CDLR/LGI INTERNATIONAL CONFERENCE
“LOCAL GOVERNMENT:
RESPONSES TO RECESSION ACROSS EUROPE”
Workshop B
Doing more with less: promoting efficiency
Rapporteur: Paweł Swianiewicz
Seeking for cots reduction as local government answer for economic downturn
In case of economic downturn and shrinking stream of revenues to local government budget the two “traditional” reactions include:
We are not going to discuss these solutions in the present section. Seeking for central government grants does not seem to be realistic since central budgets are even more hit that local ones. Higher rates of taxation would be against countercyclical policy supporting economic recovery, even if we disregard the fact that power of taxation is very limited in many of European countries. Cuts in local services are hard to accept in times of economic crisis when more social protection is required.
All of these issues are discussed in other sections. Here we concentrate on under what circumstances it might be possible to reduce costs without cuts in services. In other words, we are interested in costs cuts through increased productivity. In local services saving through higher productivity is more questionable than in manufacturing, since in most of local functions the labor cost is a dominant element of the cost structure. But it does not mean that any progress is impossible. For example in Denmark, negotiations between central and local government over the future of financing local governments has for a long time assumed an incremental increase of productivity in local services. In Ireland the effects of recent efficiency improvements have been estimated for 350 million euro. In Finland the special programme promoting efficiency increase in 20 major cities has been launched. The progress may be achieved through change in organization of service delivery or new technologies.
Below we discuss a few examples of potential sources of costs reduction, analyzing also to what extent these options are actually considered by European local governments.
Territorial consolidation reforms
One may argue that in many European countries the territorial organization is excessively fragmented and this pushes up costs of several services in which economy of scale may be observed. The most often it concerns municipal tier (as in Czech Republic, Hungary, Slovakia, Estonia, Italy or many other countries) but the issue is sometimes discussed also in relation to the upper tier of local government (like powiat in Poland). Although the relationship between costs and the level of territorial fragmentation/ consolidation is unquestionable (at least in relation to some of services, including administrative overheads), the critics of territorial reforms indicate their negative side-effects (mostly in relation to local democracy) as well as political difficulties which make the change next to impossible in several cases.
The issue of territorial reforms has been discussed in several countries for several years, even without the connection to the crisis. In many cases they are stacked in never-ending disputes, but we have also examples of actual reforms implemented during last 10-12 years. The list of European countries which has reduced number of their local governments (either gradually or through the one-shot method) include Denmark, Finland, some of the German Landers, Greece, Georgia, Latvia and Macedonia. UK provides a special case, where creation of new unitary governments may be described as turning the largest in Europe local government units into even larger giants. The UK government estimates that the reorganization brought 100 million pounds of savings. The issue has been under discussion in several other countries including Armenia, Belgium, Estonia, Ireland or Latvia. In some cases there are state incentives for voluntary amalgamation (Belgium Estonia) but they are rarely effective. Ireland has produced a white paper of the amalgamation reform. Some of these discussions began well before the economic crisis, but the downturn of economy strengthens some of the arguments in public debate.
Inter-municipal co-operation
IMC is sometimes seen as an alternative for territorial amalgamation, when the latter is politically not viable. Properly arranged IMC through the joint delivery of services can also bring considerable savings, although some critics of this solution indicate organization difficulties as well as problematic transparency of decision-making process. For several years we could see the increasing role of IMC in France and Finland, recent years has also brought national policies promoting IMC in Czech Republic, Hungary or Slovakia. This policy option seems to be underused in several countries.
Contracting-out, outsourcing and other forms of non-public sector involvement
For several years involvement of the private sector through contracting-out, PPP and other tools has been seen as a method to reduce burden on the local government budgets. This way of thinking has been to a large extent connected with New Public Management revolution in an approach to public service delivery. But there are also skeptical voices claiming that these solutions may bring only temporary benefits, while in the long term the gains of consumers and/or tax-payers are problematic. This skepticism is reflected in current policies of some local governments. The Hungarian report quotes the example of city of Pecs attempting to restore public control over water provision. There are also countries in which privatization, outsourcing and other forms of private sector involvement continue to be used as a viable solution. This has been often going one without a clear connection to the recent economic crisis (see reports from Denmark or Norway). In some cases (Georgia) the privatization of local services is more a national policy than a solution selected by the local governments. There are illustrations of PPPs spreading-out from technical infrastructure also to social services such as kindergartens, schools or sport facilities (Norway, Belgium). Poland is an example of a country in which PPP is officially promoted by national policies, but actual PPPs are only incidentally implemented. There are several reasons for this underuse, including complicated legal procedures (although the 2008 amendment to the relevant law was advertised as a simplification of procedures). But the low level of social trust is perhaps a single, the most important barrier – and this issue is perhaps very important in several countries, especially of Central and Eastern Europe, where the level of social capital is rather low.
Benchmarking
Benchmarking, being a part of the self-assessment of local government is an underestimated tool to improve efficiency of local services. If properly undertaken, it may help to indicate “weak spots” which needs particular attention. The Scandinavian and UK examples are perhaps especially worth to watch and to learn from. It is worth to mention that benchmarking is promoted by the Council of Europe, with a pilot programme launched in Bulgaria.
Lower costs of local investments
It is not always popular to mention this issue in discussions with local governments, but economic downturn has had not only negative, but also some positive impacts on costs of local government interventions. One may indicate at least two such elements:
· Enlarged competition in public tenders for constructions works, due to slow-down of European economy. For several years the prices for construction works were growing and it was often that local governments had to accept offers which were more expensive than the initial estimations. In 2009 the trend has reversed. In Poland there are well documented cases of saving reaching even 20-25% of the projected costs of investments. This issue is especially important for East European countries in which investment policies are often on the top of local political agendas.
· Exchange rate fluctuation has temporary weakened several East European currencies against euro and other currencies. While it was a problem for those local governments which had credits in foreign currencies, it also effectively enlarged the stream of EU structural funds available for East-European local governments, increasing their capacity of investments (also those stimulating local economies).
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Economic slow-down and difficulties in balancing the local budgets demonstrate clearly the demand for change. Therefore it is a period when both experts and local politicians (especially through local government associations) should be active in their lobbying for reforms. But it is equally important that local government themselves reflect and re-think their own strategies – both towards local economies and towards the services provided.