Local authorities – is bigger really better?

 

Sir, – The average population size of local councils varies greatly across OECD countries, and indeed, worldwide. The difference is not only between countries, but also within countries. Some of the smallest councils can be found in France and central and eastern European countries, where the average size of municipalities is less than 4,000 inhabitants. In contrast, South Korea and the UK have some of the largest councils, in excess of 150,000 residents.

Irish local authorities are already large in size, and indeed constitute some of the largest local councils in the OECD. Prior to the 2014 local government reforms, Ireland’s average local authority size was about 40,000 residents. Now, with 31 local authorities (down from 114) the average size is about 150,000 residents, with the EU and OECD average less than 10,000 inhabitants.

The reduction in the number of local government units in Ireland in recent times should be viewed in the context of the wave (one of a number of merger waves in Europe since the middle of the 19th century) of local government amalgamations that have taken place in the developed world in the last half century, resulting in fewer and larger local councils.

After the most recent local government structural reforms that saw the abolition of town and borough councils, and the amalgamation of neighbouring city and county councils, residents in Galway and Cork may see further territorial changes, either in the form of council mergers or boundary extensions. From a wider perspective, this is part of the “small is beautiful” versus “big is better” debate.

From an economics perspective, the underlying rationale frequently cited for local government territorial reforms and municipal amalgamations is the economies of scale argument. Economies of scale are a well-known concept in economics and industrial organisation whereby the average cost of providing a good or service is influenced by the output of that good or service. More specifically, it states that costs per unit fall as the scale of output increases. Simply put, as a firm (or, a local council if applied to subnational government) grows in size it experiences cost savings.

As against the “small is beautiful” argument that is advocated by political scientists using the local democracy, subsidiarity and participation arguments but also by economists in favour of decentralisation, competition and government restraint, this is the case of “big is better”, ie increasing the size of local authorities results in lower per capita costs.

Yet, despite the numerous reports and subsequent reforms aimed at territorial consolidation, the research evidence examining scale economies in the Irish case is virtually absent, with the notable exception of earlier work undertaken by Mark Callanan (of the Institute of Public Administration), Ronan Murphy and Aodh Quinlivan, raising concerns about the risks of intuition relating to the perceived benefits that flow from fewer and bigger councils, and local authority mergers.

Beyond Ireland, the international evidence in relation to economies of scale and local government provision of services is mixed and inconclusive, with doubts over whether size matters at all for the provision of local public services. Much of the research evidence is weak and limited with some evidence of economies of scale, other scale economies evident but only for certain services, in some cases evidence of diseconomies of scale, and in other studies no evidence of either economies or diseconomies of scale as no significant statistical relationship between size and cost was found.

Furthermore, in examining structural and organisational reforms aimed at seeking out the optimal size of local government, the most likely conclusion based on international evidence is that there is no single or standard size that is appropriate for all local governments, ie no one-size-fits-all solution and no universal prescriptions for the design of local government systems.

This is further reinforced by the knowledge that local government services are not homogenous and have their own unique production features, with the added importance of individual country and local circumstances and system-specific characteristics.

Even if there is evidence of scale economies in the Irish case, the impact and outcome of local government territorial reforms may not be large, given the limited role of local authorities as providers of key public services in Ireland.

In any future structural reforms, policymakers should look at further mergers only on a case-by-case basis but also other ways to deliver efficiencies, either through more shared services arrangements or more formal ways of inter-municipal co-operation, as is common in many continental European countries. – Yours, etc,

Dr GERARD TURLEY,

JE Cairnes School

of Business and Economics,

NUI Galway.