle from time to time, they may realise that boundaries by population numbers alone is a strategy likely to end in failure. Thus, it can be seen that a lot of what I have written about to this point is largely consistent with the thinking that held sway over 2,300 years ago. For all of our advances in technology, economics and mathematics it seems that we haven’t got ourselves very far at all on the really important questions pertaining to the purpose, size and shape of local government (in fact we have probably gone backwards). It is my hope that this observation won’t be repeated in a further 2,340 years’ time, but we shall see.

References Aristotle (1992 [4th century BCE]) The politics. Penguin Classics, London Drew J (2017) Playing for keeps: local government distortion of depreciation accruals in response to high stakes public policy-making. Pub Money Mgmt 38(1):57–64 Drew J (2018) How losers can turn into winners in disputatious public policy: a heuristic for prospective herestheticians. Aust J Polit Sci. https://doi.org/10.1080/10361146.2018.1520195

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Drew J (2019) Optimal local government and public service provision. Cambridge handbook of community psychology: interdisciplinary and contextual perspectives. Cambridge University Press, Cambridge Drew J, Dollery B (2014) Estimating the impact of the proposed greater Sydney metropolitan amalgamations on municipal financial sustainability. Pub Money Mgmt 34(4):281–288 Drew J, Dollery B (2015) Breaking up is hard to do: the de-amalgamation of delatite shire. Pub Finance Mgmt 15(1):1–23 Drew J, Grant B (2017) Multiple agents, blame games and public policy-making: the case of local government reform in New South Wales. Aust J Polit Sci 52(1):37–52 Drew J, Grant B, Fisher J (2017) Re-evaluating local government amalgamations: utility maximisation meets the principle of double effect. Policy & Politics 45(3):379–394 Drew J, Kortt M, Dollery B (2016) Did the big stick work? an empirical assessment of scale economies and the Queensland forced amalgamation program. Local Gov Stud 42(1):1–15 Drew J, Razin E, Andrews R (2018) Rhetoric in municipal amalgamations: a comparative analysis. Local Gov Stud. https://doi.org/10.1080/03003930.2018.1530657 Fahey G, Drew J, Dollery B (2016) Merger myths: a functional analysis of economies of scale in New South Wales municipalities. Pub Finance Mgmt 16(4):362–382 Friedman M (1993) Why government is the problem. hoover institution on war, Revolution and Peace, Stanford Ladd H, Yinger J (1989) America’s ailing cities—fiscal health and the design of urban policy. John Hopkins University Press, Marylands McQuestin D, Drew J, Dollery B (2017) Do municipal mergers improve technical efficiency? an empirical analysis of the 2008 Queensland municipal merger program. Aust J Pub Adm 77(3):442–455 Oates W (1999) An essay on fiscal federalism. J Econ Lit XXXVII: 1120–1149 Olson M (1969) The principle of fiscal equivalence: the division of responsibilities among different levels of government. Am Econ Rev 59(2):479–487 Riker W (1988) Liberalism against populism. Waveland Press, Illinois Robertson J (2016) Canterbury-Bankstown Council to spend on brands, ‘Place Making’ as fiscal challenges loom. Sydney Morning Herald, 18 September, 2016 Smith, A. (2014 [1776]). The wealth of nations. Shine Classics, Middletown

Chapter 5

Selling Boundary Reform

Abstract For any public policy to be successful in the long-run it needs to be sold carefully. Local government boundary reform is no exception. No matter how good the plan is unless residents, leaders and staff buy into the idea the full potential of the reform is unlikely to be realised. As a number of former political leaders can attest there are considerable costs involved in selling boundary reform. However, with the right tools and planning these costs might be minimised. In this chapter I first describe the three main types of costs—opportunity, contingency, and legacy—with respect to boundary reform. I then outline the various tools that might be applied to the task of minimising these costs. Following this I spend some time on the oft-neglected after sales care which is not just important to minimising legacy costs, but is also essential to a morally licit reform. I conclude with some remarks about the chances of successfully selling boundary reform.

In the last chapter I went through the various steps required to competently execute boundary reform. In this chapter I want to focus specifically on what is required to successfully sell boundary reform. Little scholarly effort has been expended on this crucial matter (notable exceptions are Drew 2018; Miyazaki 2020; Drew et al. 2018), which is somewhat surprising given the desperate need for a guide in this area. Indeed, in many countries (certainly in Australia) successful selling of boundary reform is the last great frontier for the political class—many have tried, but few, if any, have returned from the experienced unscathed. Notably, the costs associated with the reform and the tools available to mitigate these costs are applicable to selling any type of public policy. Clearly adjustments will be required, but for the most part the ideas used to explain how to sell boundary reform are the same as what might be used to sell the other reforms which follow this chapter. One thing that sets boundary reform apart from many other reforms though is the distribution of winners and losers, the size of the gains and losses, and the high likelihood of political opportunism. In boundary reform the winners are many (if done correctly it will be constituted by the majority of the residents), but the wins are rather small (perhaps better tailored goods and services, and a more sustainable local government). By way of contrast the losers are few and concentrated (political © Springer Nature Singapore Pte Ltd. 2020 J. Drew, Reforming Local Government, https://doi.org/10.1007/978-981-15-6503-8_5

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representatives, senior executives, and those who benefited in the past from political capitalisation), but they lose almost everything (their job, or their concentrated benefit). As a result, losers tend to be well organised and vociferous. Add to this political oppositions who will almost certainly take the opportunity to fan the flames for their own benefit and it is easy to see why boundary reform often ends with political casualties or an unedifying back-down (or both, in the case of the recent amalgamations in New South Wales, Australia). It is my contention that competent boundary reform (see Chap 4), planned and executed carefully, can be sold successfully. The starting point is to understand the likely costs of boundary reform—the matter to which I now turn my attention.

5.1 Costs of Selling Boundary Reform There are three types of costs associated with just about any public policy sell and knowledge of these is critical so that one can understand how best to plan a sales campaign. Opportunity costs are known to most economists as the cost of the next best option foregone. These costs are regularly overlooked by economic actors and it seems also by politicians. Opportunity costs are important because if one is selling local government boundary reform then this effort and media time cannot also be applied to selling other reforms. Indeed, to my mind this is the biggest problem with the Australian fixation on amalgamation as the cure to all local government ills— whilst all of the effort is being concentrated in this field, less (if any) effort is being expended in areas that might yield bigger benefits for the sector with far less angst. In addition, the way one chooses to sell local government boundary reform will exert an influence on what other strategies may also be applied to the sales pitch, and also the potential response of opponents. People have a limited capacity to absorb political arguments (if they bother to listen to them at all)—and thus for successful messaging it is probably important to stick to one simple idea, repeated multiple times. Any more than this and it is possible that people will simply lose interest and tune out. Therefore, it is critical that one considers the various arguments that might be made in support of boundary reform and choose the argument most likely to succeed (see my discussion of heresthetic dimensions in the next section). Moreover, what one raises as a selling point may very well shape the type of response that one receives from opponents to the reform (Drew 2018; for example, if one sells boundary reform by emphasising empirical data then it is reasonable to expect that opponents will also employ empirical data to try to refute the claims made). The second class of costs are contingency costs. These are costs that may come to pass depending on whether various future events transpire. Some of these costs are foreseeable, and therefore can be mitigated by taking some precautions during the planning phase. Indeed, because the amalgamation game has been played before in most jurisdictions, salespersons who do their homework should have a pretty clear idea of most likely contingencies. Contingency costs may also arise if empirical

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evidence or expert testimony (in the form of consultant reports and the like) are disputed. It is thus absolutely essential that the evidence used is beyond dispute and expertly executed (by no means a certain thing when employing expert brands—see, for example, Drew and Grant 2017). Moreover, as Donald Rumsfeld (2002) famously observed ‘there are also unknown unknowns…there are things we don’t know we don’t know’—these also represent remote probability contingency costs, but in this latter case it would seem quite impossible to do anything about them. The third type of cost are often neglected, but incredibly important—legacy costs. Legacy costs refer to the costs incurred when a public policy program has been widely judged a failure or, in the worst-case scenario, reversed (Drew 2018). It seems that politicians are so caught up in the excitement of venturing into the last great frontier of public policy that they forget all about what might happen after their policy has been executed (assuming that the policy does come to pass and the politician isn’t executed in its stead). Promises made in the heat of the sales pitch may come back to haunt the program and neglect of the need to conduct at least minimal after sales care can result in citizens demanding a product refund. Indeed, the frequency with which de-amalgamations now occur suggests that far more attention ought to be paid to legacy costs, because these events are absolutely devastating in terms of both financial sustainability (upwards of $20 million might be spent to first execute an amalgamation and then reverse it and thus return to the initial state) and the credibility of local government public policy makers. It is important to remain mindful of these three different kinds of costs when planning a boundary reform sales campaign. In the next section I review the various tools available to the public policy salesperson and link each to how they might be used to address known costs.

5.2 The Tools of the Boundary Reform Salesperson Research and evidence are critical to a successful boundary reform program, but they take time to complete competently. It is thus important to do one’s homework well in advance of any announcement, or the leaking of any credible rumour pertaining to the likelihood of reform. First, one must do one’s research with respect to how people are likely to react to the announcement of boundary reform. Most jurisdictions have executed local government amalgamations and there is thus likely to be plenty of material to indicate how the game has been played before. As a consequence most contingencies can be predicted well in advance. For instance, in Australia as I have recounted elsewhere, it is a near certainty that amalgamation plans will attract a good deal of emotional media, result in legal contest, and be met by statements from the political opposition party that they will allow de-amalgamation should they prove successful at the next state election (Drew 2018). There is no excuse for being surprised when these things come to pass and any public policy salesperson with contingency and legacy costs in mind will take appropriate actions to mitigate the expected events. For example, emotive

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media might be partially mitigated by citizen juries, appropriate compensation, and good boundary design that responds to our comprehensive theory of local government (see below); legal action can be defeated by ensuring that the relevant legislation and procedural fairness is strictly observed; and potential de-amalgamation can be thwarted by repudiating existing boundaries entirely (thus making it impossible to unscramble the egg—see Chap. 4). No doubt there are other manoeuvres which might occur in response to the specific legal and political environments that operate in jurisdictions abroad, but most of these too should be able to be mitigated, at least in part, by boundary reform architects who do their homework diligently—as King Solomon wisely said: Whatever has been is what will be, and whatever has been done is what will be done. There is nothing new beneath the sun! Sometimes there is something of which one says: ‘Look this is new!’—it has already existed in the ages before us (Sherman and Zlotowitz 1998, p. 1278).

The second component of doing one’s homework is to complete robust empirical work to support the arguments that one intends to make. Incredibly, many multimillion dollar reforms are based on little more than ‘gut instinct’. When evidence is tendered it is often quite ridiculous and completely unreliable. For example, in the recent New South Wales amalgamations the Minister’s proposals were backed-up by business cases prepared by a major consulting firm (KPMG). However, there was absolutely no evidence to support the assumptions made in the business cases—the business case itself was no more than some elementary arithmetic dressed up to look as if it might be respectable. As I said at the time, assumptions without evidence are simply guesses, and the implausible assumptions made in these business cases (often directly contradicting previous work done by KPMG itself) would have been laughable had they not been employed for such a serious matter with weighty implications for people’s lives. Taxpayers deserve better than to have their money spent with such gay abandon, and the people whose lives are impacted by reforms should at least have reason to believe that a little effort was put into investigating whether the public policy intervention might at least achieve its aims (see my discussion of the principle of double effect in Chap. 3). As I described in Chap. 4 the kind of evidence tendered will largely depend on the selling points and motivation for the boundary reform. If it is argued that amalgamation will result in more efficient local government (a common sales pitch), then there should be some econometric modelling to show what the optimal scale is for various functions and the likely impact the amalgamation configurations will have on technical efficiency. If instead the amalgamations are meant to result in more sustainable local government, then once again, it is only reasonable to submit some modelling that shows the likely effects on sustainability metrics (Drew and Dollery 2014a). Alternatively, if it is argued that boundary change will result in more homogenous communities, then it is a relatively straight-forward matter to use census data to show how the boundaries will result in communities with similar demographic and socio-economic status. If instead the objective is to better capture spill-overs then data on commuting patterns and the like should be used to show

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how the proposed boundaries will better match those who pay for the services with those who use them. Indeed, only laziness and inadequate resourcing would seem to stand in the way of all of these matters being properly investigated. With the data, computing power, and econometric techniques available today there is little excuse for not compiling rigorous and reliable evidence prior to embarking on boundary reforms. Evidence of this type will not only reduce the likelihood of disputes about claims being made (a contingency cost), but will also guide sensible decision-making likely to improve the lot of residents and thus reduce the likelihood of legacy costs (such as de-amalgamation). The next tool at hand for the prospective boundary reform architect is the heresthetic of dimension control. Heresthetic is a neologism of the late William H Riker (1986) who used it to describe non-rhetorical techniques for structuring the world so that one can win. Riker (1986) outlines a number of techniques, but the most important to boundary reform architects would seem to be dimension control. Dimensions are particular ways of thinking about a given matter. By appealing to different dimensions which tap into discrete latent preferences and tastes, the clever heresthetician can cleave off adherents to a dominant position and thus execute a surprising win. For instance, one dimension for amalgamation is efficiency, and another is achieving adequate scale. Elsewhere I have shown that not all dimensions are created equal: for example, efficiency can be precisely quantified and thus opens one up to disputes of claims (contingency costs) and post-amalgamation studies comparing actual outcomes to the claims made (legacy costs). Scale on the other hand is beyond dispute—amalgamations must end up larger no matter whether one assesses this according to population, geographic area, or number of staff—and thus carry far less potential for contingency and legacy costs. A third possibility, more applicable to boundary change than just simple amalgamation, is the dimension of striving to serve the people best and if the reform is carefully guided by the dummies guide to boundary reform that I outlined in Chap. 4, then this might be a nice dimension to use (depending on whether citizen satisfaction data has been collected). Certainly, no-one could claim that this wasn’t a ‘good’ reason for acting and it may constrain the options available to the opponents of reform (who will be obliged to somehow argue why their personal interests should be given priority over ‘the people’s’ interests). Many other dimensions are likely to exist, and I will leave it up to my readers to think of some more that respond to the particular economic and political environment in which they reside. The main thing is to choose the dimension through which one intends to argue their case with care in order to minimise opportunity costs (see also below for a discussion of focus groups). Previously I have written that heresthetic is not encumbered by the ethos (character or portrayed character of the proponent) as is its older cousin, rhetoric. In earlier work I have shown how rather devious methods can be brought to bear to increase the chances of a successful sell (Drew 2018). However, in this book I have adopted a much more saintly objective of bringing about reform that really makes a positive difference to people’s lives—and it seems wrong to outline potential underhand conduct in order to achieve desirable ends. Therefore, I will stick with the ethos despite temptations to do otherwise.

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Rhetoric is the seasoning that is required to make heresthetic palatable. In rhetoric, the ethos is combined with logos (reasoning required to prove an apparent truth) and pathos (the emotions of the auditors and rhetor) at an appropriate kairos in order to come as near as practical to success as the circumstances will allow (Aristotle 2012 [fourth century BCE]). Kairos—the rhetoric literally given godly status—is the ancient qualitative conception of time that stands in stark contrast to our chronos. Kairos to quote King Solomon again, is about recognising that ‘everything has its season, and there is a time for everything under heaven’ (Sherman and Zlotowitz 1998, p. 1280). It reminds us of the importance of being patient and waiting for a propitious time to embark on local government reform. Unfortunately, it is a largely forgotten element of classical rhetoric much to the detriment of boundary reform proponents, in particular. As I detailed in the previous chapter, doing competent boundary reform takes time. Moreover, successfully selling boundary reform can only happen at a propitious time; when people and the media are focussed and likely to be receptive to the message, and when the message has been informed by careful and diligent research—not simply because a thought bubble entered a politicians head one quiet day in Parliament. Careful use of the logos and pathos at a suitable kairos by a rhetor of known ethos should persuade local government leaders, residents and staff because ‘any reasonable person ought to be persuaded by what has been said’ (Booth 1974, p. xiv). However, my first-hand experience with the media during contentious local government amalgamation reforms leads me to conclude that reasoned speech won’t get one very far at all in trying to gain the assent of stakeholders through media channels. The media isn’t interested in reasons, but in ‘sound-bites’ and headlines (this is not a criticism of the media just a statement of the nature of their industry). Thus to be heard at all in these debates by media one generally has to resort to rhetoric that predicts dreadful consequences of one kind or another (Drew et al. 2018). Moreover, the fact that this is indeed the most frequent rhetoric employed in amalgamation debates, in a number of countries, suggests that dreadful consequence arguments are widely perceived by experienced rhetors to be effective. The reason for the success of unlikely but dreadful consequence arguments is that people are more likely to act, with a high degree of stickiness, to large losses (this is what economists term ‘negativity bias’)—thus doom-like predictions are useful for causing auditors to over-estimate the probability of large losses and therefore elicit reactions that suit the agenda of the rhetor (Drew et al. 2018). However, whilst arguments of dreadful consequences might indeed be effective for satisfying the desire to be heard, or winning a debate, they do little to contribute to the formulation and adoption of good public policy. Somehow the heat and media gatekeepers need to be removed so that an exchange of sober reasons can be had instead. The forum most likely to yield this kind of deliberative reasoning is a citizen jury where randomly selected citizens are provided with the opportunity to hear and inquire from knowledgeable parties about the merits of a proposal and can produce a summary guide for their peers on the salient issues (see, for example, Lang (2007) on the British Columbia Citizen Assembly). I do not think for a moment that this is a perfect solution, and I am well aware of the potential for the process to be

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manipulated (see Flinders and Curry (2008) on the same British Columbia Citizen Assembly), but it is the best that is possible at this time. The final thing to be mindful of in relation to rhetoric is the need to be careful and precise with the words actually employed. For instance, in the recent amalgamations out my way some government spokespersons were very sloppy with their language—specifically, the use of the word ‘efficiency’, when some sort of vague notion of cost-savings was probably actually intended—and people will pounce on these kind of slip-ups (I know I did). The claims made about efficiency have already brought about significant contingency costs (it was relatively easy for me to show that efficiencies would not occur) and will exert legacy costs (when I finish the paper I am collaborating on that shows amalgamations did indeed reduce, not improve, efficiency). Another kind of rhetorical (and heresthetical) sloppiness is to make unrealistic promises which only act to raise unrealistic expectations and create burdens for the new local government executives. For example, in New South Wales residents were told that ‘the situation is now critical and that action is needed to ensure ratepayers get value for money and the services and infrastructure they deserve’ (Baird 2015). These words reinforced earlier promises of lower taxation, more services and better infrastructure that had been thrown into the debate a handful of times and couldn’t possibly be delivered. Dashed expectations arising from this sloppy heresthetic and rhetoric will almost certainly haunt the architects of this particular reform for many years to come. There is really no excuse for such sloppy language by professional rhetors (politicians), especially in view of the potential to first try out one’s rhetoric and heresthetic with a focus group. I can only assume that the persons in question had given no thought to legacy costs or were entirely lacking an ethical compass. Ethics are the forgotten element of selling public policy, including local boundary reform. There is nothing more likely to galvanise people to oppose a reform than a determination that it is in some way unfair. Many people (especially those who are not religious) will probably struggle to articulate their ethical paradigm, but at the same time hang on dearly to their judgement of what is ‘right’ or ‘wrong’. Indeed, the whole idea of economics is based on an applied ethic of utilitarianism (the greatest good for the greatest number) which is often soundly rejected by the public (Drew et al. 2017). From my close observation of two forced boundary reform events it seems that the arguments with the greatest community penetration were statements that purported to demonstrate ‘unfairness’. Failure to receive a mandate for the proposed reform was probably the most prominent criticism in the last two examples of forced amalgamation programs in Australia. Typically in Australia state governments execute amalgamations as early in the fixed four year terms as possible, in the hope that the angst which accompanies amalgamation will have died down before they have to face voters again. However, positioning amalgamation early in the term suggests that state politicians probably had amalgamations in mind during the campaign. If the matter was not raised during the campaign, or worse still denied, then it is not unreasonable that opponents to the reform might cry foul—citing that no electoral mandate had been received for the reform, despite opportunities to do so.

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The second, type of act that is likely to elicit claims of ‘unfair’, are what Dollery et al. (2011) referred to as Blitzkrieg amalgamations of the type performed in Queensland in 2007. In this case just two weeks went by between the handing down of the final report by the Local Government Reform Commission, and execution of its recommendations. As a heresthetic technique I have some admiration for this kind of lightning strike, which prevents the opposition from mobilising its forces and hence significantly decreases the chance of contingency costs being incurred. However, it is hardly an act worthy of a democratic state, and certainly not the act of a person imbued with ethos. There were cries of outrage at the unfairness of this tactic, which resulted in a non-binding federally funded plebiscite being held on the matter, however, the amalgamation was Constitutionally entirely within the power of the state government and proceeded without interruption (but ended in five deamalgamations and the Premier stepping down to take up an overseas politically appointed post—so there were clear legacy costs; see Drew and Dollery 2014b). The third kind of perceived unfairness relates to the failure to take any efforts to mitigate bad side-effects arising from the amalgamations (see my discussion of the principle of double effect in Chap. 3). As I stated in Chap. 4, efficiency is mostly a sanitised term to describe people losing their careers and having their lives turned upside-down—initially CEOs and Directors, plus local representatives, but later general local government employees. If these jobs are sacrificed for a truly grave reason then it may be morally licit to executed efficiencies (Drew et al. 2017). However, all efforts should be made to minimise the damage and disruption to people’s lives—not only is this the moral thing to do, but it is also likely to reduce the intensity of opposition by those who lose the most. For example the timing of boundary reform can be set to coincide with the expiration of political terms or contracts (if sufficient foresight was shown the regulators could synchronise all senior management contracts to the fixed political cycle)—in this way people are not being deprived of their livelihoods during a period for which it would have been reasonable to assume there was no risk. In addition, compensation, re-training, and re-deployment (see Chap. 10) could be used to minimise losses. The main thing, I would argue, is to be sensitive to the human face of efficiency and show through one’s efforts that all pains are being taken to ensure losses are minimised. The last act which has attracted a good deal of attention for being ‘unfair’ is failure to provide the citizens with binding voice on the matter of boundary reform. As I noted in Chap. 4, voice is a critical element of morally licit amalgamation, and is likely to significantly reduce legacy costs (in the form of de-amalgamation activism). It is not unreasonable to ask the citizens who will ultimately bear most of the consequences of boundary reform (including potential transfers of wealth as I outlined in the previous chapter) whether they agree with the reform. If boundary reform has really been entered into with the best interests of residents at heart, then an unwillingness to allow citizens a voice in the matter can only mean one of two things: (i) either politicians are incapable of selling the advantages of reform, (ii) or politicians believe that residents are not competent to understand the benefits. If the former is true, then we clearly need some new politicians, if the latter is true then one has to wonder whether it is wise to allow citizens to make any judgements at

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all, and perhaps we should therefore ditch democracy altogether (which includes the process which gave the state politicians their jobs in the first place). Undoubtedly there are other ethical dimensions that might be relevant to jurisdictions abroad, and thus (once again) I direct prospective boundary reform architects to do their homework. Indeed, doing one’s homework and thinking through how the various tools I have outlined can be used to mitigate opportunity, contingency, and legacy costs is the biggest take-out message I want my readers to walk away with. In the next section I will spend a few moments discussing the need for after sales care. Some of these tools and ideas have already been raised in this book, thus far. But in view of the importance of after sales care, and it’s almost universal neglect, I feel it is critical to explicate a little more on the matter.

5.3 After Sales Care If one buys a significant product from a retailer—a car, house, or even a goat—then one usually expects and receives some sort of after sales care. Why should public policy, and local government reform in particular, be any different? Local government boundary reform, if conducted competently, is a significant investment of time, money and political capital so it is reasonable to expect some after sales care. Moreover, conducting some basic after sales care clearly has the potential to significantly reduce likely legacy costs. Yet my experience with two large boundary reform programs is that very little thought seems to have been given to what might happen after the axe had dropped. The first matter that arises after the decision has been made to conduct boundary reform on a given locality is what name to give to the new entity. Typically in Australia little effort has been put into this very important task, and names of the new entity are often just hyphenated combinations of the previous local government names (for example, when Queanbeyan and Palerang local governments were amalgamated the new entity was uninspiringly called ‘Queanbeyan-Palerang Regional Council’). Not only does this kind of thing graphically illustrate the lack of thought given to the morning after, but it also preserves former identities which in turn increase potential legacy costs. It seems to me that it would be much wiser to use a brand new name for the brand new entity—one that will resonate with the residents. Recently some amalgamated entities have been named after geographic features (such as Georges River council which was the outcome of an amalgamation between Kogarah and Hurstville councils), and this is a big improvement. However, one also needs to be careful that the name selected will not be the cause of future problems or regrets. For instance, Bayside council may have been an adequate choice for the amalgamation of Botany Bay and Rockdale councils, had it not been for the fact that there was a Bayside council already in existence in the neighbouring state of Victoria. The lack of care taken with this name is likely to give rise to confusion for many decades to come. Incidentally, in Japan they tend to favour more poetic names such as Sakura City, in Tochigi prefecture (Sakura means cherry blossom, and it is hard to see how

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any resident could not be content living in a local government area with a name like that!). Another matter that requires attention soon after boundary reform has been executed is to re-negotiate service levels and harmonise fees and taxes. As I noted in Chap. 4 this is a critical task if the advantages of homogenous communities are to be realised (see also my discussion of the Decentralisation Theorem in Chap. 3) and some sort of pecuniary equity is to transpire. Typically what happens is that the new entity provides the services at the highest level provided by the constituent councils (it is perceived to be politically difficult to reduce service levels following amalgamation—especially if residents have had their expectations of local government raised during the boundary reform debate) and rate and fee harmonisation is deferred to some period down the track when the political dust has settled (at the time of writing (October 2019) local government tax rates had still not been harmonised following the May 2016 amalgamations). However, if previous service levels weren’t matched to the tastes of residents—or perhaps more importantly the willingness of residents to pay—then importing service levels and revenue structures, as I describe, will almost certainly exacerbate inefficiency, and fiscal illusion, as well as entrench financial sustainability problems. Many years ago I was fortunate enough to have a relatively lengthy conversation with the inaugural Mayor of the de-amalgamated Mansfield shire in Victoria, Australia. Prior to de-amalgamation a report by the Local Government (Delatite Shire Council) Review Panel had suggested that Mansfield shire, as the smaller and breakaway council would struggle financially. However, my analysis of accounting data indicated that the opposite had actually occurred (see Drew and Dollery 2015). Intrigued, I tracked down the inaugural Mayor—who had since vacated the position—to find out how this fiscal miracle had occurred. His answer was that they basically stripped services back to the bare bones following de-amalgamation, and that the community had embraced low service levels because they knew it was key to financial survival post-de-amalgamation. Indeed, he told me a story of a community meeting where one resident who had complained about a pothole was told to pick up the supplies and fix it himself, which he willingly did! Incidentally, Table 5.1 below provides some interesting data on community satisfaction a few years either side of the de-amalgamation. Notably, satisfaction increased for both local governments following de-amalgamation, but more so for the smaller Table 5.1 Overall satisfaction (%) following De-amalgamation of delatite shire Local government

2001

2002

Delatite

55

58

2003

2004

2005

Benalla (after de-amalgamation)

62

64

60

Mansfield (after de-amalgamation)

66

71

65

65

65

65

Mean satisfaction all local governments Source Drew et al. (2014)

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Mansfield shire. This is some of the best evidence yet (although certainly not conclusive) that citizens may prefer smaller local government, and are willing to see a drop in service levels if they are presented with facts that suggest it may be appropriate. Certainly food for thought. As I have said a number of times now, I believe residents are capable of making good decisions if they are provided with the facts. I therefore advocate engaging with the community early on in the life of the new entity in order to agree on desired service levels and the fees and taxes that must be paid to provide them (see Chap. 9). Indeed, I have spoken at community events of this nature and found that most people when provided with reasons will make reasonable decisions—I guess my respect for the capacity of citizens to make good judgements when presented with appropriate facts sets me apart from Plato and, it seems, most of our local government regulators and decision-makers. It is also important to set up the conditions for co-operation at the new local government. It is well known—but rarely documented (see Spicer 2012 for a notable exception)—that the post-amalgamation voting chamber is dominated by bloc voting according to previous council identities. This is problematic for a number of reasons, not least because residents from the small local government area are effectively disenfranchised by the behaviour. Many of the steps that I have already outlined (for example, repudiating existing boundaries when deciding on the size and shape of new local governments) will reduce this behaviour and thus considerably reduce the likelihood of legacy effects such as de-amalgamation, however more can be done to foster co-operation. A good place to start when looking for ways to encourage co-operation between people previously located in different local government areas is Axelrod’s (1981) study on the Evolution of Cooperation. In this masterful work Axelrod identifies the factors most likely to give rise to co-operative behaviour and I think there are a number of lessons to be learned from this work by local government boundary reform architects. In particular, the concept of ‘enlarging the shadow of the future’ seems important—the idea here is that if people know that they will have many future interactions with other parties then they are more likely to play nice in order to avoid retaliation. Thus, by extending the duration of the inaugural council, and increasing the frequency of meetings one might be able to help to promote cooperative behaviour. Other strategies such as changing the payoffs for unco-operative behaviour (for instance requiring a super-majority to pass discretionary spending measures which would force even councillors from the majority bloc to play ball) and improving recognition (ensuring that the way votes are cast is made public in an accessible form) might also assist the formation of a cohesive and co-operative council chamber. The big take-away message from this section is that lots of things can be done to promote successful transitions following amalgamation (no doubt there are other strategies that I have not mentioned) and thus limit legacy costs. There is therefore no good reason to neglect after-sales care as a critical component of selling local government boundary reform.

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5.4 Concluding Remarks In this and the previous chapter I have spent some time laying out the determinants of success for boundary reform. Because I am yet to witness or read about a competent boundary reform, I can’t give a guarantee that careful implementation of my recommendations will definitely end well. However, by now I am sure that you will agree that putting some thought and effort into the process is likely to yield much better outcomes than what we have seen to date. However, boundary reform, whilst likely a necessary task for bring local government closer to the people and serving them best, is no silver bullet. Indeed, as you will discover over the next five chapters it is by no means the only reform option, nor probably the best one. To demonstrate my point, in the next chapter I will look at the idea of shared services (co-operative production of selected services through the combined efforts of two or more local governments). Shared services may indeed be a better way to capture the functionally specific economies of scale that I outlined in Chap. 4, as well as resolve the tension between the smallness implied by the homogeneity criteria and the largeness implied by the need to have adequate capacity.

References Aristotle (2012) Aristotle: The art of rhetoric. Collins Classics, London Axelrod R (1981) The evolution of co-operation. Basic Books, Cambridge Baird M (2015). Media release: fit for the future—$2 billion community windfall by merging unfit councils Booth W (1974) Modern dogma and the rhetoric of assent. University of Chicago Press, Chicago Dollery B, Kortt M, Grant B (2011) A normative model for local government de-amalgamation in Australia. Aust J Polit Sci 46(4):601–615 Drew J (2018) How losers can turn into winners in disputatious public policy: a heuristic for prospective herestheticians. Aust J Polit Sci. https://doi.org/10.1080/10361146.2018.1520195 Drew J, Dollery B (2014a) Would bigger councils yield scale economies in the greater perth metropolitan region? a critique of the metropolitan local government review for perth local government. Aust J Public Adm 73(1):128–137 Drew J, Dollery B (2014b) separation anxiety—an empirical evaluation of the sunshine coast regional council de-amalgamation. Public Money Mgmt 34(3):213–220 Drew J, Dollery B (2015) Breaking up is hard to do: the de-amalgamation of delatite shire. Public Finance Mgmt 15(1):1–23 Drew J, Grant B, Fisher J (2017) Re-evaluating local government amalgamations: utility maximisation meets the principle of double effect. Policy Polit 45(3):379–394 Drew J, Dollery B, Kortt M (2014) Can’t get no satisfaction. Aust J Public Adm 75(1):65–77 Drew J, Razin E, Andrews R (2018) Rhetoric in municipal amalgamations: a comparative analysis. Local Gov Stud. https://doi.org/10.1080/03003930.2018.1530657 Drew J, Grant B (2017) Multiple agents, blame games and public policy-making: the case of local government reform in New South Wales. Aust J Polit Sci 52(1):37–52 Flinders M & Curry D (2008). Deliberative democracy. elite politics and electoral reform. Policy Stud 29(4): 371–392

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Lang A (2007) But is it for real? the british Columbia citizens’ assembly as a model of statesponsored citizen empowerment. Polit Soc 35(1):35–69 Miyazaki M (2020) Fiscal sustainability and municipal amalgamation in Japan. Pub Adm Quart 44(2):78–103 Riker WH (1986) The art of political manipulation. Yale University Press, New Haven Rumsfeld D (2002) Press conference by US secretary of defence, Donald Rumsfeld. NATO, Brussels Sherman N, Zlotowitz M (1998) The chumash. Mesorah Publications Ltd, New York Spicer Z (2012) Post-amalgamation politics: how does consolidation impact community decisionmaking? Can J Urban Res 21(2):90–111

Chapter 6

Shared Services and Other Co-operative Arrangements

Abstract Shared services occur when two or more local governments enter into an agreement to co-operatively produce one or more local government goods or services. Doing so can help regional planning, internalise externalities, augment insufficient technical expertise and mitigate professional isolation. However, the most widely cited reason for entering into shared service arrangements is to increase technical efficiency. Moreover, interest in shared services often peaks during amalgamation debates and it is therefore not unreasonable to suspect that a major motivation for entering into these arrangements might be to maintain extant political identity. In this chapter I examine both the benefits and costs of shared service arrangements, paying particular attention to oft-overlooked exogenous costs which lie outside of the particular service collaboratively produced. Following this I consider the likely determinants of success for shared service arrangements. Thereafter I discuss an innovative approach to mitigating costs which might otherwise wreak devastation on local governments which have entered into collaborative arrangements. I conclude with a brief discussion of important considerations when selling shared services as a public policy prescription.

There has been a lot of interest, in both the scholarly and grey literatures, in recent years regarding the potential for shared service arrangements to increase technical efficiency, and hence improve the financial circumstances of local government (Bel and Warner 2015). Shared services seem at first sight to offer all of the efficiency advantages of amalgamation with far less risk, cost and political angst. Moreover, with shared services it should be possible to mix and match partners so that optimal size of production can be achieved for each function—which is a great advantage over the one size must fit all approach of amalgamation. In times gone by I have also championed shared services—mostly due to my belief that it was a better public policy option than the poorly thought-through amalgamations that had been proposed in my country. However, in recent times I started to read the literature around shared services a little more critically. Doing so, opened my eyes to some important costs that seemed to have been overlooked and I started to explore the data (see McQuestin and Drew 2018, Drew et al. 2019). What I found was that

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shared service arrangements—contrary to scholarly and popular opinion—actually often resulted in substantially higher unit costs! I probably shouldn’t have been surprised by these results given that shared services have the potential to run counter to the main source of savings identified in Oates’ (1999) Decentralisation Theorem. My readers will recall from Chap. 3, that a major benefit of decentralisation is that goods and services can be tailored to the particular tastes and circumstances of more homogenous groups of resident consumers. This can mean substantial savings if uniform provision might otherwise have resulted in higher production or quality of services. The problem for shared services is that it often results in uniform provision for the residents whose local governments enter into collaborative arrangements. In principle it is possible for collaborative arrangements to offer different levels of output and quality of services, however this would seem to be very difficult to put into practice, hence it is rarely done. Therefore, if the tastes of residents whose local governments enter into shared services differ, then we might reasonably expect a reduction in efficiency to result. Differences in taste are not the only reason for why shared services may not live up to their pecuniary promises. As I will outline in the reminder of the chapter there a number of other costs that might easily erode all of the expected savings, or even exceed them. However, having said all of this I still feel that shared services are an important potential reform tool. As might have been noted in Chap. 3 our comprehensive theory of local government will not only result in greater transparency, moral empathy, higher economic welfare and a higher stake in seeing efficacious solutions executed, but also in much smaller local government. It will therefore be important to have a way to capture economies of scale if there are any of significance. Moreover, small local governments often have difficulty attracting appropriate qualified expertise and those that can be found may feel professionally isolated (as the only empirically minded academic in my Institute I can attest to the difficulty of not having professional colleagues with which to discuss matters). Carefully constructed shared service arrangements might be able to alleviate some of these staff problems (see also Chap. 10). In addition, collaborative arrangements might lead to better regional planning or the internalisation of spill-overs. A good example of the latter might be a shared service for riparian management between upstream and downstream local governments which would not only improve the overall effectiveness of efforts (there is little point clearing debris and noxious weeds unless upstream municipalities also do so) but also ensure that the benefits of neighbours’ actions are internalised. Thus, there is lot of potential for carefully designed shared service arrangements to benefit local governments and the residents that they serve, provided it can be done in a pecuniarily prudent manner. In the next section I review the theory underlying the main source of pecuniary savings arising from shared services and also note some less obvious areas of potential efficiencies, before taking a look at three significant sources of costs that may well erode, or even exceed, the said savings.

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6.1 Pecuniary Benefits Associated with Shared Services The main source of pecuniary savings that are said to be possible through entering into shared service arrangements are economies of scale. As I described in Chaps. 3 and 4, economies of scale are likely to be function specific, to arise at different levels of output for each function (or sometimes not at all), and to yield different levels of savings per unit. One of the disadvantages to amalgamation is that all functions are necessarily exposed to the same population scale—hence, a big advantage of shared service arrangements is that it might be possible to mix and match collaborative partners for different functions so that near to optimal scale is achieved for most local government goods and services. This is especially important in a local government system based on our comprehensive theory of local government that would tend to produce relatively smaller (but more homogenous) local government entities. Indeed, shared services have the potential to entirely mitigate this major limitation of our theory. Readers will recall that economies of scale is the term used by economists to describe situations whereby average total costs might be expected to initially decrease, in line with increases to output, for some functions. In Chap. 4 I made the important, but oft-neglected, distinction between steep economies of scale curves and relatively flat ones. In the former case, potential savings might well be worth pursuing even in light of upfront costs, however in the latter case one would be foolhardy (or more likely ignorant of the empirical nature of the association) to do so. Generally, economies of scale are exhausted relatively quickly after which time we can expect a relatively long domain of constant returns to scale. Throughout this domain average total cost does not change as output is expanded. Therefore, whilst economies of scale are exhausted at the left-most point at which the production function first becomes horizontal (see Fig. 6.1 below) there is no harm done by selecting partners where the combined output is still to the left of the point at which diseconomies of scale (inefficiencies) emerge. Otherwise stated optimal scale is not a precise point that is hit or missed but a relatively lengthy domain of combined outputs. Prudent local government executives will try to choose partners that result in a combined output that is left of the centre of the production function, to allow for organic growth in output that occurs in most local government areas over time. Provided partners are selected in a manner informed by empirical analyses it should be possible, in some instances, to reap economies of scale by entering into collaborative ventures. Moreover, economies generated in this fashion involve far more certainty and far less angst than economies pursued through amalgamation. Indeed, the context in which shared services mostly comes up is in relation to amalgamation debates—as it is regularly perceived by opponents of consolidation as a get out of jail card (Conway et al. 2011). However, as we will see in the next section, there are also some significant costs associated with shared services and thus it is important to ensure that the economies are sufficiently large to warrant the exercise.

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Average Total Cost

Point at which efficiency is first maximised

Point at which inefficiency first emerges

No additional increases in efficiency in this domain

Combined Output Fig. 6.1 Potential Production (Scale) Efficiencies Arising From Shared Services

There are some additional, less obvious and far less certain, pecuniary savings that may also arise as a result of entering into collaborative arrangements. For instance, dynamic learning arising from mitigation of professional isolation and opportunities for increased specialisation, may produce unanticipated savings over time. Another way that shared services might contribute to the financial sustainability of a local government is if the arrangement results in the adoption of a new, more efficient, production process. Typically, local governments use different combinations of capital and labour to produce outputs and may be ignorant of more efficient combinations employed by neighbouring municipalities. If the collaborative arrangement involves moving to a more efficient production process, then savings will likely accrue. It is also possible, but far less likely, that the collaborative venture might result in uniform but relatively lower levels of service—if this does indeed occur, then it is possible that further savings might also be realised as a result of dropping standards. In sum, cost-savings are most likely to be realised through capturing economies of scale, moving to more efficient production processes, and learning through collaboration. Set against these savings however, are considerable costs that are often overlooked—the matter to which I now turn my attention.

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6.2 Pecuniary Costs Associated with Shared Services There are three types of costs that are relevant to shared service arrangements— transaction, agency and exogenous costs. Notably, many transaction and agency costs are relevant to in-house production also, but are easier to manage owing to greater transparency and more direct control and enforcement (Brown and Potoski 2003). Exogenous costs, by way of contrast, are particular to shared service arrangements and largely explain why analyses conducted at the level of entire local governments often produce empirical estimations much less rosy than the bulk of the scholarly and grey literature which only looks at costs relating to particular services (see, for an example of the former, Drew et al. 2019). Transaction costs arise due to uncertainty about the future, information asymmetry and the opportunistic behaviour of others (McQuestin and Drew 2018). They include information and co-ordination expense; free-rider burdens, negotiation and division costs, monitoring and enforcement expenses and defection costs. Information cost include the costs of conducting robust empirical analyses to carefully select appropriate partners (sadly invariably eschewed), due diligence on prospective partners (also likely to be neglected), and the ongoing, substantial, but invariably overlooked additional accounting costs (which probably explains the heavy promotion of shared services by the Big Four accounting and consulting firms). Free-rider costs are largely the result of trying to skimp on information costs and occur when one party tries to contribute less than agreed to the co-production exercise. Often free-rider costs are hard to detect and may include the contribution of poor performing ‘problem’ staff, or assets where the fair value is well below book value. Negotiation and division costs are upfront costs and arise from the need to bargain about the transaction surplus. The literature suggests, as does my own experience, that larger more powerful shared service partners may well strike a better bargain than their smaller peers (Carr and Hawkins 2013). In addition, it should be remembered that in all likelihood the local governments would previously have produced the goods at quite disparate costs—so even if the transaction surplus is distributed on an equal per unit basis, actual savings will be asymmetrical. Monitoring and enforcement costs are ongoing and represent the time and expense required to ensure that all parties faithfully execute their side of the bargain and that appropriate penalties are applied to discourage inappropriate behaviours. Defection costs may come in two guises. First, the mere threat of defection is a contingency cost and has been used to renegotiate the division of bargaining surpluses in the past and thus should not be ignored (Drew et al. 2019). Second, as acknowledged more widely in the literature, there are considerable costs involved when members to the collaborative venture pull out of the arrangement and these costs could be devastating. Withdrawal of a member will dramatically decrease output and may thus result in the loss of economies of scale. In addition, it may involve the withdrawal of critical assets and staff (and hence expertise and institutional knowledge) repatriated to the defecting local government. Later I will discuss some of the remedies raised

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in the literature, in recognition of the severity of the problem, which are supposed to constrain this type of deleterious behaviour. Agency costs represent a second salient way in which efficiencies arising from shared services might be eroded, extinguished or indeed exceeded. Just like transaction costs, agency costs are facilitated by information asymmetries—however, their actual occurrence owes more to goal incongruence than bad-faith behaviour. Goal incongruence may occur due to an inability of agents to perceive their principal’s preference, or a lack of interest in pursuing the principal’s interests. Agency costs would seem more likely to be incurred in shared service arrangements because of the increasing complexity and distance between agents and principals. Members of shared service boards act as agents of both their local government and the local government taxpayers. This greater distance to taxpayer principals might mean that it is harder for agents on shared service boards to know taxpayer preferences. In addition, it is possible that the two sets of principals (taxpayers and local government decision makers respectively) might have different preferences, and if this is the case then agency costs will certainly result. Moreover, the move to shared services has weighty implications for staff that may lead to goal incongruence. If staff are re-assigned to shared service ventures, then this may have deleterious implications for career development and may also result in reduced management responsibilities (and hence power). In addition, it is possible that staff and political representatives might be split on an ideological basis about the desirability of moving from in-house production to collaborative production. Friction caused, along with the diversion of organisational attention, could result in reduced efficiency. Indeed, the convoy problem—whereby the effectiveness of the shared service venture is hampered by the inertia of the least committed member—is a salient agency cost that must also be considered. Transaction and agency costs have been discussed in the extant literature although rarely empirically quantified. However, what I refer to as exogenous costs have largely been ignored (see Drew et al. 2019 for an exception to this rule). I have termed these costs exogenous because they largely lie outside of the particular service being shared but do instead bear on the expense of the remainder of the local government business that is left behind. One of the major areas of exogenous cost is a likely loss in economies of scope. Economies of scope occur when a single factor of production (say staff or capital goods) is used for more than one purpose. For instance, the local government office, information technology infrastructure and staff used for the local government water business may also be involved in the provision of other local government goods and services (such as the sewer business or procurement). If one function is removed from the direct control of the local government, then an erosion of economies of scope is likely to occur and hence the unit cost of residual services might be expected to rise. Another exogenous cost is the likelihood that residents will still contact the local government for complaints and inquiries, long after the service has been transferred to the shared service entity. Residents are unlikely to adapt to the idea that a shared service entity has become responsible for service delivery and will continue their ‘habit’ of calling the local government with problems and inquiries. What this means

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is that the local government will continue to bear some costs associated with the service long after it has ceased being produced in-house. A third exogenous cost is a failure to meaningfully redeploy or divest staff and assets no longer required after the shared service has been established. As I have said before, once a human face is put to staff efficiency decision-making things get tough. A staff member, no longer required after a local government service has been outsourced to a collaborative venture, is a drain on efficiency but they are also a person that deserves moral consideration. Similarly, it may be very difficult to redeploy assets. Consider, for example, office space that has been vacated because the shared service has been moved elsewhere. It is probably impractical to put this space to a more productive use (such as selling or renting out the vacated office space) and therefore the part of the asset no longer required will continue to be a drain on the local government resources (for maintenance and the like). A final exogenous cost that is almost always overlooked is the loss in skills and capacity that may accompany the establishment of a shared service venture. If staff are transferred to the venture or dismissed, then skills and institutional knowledge will be lost to the local government. For instance the person transferred to a water collaboration, may have been a long-standing employee who had work in a number of departments and all of this knowledge will leave with them. Moreover, the capacity of the local government to repatriate the service back in-house at a later date, should the collaborative venture fail or prove disappointing, may be irreparably damaged. Curiously evaluations of shared service programs generally neglect these costs and hence project a more rosy picture of the outcomes of the collaborative venture than might be strictly warranted. Figure 6.2 summarises what we have been discussing in relation to the pecuniary costs and benefits arising from transfer of existing in-house services to shared service ventures. On the far left I have listed the various gross savings that might be made if collaborative partners are selected carefully so that the combined output captures economies of scale, but avoids diseconomies of scale. From these savings we must subtract the upfront and ongoing costs (agency and transaction costs). Notably I have included the factor α1 ∗ β1 to represent how costs might well be expected to increase as the number of participants to the collaborative venture grows (α1 ) and the heterogeneity of collaborative venture partners widens (β1 ). To the right of this are the exogenous costs (which don’t depend on the number or heterogeneity of partners), that must also be subtracted from the gross savings, to yield a nett annualised saving or cost for the venture. Readers should be cognisant of the fact that many of the costs detailed in Fig. 6.2 will not apply in the case where the proposed collaborative venture is for a service that has not previously been produced by the local government. In these rare instances where an entirely new service is contemplated, the calculus shifts significantly in favour of provision through collaborative arrangements. In all likelihood many ventures will result in a nett loss to the local government (this is the finding I arrived at by examining a five year panel of Australian data where the unit cost rose by about 8% in association with use of shared services—see Drew et al. 2019). In view of the non-pecuniary benefits that may also arise from shared

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Gross Annual Savings: Division Costs Economies of Scale Internalisation of Externalities Dynamic Efficiencies from Learning

Potential Changes to Production Process or Changes to Service Quality, that Reduce Cost

Information Costs Upfront Costs

1

∗

1

Co-ordination Costs

Free Rider Costs

1

Defection Costs Realised or Contingent

Exogenou Costs to LGA: Erosion of Economies of Scope

Failure to Redeploy Assets and Staff

Nett Annualised Savings or Cost

Residual Elements Retained

Agency Costs

Potential Changes to Production Process or Changes to Service Quality, that Increase Cost

Fig. 6.2 Costs and Benefits of Transferring to Shared Service Collaborations.

services this additional cost may be deemed acceptable in some exceptional cases. However, I don’t think that a loss need definitely result. In the next section I discuss some of the determinants for pecuniary success in shared services as well as the steps that should be undertaken by prudent decision makers considering venturing into collaborative arrangements.

6.3 Determinants for Shared Service Success The first step in making shared services work from a pecuniary perspective is to do one’s homework. By the end of this book I am sure my readers will be sick of hearing this exhortation—but in view of how rarely robust analysis is done prior to embarking on expensive and risky reform I think I am warranted in (over)emphasising what to me has always seemed a rather obvious requirement. As we have seen, the main source of savings is from capturing economies of scale. Therefore, it follows that for a shared service to work as hoped there must be some estimation of the optimal scale for the particular function under consideration. Only then can wise decisions be made about selecting partners to increase output to a level where it would be reasonable to expect some pecuniary benefit might follow. In addition, careful and prudent planners of shared service arrangements would seek to enlist the minimum number of partners required to approach the optimal scale. Many costs—such as information or enforcement cost—will increase in proportion

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with the number of collaborative partners, so it makes sense to minimise this discretionary variable. It is also important that preference is given to collaborators that are homogenous, given that uniform production is the most likely outcome of collaborative ventures. In addition, collaborators might be sought which have complimentary staff and assets to contribute to the arrangement. For example, there is little point in an asset rich but expertise poor local government joining forces with an entity in a similar position—it will only result in sales of surplus assets (typically at less than book value), and a continued deficiency in expertise. A much better arrangement would be for an asset rich but expertise poor local government to form an association with an asset poor but expertise rich neighbour. It is also likely that the nature of the outputs associated with the proposed collaborative venture will have a large bearing on its pecuniary success. For instance, local government goods and services that are easy to measure (in terms of both quality and quantity) will reduce information costs and aide monitoring and enforcement efforts (Brown and Potoski 2003). In addition, selecting outputs that are largely impervious to community taste (such as provision of sewer services) will mean that there is less likelihood of losses to economic welfare arising from uniform production (Carr and Hawkins 2013; Feiock 2007). It has also been argued that selecting functions for shared service production that don’t require specific equipment and skills might also result in more success (Brown and Potoski 2005). I am not one hundred percent convinced on this matter—certainly it will result in lower upfront costs for the collaborative venture, but I feel that this benefit might be well and truly offset by the potential loss of economies of scope and institutional knowledge. Unfortunately, it is hard to identify the determinants of collaborative success empirically due to a lack of sufficiently disaggregated data. I have found some evidence that selecting services which are not sensitive to community taste, and services which are easy to measure, might improve the chances of pecuniarily successful shared services, but it is far from definitive (see McQuestin and Drew 2018; Drew et al. 2019). It is probably a question that is much more amenable to rhetorical economics than econometrics, so until someone gains access to much more disaggregated data the aforementioned reasoning is probably the most that can be said on the matter for now.

6.4 Combatting Costs in Shared Services As I have already outlined, costs can quickly erode desired savings arising from shared services and may even result in a pecuniary loss from the arrangement. It is therefore important to consider some additional mechanisms through which these costs might be minimised. The two main ideas discussed in the literature to mitigate shared service costs are mediated arrangements and binding contracts (Carr and Hawkins 2013; Conway

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et al. 2011). Both are relevant to only a subset of the costs I identified earlier and both come with important disadvantages. Mediated arrangements occur when an authority selects shared service partners, determines the division of the transaction surplus, and generally sets the rules of the game. If sufficient expertise and resources exist to complete these tasks competently (by no means guaranteed) then mediated arrangements might be expected to considerably reduce information, and division costs. Moreover, if the mediating body has sufficient legal authority to prevent members of a shared services body from exit, then defection costs will be all but eliminated. However, compulsory mediated arrangements might be expected to lead to greater levels of opportunistic and bad-faith behaviours and hence increase monitoring and enforcement, as well as free-rider costs. In addition, arrangements of this type clearly impinge on the dignity of the local government and therefore are not consistent with natural law principles. Moreover, without the threat of exit it is unlikely that members will be able to bring about recuperation in sub-optimal shared service associations (see Chap. 3 regarding Hirschman’s (1970) Exit, Voice and Loyalty framework). Binding contracts better reflect the desirability of ensuring that the dignity of local government associations is preserved. Under this arrangement knowledgeable and willing parties would specify in some detail their responsibilities and the penalties that might be imposed if they fail to deliver on same. This may reduce the cost of monitoring and enforcement (although as most consumers all too readily understand there is a big difference between having legal rights and being able to exercise the said rights), free-rider behaviours (assuming all responsibilities are specified in sufficient detail), and defection costs (assuming that sufficient penalties are imposed for defection and that these penalties can indeed be enforced). However, prescriptive and binding contracts are likely to significantly inflate the division and negotiation costs. In addition, there is a good chance that the complete specification of responsibilities and service levels might contribute to threshold effects (whereby performance is clustered around the specified level because better performance has no reward associated with it). Moreover, contracted arrangements will tend to be inflexible which may mean that future potential for additional co-operation or service improvement is eschewed or that additional time consuming and expensive contracting will have to be repeated at intervals. There is a third possibility for minimising costs that has thus far escaped the attention of the scholarly literature—what I refer to as the ‘commune’ approach based on the lessons gleaned by economic scholars who have studied the surprising success of the socialist communes of Israel called kibbutz (see Abramitzky 2018 for a thorough account of the economics of the kibbutz movement). Kibbutzim are an example of successful voluntary socialism in a wealthy capitalist society, which have managed to survive three important threats that apply also to shared service co-operatives.1 1 It

will be clear to those who have read Chap. 3 that I am far from being a fan of socialism. This discussion of kibbutzim is only designed to illuminate how unlikely associations can survive despite the dismal predictions of economic theory, and to use these lessons to cast a light on how

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In the kibbutz model each person was expected to contribute to their capacity, and each was provided according to their need. In early systems of kibbutz each person had duties to perform, and in exchange for this work would be fed (in communal dining halls), clothed and have their children cared for. It was the ultimate instantiation of the common good which survived despite the fact that economic theory predicts that such arrangements are doomed to failure. For instance, if everyone received their needs (and no more) for working then most economists would predict rampant free-riding (why work hard if there was no incentive to do so), defection of the ablest and most skilled workers (who could earn a significant premium outside the commune), and the attraction of new recruits who were lazy and unskilled (and thus would benefit most from sharing) (Abramitzky 2018). I have already discussed two of these threats (defection and free-rider costs) at length with respect to shared services, but have thus far neglected the third (adverse selection). Adverse selection has largely been ignored by shared services scholars, but they probably should not have done so. Adverse selection is the idea that sellers will have more information about a product than buyers are likely to have. It is often applied to analysis of insurance, where the sellers (those wishing to be insured) know a lot more about their risk, than the buyer (the insurance company). The circumstances surrounding shared services are quite similar—those wishing to enter into an arrangement know a lot more about their true motivations for doing so (and also the condition of the assets and staff that they may contribute), and the amount of effort they are likely to invest into the arrangement than the party they are courting. Indeed, local governments entering into shared services might be doing so because they are in severe financial problems (and hence have limited capacity to contribute to shared goals), are encumbered by assets or staff which are not up to the job, wish only to avoid amalgamation (a fleeting motivation that is on its own unlikely to result in a long-term arrangement necessary to recoup upfront costs; Conway et al. 2011), or are hoping to free-ride off others. Therefore adverse selection is a salient, although mostly overlooked, risk to the success of shared service arrangements. Kibbutzim employed a number of strategies to deal with these three pressing problems. To mitigate adverse selection, kibbutz required potential entrants to undergo lengthy selection tests and serve a probation period (generally one calendar year). There were also considerable sacrifices required of entrants—largely recruits were required to give up their privacy (communal dining and living meant that there were few if any secrets), and a substantial sacrifice was required (upon admission new entrants had to turn over all of their private property to the commune). To deal with free-riding kibbutzim employed strict mutual monitoring and transparency (persons were invariably required to work in small but changing teams where their efforts were able to be clearly seen) and harnessed homogeneous preferences and ideology. Indeed, commitment to socialist ideals had to be demonstrated on a regular basis and was inculcated in almost every common good and activity, including education. To reduce the risk of defection, kibbutzim provided superior public goods and did not associations of local governments might also survive against the odds. I certainly don’t mean for local governments to start acting in the manner of socialist communes with respect to their remit!

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allow members to withdraw assets if they chose to leave the commune. In sum, these unique strategies allowed an extreme form of voluntary co-operation to last for over a century during a period of dramatic social, technological and economic change (Abramitzky 2018) —indeed, kibbutz operate to this day in Israel. Most of these strategies could be adjusted for employment with a view to helping the less extreme co-operative arrangements of local government shared services to last the distance. To mitigate adverse selection, rigorous due diligence on potential partners (akin to lengthy selection tests) could be undertaken, and acceptance into an arrangement could initially be for a probation period of one financial year. In addition, co-operative partners could be asked to give up their privacy—make all internal records (such as depreciation and maintenance schedules) and staff available for inspection, and be required to relinquish title on assets and staff contributed to the shared venture. To deal with free-riding, increased transparency could be facilitated through robust and reliable performance monitoring systems and a commitment to regular formal and informal meetings (akin to communal dining). Moreover, commitment to lasting ideals such as a desire to produce efficient and effective services (rather than merely avoid a threat at a particular moment in time), and a selection of partners based on homogeneity of preferences and processes (as discussed much earlier in this chapter) would likely improve matters. To reduce defection shared service ventures would seek to provide superior services at a superior price (after all few would be inclined to leave an arrangement that provided great outcomes) and have the legal capacity to refuse withdrawal of assets by the defecting local government. The advantage that this commune approach has over the extant mechanisms is that it addresses more of the costs (four costs compared to three) without incurring the important disadvantages we discussed earlier (loss of dignity, loss of exit option, loss of flexibility, and potential for threshold effects). It does still have a high cost involved, as do binding contracts, but the cost is contingent (only occurs if exiting) rather than definite and upfront. Certainly, the commune approach to shared services deserves greater consideration as a method by which the nett benefits of shared services might be increased, and the devastation of defection, in particular, made less likely.

6.5 A Quick Word on Outsourcing to Business There is one further co-operative arrangement that I have thus far failed to discuss entirely—co-operating with business to deliver services. This has become more popular in recent years and is now commonplace—particularly in the solid waste removal function (for example, there would be very few residents in Australia who don’t have their rubbish bin collected by Cleanaway). The reason I haven’t discussed the matter is that I take a rather negative view of the practice. The ends (goals) of local government and business are fundamentally incompatible and it is therefore unlikely that co-operation between the parties will result in good long-run outcomes. The goal of local government is to provide goods

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and services necessary for human flourishment where no other smaller competent provider exists (Messner 1952). Ideas such as equity, accountability, transparency, meeting needs, and providing access to public goods immediately spring to mind when considering government. By way of contrast, the goal of business is to make a profit (Friedman 1962) within the bounds of the rules set for the game (in contracts and law). Here the relevant concepts are exclusion, setting a price above cost and competition. There is little hope that such diametrically opposed goals can ever be harmonised in the long-run. This is not to say that business does not have a place in the plurality of social forms required for human flourishing. It certainly does and moreover it is of critical importance. All I am saying here is that the nature of business is completely at odds with the nature of government (see Chap. 3) and little good can come out of confusing the remit of these two beasts. If a function is indeed better satisfied through business, then it suggests to me that it was beyond the legitimate role of government in the first place. Thus rather than outsourcing the function to business, local government should divest itself of the function entirely. No good can come of having local government stand as a middleman between the consumer and the provider—it simply represents an inefficient structure for delivery of the service; an unnecessary extra level of bureaucracy and cost. If, however the function lies within the legitimate remit of local government, then it is (in the words of Pius XI, 1931, paragraph 80) a ‘grave evil and disturbance of right order’ to allow business to perform the munera properly belonging to local government. This is because, with the encroachment of business, comes a reduction in competence for local government and a blurring of the needs of the persons that government is supposed to serve. The popular catch-phrase, corporate social responsibility, may make us feel all warm and fuzzy but it is still the ‘hypocritical window-dressing…approaching fraud…[of] pontificating muddle-headed [and] schizophrenic…businessmen’ (Friedman 1970, n.p.) that it was labelled almost half a century ago. It is thus rather foolish to think that business will show the same concern for the bona fide need of persons that government may be reasonably expected to show. Perhaps in the short-run business may be able to provide a satisfactory service at a lower unit cost. But what happens when business looks to more fully perform their mandate and seeks to raise revenues to return higher profits to its owners? If there is a competitor then it may be possible for the local government to exit, but there will be a cost for doing so (information and negotiation costs). If there is no feasible competitor then the local government will either have to absorb whatever price rise is demanded, or repatriate the service in-house (Brown and Potoski 2005). However, by this time the staff and assets (and hence competence) to perform the function are probably long gone meaning that this will be a very expensive exercise (if it is possible at all). Outsourcing functions to business also exposes residents to risk. The reason why business is entitled to a profit is due to its acceptance of risk. This is a very different risk environment to what local government operates in. Outsourcing functions to business thus imputes higher risk to the function than would otherwise have been

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the case. If the business goes broke, or suddenly is unable to fulfil its function, then residents may have services abruptly discontinued. Moreover, as I have already noted, finding an alternate supplier or repatriating the service may prove very costly and also be a lengthy process. The final disadvantage in outsourcing functions to business relates to the increase in distance between principals and agents. Local government will have less direct contact with the resident consumer in relation to a function outsourced and may thus find it more difficult to accurately identify tastes and preferences. In addition, local government executives will have less control over the production process and quality of outputs (and perhaps no control if these haven’t been stipulated in the contract and if there are no penalties or competitors). A variation on co-operation with business is for local government to co-operate with non-profit organisations, charities and the like. This has the advantage of reducing the degree of goal incongruence substantially, although it should be noted that many non-profit organisations do in fact keep a close eye on the bottom line and may only enter into co-operative arrangements in order to make a profit that can be used elsewhere to facilitate their more treasured goals. However, despite the better alignment of ends between local government and non-profit organisations, I am not thoroughly convinced that it is in the best interest of these parties to co-operate for at least three reasons. First, transferring functions to non-profits still results in a loss of competence and greater risk for the local government (should the non-profit organisation experience financial failure or decides to divest itself of activities). Second, if the function can be performed by a smaller non-profit organisation then natural law philosophers would argue that it is not a legitimate function of local government anyhow. And third, there is a good deal of potential for arrangements between nonprofits and government to result in significant damage to the dignity of the non-profit organisation. I have witnessed how organisations such as the Salvation Army have had their dignity and reputation damaged beyond repair through their co-operation with the federal government in Australia on a number of matters (for example, aged care and immigration detention centres) and thus conclude that such arrangements are not entirely conducive to a plurality of power and competence ideally required for human flourishing. Moreover, I am not entirely sure that outsourcing functions to non-local government providers produces quite the level of savings that one reads of in the grey literature and hears about (there is very little scholarly literature on the topic). I imagine that many of the agency, transaction and exogenous costs I described earlier apply at least equally to co-operation with business and non-profits and these are likely to have been neglected entirely by advocates of outsourcing (see Fig. 6.2). As a result of this optimistic accounting of pecuniary outcomes it is quite possible that many local governments are working under the misapprehension that they are saving money by outsourcing when precisely the opposite may be the case.

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6.6 Selling Shared Services As I noted in the last chapter, no matter how good the public policy intervention plan is, it won’t fulfil its potential unless architects get political representatives, staff, and citizens to buy into it. The main tools for selling shared services are the same as the tools required to sell local boundary reform, and despite the fact that the implications of the former are far less weighty than the latter a prudent architect will still take pains to execute their program with care. First, one must do one’s homework and know how the game has been played before. In this regard there is, unfortunately very little literature (see Conway et al. 2011 for a notable exception) but there are many examples of failed and struggling shared service arrangements that one can investigate by talking with key stakeholders. Second, one must conduct robust empirical work to estimate the optimal size of the function under consideration for the shared service, for as I have outlined earlier, a failure to do this may well reap diseconomies from the very start. In addition, it is important to understand whether there is homogeneity in taste and process for the particular service. Notably, homogeneity in current service levels does not necessarily equal homogeneity in taste, and a prudent architect would survey some citizens to understand the latter, more relevant, dimension. The next important matter to address is the heresthetic dimension through which shared services might be sold. It will come to no surprise to my readers when I state that avoiding amalgamation is not an appropriate dimension! Efficiency is slightly better, especially if this is truly the goal and robust empirical work suggests it is a likely outcome, but this does pose contingency costs. Striving to serve the people best is probably a far better bet, and ideally not far from the actual motivation. Moreover, an appropriate kairos must be found (certainly not at any time when amalgamation might be rumoured or being discussed), and it will also be important to be moderate in one’s language so as to avoid raising unrealistic expectations. Much better to underpromise and over-deliver than have people clambering for revenge and reversal of the arrangement down the track. Finally, when selling shared services I implore architects of the proposed reform to remain cognisant of the need to conduct themselves in a morally defensible manner. In particular, one should never lose sight of the human face of efficiency. If people must lose their jobs, then this should be done with sensitivity and all efforts made to mitigate bad side-effects (see my discussion of the principle of double effect in Chap. 3). In addition, shared services can have important implications for career progression and power within local government and it is therefore imperative that people affected by the proposal understand that due diligence has been done and that their sacrifice will have good outcomes for others.

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6.7 Concluding Remarks Shared services are an important tool for reforming local government, especially in view of capacity and efficiency issues that may arise as a result of paying close heed to the comprehensive theory of local government which strives to locate local government close to the people and serve them best (see Chap. 3). However, it is by no means the most important tool—although it is probably the least controversial. In the next chapter I will examine the need to reform the remit of local government. My contention that there is a need to reform the remit of most local governments responds to the importance I and other natural law proponents place on both the plurality of competent associations for the flourishing of persons as well as the prevention of unhealthy concentrations of power. In particular, a reform of the remit of local government has strong potential to reduce the intrusiveness and coercive power of higher tiers of government, and if implemented along with other suggested reforms (particularly reforms to political institutions which are outlined in the chapter that follows the next) may provide a way of preserving the freedom that most of us crave, but few of us are fortunate enough to have.

References Abramitzky R (2018) The mystery of the kibbutz: egalitarian principles in a capitalist world. Princeton University Press, Princeton Bel G, Warner M (2015) Inter-municipal co-operation and costs: expectations and evidence. Public Adm 93:52–67 Brown T, Potoski M (2003) Transaction costs and institutional explanations for government service production decisions. J Public Adm Res Theor 13(4):441–468 Brown T, Potoski M (2005) Transaction costs and contracting: the practitioner perspective. Public Perform Mgmt Rev 16(4):362–382 Carr J, Hawkins C (2013) The costs of co-operation: what the research tells us about managing the risks of service collaborations in the U.S.. State Gov Rev 45(4): 224–239 Conway M, Dollery B, Grant B (2011) Shared service models in Australian local government: the fragmentation of the New England strategic alliance 5 years on. Aust Geogr 42(2):207–223 Drew J, McQuestin D, B Dollery (2019) Good to share? the pecuniary implications of moving to shared service production for local government services. Public Adm https://doi.org/10.1111/ padm.12575 Feiock R (2007) Rational choice and regional governance. J Urban Aff 29(1):47–63 Friedman M (1962) Capitalism and freedom. University of Chicago Press, Chicago Friedman M (1970) The social responsibility of business is to increase its profits. The New York Times, 13 Sept 1970 Hirschman, A (1970) Exit, voice, and loyalty. Harvard University Press, Cambridge McQuestin D, Drew J (2018) Is a problem shared a problem halved? shared services and municipal efficiency. Aust J Public Adm 78(2):265–280 Messner J (1952) Social ethics: natural law in the modern world. Transl. J. Doherty. B Herder Book Co, St Louis Oates W (1999) An essay on fiscal federalism. J Econ Lit XXXVII, 1120–1149

References

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Pius XI (1931) Quadragesimo anno: reconstructing the social order and perfecting it comfortably to the precepts of the gospel in commemoration of the fortieth anniversary of the encyclical “Rerum Novarum”. Australian Catholic Truth Society

Chapter 7

The Ideal Remit of Local Government

Abstract In many instances the remit of local government is in discord with its legitimate mandate as prescribed under natural law philosophy. The discord is due both to local government exceeding its legitimate mandate in some areas, and neglecting important functions elsewhere. When local government exceeds its legitimate mandate the dignity of persons and persons in association is diminished. When it fails to perform functions that rightly should be assigned to it, then the common good suffers. The Principle of Subsidiarity provides important guidance on how to balance dignity with the common good and thus avoid dangerous concentrations in power and competence. In this chapter I first provide a little more detail on the dangers posed to society and the person when the principle is neglected. I then make a case for divestment of functions where local government has exceeded its legitimate mandate. Following this I make a case for greater decentralisation of other government functions and hence an extension of the remit for many local government systems. Thereafter I consider the provision of education as an example of how implementation of the Principle of Subsidiarity might be expected to lead to better outcomes. I conclude the chapter with a discussion on the importance of a complementary reform agenda to resist the inevitable efforts of ideologues and special interest groups who will always be tempted to adjust the remit of local government to seek their interests rather than the long-run interests of the people.

The institution of government brings with it an unavoidable tension between the dignity of persons (and persons in association) and the common good. Human dignity is the right of persons to pursue their existential ends without undue interference—a state of affairs that I dream of but have never experienced and probably never will. The common good, on the other hand, is the help accruing to persons as a result of co-operation—something that I have certainly benefitted from many times in my life. Notably the common good is not an end in itself, but merely a means by which a person might fulfil their ends and misapprehension on this point is what has given rise to the deleterious communist, welfare state, and national socialist ideologies (and yes I do mean to put the welfare state in the same category as its despised peers). Too much emphasis on either human dignity or the common good is a demonstrably unhealthy thing. Laissez-faire and Manchester liberalism sought to promote © Springer Nature Singapore Pte Ltd. 2020 J. Drew, Reforming Local Government, https://doi.org/10.1007/978-981-15-6503-8_7

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the individual at the expense of the common good with disastrous consequences for the exploitation of persons and economies (Messner 1952). On the other hand communism and Nazism both sought to promote the common good to the exclusion of human dignity, and both have now largely failed and stand rightly condemned in history. As befitting a principle derived from the natural law tradition, harking back to Aristotle1 (who readers might recall was fixated with the golden mean2 ), Subsidiarity seeks to chart a middle path between the two extremes represented by an unhealthy preoccupation with either human dignity or the common good. Johannes Messner was arguably the greatest interpreter of the Principle of Subsidiarity, articulated by Pius XI in 1931 at a time when people were rejecting extant political ideologies in favour of both national socialism and communism in a desperate attempt to escape the economic and social privations of the intra-war period. Indeed, when one reads Messner’s (1952) seminal work—Social Ethics: Natural Law in the Modern World—first published in 1949, one can’t help but acknowledge that here was a man who had witnessed first-hand the results of neglecting the principle and intimately understood the practicalities involved in implementing a middle course. As advisor to Dollfuss (prior to his assassination by national socialists in 1934), Messner had been charged with interpreting Quadragesimo Anno (Pius XI, 1931), in the context of the Austrian state. He witnessed the struggle for power between the communists and social nationalists, and the momentary triumph of the latter (which forced Messner to flee to England). He (1955, p. 98) also predicted and keenly observed the failure of the less extreme, but still well left of centre, English socialism experiment (1945–49) and expressed much ‘reason to worry at the present time, because in not a few of the Western ‘free’ societies the masses in an ever-growing measure are prepared in economic and social matters to trust more to the care and regulating power of the ‘State’ than to their own responsibility and the self-regulating function of “Society”. Johannes Messner was thus no abstract theorist pontificating from his ivory tower, but instead a man who had got his hands dirty trying to chart a middle course and thus demonstrate what could have been an alternative to the horrors of a world war and subsequent cold war. There are many well-meaning social interventionists today who genuinely feel that it is important for the government to take on the responsibilities which rightly belong to persons and persons in association, and that by doing so they can alleviate human suffering. However, this is wrong-headed thinking (no matter how laudable its intention), because creating a state of dependency is never consistent with human dignity which is intimately tied up with the achievement of existential ends. Ultimately ends need to be internalised into the human person, they cannot merely be ‘done’ to humans through the common good. I have in the past been accused of a lack of empathy in this kind of sober endorsement of the Principle of Subsidiarity, so 1 Some

say back to Plato, but I am unconvinced on this point—not least because the dramaturgical method of his exposition often makes it hard to know what Plato himself thought on a range of matters. 2 The golden mean was the idea that the best character was to practice the middle path between deficiencies and excess in given traits. For instance, in the Nicomachean Ethics Aristotle tells us that liberality is the mean between prodigality and meanness.

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it is not unreasonable for me to provide the reader with just a little information about my background to show that I do indeed understand what it is like to stand in need of help. I grew up in one of the poorest areas in Australia, and for a lengthy period of my secondary schooling was homeless. I know what it is like to have no shelter or food, and to succumb to the sympathy of well-meaning but misguided social interventionists. Fortunately, with respect to my human dignity, I rejected sympathy and instead worked incredibly hard at school to improve my circumstances. Later in life, after a catastrophic highway motorcycle accident, I again rejected well-meaning but misguided social intervention (welfare in the form of a disability pension and a large payout from a total permanent disability insurance), to pursue a PhD, which led me to the job I have today. I thus speak from experience, when I concur with Messner (1955, p. 99) on the desirability of ‘stand[ing] on [one’s] own feet and to take [one’s] own, full responsibility’. I am no Johannes Messner, but I too know first-hand the practical implications of the theories I espouse. To achieve a balance between human dignity and the common good natural law theorists express a clear preference for a plurality of social forms. When competence and power is dispersed in multiple persons and associations, its correct employment (rather than misuse) is much more likely. To preserve this plurality of social forms the principle prescribes two obligations on greater associations. First there is a positive obligation to provide subsidium (loosely translated as help) for bona fide need in a manner designed to make it superfluous as quickly as possible. Second there is a negative prohibition on greater associations subsuming the functions of persons and persons in association when there are smaller competent units capable of achieving the munera (gift or function). When the first prescription is violated needs are either left unmet or converted into dignity-destroying dependency. When the second prescription is transgressed, then power and competence is concentrated in a form readily available to persons inclined to abuse it for their own ends, and persons take on a ‘parental’ conception of government which undermines the dignity of both persons and lesser associations (Messner 1952). Indeed, in his various seminal works, Messner (1952; 1955) spent some time lamenting the ‘parental’ conception that citizens had increasingly transferred onto government. This kind of conception has particularly important deleterious implications for the dignity of the fundamental association in natural law philosophy—the family. Government is not one’s parent—most of us already have parents or fulfil this role ourselves.3 Subsidiarity presumes only an instrumental role for government (of any tier) and puts the burden of proof on the government to show that it’s reach rightly extends so far into the lives of persons and persons in association (Finnis 2011; Kenney 1955). 3 Indeed,

as I explicated in Chapter 3, citizens in this current day and age tend to view government more in terms akin to Santa Claus, than in terms of a parent. If citizens must have a perverted conception of government then I would much prefer that it be a parental one, than a Santa Clause illusion. When one receives from a parent one at least understands that the parent has had to sacrifice to provide the munera, and one feels obligated to respond with love and gratitude. However, when one perceives of government in terms of a Santa Claus conception there is no recognition of sacrifice, nor gratitude, nor desire to reciprocate in any way.

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Indeed government ‘exists for the sake of the common good in which it finds its full justification and significance and the source of its inherent legitimacy’ (Paul VI, 1965, para. 74). Neither the common good nor government is an end in itself.4 The common good is no more than a means through which some ends might be attained, and realised in the human person. Therefore, as a representative of the common good, government is no more than the instrument through which means to achieve some ends is provided. Muddle-headed thinking which confuses the means for achieving ends, with ends themselves, is what has provided the world with most of its examples of failed political experiments (such as English socialism). Until the true instrumental nature of government is recognised, ideologues and those who have fallen into the dependency trap will continue to clamour for government to do more in the mistaken belief that greater intervention results in good outcomes. However, fostering a state of affairs that undermines human dignity can never be a good thing for the person in prima facie need—nor can it be good for local government and the taxpayers who fund it, to be crushed under the weight of burdens unnecessarily taken upon itself. Those of us who are old enough remember a time when government did far less, and people survived just fine. In those days, associations stepped in to provide help with loving concern for the individual person and there was no confusion about the distinction between ‘charity’ and ‘entitlement’, nor ‘needs’ and ‘wants’. Now the government performs this role in a deliberately amoral manner ‘that neither demands nor rewards responsible behaviour…pays equal benefits to those who spurn virtue…[and] subsidises irresponsibility’ (Novak 1994, p. 27). As a result of this undignifying delivery of social support, more people are long-term dependents than ever before (a sure sign of the failure of the welfare state). Similarly, in my youth, local governments did not provide the extensive range of recreation and cultural activities that they do today. Instead, associations (Boy’s and Girl’s Brigades, Churches, extended family and the like) facilitated these ends and I think that anyone who lived through these times would agree that communities were far stronger then than they are now (indeed, it is no surprise to me that communities are typically far stronger and more resilient in rural areas where government generally has less capacity for discretionary spending). Some might say that times were different—there are more needs today than there were decades ago—but I, and many others, would counter that the undignifying manner in which government has taken over responsibilities rightly belonging to persons and persons in association has caused vital associations to wither and created the dependency that is now being used to legitimise its actions (see, for example, Sirico 1997). As long as local government continues to exceed its legitimate mandate, no structural reform is going to ‘solve’ the problem of financial unsustainability. Certainly, as I showed in Part II of this book, savings can be made by erecting boundaries around homogenous communities that are as small as patterns of activity will permit and also by embarking on prudent shared service arrangements to capture economies of scale. However, capturing savings on activities that local government probably has no business in engaging in—still in the final analysis—represents a loss to economic 4 Although

a well-ordered society is indeed an end.

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welfare. It puts me in mind of a person struggling to feed themselves who purchases a fashion accessory because it is a ‘bargain’—no amount of ‘savings’ on normal retail price changes the fact that the person will no longer be able to provide for their own needs because of this imprudent spending. Moreover, as long as local government falls short of its legitimate remit in other areas then either need will go unmet or (more likely) higher tiers of government will roll-out ineffective public policy which is poorly tailored to the needs of persons. Only careful adoption of the principle promises greater freedom tempered by responsibility. But to achieve this promise we need to have both less and more government—the explication of which I now turn.

7.1 The Case for Less Local Government Minimalist interpretations of Subsidiarity abound in the fiscal federalism literature which try to argue that the principle simply means that services should be delivered by the lowest tier of competent government—which in most cases is local government (see, for example, Boadway and Shah 2009). However, this minimalist position fundamentally misconceives both the instrumental role of government as well as the strong preference in natural law for a plurality of social forms to share competence and power. Sadly though, minimalist interpretations of Subsidiarity probably bear greater semblance to what has actually happened in practice over recent decades in most jurisdictions—a rapid expansion of local government remit into areas traditionally the role of lesser associations. This type of budget expansion has clear implications for the financial sustainability of local government, especially given the unwillingness of people to pay (Drew 2019). However, it also has weighty implications for the effectiveness of public policy because smaller associations will often be a superior option for service delivery. Often lesser associations (such as the family, church, or charity) have a higher moral stake in ensuring that interventions are efficacious owing to closer extant relationships with persons who they know and understand as individual persons with needs, rather than merely numbers. For example, a parent provides correction with loving concern for the person, a comprehensive understanding of the antecedents to the need, and elicits a response by the child which is contextualised within longstanding familial bonds of love. Associations situated closer to need, and specialising in meeting certain needs, also tend to have better knowledge of the problem as well as more techniques in their armamentarium which might be applied to interventions. For example, Alcoholics Anonymous understands well how to mitigate alcohol abuse because it is comprised of members who have addressed this problem in their own lives. In lesser associations there is also more transparency and greater moral accountability. People can more clearly see the effects of their actions on others, can understand that help is rendered only through the sacrifice of donors, and are more likely to feel a sense of reciprocal responsibility in response to these realisations. For example, a good friend of mine who was a Salvation Army officer always provided

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charity in the context of moral counselling, follow-up on reciprocal responsibility and spiritual guidance which is a far cry from the charity provided by the welfare state that is deliberately amoral, and demands little if anything in return.5 Help provided by lesser associations also better respects the dignity of donors. Charities and the like know that they must spend scarce resources with care and in a manner consonant with the donors wishes because there is a high degree of uncertainty regarding future revenues which are also likely to be contingent on fidelity. By way of contrast, governments have extensive coercive powers to raise taxation revenue and thus have relatively little uncertainty about future revenues irrespective of how well they might observe their fiduciary responsibilities. Moreover, those receiving help from government often succumb to the Santa Claus illusion (see Chap. 3), and don’t even acknowledge that others have had to (often unwillingly and unknowingly) sacrifice through the tax system in order to provide the revenue which funds services upon which they draw. Respecting the dignity of the taxpayer donor is not about cultivating humiliation in the recipient—‘any humiliation is caused by the circumstances not the benefactor’ (Sirico 1997, p. 572)—but rather merely acknowledging that for someone to receive, another must have sacrificed. Lesser associations are also often a superior way of delivering services because the activity of providing for others involves a collaborative good that would not be internalised in government delivery. For example, child care by parents generates shared memories that strengthen familial bonds of love that simply can’t be produced by the more ‘efficient’ option of child care centres. Moreover, lesser associations provide an essential mediating role between the private life and the public life, which is crucial for the transmission of values, reducing alienation, and providing meaning. For instance, religion once provided the ultimate existential end, fellowship and a moral compass to most citizens in the western world—and it is hard not to associate the relative recent disappearance of religion from the lives of many with increasing reports of a sense of meaninglessness, loneliness, depression, anxiety and moral ambiguity. In addition, small associations tend to be much more responsive to changes in need than large bureaucracies and government. For instance, if children develop a need then relatively small family associations can generally deal with it almost immediately, but if the matter fell under the control of government we might instead expect the cumbersome political channels to take many months to respond, if they responded at all.

5I

personally know of two very sad situations where the well-meaning intent of social welfare has all but eradicated human dignity. The first is a person on a disability pension for alcoholism—he uses the money provided to him by government welfare agencies to buy alcohol and run a backyard distillery. The second is on a disability pension for obesity—he uses the money, along with additional funds for home care, to facilitate the purchase of vast quantities of unhealthy food. Both perfectly fine people who have had their struggles exacerbated by the misguided ‘help’ of the welfare state, received sans moral counselling and reciprocal responsibility. Indeed, I don’t believe either of these people would have chosen this state of dependency and their path in life from behind the well-known Rawlsian veil.

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Given all the benefits of lesser associations, it follows that significant improvements in the lives of persons might be realised if local government divested some of the functions which it has subsumed over recent decades and created the existential space for lesser associations to operate again. This is indeed part of the positive obligation—to provide space and help to lesser associations—placed on greater associations under the Principle of Subsidiarity. Help is far more than merely providing pecuniary support so that persons and persons in association can continue to bring forth their munera. Indeed, help involves supporting, promoting and developing lesser associations if the need arises (Drew and Grant 2017). If associations have withered as a result of government subsuming functions beyond its legitimate remit, then divestment by local government will need to be accompanied by cultivation of lesser associations. Subsidiarity is not about vacating areas of need, but rather ensuring that need is delivered in an effective manner which respects human dignity. Indeed, I have every reason to believe that supporting, promoting and developing lesser associations to fulfil some of the functions currently performed by local government would be a much more difficult task than continuing deleterious extant practices. Help is also something that must be provided with some care if one is to avoid dependency and a concomitant erosion of human dignity. In this regard the etymology of the word subsidium is instructive—the general consensus in the literature is that the term is derived from the Roman military practice of holding auxiliary troops in reserve, which would be deployed to assist current combatants to counter any weakening of the battle line, but returned to its reserve position as soon as circumstances would permit in order that it might be available for re-deployment in the case of future emergencies (Drew and Grant 2017). Similarly, subsidium should only be deployed in cases of bona fide need in a manner that imputes reciprocal responsibility and is designed to make the help superfluous as quickly as possible. An Example of a Service Suitable for Divestment As I have already stated, there are many instances where local government has taken upon itself a duty which might better be performed by a lesser association. In any instance where a smaller association might have been made competent to undertake the function, then this represents a case of local government exceeding its legitimate remit, with concomitant implications for the donors, beneficiaries and local government financial sustainability. For example, recently in Australia, many local governments have begun to engage in the provision of Aged Care facilities. Traditionally this was a function dominated by religious bodies, but in recent decades the private sector has also become a major player. The fact that the sector was dominated by charitable bodies and represented by commercial interests in the recent past suggests that lesser associations are probably competent to fulfil the munera (perhaps requiring a little help from time to time). Indeed, long before the advent of any aged care facilities, the family (which my readers will recall is the fundamental unit of association) typically looked after their aged.

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When a local government subsumes aged care responsibilities, the wider body of taxpayers often become compulsory donors, generally entirely unaware that this is indeed the case. In addition, the collaborative good that was once the by-product of family caring for their elderly is lost entirely (frequent initial visits often quickly transition into infrequent visits, then just visits for birthdays and Christ-mass, and finally a visit proximate to death6 ). No matter how kind the aged care workers are, they invariably have less moral proximity to the patient than their family might have done. Moreover, local government is unlikely to have the focus and experience in aged care that charities and business specialising in this sector will have and the participation of local government in the industry distorts the local economy (it provides competition to other market players which may often be unfair given local government’s greater resourcing and capacity to operate at a loss7 ). It seems to me that it would be much better for local government to leave the provision of this important social service to lesser associations, such as charities, business and the family and instead provide subsidium for cases of bona fide need (for instance, respite and support for family providing care for their aged loved ones, or regulatory and in-kind support for associations doing so). Where local government already occupies the space rightly belonging to lesser associations, it will be necessary for them to divest the function. For instance, if a local government runs an aged care facility, they might seek out charities and commercial operators to take over the venture. If however, there is unmet need, then local government may play a role by encouraging a lesser association to form and satisfy the need, or establishing a venture with a view to divesting it as soon as possible (thus absorbing some of the risk by demonstrating its viability which might help to make the venture more attractive). What local government shouldn’t do though is to subsume responsibilities that do not form part of its legitimate remit. Doing so causes lesser associations to wither, erodes dignity, casts taxpayers in the role of compulsory ‘charitable’ donors, reinforces the perception of local government as parent or Santa Claus, and: with a structure of social governance lost, and with the taking over of all the burdens which the wrecked associations once bore, the State has been overwhelmed and crushed by almost infinite tasks and duties (Pius XI 1931, paragraph 78).

6 For

years I have volunteered at aged care centres to perform music, and my wife has worked in the sector for almost as long—so I am quite sure that whilst this is a generalisation, it is sadly often true. 7 My former local government—Uralla Shire—runs an aged care facility. In the 2017 financial year it recorded a loss of $29,000 in an operation turning over $3.1 million from $20.5 million in assets. Not a huge annual loss, but one that comes on the back of a series of significant donations by the 2,982 ratepayers in the area.

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7.2 The Case for Greater Decentralisation and Hence More Local Government Readers will recall that in Chap. 3 I outlined the work of Brennan and Buchanan on the need to constrain Leviathan. Part of their proposed solution to the problem of Leviathan-like government was decentralisation—they expressed a hope that competition and a more plausible threat of exit might act as a constraint on budget expansion. However, in the appendix to Chap. 3 I presented some evidence to suggest that decentralisation may well have made matters worse—with a reasonable conclusion being that we have simply exchanged intrusive central government for multiple intrusive local governments. Nevertheless, I don’t believe that greater decentralisation need necessarily result in Leviathan-like local government—rather it suggests to me the need for some careful complementary changes to political and fiscal institutions (along with a better understanding of the Principle of Subsidiarity) of the type that I will explore in subsequent chapters. Moreover, decentralisation has an important role to play in piquing the interest of citizens in their local government and also ensuring responsiveness and accountability in key government services. As I have argued elsewhere, when local government is assigned responsibilities which have a large bearing on people’s lives, then people will naturally pay more attention to it and be more likely to become politically active. In addition, when key services are located at the level of local government then by virtue of the relatively smaller numbers of constituents alone, the voice of citizens is amplified. Take for example the relatively limited remit of local government in Australia. The functions of government which have the largest bearing on my life—education, health, and law and order, are all located at higher tiers and delivered through faceless bureaucrats. When I have had difficulties with these services in the past, I have found it incredibly difficult to find the responsible person, let alone get them to respond to my concerns. Of course, I could express my displeasure at the ballot box (which I often do), but one vote out of 5.2 million (registered voters in the state of New South Wales) carries with it little weight and thus elicits no political response. However, if these services were delivered by local government—especially small homogenous local government of the kind described in Chaps. 3 and 4—then I would know exactly who to contact and might expect to find the responsible party much more responsive (especially given that the probability of my vote altering outcomes would increase 500 fold or more). I do acknowledge that in many jurisdictions local government performs a much larger scope of functions, however, as I will discuss later in this section, there is still room to expand the remit further in most instances. Freeing people from the threat of Leviathan-like government (see Chap. 2) is a worthy goal in and of itself. However, greater decentralisation of government functions can also be expected to: (i) result in more efficient and effective public goods and services, (ii) reduce regional inequality, and (iii) cultivate a higher sense of moral empathy within the community.

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I have already discussed Oates’ (1999) Decentralisation Theorem at some length (see Chap. 3). Essentially it boils down to the idea that decentralised government has a better knowledge of the problems, solutions and circumstances of its citizens and thus is in a better position to tailor efficacious interventions. As noted earlier, this could actually pose a risk to the financial sustainability of local government if the government is operating under the misapprehension that all need requires government intervention. However, if the Decentralisation Theorem is employed in a manner responsive to the Principle of Subsidiarity—that is, limited only to functions within the legitimate remit of government—then better outcomes might be reasonably expected. Smaller government (local government) just like smaller associations has a wide range of advantages over more cumbersome higher tiers of government. There should be greater transparency, more accountability (if institutions are also altered to promote voice and exit—see Chap. 8) and a higher moral stake in seeing solutions effectively implemented (because local government politicians and bureaucrats are more likely to live where the problem manifests self-interest will promote greater effort). With respect to this latter point I find it difficult to believe that my federal members of Parliament really understand what life is like out of the Canberra bubble—few of them are intrepid enough to venture out to third world rural Australia8 and because of the population-based method of determining electorates, very few hark from places outside of the densely populated cities. Indeed, greater decentralisation (when supported by an appropriate system of intergovernmental grants—see Chap. 9) has the potential to close the widening gaps that exist between rural and urban areas in most countries (certainly in Australia where global cities such as Sydney contrast starkly with third world-level rural towns). Part of the reason for the wide disparity in regional incomes and wealth is that in many countries, taxes paid in rural areas are effectively exported to the capital cities. For instance, I pay considerable first-world level taxes in third-world rural Australia, that on the whole are exported to Canberra and Sydney to pay for services that I can’t access (national museums, science centres, sports stadiums, high quality infrastructure) and highly paid public servants.9 Moreover, most of the mining royalties derived from rural Australia are similarly exported to capital cities. If more functions were administered by decentralised government then more of the taxes and royalties paid in rural areas would likely be returned to local economies in the form of public servant wages and infrastructure (as I have stated earlier human self-interest means that spending tends to occur where the key public servants and decision-makers reside). I have heard many objections to greater decentralisation— such as the lack of competence and fiscal resources—but I have found none of the 8I

once invited an entire senate committee charged with investigating regional infrastructure backlogs to come and visit me and see what life was like with dirt roads, no potable water, unreliable power, but predictably no-one bothered to take up my offer. 9 Indeed, 82 percent of the Australian Public Service are located in Australia’s six largest cities, a figure that has not changed in seven years despite the announcement of a policy of decentralisation in 2017 (Mannheim 2019).

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arguments convincing. As suggested by the Principle of Subsidiarity, local government probably has a lack of competence and power precisely because higher tiers of government have subsumed responsibilities beyond their legitimate mandate—if higher tiers retreat from these areas and act on their positive obligation to provide comprehensive subsidium, then I have little doubt that local government would be capable of filling the existential space. Moral empathy for one’s fellow citizens is difficult to cultivate in large nation states (Feld 2014) and it is thus often hard for donors to national programmes (taxpayers) to appreciate the need for their sacrifice. When government goods and services are instead delivered by smaller decentralised governments it reduces the pool of beneficiaries down to a level that is more consistent with most people’s moral capacity. For example, it is difficult for me—with the best will in the world—to feel much empathy for the recipients of urban infrastructure programmes that my taxes fund. However, I do feel enormous empathy for beneficiaries of national drought relief programmes that my urban peers probably don’t always understand. In most cases it is simply a matter of size and frequency of interactions. Smaller local government makes it easier for citizens to understand the needs of one another and hence leads to stronger communities (an observation also made by Aristotle, Messner, Buchanan and others). There are, of course, some public goods and services which can’t be decentralised. National goods like defence for instance wouldn’t be amenable to decentralisation because inevitable free-riding behaviours of the various decentralised units would probably leave us ripe for invasion. In addition, legislative protections for associations as well as protections for interactions between persons and associations are best undertaken at the central state level. Indeed, providing the legislative framework to protect persons and associations is a core function assigned to the state in Messner’s (1952) articulation of Subsidiarity. Macro-economic stabilisation is also something that is best placed with central government (it would be almost impossible to coordinate efforts for effective interventions otherwise)—although increasingly this has needed to be pursued also in international forums. Moreover, some, but by no means all, taxation must be levied at the level of the central state to avoid tax competition and inefficient migration of mobile factors (property-based taxation and mining royalties are mostly an exception to this rule because of their relative immobility). However, it might be noted that this does not prevent the central state from collecting taxation on behalf of decentralised units to allow for a broader tax base (see Chap. 9). Public goods and services that could be decentralised to individual local governments or local governments working in co-operation include law enforcement, emergency services, health and education. Moreover, a case could be made that if welfare is not to be provided privately (by the family as the fundamental unit of association and also benevolent foundations) then decentralised provision would be far superior to federal provision (see, Sirico (1997) and Messner (1952) on the imperative of moral education and practical support responsive to the ends of persons rather than mere numerical equality). To illustrate how greater decentralisation of these kinds of functions might work in practice—and also to bring to life other ideas discussed

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thus far in this Chapter—I now consider in detail a single example of a service where higher tiers of government have often exceeded their legitimate mandate.

7.3 Education—An Example of Subsidiarity in Action As the communist, and national socialist movements have sadly demonstrated, education is a prime target for manipulating a population by ideologues (see, for example, Mueller (2017) on the Adolf Hitler schools that ran from 1933 to 1945). Therefore, it is critical that education—which is really the formation of young minds and characters—should be subject to the Principle of Subsidiarity. Observance of the principle would assign the right relating to the provision of education at the appropriate level of association, insist on a plurality of institutions to provide formal education, resist with vigour any attempt by the state to monopolise education, and be concerned with the ultimate existential ends of persons. Education is a matter which I have a good stock of knowledge on, owing to the fact that I worked as a school teacher for many years (I still provide relief teaching services to the local school), served on various district level and state level education panels, and also taught at the tertiary level. In my view, the school is the principal mediating body between the family and the state and thus takes on grave importance in the shaping of society values and attitudes. It is the place where many students (sadly) first come into contact with respectable role models, and where cultural and religious values are conveyed, and lifelong attitudes to work and study first established. I guarantee that each of my readers can vividly recall the name and face of at least one teacher that had a huge impact on their life (whether it was recognised at the time or not). The fact that this kind of recall is so ubiquitous supports my conviction that we all bear an important duty to ensure that education is provided in appropriate forms and by the appropriate level of association and that we resist, with the upmost vigour, any attempt by ideologues or the state to exceed their legitimate role. Subsidiarity assigns the responsibility for education to the fundamental unit of association—the family. Until recent times, few would have argued against this assignment and indeed it was commonly recognised in legislation (see, for example, the NSW Education Act, 1990). It is the natural way of things for the family to provide not only life itself, but also nourishment and instruction in the skills required to succeed in life and live in society (see Aristotle 1962; Aquinas 1989). However, in recent decades many parents and caregivers have abrogated their responsibilities and more and more teachers have been called on to teach students basic manners, values and cultural norms, in addition to the formal instruction required by the state. Now ‘the state may justifiably require of anyone the possession of certain knowledge; but to prescribe how and from whom this knowledge is to be obtained is not within its rights’ (Messner 1952, p.603). If parents are able to provide the requisite knowledge for their children to function in modern society, then they should do so

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(since my children started school I have taken upon myself to teach them mathematics, science, rhetoric, theology, economics, and citizenship according to my abilities, each weekend). If however, parents are unable to provide all of the required instruction—due to a lack of competence—then they should hand over these fields (only), as appropriate to the particular circumstances (for instance, I send my children to private tuition for piano, and send them to school in the hope that they might learn to socialise with their peers (very little education seems to take place at the public primary school)). Parents do not have the right to abrogate all responsibility for their child’s education to the state or a non-state provider, but are entitled to receive subsidium (with reciprocal responsibilities) according to their needs. Where parents cannot themselves provide completely for their young charges’ education, then they are obliged to form associations to meet their needs. The smallest competent association possible (often private schools) should be preferred according to the principle to ensure a plurality of associations, conducive to the dispersion of power and competence so necessary to the preservation of freedom and liberty. Religious institutions, which have a mission related to absolute existential ends, have an obvious role to play in providing support and help for the formation of education institutions (the positive obligation of all greater societies made explicit in Subsidiarity). Failing the formation of appropriate associations, then as a last resort the state as the greatest of all associations has a duty to assist in providing a minimal level of education within its remit (acknowledging that instilling values is still the role of the fundamental association (family) and lesser associations (religious institutions)). When the state goes beyond this legitimate mandate then sadly, but inevitably, ideologues will exploit the concentration of power and asserted competence to pursue their agenda (hence the Hitler schools on the one hand, and so-called ‘progressive’ liberal indoctrination that occurs in many public schools the world over, on the other). As I have noted before, Subsidiarity is all about finding a middle path between excessive individualism on the one hand, and oppressive uniformity on the other. But as Messner (1952) sagely noted this balance doesn’t come easily, eternal vigilance is necessary to ensure that appropriate structures, and voice and exit options are available to prevent the concentration and misuse of power and competence. At the vanguard of this effort must be the fundamental association—the family. I have yet to hear a cogent argument for why the ordinary family (not the tragic exceptions to the rule) shouldn’t be assigned the greatest responsibilities in our society, but at the same time I have witnessed over the last few decades a series of governments intrude into just about every aspect of their citizens’ family life. If people wish to preserve the ontological structures required for freedom, then they will need to fight to retain these structures from both well-meaning (but muddleheaded) and not so well-meaning ideologues who constantly seek to intrude onto the family’s legitimate remit. Otherwise stated, parents need to first diligently perform their duties (in order to head-off the well-meaning ideologues) and then actively guard their rights (in order to defeat the not so well-meaning ideologues). This requires fulfilling their responsibility to educate their child where they have competence, and to actively seek out associations where they do not.

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As Buchanan (1975) has taught us (see also Chap. 3), institutional structures are important to ensure that Leviathan-like governments aren’t permitted to trample rights and freedoms. An important institution for guarding against the excesses of the state would be curriculum and school oversight bodies comprised of representatives of parents, teachers and religious bodies (see Chap. 8 for a description of how such bodies can be selected to ensure truly representative voice). Invariably, in my country at least, education policy is controlled by people whose only experience of education was their own privileged schooling many decades earlier. A system of education that recognises, and wishes to preserve, the ontology of social forms must instead have binding voice from the legitimate repositories of competence and power—anything other than this will almost certainly result in ideologically motivated encroachments into education given the huge payoffs involved for those successfully doing so. Exit is also a powerful constraint against inappropriate concentrations of power (see, for example, Hirschman, 1970 and Chap. 3). Thus, when the state is forced to provide education, it should be done so through the most decentralised unit of government—local government. This is, of course, also entirely consistent with the Principle of Subsidiarity. As I have already explicated at length, decentralised government should be more transparent and accountable, more responsive, have better knowledge of local needs and challenges, and a higher moral stake in seeing efficacious solutions implemented. In forthcoming work, I show that there are strong regional disparities in education that exist in Australia despite the operation of a consistent and federally mandated funding structure skewed heavily in favour of rural, and remote schools (Razin and Drew, forthcoming). This suggests the need for regional solutions by people who understand the challenges faced by regional students, not merely ever-increasing flows of money (also consistent with the comprehensive concept of subsidium). For example, to counter lengthy commutes often required in rural areas (which detract from study time), decentralised administrators might tailor solutions (such as three long-day school weeks), that would probably never occur to bureaucrats sitting in Canberra and Sydney. Moreover, to preserve and promote the plurality of education associations, so critical for freedom of thought and choice, greater associations must step up and fulfil their positive obligation to promote and help lesser associations. This is a role for religious institutions (which has been strongly embraced in Australia where around 40% of students attend faith-based schools; Drew et al 2019), as well as various tiers of government. Subsidium involves, amongst other things, adequate fiscal flows of help to complement the fiscal contributions of parents. There has been a lot of hysteria about funding for religious schools in Australia of late—the ‘school funding wars’ (see Drew and Fahey 2018)—that ignores basic principles of natural law and distributive justice. It is every parent’s (including those who choose to send their children to public schools) duty to provide for their child’s education and right to form associations to do so (as per the principle). It is also a basic principle of distributive justice, that the state ‘cannot justly oblige parents to pay [taxes] for state schools, if they provide their own educational institutions’ (Messner 1952, p. 602). Failure to acknowledge responsibilities, rights, and concepts of justice has led us to the situation in Australia whereby the Schools Resource Standard (federally

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mandated funding model implemented by the Commonwealth and States), applies heavy ‘discounts’ to per student funding for private schools according to poorly measured10 capacity to pay, but neglects to apply the same standard to wealthy parents who choose instead to send their child to a public school! Moreover, it must be remembered that subsidium is not merely money but all forms of loving kindness— parents, and the many associations which make up society have an important role to play in supporting the education endeavour. This includes things such as helping out in the canteen, listening to young students read aloud, supervising homework and study centres, teaching non-curricula skills and values—in fact, all of the things that young people need to learn to be active and valuable members of society. Education is of critical importance to a free society, and young person’s endeavours to achieve their existential ends. Yet many in society fail to actively protect the plurality of associations necessary to guarantee dispersed power and competence in this most important domain. In this section, I have been particularly critical of parents who fail to perform their duties and protect their rights—to my way of thinking I cannot see a meaningful distinction between those who fail to provide food for the mind and spirit, and those who neglect to provide food for the body. Both types of neglect harm the young person and hinder them in their quest to achieve their existential ends. However, failing to feed the mind and spirit can also allow opportunistic ideologues to abuse concentrations of power and competence and thus erode the ends of society. Subsidiarity provides a foundation for understanding rights, duties and responsibilities and sets boundaries around the legitimate actions that various levels of associations might take. As we have seen, in this example of education, the prescriptions made by the principle are sometimes messy in implementation, and often go against some of the conventional thinking espoused by politicians and the media. However, as has been made abundantly clear by past abuses of power and competence in education (from Hitler Schools, to Stalinist Schools, and our modern ‘progressive’ schools), the failure to observe the Principle of Subsidiarity is also ultimately a failure to guard our freedom and liberty.

7.4 Subsidiarity, Local Government and Reform By now I know my readers will have appreciated that the reform agenda that I am proposing is far more than a tinkering with extant local government structures, covered in Part II of this book. It is a fundamentally different way of conceiving what government does and how it interacts with citizens. In the vision that I have outlined, and will continue to explicate upon in the following chapters, local government will be charged with a leading role in the provision of government goods and services. By locating the majority of legitimate government functions at the level of local government, with appropriate institutional design and support, I believe it is possible 10 Currently (in 2019) this is estimated according to ABS household census data and student’s addresses, not the actual wealth and income of parents.

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to have transparent, accountable, efficacious, welfare maximising government that respects the dignity of persons and persons in association. Otherwise stated, whilst the principle must be pursued because it is a just assignment of powers, it should be pursued because it confers benefits on the person and associations, through promoting greater transparency, accountability and efficacy. However, merely calling for Subsidiarity to be implemented will not achieve our goal. Messner did this seven decades ago and things have not improve (recall the graphs of total government expenditure and debt that I presented in Chap. 2)—indeed matters have probably deteriorated, particularly with respect to an erosion of human dignity and the dignity of lesser associations. Moreover, I don’t think that Subsidiarity can be implemented and maintained merely through social forces as postulated by Messner. Nor do I think that Leviathan-like government can be controlled merely by decentralisation and fiscal constitutions as proposed by Buchanan. Rather, I think that significant changes to political institutions, and fiscal arrangements are both necessary if we are to avoid further concentrations of power and competence, and the continued abuse of same by ideologues. In the next chapter I will introduce my readers to sortition—an ancient political institution which I believe could be implemented as a check on the power of ideologues and other budget maximisers identified by Messner and Buchanan respectively. Following this I will outline some of the important fiscal institutions that might be employed to complement the proposed changes to political arrangements. It is no exaggeration to state that in many countries Leviathan-like government runs rampant (see Chap. 2). Taxpayers are often cast as compulsory, unacknowledged and often unaware donors to ideologically motivated programs directed towards bringing about social objectives which lay beyond the legitimate remit of government. Moreover, it is clear to most that the significant increases to expenditure and debt taken on by countries to address asserted needs of communities have done little, if anything, to alleviate suffering. It is my contention that radical action is therefore required if we are to avoid the fulfilment of Pius XI’s 1931 prophecy of more states overwhelmed and crushed by unnecessary and unhelpful (in terms of dignity) financial burdens taken on imprudently. For the remainder of this book I will do my best to set out how this could be accomplished.

References Aquinas T (1989) Summa Theologiae, T McDermott (ed), Notre Dame, IN: Ave Maria Press Aristotle (1962) The politics. Penguin Classics, London Boadway R, Shah A (2009) Fiscal federalism: principles and practice of multiorder governance. Cambridge University Press, Cambridge Buchanan J (1975) The limits of liberty: between Anarchy and Leviathan. Liberty Fund, Indianapolis Drew J (2019) Sort[ition]ing out local government financial sustainability. Public Adm Quart In Print (4/9/19) Drew J, Fahey G (2018) Framing unpopular policies and creating policy winners—the role of heresthetics. Policy Polit 46(4):627–643. https://doi.org/10.1332/030557318X15241518778612

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Drew J, Grant B (2017) Subsidiarity: more than a principle of decentralisation—a view from local government. Publius 47(4):522–545 Drew J, Kortt M, Bec A (2019) Administering faith: does the religious institution administering a school influence educational achievement? J Sociol. https://doi.org/10.1177/1440783319829248 Evans M, Zimmermann A (eds) (2014) Global perspectives on subsidiarity. Springer, New York Feld L (2014) James Buchanan’s theory of federalism: from fiscal equity to the ideal political order. Const Polit Econ 25:231–252 Finnis J (2011) Human rights and common good. Oxford University Press, Oxford Hirshcman AO (1970) Exit, voice, and loyalty. Harvard University Press, Cambridge Kenney J (1955) The principle of subsidiarity. Am Catholic Sociol Rev 16(1):31–36 Mannheim M (2019) Federal government’s push to move shrinking public service to the bush isn’t working. Australian Broadcasting Corporation, Sydney Messner J (1952) Social ethics: natural law in the modern world. Transl. J. Doherty. B Herder Book Co., St Louis Messner J (1955) Law in economics and in ethics. Rev Soc Econ 13(2):91–99 Mueller T (2017) A legal odyssey: denazification law, nazi elite schools, and the construction of post-war memory. Hist Edu 46(4):498–513 Novak M (1994) The crisis of the welfare state. IPA Rev 46(4):27 Oates W (1999) An essay on fiscal federalism. J Econ Lit XXXVII: 1120–1149 Paul VI (1965) Gaudium et spes. The Holy See, Vatican City Pius XI (1931) Quadragesimo anno: reconstructing the social order and perfecting it comfortably to the precepts of the Gospel in commemoration of the fortieth anniversary of the encyclical “Rerum Novarum”.Australian Catholic Truth Society Sirico R (1997) Subsidiarity, society, and entitlements: understanding and application. Notre Dame J Law Ethics Public Poli 11:549–579

Chapter 8

The Ideal Political Institutions of Local Government

Abstract It is all very well to sound a note of warning against concentrations of power and competence, but how exactly does one achieve such a balance? In this chapter 1 outline how the ancient political institution of sortition might be employed to protect the dignity of the person and association as well as cultivate a better understanding of the common good. Specifically, I set out the complementarity of bi-cameral sortition with the Principle of Subsidiarity. I also explicate on the practicalities of implementing a sortition House of Lots to mitigate the well-known flaws in our extant system of majoritarian democracy. I conclude by drawing attention to how this reform may also be helpful to enhance the efficacy of other measures taken to guard against local Leviathan that I will deal with in the subsequent chapters.

The Principle of Subsidiarity seeks to balance the ends of persons and persons in association, on the one hand, with the need to cultivate the common good, on the other. It is a principle that cautions against concentrations of power and competence, and celebrates the plurality of associations critical for human flourishing. It thus tries to chart a middle course between excessive individualism which would pit person against person in a desperate struggle to survive, against excessive communality which would completely subordinate the ends of the person to the needs of society. In Chap. 7 I argued that whilst the principle must be pursued because it is a just assignment of powers, it should be pursued because it confers benefits on the person and associations, through promoting greater transparency, accountability and efficacy. But how can a balance be made between the wide diversity of persons, on the one hand, and the common good on the other, in a western-style democracy? Elections do indeed provide persons with irregular opportunities to vote for the candidate or party that they feel is most likely to rule in a manner consistent with their dignity. However, often this vote is made in conditions of imperfect information and influenced by the pragmatic need to assess candidates on bundles of potentially conflicting policies. Moreover, if the preferred candidate or party does not win it is quite possible that the losers ‘must suffer outcomes in which [they are] economically or emotionally deeply deprived’ (Riker 1982, p. 286). Behind the scenes many associations will lobby persons with political power and have their dignity furthered by success in © Springer Nature Singapore Pte Ltd. 2020 J. Drew, Reforming Local Government, https://doi.org/10.1007/978-981-15-6503-8_8

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these endeavours. But what about the associations that are unsuccessful? What about the dignity of those whose preferred candidate lost? Should they be condemned to the impotent voice of opposition, or no voice at all if the losing party failed to win any seats? And who exactly is articulating the common good—much less forcing it to be considered in political decision making? Indeed, I am no fan of most systems of western democracy—it is demonstrably not the rule of the people. For example, just 3,207 people voted for the Mayor of my local government—which means 40,122 didn’t (there were 43,329 registered voters and only 24,084 (56%) voters cast a first preference for any of the elected Councillors). Nevertheless, every three years I cast my vote for my preferred candidate in the hope that they might win and pursue interests aligned with my own, knowing full well that they probably won’t win and probably will be indifferent to my preferences in any case (did someone mention a $1.7 million skate-park?). Messner (1952) would have told me that if I am unhappy with my government then I need to harness the social forces in Tamworth to better ensure that my dignity and the common good might be put before the Councillors’ ends and their good. He would also have assured me that deliberation and negotiation in the council chambers would lead to both respect for my dignity and outcomes to the benefit of the common good. However, on these prescriptions for recuperating government I disagree strongly with Messner. Social forces seem to be set against our political elites, as is reflected in the media, but despite this I am constantly subjected to greater intrusion by government in my life, and greater seizures of my wealth and income that I once thought of as my own (Buchanan 1975). Similarly, our council chambers and parliaments are full of debate—and occasionally there is even negotiation—but this has done nothing to mitigate the discord between my preferences (and it seems the preference of everyone I meet in the Big Smoke of Moonbi) and those of the political elite. No Messner, it seems that democracy, even in the context of social forces, has been unable to achieve or preserve the crucial balance between dignity and the common good. Notably, the ancient Athenians (5–4 BCE) understood that the political institution of democracy, by itself, was not sufficient to ensure that the people really did have a meaningful say in how they were governed. As a result of this understanding, they elected to also employ the practice of sortition to ensure that deleterious concentrations of power and competence would not emerge to threaten their ideal of self-rule.1 Sortition is the process of choosing by lottery—an arational (not irrational) process which is resistant to political manipulation and neutralises bias and emotion in the selection of persons to fill important positions. What I propose, in this chapter, is a bicameral assembly (a House of Lots) which would exercise veto powers on the democratically elected chamber to act as a check on power of the political elites and 1 Headlam (1890) claimed that sortition was used to ensure mediocracy in the appointment of public

officials and thus resist bureaucrats subsuming the peoples’ rule. Muller-Strubing claimed it was a check on power (cited in Headlam 1890). The important thing for now is to note that both theses agree that the Athenians understood that democracy by itself would not achieve the self-rule goals of the people.

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the associations that lobby them. A sortition chamber selected with an appropriately robust random generation process should result in a body which is reflective of the demographic and cognitive diversity of the people that it governs, but free of the high threshold costs and unequal opportunity characteristic of party (in particular) dominated majoritarian democracy (Gastil and Wright 2019). A House of Lots should thus be initially non-factional and non-dependent. However, a potential downside is that this freedom might come at the cost of competence (and be relatively shortlived if lobbyists ultimately prove successful). In subsequent sections I will outline some prudent measures that can be taken to preserve the advantages of sortition, and combat some of its potential disadvantages. But first, it is important to understand a bit more about the history of sortition which will provide us with some important lessons for the design of a sortition assembly today.

8.1 Sortition Then and Now Democracy is assumed by most people in Western nations to be ipso facto good. I never tire of seeing the look of shock on people’s faces when I contend that democracy is an imperfect idea that has given rise to many injustices in our modern world.2 In truth, our western version of democracy is not rule by the demos at all, but merely the demos participating at infrequent intervals in a constrained process to select from alternative rulers. We are given the choice of a few different people, who may outline some non-binding commitments about their intended rulings in some areas of our life, then the winner of the contest is provided with almost unfettered powers to force ‘the losers [to] forfeit the values they believe in, but also abide by, if not accept, the values that they despise’ (Riker 1982, p. 285). As Riker and Buchanan have shown us, warm fuzzy rhetoric about ruling for the good of all doesn’t really stand up to interrogation, much less rational appraisal. In recent decades there has been a greater acceptance in scholarly circles of ‘an alienation of voters from politics in western democracies—a sense of disillusionment with the political process that is said to fail to involve citizens in decisions affecting their own lives in a meaningful way’ (Batory and Svensson 2019, p. 228). Moreover, it has been widely accepted that ‘research suggests that existing democratic institutions are not responsive to the preferences of ordinary citizens’ (Landauer 2015, p. 339). Yet, for the main part, scholars and citizens alike cling to their belief that democracy is fundamentally good—that it simply needs to be tinkered with to make it better, but doesn’t require radical intervention. This is certainly the impression that one gets from reading Messner (1952, 1965) who wrote extensively on the need to cultivate social forces, improve parliamentary 2A

recent example of this was my tour guide at Cambridge University who told us with great gravity that all Christians must exercise their G-d-given right to democratic participation. He was most distressed when I pointed out that there is not a single mention of democracy in the entire bible.

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deliberations, and develop the executive. It is also the sense that one receives from studying the work of Buchanan who, whilst recognising the manifest shortfalls in democracy, was loath to champion fundamental changes to the political institution. The truth of the matter is that democracy is not all bad. It certainly provides for a (weak) accountability to the demos, creates a stage for ideological competition, supports the relevance of the party machine (critical for agenda setting, bargaining, taking a long term view of public policy, and garnering resources), and establishes a job market for those inclined towards a political career. But there are also a lot of bad aspects to democracy that we shouldn’t overlook. In addition to those I have already listed, democracy does tend to confer power on concentrated demographics, provides only infrequent and constrained voice, and perpetuates information asymmetries and citizen ignorance of the workings of government. I believe that a House of Lots—an upper house selected by sortition with veto powers over a democratically elected chamber—can facilitate greater diversity in binding voice, more frequent opportunities for censure, close information asymmetries, and fulfil an important educative function for citizens. I am not the first person to suggest a bi-cameral arrangement (see, for example, the excellent edited volume of Gastil and Wright 2019) and it may surprise some to learn that implementation of a sortition chamber would be far from a historical novelty. Verily sortition, as an integral institution of government, has a heritage that goes back to at least the eleventh century before the Christian era (BCE).3 The JudeoChristian bible records the election of King Saul to a lifetime monarchic position through the casting of marked stones. Indeed, in this early depiction of a sacral lot Saul was chosen through the mediation of Samuel who was said to be communicating the choice of G-d by first casting lots between the tribes, then between clans, families and eventually individuals of every male in the fledgling nation (Lindblom 1962).The position conferred on Saul provided him with wide powers to determine foreign relations, declare war, act as chief magistrate, levy taxes and conscript soldiers—only subordinate to the will of G-d as relayed via the prophets (who often employed sortition to divine G-d’s will). Sortition, as initially practised in ancient Israel, provided all men with an equal opportunity to govern over all, but an incredibly low probability of acceding to the position. Fast forward a bit over half a millennium and we come to the better known use of sortition in ancient Athens. From the fifth to the fourth century before the Christian era, the main governing body of the Attic state was the Council of the Five Hundred (the Boule) selected for a period of one year (its smaller sub-council (the Prytany) served for one tenth of the year) through sortition (Dahl 1990).4 The mechanism employed was the kleroterian lottery machine and the objective of the procedure was to prevent a concentration of power and competence (Sintomer 2019). It was also intended to provide all citizens (defined narrowly) with hands-on education in the day-to-day business of government deliberation (Headlam 1890). Indeed, it has been 3 It

is often incorrectly claimed that the Attic state was the first example, but this is clearly not the case—having been preceded by at least half a millennium by the prophet Samuel. 4 Lot was also used to select rapid rotation, non-deliberative magistracies.

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claimed that nearly seventy percent of citizens were bouletai at least once during their lifetime (Sintomer 2019). Thus, rapid rotation, combined with a relatively narrow selection pool and large serving council, allowed for practically all citizens to govern and be governed in turn. The last notable historical application of sortition was in the fourteenth to fifteenth centuries of the Christian era, in medieval Florence where sortition was employed to select the Signoria invested with executive powers over foreign policy, and administrative bodies, in addition to having the right to legislate. Here public office was conferred through a complex four-step process that combined election,5 vetting and sortition (in the form of insaculacion—an impressive term for merely drawing names out of a bag). Eligibility was open to all citizens, which was a narrow pool of men who needed to belong to one of the twenty-one officially recognised guilds (about 8,000 people out of a population of around 90,000; Sintomer in Delannoi and Dowlen 2010). The Signoria was a collegial body that shunned public debate and whose legislation was subject to veto (but not deliberation) by legislative bodies also chosen through sortition. Rapid rotation (two to six months) of a very narrow pool, selected by both election and sortition, ensured that most citizens who were deemed sufficiently competent had high access to public office. At least three important ideas can be invoked to define the three different historical implementations of the political institution of sortition. First, there is the tension between opportunity to govern and probability of governing. In early accounts of ancient Israel all males theoretically had the opportunity to govern, but due to a lifelong rotation system few would actually accede to government. By way of contrast a combination of annual rotation and relatively large governing councils allowed a very high proportion of citizens to govern at least once in their lifetime in Athens, whilst in Florence rapid rotations, and constrained selection pools provided citizens deemed worthy with a high probability of governing. Thus, the probability of governing and being governed in turn was largely dictated by the size of the council, the frequency of rotations and the relative size of the selection pool. Second, there is the matter of competence. King Saul was ultimately considered incompetent to rule, but had to be suffered with until his death. Athens specifically set out to recruit men of mediocrity to avoid concentrations of power and competence in order to avoid the subsumption of what was considered the natural right of the people to govern themselves. In Florence, competence was sought after and allegedly assured through the election of persons of merit prior to sortition. Thus, it is reasonable to conclude that the process of selection through sortition, alone, can give no assurance of competence in office holders. Third, the three historical examples of sortition provide us with three contrasting views on the value of deliberation. Saul had limited capacity to deliberate constrained by the prophet, whilst in Athens deliberation in the Boule was so notable as to inspire Aristotle’s Rhetoric. However, in Florence public deliberation was shunned, due to a concern that ‘if anybody was allowed the freedom to persuade or dissuade others this would lead to great confusion’ (Guicciardini cited in Delannoi and Dowlen 5 In

the sense of being selected or co-opted by an inner circle of the elite.

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2010). Thus, the modern penchant and nostalgia for deliberation in government is not matched—at least in some cases—by ancient practice. All of these concepts—probability of governing, competence, and the value of deliberation—are also relevant to the design of sortition today. First the size of the pool, the size of the House of Lots, and the length of rotation will still determine whether the implementation does really result in citizens having a reasonable say in how they are governed (rather than merely who governs them as is currently the case). This is a big reason why I think it would be difficult for sortition to ever have a useful role to play in the governing of nations—because the pool is so large as to make the probability of serving negligible. However, in a relatively small local government (recall our prescriptions arising from our comprehensive theory of local government developed in Chap. 3), with half chamber annual rotations, and a large chamber size, probabilities of one in four or better should be achievable (to increase the odds one would clearly either reduce the size of the local government, or increase the size of the House of Lots (annual half rotations are required to ensure that citizens gain and keep institutional knowledge of trade-offs during the financial year—see Chap. 9)). Similarly, the matter of competence is also still of great relevance to modern implementations of sortition. One of the big criticisms of sortition is that it can result in the selection of incompetent persons (although I hardly think that western democracy can claim to have only delivered competent office holders). As our review of historical cases demonstrates sortition, by itself, has no capacity to discern between the competent and the incompetent. However, if the pool of members for the House of Lots is drawn from registered voters, and used only to give or withhold consent for measures proposed by the elected chamber, then I think the problem of competence isn’t as nearly important as some might like to make out. Where competence is critical is in public policy making and the drafting of legislation, and these tasks will still be undertaken by the members of the elected chamber who are supposed to have been selected according to their merit. All the sortition chamber is being asked to do is to accept or veto the measures proposed—nothing more than a simplified unidimensional form of the type of decision that advocates of democracy claim voters make every election year. If members of the sortition chamber are not sufficiently competent to make these decisions, then we must also accept that they are not sufficiently competent to select the persons who should form government—which would leave us with a real dilemma! To deliberate or not to deliberate—that is our (third) question. The ancients recognised the danger in deliberation, which is amplified when people of differing levels of competence are forced to work alongside one another. Modern scholars have also noted that deliberation confers an advantage to the competent, including professional politicians (see Drew 2019). As much as I imagine my readers chuckled at the sentiment expressed by Guicciardini in 1512 about the likelihood of deliberation leading to confusion for many, I have to say that the observation is probably apt. People are easily confused, and as a university teacher I know that even quite intelligent people can often get themselves confused very quickly when they discuss unfamiliar topics with one another. Deliberation will ideally occur in the elected chamber, and public

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deliberation may also occur in other forums. I therefore can’t see what might be gained by allowing further deliberation in the House of Lots. I can, however, see a lot to be lost. Time for starters, which determines the opportunity cost of serving and also sets an upper limit on the size of the chamber (and hence the probability of serving) (Dahl 1990). Also, the opinion of the less competent, who might be cowered by their more eloquent or exalted peers, thus destroying much of the representativeness that is a strength of sortition. Anonymity in decision-making would also be a likely casualty of deliberation, which opens up the potential for pressure to be applied to members—dissuading some from service, encouraging others to corruption (the big thing stopping potential corruptors is their inability to verify the behaviour of those they seek to corrupt), and potentially facilitating the recruitment of non-factional members to political parties. I am not proposing to prevent members of the House of Lots from publicly or privately deliberating in their own time prior to the decision going before them in the sortition chamber—simply agreeing with some of the ancients that there is more to lose from public deliberation than what might be reasonably expected to be gained. Merely establishing a House of Lots is likely to encourage elected politicians to reflect more on the common good and the needs of diverse persons (see Drew 2019 on the lessons of the modern-day annual deliberations in Glarus). This is because to achieve their legislative agenda elected politicians will need to get the assent of a majority (or perhaps even a supermajority) of the House of Lots. I imagine the establishment of a sortition house will also lead to more prudent political campaigning and I know that being required to serve in this way will give a broader section of the public a far better appreciation of the trade-offs and decision-making process of government. There are some downsides of course and I imagine that many will grumble when their name comes up to serve, but I also know from observing people in similar situations (such as in compulsory jury duty which occurs in Australia, America and the United Kingdom) that the far majority of people will step up to the plate and put forward their best selves for their community, and ultimately take pride in their service for the rest of their lives. Indeed, sortition has the potential to fundamentally change the relationship between the political elite and those who they seek to govern. In sum, sortition employed to establish a House of Lots augments the opportunity to have a say in who makes the decisions affecting our lives with an equal probability that we will have a binding say on the various decisions actually proposed for implementation. It is still some way off from self-government, but at least it provides a way for the losers to still have a voice that must be heeded and the winners to ensure their favoured candidate does in fact act in the way they anticipated that they would.

8.2 Sortition, Subsidiarity, and Local Government As I have already noted, I am not the first person to see the advantages inherent to sortition, even in the context of local government (although it must be said that the far majority of scholarship in this field is directed towards the potential for use

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in national assemblies). However, I do believe I am the first to make explicit the complementarity between sortition and Subsidiarity.6 This complementarity emerges first with respect to the intent of each prescription. Both concepts are fundamentally directed towards steering persons towards a middle path. In the case of sortition it is the path between the extremes of rule by political elites, and rule by the demos; whereas in Subsidiarity it is a middle position between the dignity of persons and associations, on the one hand, and the common good, on the other. The middle path is, of course, consistent with Aristotle (and also Maimonides and Aquinas) who argued that deleterious outcomes arise for individuals and society when persons act according to any extreme. The wisdom of this position can be seen in even the briefest survey of historical exemplars of government by extremes—from the dictatorships of Gaddafi or Mugabe, on the one hand, through to rule by the mob in the early days of the French revolution. Both sortition and Subsidiarity specifically set out to combat concentrations in power and competence. In my proposal for a House of Lots, sortition sets out to check the power of the elites and cultivate the competence of the demos. Subsidiarity seeks to achieve the same end through fostering and protecting the dignity of persons and lesser associations but has little to say on how this might be achieved, especially in a western democracy where to the victor go the spoils and the losers are relegated to impotent critique at best. Both sortition and Subsidiarity are motivated by a concern about how concentrations of power and competence might be abused, but it is sortition alone that provides a practical path to actually checking grabs for power and competence. Indeed, sortition replaces wishful thinking about the powers of social forces, the effectiveness of deliberation and the benevolence of executives, with binding voice and a realistic pathway to cultivating and understanding the common good. As I write this chapter mass protests and civil disobedience are occurring in Hong Kong (against the Chinese government intrusion into the dignity of the Hong Kong parliament) and around the world (with reference to the asserted diminution of the common good as a result of political elite indifference to climate change). Many people have protested and the media has been preoccupied with these social forces. But has anything changed? Similarly, our parliaments are constantly deliberating (or arguing) but have they succeeded in thwarting the will of political elites who hold absolute majorities in both houses? Do any of us really believe that we are ruled by compete altruists who always put the common good ahead of themselves and their party ideology? Sortition fundamentally alters the relationship between the political elites who rule and those of us who are ruled over and thus replaces wishful thinking with a viable path forward. Because important public policy decisions must be passed by a representative sample of the demos under a House of Lots institution the political 6 Messner

(1952) does in fact mention sortition once, very briefly, in his Social Ethics. This occurs in the form of a list of criticisms of Athenian democracy which he claimed was a failure (an appeal is made to the short life of the Attic experiment). However, there is no specific critique of sortition, nor even an explanation of what it was, therefore we cannot reasonably draw any conclusions about whether Messner felt it could play any roll in complementing Subsidiarity.

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elite can no longer be indifferent to the majority, or perhaps even the minority (if a super majority is required to pass bills). This new reality would force the political elite to listen and reflect on what the demos are saying and consider and argue for why a bill serves the common good. Indeed, sortition would serve to protect the dignity of persons whose preferred candidate lost the political contest (for example, the forty-four percent of Tamworth residents who didn’t vote for any of the sitting councillors). This is because a subsample of the losers will almost certainly be represented in the House of Lots. Sortition also protects the dignity of the associations who have been unsuccessful in lobbying those who control the elected chamber, because members of their associations will inevitably be present in the House of Lots. The mere existence of binding voice instantiated in the House of Lots will oblige elected representatives to reflect and argue for why their bill should be allowed to intrude into the life of the community and how they believe the bill will serve the common good. Perhaps just as importantly, sortition will educate citizens about what their governments are doing, the trade-offs that need to be constantly made, and the justification for intruding onto their dignity. Most of us have no idea what our local governments have debated and implemented this month—I certainly don’t. Only when something captures the attention of the media, or thwarts the pursuit of our particular ends, do we find out—generally when it is far too late to do anything about it. Of course, we could all know exactly what our local government is doing all the time—in most cases there is little stopping us from attending council meetings or reading the minutes of the meeting. But unfortunately most of us lack the motivation to do so—compounded by the fact that we know there is little we can do to prevent the implementation of objectionable policy anyhow. A House of Lots solves this problem by requiring a good proportion of us, at some stage of our citizenship, to have a binding say on the outcomes of the meetings. Furthermore, if legislation requires that bills come before the House of Lots with appropriate background information and costings (disaggregated to a per taxpayer cost) then this will also serve to confront head-on the Santa Clause illusion. It will make plain the sacrifice made, by others, for beneficiaries of programs as well as drag compulsory donors out of their state of ignorance. Like I said earlier, it will fundamentally alter the relationship between those who rule and those who are ruled. It may be argued that a House of Lots would thwart the efforts of elected representative to do their job. However, this argument—whilst certainly likely to be made by political elites—doesn’t hold up to close scrutiny. All a House of Lots does is to test whether a representative sample of persons from a local government can be convinced by political representatives that a given proposal does not unreasonably affect their dignity and serves the common good. Moreover, if annual half rotations occur then elected representatives should have at least four distinct opportunities to make their pitch to citizens totalling two-and-a-half times the number of positions in the sortition chamber (during a ‘standard’ four year term). If they can’t convince so many different representative samples then clearly they are either (i) ineffective orators, (ii) overly intruding into the dignity of persons, or (iii) not sufficiently contributing to the common good.

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Perhaps unsurprisingly, sortition also complements our comprehensive theory of local government developed earlier in Chap. 3. A sortition chamber allows for proposed policies to be tested against the tastes of residents and is therefore likely to contribute in a positive way to enhanced economic welfare. Thus a House of Lots serves to correct one of the flaws in our current system of majoritarian democracy whereby ‘decisions are rarely made by voters, by those persons who pay the taxes and who are supposed to benefit from the provision of governmental goods and services’ (Buchanan 1975, p. 197). Moreover, a sortition chamber will also test the claimed bona fides of needs and the extent of moral empathy in the wider citizenry. Likewise, it serves to contribute to the aspiration of an informed citizenry over time. It clearly enhances the power of voice and might also be employed for the purpose of generating greater exit options. Elsewhere (Drew 2019) I have specified precisely how sortition can be used to improve voice, and also provide new avenues for exit, that improve the efficacy of voice and keep open the ultimate means of escape from objectionable circumstances. At present the main threat of exit comes in the form of people moving house to escape dysfunctional local government. Whilst this concept of voting with one’s feet (Tieboutian competition) has gained the attention of the scholarly world (Tiebout’s seminal paper has been cited directly 19,204 times!), in reality it is generally implausible and inoperable. Most of us simply can’t afford tens of thousands of dollars to move house every time we find our local government objectionable—let alone the social and employment costs of doing so. Indeed, exiting has little effect, if any, on the revenue of most local governments and hence exerts little positive pressure on errant management to recuperate. Instead what typically happens when we are faced with objectionable government policy is that we mutter some curses and suffer our fate—maybe vowing to take revenge at the polls if we remember to do so and if a less objectionable alternative presents themselves for election. A House of Lots would not only provide citizens with a binding voice to block objectionable policies in the first instance, but also provide us with a potential path through to the ultimate sanction against poorly performing government—exit (see my explication of Hirschman’s work in Chap. 3). If the House of Lots has the power to dismiss elected persons from leadership positions (Mayors and Deputy Mayors), then this presents a new opportunity to exit objectionable states of affairs.7 In many jurisdictions in Australia it is the body of councillors, not the citizens, who elect the Mayor and Deputy Mayor—providing this power to the House of Lots simply shifts the balance from the political elite back to a subset of the demos. Even in jurisdictions in Australia and abroad where Mayors and Deputy Mayors are directly elected, it is not unreasonable for a supermajority of the House of Lots to have the power to dismiss leaders for poor performance at regular (say annual) intervals. Generally the sortition chamber will have a composition similar to the wider electorate, and if a supermajority is required to spill leadership positions, then for this to actually happen it would mean that the leaders had acted in a way to convince a number of members 7 Some

might argue that this is indeed voice, but I disagree. Exit is a voluntary act and a sortition house would voluntarily decide whether or not to exit a disagreeable political management.

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that they had previously erred in their judgement (which Riker 1991 astutely pointed out is a formidable task—after all I am always right, aren’t you?) Exit possibilities of this kind will certainly gain the attention of those who hold, or seek to hold, much prized local government leadership positions. Thus far we have looked at some of the history of sortition and seen how a House of Lots could be employed to help shape local government into behaviour consistent with Subsidiarity (I will also explore this further in the subsequent chapter on fiscal institutions). It all looks very good in theory, but is it possible? What are some of the obstacles that would need to be overcome and how would a House of Lots operate in practice? If you are expecting detailed answers to these questions then you are likely to be disappointed—just like proponents in the past (see Dahl 1990) I am not silly enough to provide detailed prescriptions for every context across the globe and through time. However, there remain some basic questions that need to be addressed and in the next section I outline some of my proposed answers.

8.3 Practical Sortition A fundamental question that naturally comes to mind is how would the implementation of a sortition chamber for local government come about? The first point to note is that sortition is far more probable in the context of local government than it is for nation states. This is because, in most cases, local government is a creature of statute—its functions, rules and political institutions are whatever it’s enabling legislation says it will be. This means that reform which protects the dignity of persons and cultivates a better regard for the common good is no more than an enlightened local government minister away (yes, I do believe they exist out there, somewhere). Failing enlightened motivations sortition could become a reality as a result of political payback (it may shock my readers to hear that some local government public policy-making is conducted purely for political purposes and a sortition chamber will certainly clip the wings of local government politicians; see Drew et al. 2016), as a concession to growing political unrest (there is certainly plenty of discontent to be addressed), or as a result of experimental evidence and scholarly advocacy (less likely but one never knows—this chapter may be the catalyst and you may be the reformer!). If I have learnt anything in public policy, it is that very unlikely things do happen and that innovations catch on very quickly after initial adoption (for example, the misguided adoption of accrual accounting for government) and I have every reason to believe that many will follow after the first implementation of sortition. How successful sortition ultimately proves to be seems to be dependent on the rules laid out for the game. This is where enabling legislation will be critical and it would be prudent for pioneers to ensure that the legislation clearly articulates both the remit and purpose of the sortition chamber (at a minimum, to consider all new local laws, changes to taxes and fees, and new discretionary spending with

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respect to the dignity of persons and associations as well as the common good). Training will also be crucial—as it is for elected members of local government—and it would seem a relatively simple task to adapt existing mandatory training programs to the particular perspective and needs of sortition chamber members. Moreover, the purpose and role of the sortition chamber should be studied at some point in each person’s school education during citizenship training—something that was once a feature of all education curricula but is now sadly not taught in many jurisdictions (it isn’t surprising to me that the rise of our democratic deficit coincides closely with the abandonment of compulsory citizen education in our schools). It is also essential to ensure that membership of the House of Lots broadly reflects the cognitive and social diversity of our local communities—this can be achieved by legislating for mandatory service, ensuring appropriate remuneration, and taking every opportunity to minimise the opportunity costs of serving one’s community (and, it should be emphasised, ultimately ones’ self). Will people try to wriggle out of service? Some certainly will do so, but I think the long tradition of compulsory jury duty in many countries, as well as experience of strong community engagement in similar institutions (such as the British Columbia citizens assembly, and the annual assembly in Glarus where up to 55% of the citizens attend to challenge around 43% of their Parliament’s decisions—see, Drew 2019) suggests that most won’t seek to shirk their duty. Remuneration will help to ensure that people can afford to attend (and legislation guaranteeing them the right to take time off from work will also assist8 ). It is possible that some of the funds to achieve a minimum level of payment might come from reducing the size of the elected chamber which is arguably justifiable on the grounds that the objective of getting plurality of voice will be partially satisfied by the institution of a House of Lots (remuneration for the relatively short periods of time required to vote on important bills will be a tiny fraction of the remuneration provided to full time Councillors and thus the removal of a few of the latter positions could be expected to fund many of the former). However, the biggest factor likely to influence most people will be to take all possible measures to minimise the opportunity cost associated with serving (ensuring only relevant bills are put before the House of Lots after they have passed the elected chamber, shunning deliberation in the sortition chamber, and setting firm boundaries around the time allotted to the bill proponents and opponents to make their pitch). Indeed, in order to minimise opportunity costs for local governments with relatively large remits, it might be prudent to form several sortition chambers to deal with each of the major areas of responsibility (for example, one chamber for each of education, law and order, health etcetera). Notwithstanding the desirability of plurality in membership, some disqualifications and exemptions from serving on the House of Lots would be prudent. In this regard we could do worse than adopt the criteria used to eliminate people from serving in the Signoria of medieval Florence—disqualifying those ‘who still owed taxes, had served in a similar capacity in the recent past, had been sentenced in respect to certain crimes’ (Sintomer in Delannoi and Dowlen 2010, p. 35). Clearly 8 In Australia legislation of this type allows staff to take time from work to attend emergency services

incidents and training, as well as military reserve training.

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those medically incapable of taking up their position should be able to stand aside (or preferably) defer their nomination to a time when they might be capable. The fewer restrictions and opportunities to avoid service, the more representative the sortition chamber, and hence the better it will be at protecting the dignity of persons and performing its’ crucial educative role. The question of accountability will also require some attention by sortition architects. In theory, elected representatives are subject to some (weak) accountability to the public at infrequent intervals, but no natural mechanism exists to hold sortition chamber members accountable to the public. Recent experiences such as the British Columbia citizen assembly provides us with some hope that most members will perceive themselves accountable to one another and the public in general, even in the absence of a formal mechanism to hold people to account (see, Lang 2007). However, it would still be prudent to formalise some mechanisms and adapt existing institutions (such as the anti-corruption bodies, and the capacity for a supermajority to expel members for unseemly conduct) to provide some redress for conduct unbecoming members of a chamber of government. Moreover, it must be remembered that relatively short rotations, absence of deliberation, and secret ballots9 all limit the opportunity for corrupt conduct and other inappropriate behaviour. Bills should be presented to the House of Lots by a proponent from the elected chamber and an opportunity provided to a dissenter (if one exists) to also make their pitch. This is where the skills of the professional politician will be put to the test and where a case should be made about why any proposed intrusion into the dignity of persons and associations should be tolerated (see my discussion of the principle of double effect in Chap. 3) and how the bill contributes to the common good. After both cases have been put forward then members of the sortition chamber should be provided with additional information required to make a reasonable decision (which should include, at a minimum, the objective of the bill, the projected cost to each taxpayer of the proposal, and projected levels of demand). My readers will recall that part of the justification for a House of Lots is to increase citizen knowledge and providing a minimum of information to address the very large extant asymmetries is therefore well justified. A secret ballot would then be held—ideally through electronic means to make the process as efficient as possible.10 This is a basic sketch of how a House of Lots could be employed to prevent future unwarranted intrusions into the lives of persons and associations, in addition to cultivating a better appreciation of the common good amongst both citizens and elected representatives. But what of all the past injustices? As Friedman (1993) wisely pointed out almost three decades ago the problem with government is that once laws and programs are established they are rarely revoked and over time a mountain of 9 Having

secret ballots and prohibiting public deliberation will make it harder for people to corrupt the sortition chamber by the application of pressure or through trying to buy votes, because there will be no way to verify each members’ voting behaviour. 10 Indeed, it might be possible in some cases to conduct the whole process through home computers, with appropriate controls, to further minimise opportunity cost and increase flexibility for House of Lot members. This possibility is of course dependent on context, but should at least be considered.

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ineffective legislation and spending accumulates. This detritus of local government accumulates as a combined result of sloth, loss of institutional memory, and the fact that beneficiaries of programs (including staff, contracted agencies and the subject of the service) quickly establish a vested interest in seeing it continued (irrespective of its results). Some good examples of absurd local laws can be found in the Bayside City Council Consolidated Local Laws (2012) (I couldn’t even find the Tamworth local laws register and the staff couldn’t tell me where they might be found—no doubt someone will find them if they decide to issue me a fine at some time in the future). These laws include a requirement to remove wasp nests from one’s property within seven days (penalty for non-compliance is 10 penalty units—which was equal to AUD$1,652.20 at the time I wrote this chapter), a prohibition on feeding birds on private land or ‘allowing them to be caused to be fed’ (10 penalty units), and a prohibition on riding my camel on council land unless I am a police officer (10 penalty units)! An example of an ineffective but expensive program is the kerbside rubbish collections that over the course of the last decade have appeared as a ‘standard’ local government service in most jurisdictions, whereby people can leave their large rubbish items on the footpath for collection a few times each year. This program is only used by a minority, presents a huge safety hazard, succeeds in making our streets look like slums for several weeks a year, and effectively calls on the majority to subsidise a very small group of households who choose not to drive their rubbish to the rubbish tip like countless of generations before them did (incidentally and perversely, in many local government areas accessing the rubbish tip attracts a fee). It doesn’t take much effort to imagine the howls of protest that would erupt from the small minority if this service was removed—however, I think it likely that a large majority would be quite happy to see the program shelved (or better targeted to the aged and disabled), especially if they knew the extent of the cost associated with it. These sorts of examples provide graphic illustration of the failure of our current local government institutions, especially with regard to respecting the dignity of persons. In the next chapter I will outline some fiscal institutions that will force tradeoffs in discretionary expenditure that should deal with some of the fiscal excesses and political capitalisation. As to the body of extant ridiculous local legislation, the only way to resolve the problem is for higher tiers of government to mandate expiry dates on all local legislation and thus force a regular review (say every 5 years). I very much doubt that a randomly selected group of my peers would pass a local law to fine me $1,652.20 for riding my camel on council land—but if they did so (and if I had a camel to ride) then I would willingly accept the consequences if I nevertheless chose to transgress in this most grave manner.

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8.4 Concluding Remarks Some might ask why I prefer sortition over more ‘trendy’ democratic innovations such as special purpose mini-publics, community consultations, or participatory budgeting. One of the main reasons is that I have witnessed the use and abuse of these other options far too many times to take them seriously as an avenue for pursuing real change (see also, Flinders and Curry 2008; Gastil and Wright 2018; Batory and Svensson 2019). On the whole, these tend to be self-selected forums of the squeaky wheels which get manipulated (or willingly) endorse the pre-conceived outcomes of the political elite that organise the events. That is why these assemblies are so popular with many local governments—because they invariably pose no threat to the agenda of the political elites who endorse them. I can’t see how self-selected, non-binding voice with no legislative protections or robust assurance standards can really achieve much in terms of the struggle to protect dignity and mitigate the worst of the excesses of the political class. I also believe ongoing assembly is required for people to understand the trade-offs involved with government, and to retain essential knowledge of the institution (hence my recommendation for half rotations each financial year). Another alternative is direct democracy but the problem I have with this trend is that I recognise that my time is valuable to me, and I honestly don’t want to spend the rest of my citizenship casting binding judgements on all manner of local government bills. If I had this sort of inclination, I would have become a politician myself. If we want to effectively put a stop to unwarranted intrusions onto our dignity, and force our elected politicians and wider citizenry to better reflect on the common good then the only realistic way to do this is to give binding voice (and exit options) to those who stand to lose the most under the widely recognised and flawed system of western majoritarian democracy. I have no doubt that if people are given an effective way to protect their interests then that they will do so with great enthusiasm. Of course, people with vested interests will attempt to criticise the idea of a sortition chamber—I certainly would do so if I held a concentration of power and competence that I did not wish to lose. But is there a legitimate objection? Is it really so wrong for people to have a binding say into how far government is allowed to intrude onto their dignity? Do we really think people are not sufficiently competent to make informed decisions, and what would this say about our current system of majoritarian democracy if this were true? Is there any other effective way to control Leviathan? Across the world people are angry at government who they assert is not doing enough to protect their interests or intruding too far into their lives. Brexit, Trump, the Climate Rebellion, Chinese interference in sovereign affairs, Russian military aggression, anger over corporate greed, anti-vax campaigns…. I could go on forever. The fact that so many people are going to such extraordinary lengths to protest— often at risk to their lives and liberty—signals to me that there is a wide perception that government is not as close to the people as we might like it to be, and that quite a few of us don’t think that it serves us well at all. What the world needs is

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a clearer demarcation about where and how government should act and a fostering of lesser associations to redistribute competence and power. History demonstrates abundantly that a failure to redress concentrations of power and competence is a tacit endorsement of tyranny and chaos. Sortition is the only way I can see to bring about a Subsidiarity approach to government and thus finally strike and preserve a balance between dignity and the common good.

References Batory A, Svensson A (2019) The use and abuse of participatory governance by populist governments. Policy Polit 47(2):227–244 Bayside, City Council (2012) Consolidated local law “Neighbourhood Amenity”. Bayside City Council, Sandringham Buchanan J (1975) The limits of liberty: between anarchy and leviathan. Liberty Fund, Indianapolis Dahl R (1990) After the revolution? Yale University Press, New Haven Delannoi G, Dowlen O (2010) Sortition theory and practice. Imprint Academia, Charlottesville Drew J (2019) Can local government by lottery increase democratic responsiveness? Policy Polit 47(4):621–636 Drew J, Grant B, Campbell N (2016) Progressive and reactionary rhetoric in the municipal reform debate in New South Wales (NSW) Australia. Aust J Polit Sci 51(2):323–337 Flinders M, Curry D (2008) Deliberative democracy, elite politics and electoral reform. Policy Stud 29(4):371–392. https://doi.org/10.1080/01442870802482075 Friedman M (1993) Why government is the problem. Hoover Institute Press, Stanford Gastil J, Wright E (2018) Legislature by lot: envisioning sortition within a bicameral system. Polit Soc 46(3):303–330 Gastil J, Wright E (2019) Legislature By lot. Verso, London Headlam J (1890) Election by lot at athens. Cambridge University Press, Cambridge Landauer M (2015) Democracy, voter ignorance, and the limits of foot voting. Crit Rev 27(3– 4):338–349 Lang A (2007) But is it for real? the British Columbia citizens’ assembly as a model of statesponsored citizen empowerment. Polit Soc 35(1): 35–69. 1080/08913811.2015.1111683 Lindblom J (1962) Lot-casting in the old testament. Vetus Testamentum 12(2):164–178 Messner J (1952) Social ethics: natural law in the modern world. Transl. J. Doherty. B Herder Book Co, St Louis Messner J (1965) The executive. B Herder Book Co, St Lois Riker W (1982) Liberalism against populism. Waveland Press, Illinois Riker WH (1991) Heresthetic and rhetoric in the spatial model. In: Enelow J, Hinich M (eds) Advances in the spatial theory of voting, Cambridge University Press, New York, pp 46-65 Sintomer Y (2019) From deliberative to radical democracy: sortition and politics in the twenty-first century. In: Gastil and Wright (eds) ‘Legislature By Lot’, Verso, London

Chapter 9

Ideal Financing for Local Government

Abstract Local government, following a legitimate remit and governed through political institutions which strike a balance between the dignity of persons and the common good, still needs to be financed. Financing the activities of local government requires sacrifice and it is therefore imperative that contributions to the fostering of the common good are made in a manner which both reflects a person’s responsibility to the community but also respects their dignity. In this chapter I review the various kinds of local government goods and services and associate each with the most appropriate form of revenue. I also spend some time discussing a system of intergovernmental grants founded on the Principle of Subsidiarity as well as explicating on the morality of using debt to finance the provision of local government goods and services. Following this, I devote some time to describing how the political institution of sortition can be employed to enhance the efficacy of fiscal institutions designed to respect the dignity of the current and future generations of local government taxpayers. I conclude with some thoughts regarding how careful design of the revenue structure of local government can dispel fiscal illusion and bring citizens closer to the finance of local government which serves their bona fide interests best.

The political institution that I outlined in the last chapter provides us with a way of fighting political capitalisation and any morally illicit expansion of remit, by providing the people who local government putatively serves with a binding and timely voice in discretionary spending decisions (amongst other things). However, whilst this is likely to prove effective for restraint on the expenditure side of the budget, this political institution alone will do little to safeguard the sufficiency and equity (who pays what and how the burden is calculated) of revenue streams. To achieve the outcome of equitable and sustainable revenue streams requires both a better understanding of the types of revenue suited for various local government goods and services, as well as suitable fiscal institutions (supervised and enforced by our sortition chamber). In this chapter I first elaborate on the various types of local government goods and services (with reference to the appropriate type of revenue source for each), before turning my attention to the fiscal institutions required (and how to make many of these extant institutions more effective).

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In the explication that follows it is important to be mindful of the personal finance metaphor I outlined in Chap. 1 (this is a good time to flick back to Chap. 1 if you need to, because the ideas developed there are very important to understanding the morality of local government finance). As Franklin D. Roosevelt is said to have remarked ‘any family, can for a year spend a little more than it earns…but you and I know that a continuation of that habit means the poorhouse’ (cited in Borna and Mantripragada 1989). Most of us do in fact make spending and sacrifice decisions in our personal finances with a view to balancing revenue and expenditure over the medium term and we fully expect to personally pay for what we consume. Indeed, most of us strive to bequeath nett assets (revenue has exceeded expenditure over our lifetime) to our children when it comes to our personal finances. However, unfortunately, when it comes to government finance, these prudent and benevolent attitudes towards our personal finances and the next generation respectively seem to fly out the window. Instead, many citizens and their political representatives seem to think it ‘just’ to consume goods and services for which the full price has not been paid, and to bequeath debt instead of nett assets to the next generation. In addition, attitudes to the objects of spending by government seem to differ relative to how we might conduct our personal finances. In our personal finances, few of us choose to spend money on ‘wants’ before making sufficient provision for ‘needs’. For example, most of us would condemn any head of a household for spending money on frivolous items such as fashion accessories whilst letting their children starve due to insufficient funds to buy food. Yet, somewhat paradoxically, few of us object to our governments rather routinely committing this fiscal sin (did someone mention a second skate park in Tamworth, whilst households continue to live in third world conditions without water, sanitation or sealed roads?). If it is morally right for us to live within our means, make sufficient provision for needs before spending on wants, and seek to leave our children in a better financial position when it comes to our personal finances, then it seems difficult to understand why people don’t take a similar view to how they collectively act through government. I suspect the reasons for our morally deplorable collective behaviour might be explained with reference to the different opportunities, consequences and levels of ignorance that contrast our ‘collective citizen’ self, with our ‘personal’ self. Otherwise stated, my personal self can’t easily bind my children or strangers to pay my way through life,1 definitely suffers the consequences of impudent spending (through constrained choice-making in the future), and knows exactly how much money, debt and assets are ascribed to me. However, my citizen self, can get strangers and the next generation to pay for my current consumption (through inappropriate use of the common tax pool or local government debt), will unlikely suffer any consequences for imprudence (more debt can be issued to keep the full range of choices open 1I

can invite my readers to pay for a trip for me to see the 2021 sumo bashos, as I did in Chap. 4, but (unfortunately) I can’t force you to do so. This is because my readers are invested with dignity and have a binding voice over how their wealth is spent. The dignity that you and I have over our personal wealth stands in stark contrast to the complete absence of voice that the next generation of local government taxpayers have on the matter of local government debt which they will be required to service.

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in the future), and doesn’t have the foggiest how much my local, state or federal government owns and owes. To remediate deficiencies of my citizen self clearly requires me to acknowledge my responsibility to pay for what is consumed and required for the common good, resist the temptation to transfer my responsibilities on to the next generation, and better understand the state of my government’s finances. In the course of this chapter I will describe how these flaws in our citizen character might be addressed. But first, we need to understand the different types of local government goods and services as well as the appropriate method for funding each.

9.1 Types of Local Government Goods and Services and Appropriate Own Source Financing Economists generally categorise government goods and services according to a four-part typology: public goods, private goods, merit goods, and goods displaying externalities. Not all goods seem to perfectly correspond to the various definitions employed to categorise them, but the typology nevertheless serves to highlight the appropriateness of different kinds of revenue raising options for financing the provision of particular goods and services. The fact that local goods and services come at a cost means that the dignity of persons and persons in association must be impinged upon in some way, in order to promote the common good (the need to strike a balance probably also means that the common good will never be fully realised either). For those of us concerned about morally defensible public finance decisions, the critical task is to ensure that the burden for providing goods and services is distributed in an equitable fashion, preferably from household superfluum.2 This is the task to which I now turn my attention. Public Goods Pure public goods are both non-excludable and non-rival in consumption. These are items such as street lighting where it is not possible to stop anyone from benefiting from the good, and the use of the good by one citizen doesn’t appreciably affect the amount of the good that can be used by others. Because people can’t easily be excluded from using public goods it is unlikely that they would be provided by persons or business. Indeed, Oates (1999) has claimed that the provision of pure public goods is the entire raison d’etre of government. However, it is important to note that not all public goods should automatically be considered the legitimate remit of government—for instance, many quasi-public goods (such 2 Superfluum

refers to wealth and income surplus to what is required to keep a household at the standard to which they are accustomed. In times past, it was considered a moral responsibility to redistribute this superfluum amongst those who stood in need (see, for instance, Aquinas in Finnis 1998).

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as sporting and cultural facilities (including houses of worship)) have, and continue to be, provided by not-for-profit community organisations. When government does provide local public goods then it is generally the case that these should be provided at the level of local government (see Chap. 7). To do so, local government requires a stream of predictable revenue—generally provided through the levying of local government taxation. Taxation is often misconceived as a fee for a bundle of services, when in fact it is really a contribution towards the common good that is the responsibility of those who are members of a given community. In natural law philosophy government has long been afforded the moral right to seize some of the wealth of its citizens for the purposes of advancing the common good, notwithstanding the injunction that people should generally be allowed to retain the work of their hands (Messner 1952). A tax on unimproved land value is a common way that local governments obtain the revenue that they need to promote the common good without transgressing the right of persons to retain the fruits of their labours. The moral defence for a tax on unimproved land value goes something like this. Increase to the value of land comes from two sources—(i) the efforts of the landholder (through capital expenditure and labour) and (ii) the efforts of others (population growth, development of new industries, and construction of infrastructure such as roads and rail). Consistent with natural law philosophy the landholder is entitled to enjoy the fruits of their labour (the capital improvements). However, the landholder has no moral rights to appropriate for themselves the fruits of the labours of others (just as I have no moral right to seize your wealth to fund my trip to see the sumo basho in 2021). By taxing the unimproved value of land (that is the value of the property less the value of any improvements made to the land), the community can have returned to it the value that the community has essentially created. As such, an unimproved land tax is a tax on the part of the unrealised capital gain attributable to the efforts of others (through economic development, population growth, building of infrastructure), rather than the landowner. Because the tax is only incident on wealth that the landowner did nothing to create, it is a morally defensible way to obtain the funds necessary to foster the common good. In addition, a tax on unimproved land value would dissuade people from speculating in land (which can make property unfordable for others), and would encourage people to put land to more productive use (through subdividing or cultivation), which should foster economic growth (Pullen 2009). Indeed, in the late nineteenth century Henry George promoted a single tax based on the unimproved value of land, partly to address the problem of widening gaps in wealth that are associated with the economic development of a country (Laurent 2005). This policy was, not surprisingly, embraced by the landless masses but vigorously attacked by economists and landholders (George 2006). The biggest concerns raised against imposition of a single tax was that it would not bring in sufficient revenue to fund government, that it neglected taxation of other unearned wealth (for example, equities and tradable commodities), that landowners might not have capacity to pay, that it was difficult to value unimproved land in practice, and that it would encourage people to build on unsuitably small parcels of land. At different

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times of my career—mainly when writing from an economic perspective rather than from a specifically moral one—I have agreed with many of these criticisms and advocated instead the use of capital improved value (CIV) as a base for local government taxation. However, whilst CIV better addresses the problems of valuing land (there is a more active market for improved land than unimproved), and perhaps capacity to pay (the size and construction of one’s house may be a better reflection of one’s wealth), it does not have the moral force of a tax on unimproved land value (a tax on CIV seizes some of the wealth created by the landowner and is thus not ideal under natural law). I now think that it is worth investing more effort into the concept of a tax on unearned wealth as a way of funding public goods. Broadening the tax to include all unearned capital gains (whether realised or not) addresses the problem of sufficiency3 and also ensures that the asserted moral imperative is consistently applied (consistent with the exercise of practical reason which is a foundation of natural law philosophy; Finnis 2011). In many jurisdictions a capital gains tax already exists for items such as art, investments, and precious metals however it is often inconsistently applied and comes with generous discounts and exemptions.4 A better targeted and more widely applied capital gains tax could be an important and morally defensible taxation base for local government. Moreover, capacity to pay can be dealt with by allowing for deferment of the tax in cases of hardship (that is, until the capital gain has been realised), and much could be done to improve the method of calculation of the tax.5 It is also important to be mindful that the tax is only intended to fund public goods and the subsidies associated with merit goods and goods with positive externalities (see the following subsections). It would be remiss of me to neglect to write also about two devices which are often employed in relation to local government taxation—base rates and rate caps (the latter is also sometimes referred to as taxation limitations). Base rates levy a certain proportion of the local government tax as a predetermined sum, and then the remainder according to the value of the land (ad valorem). Base rates have the advantage of flattening the disparities between individual local government taxpayer imposts, and reducing the potential for fluctuation in individual tax impost (because 3 Indeed,

George remarked that if the single tax was not large enough to fund government then the fault may well lie on the expenditure side of the ledger (Laurent 2005)—an argument to reduce spending on discretionary government goods and services not inconsistent with our Subsidiarity position articulated in Chap.7. 4 For instance, in Australia the family home and personal use items (boats, cars etc.) are exempt, and a 50% discount is applied for persons and trusts on other items. These exemptions water down the moral imperative and reduce the revenue captured by the tax. 5 The Valuer-General in my state—as I suspect is the case in many jurisdictions abroad also—is quite chaotic in the way that they value unimproved land, often trying to value on the basis of dissimilar and rare parcels of land, or starting with CIV and discounting arbitrarily on the basis of perceived value. I appealed the value of my land a few years ago, mainly to see the process employed, and was startled to find my (at the time) 2 acre block compared to sales of 5 acres, completely dissimilar houses, land in other local government areas, and even small town blocks. This chaotic approach to valuing land undermines the morality of an unimproved land tax and must be addressed as a matter of urgency.

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less of the tax is based on land value it follows that changes to land value will have relatively less effect if a base rate is used). However, the base rate essentially sets a fee for membership to the community which is contrary to the moral intent of taxing unearned increases to wealth. The inevitable result of ‘flattening’ local government taxes through use of a base rate is that low value landholders pay proportionally more of their unearned gains in wealth which results in an effective subsidy to high value landholders (who get to keep relatively more of their unearned wealth). Hardly equitable. Rate caps are an upper limit that is often placed on local government tax revenue— generally set on the basis of a legislated maximum increase to local government taxation revenue enforced by higher tiers of government. There are a number of economic arguments against this practice (it encourages fiscal illusion, clearly constrains revenue and thus undermines financial sustainability, and results in very uneven revenue efforts over time—see Drew and Dollery 2015). However, to my mind the moral arguments against this practice are even weightier—a rate cap is an assault on the dignity of the local government (see Chap. 7), as well as a guarantee that persons will be able to effectively keep relatively greater amounts of wealth accrued as a result of the efforts of others (where the cap is lower than the unrealised capital gain of unimproved land (and other items)). It could only be morally licit to introduce a cap if it were the case that a local government sought to extract more than the unrealised gain on unimproved land (or broader tax base)—in this case a cap would prevent local government from committing a potentially morally illicit act and therefore consistent with the duties of the state (see Messner 1952). Moreover, my discussion of the use of the sortition chamber to supervise fiscal institutions, later in this chapter, obviates the need (often argued on the basis that rate capping increases accountability and transparency) anyhow. My extensive experience working with a number of councils over the last decade leads me to believe that all local governments (certainly in Australia) need to take a good hard look at the structure of their local government taxes. What typically happens is that tinkering with taxation rates for particular categories, creation of subcategories, and stretching of gaps between tax rates as a result of uniform application of the rate cap to each sub-category brings about a certain amount of ‘drift’ in equity and sustainability of local government tax streams. Add to this the changes brought about by regular scheduled land re-valuations, new developments and subdivisions, and many rates structures end up being entirely morally indefensible. For instance, I have in the past worked with a local government that had four subcategories of local government taxation that each contained the word ‘industrial’ in their title, all with completely different rates of land taxation. It would be hard to justify why landholders who employ their land for the same purpose should return different proportions of their unearned wealth to the community. Similarly I worked with a local government where residential land outside of the main town centre received a 78 percent discount on their tax rate (presumably according to the erroneous argument that a tax discount was warranted due to different service level provision—ignoring the fact that services should be paid for through fees and that

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proximity to town is capitalised into the land values anyhow6 ). How exactly does one justify such an extraordinary discount on the proportion of unearned wealth that a particular sub-groups of landowners should return to the community? In both these instances, the injustice of ever-widening gaps in taxation rates had occurred over many decades and probably wasn’t a deliberate decision. The scale of this drift is so pervasive that I now firmly advocate that local government taxation structures should be reviewed at least every decade to prevent grievous injustices from occurring. Private Goods Pure private goods and services are items that are both excludable and rival in consumption. Common examples of private goods provided by local government are aged care and child care as people can be excluded from care, and once the care places have been fully taken other people can’t use the particular service. Before one even considers how private goods and services should be paid for, one needs to question why a local government is involved in the production of such items in the first place. According to the Principle of Subsidiarity, if a smaller association is competent to provide the goods and services, then it should be provided with the appropriate support to do so (see Chap. 7 for a discussion about the desirability of fostering a plurality of social forms). It is morally suspect, dangerous, and often less effective, for government to subsume the legitimate functions of smaller associations. However, if a local government does provide private goods and services then it is critical that these not be paid for out of the common tax pool. First, because doing so defeats the moral objective of a tax on unearned wealth—using the common tax pool in this way effectively removes unearned wealth of taxpayers only to subsequently gift it to the private possession of some special residents. Second, it results in economically inefficient levels of consumption (essentially if some residents are receiving the good or service at close to zero cost, then they are likely to demand a higher quantity and quality than they might do if they were paying the full cost (see Fig. 9.1). Generally, two approaches to pricing the private good or service are advocated by economists. The first is a demand-side approach that uses the price charged by local competitors in the area. In practical terms this can be difficult if there are no competitors, but more importantly, in moral terms, it is redundant if there are competitors (because in this latter case the local government should not seek to perform the function that can clearly be fulfilled by smaller associations). The alternative methodology is a supply-side price which is calculated according to the long-run marginal cost (the cost of producing one more item). Use of this method (if careful consideration is given to including overheads and foreseeable capital investments) should ensure that local government is able to provide the good or service in a financially sustainable manner. Moreover, quite apart from the likely additional revenue, careful pricing of goods and services also tends to temper demand (invariably I find that citizen 6 Thus,

even if landholders in the outskirts were asked to pay the same rate of taxation the actual tax dollars paid would be far less because the land would be worth less owing to its distance from town.

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Price ($)

Price

($)

P2

S2

Increase to fee

S1

P1

P1 P3

S1

Decrease to fee

S3

Demand

Quantity (q)

Demand

Quantity (q)

Fig. 9.1 How Changes to the Price of Local Government Goods and Services Alters Consumer Demand

demand for government goods and services is quickly muted when people realise they might have to pay the full price for consuming same). In addition, the levying of appropriate fees for goods and services ensures that the behaviour that most people exhibit in their personal finances (our expectation and willingness to pay the full cost for what we chose to consume) is also mirrored in their collective finances. Merit Goods Merit goods are items which local government has somewhat paternalistically deemed to be worthy of consumption for the internalisation of virtues into members of a community. Examples include swimming pools (presumably because it is deemed a virtue to be fit), and libraries (seemingly because additional literacy practice is deemed meritorious). I suspect many of the ‘merit’ goods provided with hefty subsidies by local government are not uniquely virtuous nor necessarily the legitimate remit of local government. For instance, swimming is not the only way to stay fit and healthy (one can walk which requires almost no infrastructure) and certainly the common good would be better served if the community swimming pool was operated and maintained by a swimming association (see Chap. 7). Perhaps more alarmingly, the rationale, goals and targeting of merit goods is often not articulated and leaves much to be desired when it is. Merit goods should be funded through a fee levied on the user, and a subsidy that may be provided. Before providing merit goods local government decisionmakers need to be able to articulate what the virtue and intrinsic value of the good is supposed to be. A goal should then be determined (if one has no goal, one can hardly assess whether the merit good and subsidy has been a success), and target group identified for receipt of the subsidy (those who are supposed to stand in bona fide need). Moreover, it is still important to send appropriate price signals by clearly indicating the size of the subsidy provided—not only so citizens can appreciate the true value of what they consume, but also so that the dignity of the compulsory donor (see Chap. 7) is respected.

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I often appeal to the example of my local swimming pool to illustrate my argument better.7 The public swimming pool in the neighbouring village to where I live provides a concession entrance fee to all persons under 18, (as well as those in receipt of government social security). Thus, when my children go to the pool every summer I duly pay my $3 entry for each child. However, the real costs to the local government to operate the pool is around four times higher (according to the Tamworth Council Operating Plan 2019–20). This suggests that I am receiving quite a large subsidy from the taxpayers of Tamworth every time my children use the pool. Perhaps this is reasonable for low income earners in the area, but I earn almost three times the average income for Tamworth and clearly do not have a bona fide need for subsidium. Moreover, until I looked up the figures this afternoon, I didn’t even know the true cost of my children using the pool. I therefore valued the excursion at the $3 that I paid, when verily it seems this was a significant understatement of value. It would seem relatively simple to address this problem (although I would lobby for the operation of the pool to be turned over to a lesser association which no doubt would also result in the true cost being reduced dramatically)—provide subsidies only to those who stand in bona fide need of them (in Australia low income families have a federal government health-care card that could be used as evidence of need), and signal clearly on the entrance ticket the size of the subsidy (to send an accurate price signal and ensure that the sacrifice of my fellow taxpayers is correctly acknowledged). Indeed, the quantum of the subsidy should be set carefully to ensure that it is sufficient (but does not exceed) the level required to achieve the goals set. Getting the value of the subsidy right has implications for both equity and financial sustainability and can be achieved through survey methods and also by altering the level of subsidy to gauge the marginal response of targeted consumers. Thus, it can be seen that it is not terribly difficult to appropriately target justified merit goods and ensure that the sacrifices made by the wider body of taxpayers are correctly acknowledged and that accurate price signals are sent. It is therefore disappointing that I have never come across a local government that has provided merit goods in a robust and defensible manner. Goods with Externalities These are a special subset of local government goods and services whereby the full costs and benefits of the items are not fully internalised by those who consume them. Goods with positive externalities (rather than negative ones) are the most common and are characterised by benefits which are conferred on the wider community as a result of an individual person’s consumption. A good example of this is education—a large portion of the benefit of education is internalised by the student, but the wider community also benefits as a result of having more educated citizens and future citizens. For the case of goods with positive externalities it may be appropriate for the community to subsidise some of the cost of the service so that both (i) optimal levels 7 Although

this should not be considered an endorsement of council operated swimming pools, because I do not believe this is part of the legitimate remit of government—nor do I believe they are entirely ‘needs’—we didn’t have government aquatic centres when I was young and the absence of same didn’t affect my ability to achieve my existential ends.

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of consumption occur, and (ii) the community pays something towards that which it ultimately consumes (this is consistent with universalising the moral principle that we elucidated earlier—it is not ‘just’ for people to appropriate a benefit that has come as a result of the efforts of others—in our present example the labours of the student). Goods can also come with negative externalities. For example, when water is drawn from the environment for the private benefit of persons (such as the provision of potable water), there is a cost to the environment and the wider community that should be internalised by the ultimate consumer. This is particularly notable in rural areas where only people living close to the centre of town get access to potable water but, all residents lose some amenity as a result of it being drawn from the environment (indeed farmers down-stream with riparian rights may have their business directly impacted by water provision to town residents). In this case it is appropriate for the citizen consumer to reimburse the community for the wealth that has been appropriated.

9.2 Intergovernmental Grants and Subsidiarity Decentralisation almost always results in disparities in the ability of local governments to fund the provision of local public goods. These disparities can be attributed to three main causes: vertical fiscal imbalance, spillovers and horizontal fiscal inequity. The public finances of many nations are characterised by vertical fiscal imbalance—that is, typically higher tiers of governments have the greatest taxation powers which means that they can accrue more revenue than required to service their remit.8 By way of contrast, local government is often restricted to a narrow tax base (although as I showed earlier this need not be the case) and (certainly for the case of a Subsidiarity-based system) may have a disproportionately large remit. A second cause of disparities between local governments in their ability to provide necessary public goods is the occurrence of spill-overs. When residents of one local government regularly use the assets or services of a neighbouring local government, then this represents a drain on scarce resources that might be difficult to overcome. I am not talking here about the occasional use of a neighbouring local government’s roads, but rather the repeated use of local government goods and services by citizens of neighbouring authorities because their own government does not satisfy the bona fide need. A good example are regional airports—for instance the Tamworth Regional airport is often used by citizens from the Gunnedah Shire (about 70 km west) which does not have an airstrip running mainstream commercial flights. Notably, careful design of boundaries can minimise spill-overs but not always eliminated them entirely (see Chap. 4).

8 Often

it makes sense for taxation powers to be located at the highest tier of government to avoid destructive tax competition (a race to the bottom to attract industry and wealthy citizens).

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The final major reason why some local governments struggle to provide necessary public goods is because of horizontal fiscal inequity (unequal revenue capacities and often also unequal needs)—put simply some areas are richer than others as a result of endowment of natural resources, paths of industrialisation and patterns of migration. These three major reasons for disparities in the capacity of different local governments to provide important public goods and services seems to suggest the need for three different kinds of intergovernmental transfers as well as three different moral justifications for same. However, typically only one annual transfer is made which presumably conflates the three different purposes and hopelessly confounds any attempt at moral justification (the use of public money should always be morally justified because it is only ever morally licit to cause harm (which is inevitably done when a portion of citizen wealth is seized for the purposes of government) for grave reasons—see the Principle of Double Effect in Chap. 3). Moreover, failure to identify and separate out the various transfers means that few (if any) bureaucrats or citizens understand the purpose of the funds and little can be done to assess the success of any grant regimes. Vertical fiscal imbalance ought to be addressed because failure to do so would also represent a failure to maximise the common good—that is, in the absence of a mechanism to correct imbalance local government is likely to be in a constant state whereby it does not have sufficient resources to facilitate the help accruing to persons as a result of their co-operation (see Chap. 7). Addressing vertical fiscal imbalance is essentially an exercise in arithmetic which starts with a calculation of the tax able to be appropriated by higher tiers of government and then subtracts from this the quantum required for the higher tiers to fulfil their responsibilities. The superfluum of the higher tiers of government needs to be then distributed to each local government according to an agreed unit of distribution and formula9 which best reflects the type of services provided by local government. This brief description is, of course, something of an over-simplification, but the essential components are made clear enough that with appropriate information and effort a robust system of grants could be designed to mitigate vertical imbalance. Notably it would be important in a system of vertical fiscal equalisation grants to regulate the calculation and distribution of federal government superfluum through both legislation and employment of an arms’ length body. Otherwise political meddling, as well as bowing to the temptation for federal politicians to fund attempts at political capitalisation at the expense of local government, would probably erode the vertical fiscal equalisation grant objectives over time. Spill-overs ought to be re-dressed because it is morally suspect for citizens of one local government to avoid their responsibility to contribute to the costs of local government services in neighbouring areas that they regularly use. In the absence of a system of grants to re-dress almost inevitable spill-overs, residents of neighbouring local governments can effectively benefit from the value created by their neighbours (assuming taxation is levied on unearned capital gains as I suggest). At the risk of 9 Formula

based grants should be used whenever possible because they make revenue for local government more predictable, prevent pork-barrelling and address soft-budget constraints.

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over-simplifying this type of grant also, transfers would need to be made from one local government to another according to the proportion of costs attributable to the use of public goods by neighbouring residents. Moreover, because local governments are unlikely to be eager to pass funds to their peers to compensate them for spillovers it is likely that coercive legislation and an arms’ length grants body would be required to ensure spill-over grants are actually implemented fairly. Horizontal fiscal equalisation is where the bulk of scholarly effort has focussed and is a much trickier matter to justify and accomplish. This is the task to which I now turn my attention. Equalisation Grants Since very early times, scholars have been aware of the need to have a compelling moral theory to justify fiscal transfers between tiers of government. After all, grant transfers between governments fundamentally involve transfers of wealth derived from particular persons, to the benefit of other persons. There must be a grave reason to justify such forced transfers of wealth, and a moral framework to set out how it should be accomplished. The stumbling block for economic luminaries (apparently unaware of natural law philosophy) seeking a moral justification was their contention that equity between non-sentient ‘mere’ entities had ‘no meaning’ (see, Buchanan 1950; Mieszkowski and Musgrave 1999). Otherwise stated, it seems to have been commonly believed that only persons—not associations such as local government—were worthy of moral consideration (McLean 2004). They thus resorted to basing their moral appeals for equalisation grants on the constituent units of local governments—people. In 1950 Buchanan appealed to Pigou’s (1946, p. 60) famous dictum that ‘similar people should be treated similarly—by the public powers as by anybody else’. Since this time, ‘equal treatment for equals’ has been the principle moral justification invoked by scholars of fiscal federalism, notwithstanding the fact that most concede that the dictum is not sufficiently robust to justify and guide the practice of horizontal equalisation grant transfers (see, for example, Boadway 2004). In point of fact, Pigou had been quoting the utilitarian Sidgwick, to support his claim that equals should be treated equally. Moreover, if one returns to the work of Pigou (1946) it is pretty clear that he wasn’t entirely convinced by the argument himself. Indeed, Pigou apparently felt compelled to buttress his argument by resorting to appeals to the competing paradigm of Aretaic ethics, the pathos that would be stirred up if people had reason to feel that they were being treated unfairly by government, and also economic utility. Similarly, Buchanan (1950, p. 595) after citing Pigou notes that ‘a precise application of the equity principle in the real world [is] extremely difficult’. Other notable scholars, such as Oates (1999) also seem to find the equals treatment for equals argument a little unconvincing as evidenced by his recourse to the threat of succession or inefficient migration of capital and labour as additional reasons to justify equalisation grants. So, what are the big problems with the equal treatment for equals argument? First, as a moral justification it necessarily relies on an assumption that existing distributions of wealth are somehow just—and we know from our personal experience

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and the work of luminaries such as Sen that this is demonstrably false. Second, unless we dictate precisely how local governments use the grant money they receive then there is no reason to think that the money will actually result in equals being treated equally at all (Mieszkowski and Musgrave 1999). For instance, if the grants are used to cross-subsidise private goods that are distributed unevenly amongst residents of a local government, equal treatment will almost certainly not arise. In fact, without very careful efforts to ensure that nett financial benefits are calculated and delivered to residents (something that is never actually done) it is almost certain that equals won’t be treated equally. Third, if we were really interested in only achieving equal treatment for equals, then it would clearly be much simpler to pass the grant money directly to individual persons, and eschew a local government ‘middleman’ entirely. Thus, the theory of equal treatment for equals does not stand up to close scrutiny. Moreover, it has deleterious implications for the practice of grant transfers also. First, because the moral justification employed is also applicable to all future periods where local governments have unequal capacities, it means that ongoing grants are justified. This has the effect of creating a state of dependency for needy local governments in particular, which becomes problematic when the higher tier ‘donor’ decides to freeze or reduce grants to support their own budget objectives. Indeed, elsewhere I have referred also to a state of ‘learned helplessness’ that is often engendered by ongoing equalisation grants—the idea that local government politicians avoid confronting their own-source revenue shortfalls, and profligate spending, as a result of being able to conveniently blame ‘unfair’ grant transfers (Drew and Miyazaki 2020). Second, handing large untied equalisation grants to local governments in the hope that they might be used to foster the common good, displays a high level of faith in the benevolence of local government decision-makers to spend the money appropriately that might not be strictly warranted in all cases. Third, the calculations for the equalisation grants either need to be incredibly complex and draw on a large array of accurate data regarding the needs and capacity of each citizen (often unavailable), or resort to arbitrary and unsubstantiated ‘adjustment’ factors which may well be at odds with the objectives of the grantor. It will probably come as no surprise to my readers that my proposed solution to the many deficiencies in our current horizontal equalisation grant justification and practice is founded on the Principle of Subsidiarity (see Chap. 7). Subsidiarity, it will be recalled, seeks to preserve the plurality of social forms for the flourishment of persons and thus confers dignity directly to associations. Thus, it is a moral requirement for ‘greater’ associations (in this case higher tiers of government) to provide help to lesser associations (such as local government) to ensure that the latter have sufficient capacity to perform their munera (see Chap. 7). The key ‘rules’ for providing morally licit and dignity enhancing subsidium are that it: (i) must be in response to bona fide need, (ii) must acknowledge the reciprocal responsibility of the recipient to also help themselves, and (iii) should be delivered in a manner designed to make it superfluous as quickly as possible (Messner 1952). If we applied these moral principles to the practice of equalisation grants it would result in these grants being provided to help fund specific goods and services only, requiring appropriate contributions from

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the local government seeking help (especially with respect to ensuring that reasonable revenue effort had been exercised and discretionary spending of the nature of satisfying ‘wants’ had been excised), and be provided for a specific period of time only. For example, a local government seeking subsidium would be required to identify a particular project to which the funds would be directed, such as the building of a bridge or other infrastructure. The local government would then have to show that it already extracted an appropriate rate of taxation from its residents (that is, a local government would not be able to receive financial help until it had first asked its residents to pay a reasonable rate of taxation). This would avoid fungible grants essentially being used to provide taxation relief for local government ratepayers. The local government would also have to show that it had eliminated discretionary spending on ‘wants’ as part of its moral responsibility to first address needs (consistent with the natural law). Only after these pre-requisites had been satisfied could funding then be approved, and approval would be contingent on an agreed plan for the local government to provide the need by a particular time, with specified contributions from its own resources. Conducting equalisation grants in a manner consistent with Subsidiarity would improve the visibility of the grant (and hence reduce fiscal illusion because the public would be clearly able to see what goods had been funded by others via equalisation grants), combat dependency (because grants would not be ongoing and local governments would be required to first look to themselves for meeting needs), and ensure needs are actually met (rather than merely potentially met as is the case for most untied horizontal equalisation grants). Because specific needs are identified and required to be met by a particular time, the particular needs for many local governments should reduce under a Subsidiarity grant system. In all likelihood the total quantum required for equalisation grants might stay the same (or even increase), but the distribution of the money would ultimately fall on the most needy local government areas (Drew and Miyazaki 2020). Subsidiarity is not about higher tiers of government avoiding their responsibilities, but rather focussed on ensuring that bona fide need is satisfied for the benefit of the common good. Thus, in sum, I propose that there would be three different types of grant transfers under an ideal system of local government finance which respond to the three different causes of disparity in capacity, and three different moral justifications. As a result of implementing a better demarcated and justified grant system, local governments would be able to better predict certain components of grant flows (vertical and spillover grants), and be made more responsible for contributing to the resolution of their own needs (Subsidiarity-based grant flows). In addition, the public would be better able to see the outcomes of grants and less likely to develop fiscal illusion. However, there remains a further source of fiscal illusion, which has grave moral implications, that must also be addressed and this is the matter to which I now turn my attention.

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9.3 Debt Government debt is generally only considered in terms of its economic and financial sustainability implications, but I believe the moral implications of inappropriate debt are even more important. To understand the matter fully one needs to acknowledge two distinct types of spending that may lead to higher levels of debt (something that is invariably neglected in media and scholarly debates on the appropriate use of debt). First, there is debt associated with operational spending which relates to the cost of providing goods and services consumed within a relatively short period of time (a financial year). For the case of operational debt there is no reasonable moral justification for incurring debt—for to do so effectively forces a future generation of local government taxpayers to pay for something they cannot possibly benefit from (because it has already been fully consumed). Debt incurred for operational expenditure, in this way, is akin to asking perfect strangers to pay a credit card bill arising from a restaurant meal that they never attended. The other kind of debt is that associated with capital expenditure. Capital expenditure refers to goods purchased that have enduring value beyond the financial year, such as cars, buildings and land. In these cases, it may be appropriate to fund part of the purchase through debt because the good will also be able to be enjoyed by the future taxpayers who are effectively forced to pick up the bill. Notably, contrary to some of the poorly informed material in the grey literature that one reads, I do not contend that durable goods must be financed through debt, nor do I think that this can be done morally without some strict parameters being set. Unfortunately, it is commonly misconceived that capital spending must be financed through debt in order to bring about intergenerational equity. However, this argument conveniently ignores the fact that most of us currently enjoy the use of durable goods paid for entirely by previous generations—thus, it seems rather hypocritical to insist on intergenerational equity for ourselves, whilst simultaneously reaping the inequities of past generational spending. In addition, to actually bring about intergenerational equity requires us to know the life expectancy of the asset and have access to appropriate debt instruments. The lifespan of government assets are notoriously difficult to predict, and it might be impossible for one to find a lender willing to have a loan serviced over 120 years or more (which is the typical life expectancy of a local government building). Moreover, funding capital expenditure through debt in order to try to ensure intergenerational equity—in the case where a local government does in fact have sufficient cash—is just plain crazy, because debt is simply a way of bringing forward future revenues at a significant cost (especially if bond rates ever return to long-time trends). It wasn’t so long ago (prior to the 1960 s) that governments considered financing their expenditure through debt to be a grave moral ‘sin’ (Buchanan 1997; Selby 1941). How attitudes to government finance have changed! I believe the momentum for this change comes from a number of sources. First, many local governments have expanded their remit into areas previously occupied by lesser associations and are therefore living well beyond their means (see Chap. 7). Second, political capitalisation (turning hard capital into votes) appears to be much more rampant these days—it

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now seems that politicians find it quite acceptable to ‘buy’ future votes and often don’t even bother to conceal their flagrant pork-barrelling behaviours. Because many voters are firmly stuck in the perspective of considering their personal good over the common good, I imagine that this rather unsavoury moral strategy is a very effective political strategy. Third, in some local government jurisdictions the typical Councillor now is predominately ‘male and stale’—and this results in the emergence of a clear debt bias. For an older decision-maker it is a perfectly rational decision to prefer for goods and services to be paid for through long term debt because in all likelihood the particular decision-maker won’t personally be paying local government taxes long enough to fully pay their share. Next, it seems like everyone is now a disciple of Keynes—it is almost a religious doctrine for many politicians to believe that government must spend in order to smooth out economic shocks. In my country myths surrounding how fiscal stimulus ‘saved’ Australia from the Global Financial Crisis (when, in fact, trillion dollar Chinese stimulus, and huge increases in inbound migration in the order of 169% (ABS 2014) explained most of our performance) seems to have filtered down to every level of government and now are routinely invoked to justify increased spending (whether an economic shock is being experienced or not). From a Subsidiarity perspective it is hard to argue that any kind of government debt is reasonable. If help is required, the Principle of Subsidiarity tells us clearly that greater associations are morally responsible to provide subsidium. However, when debt is used instead, a future generation of persons (not even an association, let alone a greater one) is effectively forced to provide the ‘help’. Moreover, because there is no voice for this generation in the decision-making regarding recourse to debt, it is quite possible that a burden might be incurred for future taxpayers for something that they would not consider to be a bona fide need. For example, future generations are hardly going to be impressed to be forced to pay for monuments to former Mayors, or yet another under-utilised community hall (so that a Councillor can have their name immortalised on the building). As I noted earlier in this chapter, what people are prepared to do as citizens of a government seems to stand in stark contrast to what is considered acceptable in personal finances. I imagine my readers, just like I, seek to place their children in a better financial position and give them better opportunities than we ourselves had. Thus, our personal finances reflect a bias towards savings and asset accumulation and we frequently make sacrifices to ensure that our loved ones can achieve their existential ends. The rhetorical device of kal vahomer (see Chap. 1) requires us to acknowledge that what is good conduct in lesser matters must be even more important in greater matters. Otherwise stated, if it is good enough for us to be prudent and fiscally responsible in our private lives, then how much more so should we be prudent and fiscally responsible in our government lives. Yet the sad truth is that most of us stand idly by as governments acting in our name saddle future generations of taxpayers with inappropriate debt that will significantly constrain the choice-making of our children. Because of the well-known flaws in our system of majoritarian democracy (see Chap. 8) I believe the key to prudent and morally defensible fiscal

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decision-making for our governments may well lie in binging the people closer to the fiscal operations of their local governments—the matter to which I now turn my attention.

9.4 Fiscal Institutions and Sortition Unfortunately, it is one thing to know what is right, but an entirely different matter to ensure that only just acts are undertaken in our name. Indeed, higher tiers of government in many jurisdictions have sought to coerce local governments into living within their means and eschewing debt through various fiscal institutions. The most important of these are probably balanced budget legislation and debt brakes limitations.10 However, somewhat inevitably, clever politicians and executives have managed to circumvent the spirit, if not the letter, of these fiscal institutions (Levine et al. 2013)—and the institutions have thus fallen far short of their objectives. Balanced budget legislation simply requires local governments to balance expenditures with sufficient revenues. Contrary to some opinion, balanced budget rules don’t prevent political representatives from responding to genuine community need—it merely requires them to either raise sufficient revenue to cover the additional expense (thus combatting fiscal illusion) or reduce expenditures in other areas. It essentially forces a trade-off similar to what most of us confront in our own personal finances. Unfortunately, in an accruals accounting environment, strict and close supervision is required to ensure that the spirit of the balance budget rules are observed (given the many opportunities to ‘manage’ accrual items—see, for example, Drew 2017). Moreover, for balanced budget legislation to work well there needs to be a post-budget reckoning and a range of appropriate sanctions and mechanisms need to be available to address failures to abide by the proposed budget. Indeed, most balanced budget regimes employ a ‘rainy day’ fund that local governments can draw on to mitigate unexpected budget blowouts (that might reasonably arise due to unforeseen demands on resources such as natural disaster responses), although to avoid misuse of these funds close supervision is required. It might also be remembered that morally defensible debt requires repayments to commence immediately and for these repayments to be quarantined in budgets, and supervision would clearly be required to ensure that this is always observed studiously. Debt brake legislation generally involves either a limit being placed on total local government debt, or a requirement for new debt issues to be approved. Sometimes the limits and approvals are sought from the body of Councillors, but other times from the community (via referendum) or higher tiers of government. None of these arrangements are ideal—debt limits that have their origins with Councillors or higher tier Ministers may be overly influenced by political considerations, whilst the public 10 Tax and expenditure limitations, including rate capping that I expounded on earlier, are also used on occasions to try to coerce local governments to act in a more fiscally responsible manner (see, Drew and Dollery 2015 for further information).

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may not have sufficient information to make good decisions and probably won’t appreciate everyone being called upon on a regular basis to express their views. Moreover, clever executives can usually circumvent the spirit of debt brake legislation through the use of off-book transactions, special purpose vehicles, and also by exploiting less visible ‘liabilities’ (such as delaying maintenance for assets or failing to address infrastructure backlogs) (Drew 2020). In sum, both fiscal institutions can be relatively easily circumvented. Moreover, both fiscal institutions do little to bring local government closer to the people in a meaningful way. If we believe that government should reflect the preferences of its citizens, and also that citizens should have a better understanding of what is being done in their name, then clearly extant institutions are deficient. Moreover, extant institutions do little to address the core failures inherent in our system of majoritarian democracy that act to encourage profligate spending and the accrual of morally suspect debt. Specifically, fiscal institutions do not comprehensively address the problems of political capitalisation, rational debt bias (especially bias arising from concentrations of demographics), and citizen ignorance of the financial position and trade-offs that confront local government. It is my contention that the establishment of a sortition house for local government could address all of these deficiencies in our fiscal and political institutions (see Chap. 8). If political representatives were required to justify their decisions to a random sample of the community, who had both veto powers and a range of punitive sanctions to hand, then it would be reasonable to expect matters to improve and for the actions of local governments to conform more closely to the preferences of its citizens (Drew 2019). In addition, if citizens were required to serve in sortition houses for a period of two financial years (with half rotations—see Chap. 8) then their knowledge of the financial sustainability challenges facing local government—as well as common trade-offs that confront Councillors periodically—would improve immeasurably. Over time this knowledge would diffuse throughout the entire community. I also believe that citizens co-opted to a sortition house for a fixed period of time will be in the best position to supervise the fiscal institutions and ensure that both the spirit and the letter of the law are observed. The people that will ultimately bear the consequences of poor fiscal behaviour (represented in the sortition house) have the best motivation to supervise fiscal institutions and apply punitive measures when required. For example, requiring majority approval from the sortition chamber for the use of rainy day funds would be expected to completely eliminate its use as a political slush fund leading up to elections. Evidence from citizen assemblies in Glarus, Switzerland tells us that merely establishing a political institution to supervise the fiscal behaviour of political representatives will cause the said representatives to reflect more on community preferences in their decision-making processes (Gerber and Mueller 2018). However, as I have alluded to earlier, sortition houses should also be provided with a range of sanctions that they could use in response to poor fiscal behaviour. This could include public statements of censure, veto powers for new debt or discretionary spending measures, ability to call a spill for leadership positions (Mayor and Deputy Mayors), capacity to block a budget necessitating a return to the polls, and even an option to

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disqualify specific Councillors from standing at a subsequent local government election (for deliberately circumventing fiscal institutions). Clearly it would be important to ensure that the size of the majority required to implement a given punitive measure was commensurate with the seriousness of the proposed action. For example, public censure may only require an absolute majority from the sortition chamber, but a disqualification or return to the polls might require a unanimous vote. It might be noted that many of these punitive measures are already facilitated by the various local government Acts of a number of jurisdictions—but typically the measures are applied at the discretion of the Minister for Local Government. Thus, what I suggest here is essentially a transfer of power from relatively remote Ministers of Local Government, who are subject to the vagaries of politics, in favour of randomly selected members of the community who ultimately bear the burden of decisionmaking. Otherwise stated, my proposal for a sortition chamber to supervise fiscal institutions is effectively a measure to force citizens to have a closer knowledge of their local government’s finances and also provide them with the power to ensure that fiscal arrangements do in fact serve their interests best. In addition to supervising fiscal institutions, a sortition chamber could also completely negate the need for rate capping regimes. The main idea of a rate cap is to hold local governments more accountable to their communities by making them go through an extensive community consultation process should they wish to increase local government taxes by an amount greater than the gazetted cap. If a supervised balanced budget institution was in place, the local government would already be formally accountable to a randomly selected sub-cohort of the resident population. To have a budget passed a council would need to show that their projected revenues were sufficient to cover proposed expenditures (under balanced budget rules), and in this process the members of the sortition chamber would be provided with reasons for why taxation would need to be set at any given level. Clearly deliberations on a taxation rate in the context of the presentation of a balanced budget to a representative group of the community is a rigorous form of accountability that probably exceeds the work done for most special rate variations (the name of the process whereby a local government consults with its community in order to demonstrate a need to increase taxes beyond the rate cap). It thus makes the main objective of the rate cap redundant and therefore paves the way for this local government dignity destroying fiscal institution to be discontinued. A sortition chamber focussed on the finances of local government could also have an important role to play in the formulation of an application for a Subsidiarity grant of the kind described earlier. Not only would the members of the sortition house be an important resource of information for both the local government and the grants body, but it also seems that they could play a critical role in ensuring that the local government kept to the terms of the subsidium agreement. That is, a sortition chamber focussed on the finances of local government could ensure that the promises made regarding contributions and delivery times were closely monitored subsequent to the granting of subsidium.

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9.5 Concluding Remarks Local government finance is a complicated matter at the best of times, but becomes even more so if one is determined to raise the funds required for the promotion of the common good in a morally defensible manner. To finance the many and varied goods and services that local government is required to provide, in a manner that respects the dignity of persons and persons in association, requires a number of revenue streams. Accordingly, a broad based tax on unrealised capital gains might be considered the foundation of local government finance. However, it is also important for local governments to charge fees for services which are not public goods in a manner which captures their full cost, including overheads (unless there is a clearly articulated case for a carefully targeted subsidy). Moreover, three distinct flows of intergovernmental grant transfers are needed to address the three distinct reasons why some local governments struggle to have adequate financial capacity—vertical fiscal imbalance, spill-overs, and horizontal inequity. To make this complex system of revenue flows work fairly and sustainably almost certainly requires the establishment of a sortition chamber to inform and supervise a few important fiscal institutions. This might take the form of an extension to the sortition chamber duties I expounded on in the previous chapter, or could instead be an entirely separate sortition body constituted for the sole purpose of monitoring local government fiscal behaviour. By co-opting community members into a sortition chamber to monitor fiscal behaviour we ensure that those with the greatest motivation to regulate for the purpose of eliciting prudent fiscal behaviour are empowered to do so. Serving in such a chamber would also provide an important educative function for the community. My experience in working with a number of local government communities on some quite complex fiscal questions provides me with great confidence that appropriately resourced citizens will perform these proposed duties with surprising skill and tenacity. I am aware that what I have proposed here is a big change that would take quite some effort to implement. However, I firmly believe that if we want our citizens to truly feel closer to the finance of local government and have their government serve their interests (rather than the interests of politicians and executives) best, then it is the only path forward.

References Australian bureau of statistics (ABS) (2014) Migration, Australia, 2013–14. Canberra, ABS Boadway R (2004) The theory and practice of equalization. CESifo Econ Stud 50(1):211–254 Borna S, Mantripragada K (1989) Morality and Public Deficits. Public Budgeting & Finance, Spring: 33–46 Buchanan JM (1950) Federalism and fiscal equity. Am Econ Rev 40(4):583–599

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Buchanan J (1997) The balanced budget amendment: clarifying the arguments. Public Choice 90:117–138 Drew J (2017) Playing for keeps: local government distortion of depreciation accruals in response to high-stakes public policy-making. Public Money Mgmt 38(1):57–64 Drew J (2019) Can local government by lottery increase democratic responsiveness? Policy Polit 47(4):621–636 Drew J (2020) Sort[ition]ing out local government financial sustainability. Public Adm Quart, Spring: 1–20. Drew J, Dollery B (2015) A fair go? a response to the independent local government review panel’s assessment of municipal taxation in New South Wales. Aust Tax Forum 30(3):471–489 Drew J, Miyazaki M (2020) Subsidiarity and the justification and practice of intergovernmental grants to decentralised governments, forthcoming Finnis J (1998) Aquinas. Oxford University Press, Oxford Finnis J (2011) Human rights and common good. Oxford University Press, Oxford George H (2006) Progress and poverty. Robert Schalkenbach Foundation, New York Gerber M, Mueller S (2018) When the people speak—and decide: deliberation and direct democracy in the citizen assembly of glarus, Switzerland. Policy Polit 46(3):371–390 Laurent J (2005) Henry George’s legacy in economic thought. Edward Elgar, Cheltenham Levine H, Justice J, Scorsone E (2013) Handbook of local government fiscal health. Jones & Bartlett, Burlington McLean I (2004) Fiscal federalism in Australia. Public Adm 82(1):21–38 Messner J (1952) Social ethics: natural law in the modern world. Transl. J. Doherty. B Herder Book Co., St Louis Mieszkowski P, Musgrave R (1999) Federalism, grants and fiscal equalization. National Tax J 52(2):239–259 Oates W (1999) An essay on fiscal federalism. J Econ Lit XXXVII, 1120–1149 Pigou AC (1946) A study in public finance. Read Books Ltd, Worcestershire Pullen J (2009) Henry George and the Australian economic association: on land ownership and land taxation. History of Economics Review, Summer, pp 46–71 Selby E (1941) Local government practice in New South Wales. Butterworth & Co, Sydney

Chapter 10

Conclusion

Abstract The problem with local government is that it faces declining financial sustainability at a time of generally growing disillusionment amongst its citizens. Contemporary reforms—consolidation, fiscal institutions, and shared services— when conducted competently may arrest some of the decline in financial sustainability. However, contemporary reforms will do nothing to redress disillusionment with what is supposed to be the system of government closest to the people. In this book I have proposed, instead, a raft of radical reforms based around our Comprehensive Theory of Local Government that seeks to correct the extant imbalance between human dignity and the common good, as well as directly combat rational ignorance. At the core of my ideas is a belief that citizens are competent to make important decisions regarding their own government and lives. Indeed, my own experience working with struggling communities suggests to me that the average citizen, when appropriately informed, is much better at making decisions than their ‘political leaders’. If we truly believe this and act on the courage of our convictions, then the reforms that I have outlined will mitigate the problems of local government. If however, we continue to both deny the competency and dignity of our citizens then we can indeed expect local government be ‘overwhelmed and crushed by almost infinite tasks and duties’ (Pius XI 1931, paragraph 78). The choice is ours—or rather it should be!

Early on in this book I sought to develop a Comprehensive Theory of Local Government, by borrowing from extant economic, political and moral theories. To my mind this was an essential task long neglected by scholars—until we can all agree on the purpose and form of local government it will be very difficult to design public policy interventions to address the many and varied perceived ills of the institution. I restate the theory below to save my readers the hassle of turning back to what I hope is a heavily thumbed page of this short book: The purpose of local government is to strike a balance between human dignity and the common good by either supporting smaller associations or providing goods and services when no smaller association is capable of doing so for bona fide need. Local government which is as homogenous as possible and as small as regular patterns of activity will permit (as well as responsive to the need to match winners with losers) will maximise economic welfare by engaging in co-operative arrangements when significant economies of scale are possible. Small size is presumed on the basis that it will confer greater transparency, © Springer Nature Singapore Pte Ltd. 2020 J. Drew, Reforming Local Government, https://doi.org/10.1007/978-981-15-6503-8_10

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moral empathy, a higher stake in seeing efficacious solutions, and better tailoring of goods to the needs of the local community. Furthermore, it is recognised that informed 1 citizens are the most competent to guard against local Leviathan, protect the dignity of persons and associations from avoidable harm, and should therefore be supported by appropriate financial and political institutions which allow for effective voice and exit in an economic manner.

In sum, my proposed Comprehensive Theory of Local Government balances human dignity with the need to promote the common good and suggests the need for appropriate financial and political institutions to ensure that this remains the case. I then proceeded to outline some common reforms—consolidation, shared services, and fiscal institutions—and explained why they are often far from successful. Moreover, I hope that I also conveyed clearly that even when these conventional reforms are carried out in a competent manner that they could only hope to address a mere fraction of the problem of local government. Specifically, these reforms might result in improvements to efficiency and financial sustainability, but I cannot see how they could be expected to do anything to address the elephant in the room—citizen disengagement and disillusionment. Without radical reform we might well end up with a local government system that has the capacity to serve people for longer—but can’t reasonably expect to end up with a sector that is closer to the people, or which serves the people best. Otherwise stated, without also attending to the political and moral dimensions of local government the best we can hope for is a continuation of the illusory slogans that we now have. Indeed, I wonder whether we have, over the last half century or so, unwittingly altered the fabric of local government such that disengagement is now a rational decision for most citizens. Even as a scholar of local government I find it difficult to summon up the motivation to examine the financial statements of Tamworth Regional Council, have never attended a council meeting, and only vote to avoid the fine for not doing so. I am disengaged and disillusioned despite the fact that my working life revolves around local government. The reason for this disengagement is that I have discovered, several times, that I am powerless to prevent rampant political capitalisation, corruption, profligate spending and ever growing and unwarranted intrusions into my life. Why bother to be engaged if it merely reinforces my sense of being at the mercy of local Leviathans?

10.1 Is There a Better Way? From Part III onwards I sought to describe a system of local government in which citizens would no longer find themselves powerless against Local Leviathan. This system of local government would specifically set out to re-balance human dignity against the common good and would involve changes to our political institutions to 1 Informed

about the difference between ‘needs’ and ‘wants’, who pays for the goods (and how much), the cost of maintenance, and the prudent use of debt. In sum, informed citizens are those who are not labouring under the Santa Claus illusion.

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shift the power of supposed self-government, back to the people. To do so I proposed the use of sortition chambers to both mitigate the well-known failures in our system of majoritarian democracy as well as provide an ever-present check on the power of the political elite. I also suggested that this chamber, or perhaps a separate one, would do a much better job of supervising the fiscal institutions of local government to ensure that spending and taxing powers are exercised in a much more morally defensible fashion than they are at present. Under my proposal, randomly selected citizens would be forced to serve on sortition bodies for a period of two years. A randomly selected body of this kind would be much more representative of the demographic and cognitive diversity of a local government area than is currently and invariably the case with elected bodies. Forcing people to become so close to their local government that they actually become part of the institution would ensure that people like me do bother. Sure I might whinge for a bit when first selected to serve (depending on how generous the remuneration for doing so is and how much the barriers of participating are reduced through innovative use of technology), but I imagine that suddenly being transformed from a powerless victim of Leviathan to a dignified member of a self-government would quickly see me change my tune. I imagine you would almost certainly feel the same—indeed, if you have read this far into my book, I almost guarantee that you must feel the same.

10.2 Why I Believe This year (2020) I have had the absolute honour to serve a struggling recently amalgamated rural community in New South Wales in the role of expert advisor.2 This very small community (of around 10,000 souls) found itself in acute financial distress four years out from a failed forced amalgamation. It was faced with the need to raise extra revenue to continue as a going concern, as well as respond to a statutory process of review regarding its boundaries (a proposal to de-amalgamate instigated by the citizens of the smaller, and very unhappy, former local government area). For three months I have been working with this community to educate them about their financial sustainability and the choices that now confront them. As part of this process I have made a series of information videos and written lengthy reports. I have also held public forums that were very well attended despite the fact that they occurred part way through the coronavirus panic. Literally hundreds (430) of people came to listen to me speak for an hour or so about the reforms, and this was followed by many questions that took an additional hour or so to answer. People Clearly are Interested in Local Government. 2 Over

the years I have done many similar community consultations and I am always heartened to see the active engagement of the community and the good decisions that they make when provided with clear and unbiased information.

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Moreover, the standard of the questions and comments on the survey forms was very sophisticated. I met a number of people who had clearly watched hours of my information videos, read my reports, and put a lot of thought into the choices that were put before them. People Clearly are Competent to Make Good Decisions if Provided with Appropriate Information. Indeed, the decisions reached by this community were very logical and their suggestions for how to best implement the changes incredibly astute. All this occurred within the current system where people don’t have a real voice in the decisions that affect their lives—which is why this poor community ended up in the mess that they were in (people in Sydney decided on their amalgamation configuration, when any local could have told them it would never work). Imagine How Much More Could Be Achieved if People were Given Some Power to Have a Binding Say in Their Government?

10.3 Our Choices The choice we are confronted with essentially is a choice between respecting the dignity and competence of the average adult, or not. The great Robert Dahl (1970, p. 26) expressed this choice better than I ever could, so I will cite him at length: Is the ordinary person incompetent? No judgement is more decisive for one’s political philosophy. It was perhaps the single most important difference in judgement between Plato and Aristotle. If you believe, as I do, that on the whole ordinary people are more competent than anyone else to decide when and how much they shall intervene on decisions they feel are important to them, then you will surely opt for political equality and democracy. But if you believe that the ordinary person is less competent in this fundamental way than some particular person or minority, then I imagine that like Plato your vision of the best government is a government by this qualified person or elite.

As I finished this book the Great Coronavirus Panic (GCP) was in full swing. In Australia we were banned from even leaving our place of residence without a valid reason (enforced by police under threat of $11,000 fines or six months imprisonment (obviously they didn’t see the irony in the latter); Torre 2020). Food was being rationed. Businesses and livelihoods were destroyed by government edict because they were deemed to detract from the common good. Coughing on a policeman was declared an illegal act attracting up to ten years imprisonment. Gatherings of more than two were banned. Even fishing and sunbathing alone were deemed unlawful and the police mobilised to move people on (Zazek 2020). People were banned from being within 1.5 m of another, our phones were monitored, and surveillance undertaken by drones to ensure that we complied with the latest edicts (Sky News 2020). These were the decisions of our political elite, elected to do a very different job, but believing it reasonable to coerce all citizens to do what they deemed best for us, putatively to save our lives.

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Despite the hysteria whipped up by the media few out my way thought the government response was measured or logical. Most saw very quickly that it was a serious situation which required serious measures to save lives. But equally most people could see that the obvious course of action was to lock down those who were at risk—the sick and elderly—but allow the rest of the economy to function more or less as normal (using sensible precautions like hand sanitizer and temperature-taking) so that we would have the economic and physical resources to support those who needed to self-isolate. I am pretty sure I know what would have happened in March 2020 had the ordinary person been deemed competent to make decisions on matters important to their own lives—indeed matters of life or death. People would have chosen to keep their human dignity, but freely offer subsidium to anyone who had bona fide need (the elderly or the sick). Life would have gone on more or less as usual for most, with people taking sensible precautions to protect their health and the health of their loved ones. Would as many lives have been saved? Perhaps. Would the economy have been devastated and the ability of many to contribute towards the common good been abruptly curtailed? Definitely not. Maybe these decisions might not have proven to be the best course to take, but they would have been decisions made and owned by competent adults about matters fundamental to their own existential ends. My point here is not to rubbish the draconian and panicked policies of my federal government. Their intent (at least initially) was laudable—to save lives. Moreover, I have great sympathy for all of those who lost loved ones and made sacrifices for the common good. All I seek to point out is that this was a notable example of government failing to abide by the Principle of Subsidiarity (and the Principle of Double Effect for that matter)—intruding far too far into the lives of people, and destroying associations of all kinds, in a myopic quest to promote the common good. I think we will be poorer as a society (morally, politically, and certainly economically) as a result of our failure to balance human dignity against the common good. I also believe on the basis of a number of conversations that I have had, that had a representative sample of people in say Moonbi been given a binding voice on the greatest intrusion that has ever occurred in their lives, then a different course would have been taken. Messner (1952) warned us of the grave dangers that result from a failure to balance human dignity against the common good. He knew the dangers well because he had lived through them. I imagine at the end of the GCP we will similarly have first-hand knowledge of the dangers of a myopic pursuit of the common good to the exclusion of human dignity. Now, in the normal course of events, local government probably doesn’t have the same potential to devastate lives when it fails to reach a middle path between the two extremes of excessive individualism, and excessive pursuit of the common good. But it is still important. It is important because it is a learning ground for our society and potentially a template for how we might ultimately conduct all affairs of government. Indeed, it is a choice about whether or not people really should be close to their government and have their government serve them best.

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A choice we should be allowed to make if we are deemed to be competent adults who know what is best for our lives. Joseph Drew. 2 April, 2020. Moonbi, Australia.

References Dahl R (1970) After the revolution? authority in a good society. Yale University Press, New Haven Messner J (1952) Social ethics: natural law in the modern world. Transl. J. Doherty.B Herder Book Co., St Louis Pius XI (1931) Quadragesimo Anno. The Holy See, Vatican City Sky News (2020) Drones deployed to police social distancing in WA [Western Australia]. Available at: https://www.skynews.com.au/details/_6145829434001 Torre G (2020) Australian state introduces six-month sentence and 5,500 fine for breaching stayat-home orders. The Telegraph, 30 March 2020 Zazek Z (2020) Extraordinary moment fed-up police almost run over a texting sunbather in a park in Sydney’s Eastern Suburbs. Available at: https://www.dailymail.co.uk/news/article-8170383/ Extraordinary-moment-cops-road-Sydneys-park-enforce-social-distancing-laws.html