For every complex problem there is a solution that is clear, simple, and wrong.
The NSW Government’s current push toward council amalgamations is a classic example.
In a few months’ time, the Government’s Independent Local Government Review Panel will recommend that there be widespread local government mergers across NSW.
This month, Local Government Minister Don Page committed to take the proposal to cabinet for approval, despite Premier Barry O’Farrell promising before last year’s election there would be no forced amalgamations.
The O’Farrell Government has been softening NSW up for a while on this one, knowing that the move is unpopular.
The Independent Local Government Review Panel’s initial report proposes a range of alternate governance models for larger, amalgamated councils with expanded responsibilities. They include proposals for full-time salaried mayors and new local government cabinets.
Their recommendations are based on a single, defining assumption: that bigger, amalgamated councils produce superior economies of scale.
Proponents argue that amalgamated councils are more efficient and effective because they supposedly enjoy lower administrative costs per capita and benefit from increased purchasing power and improved utilisation of capital assets.
The argument is simplistic and accessible to those with a rudimentary understanding of economics, and it’s easy to understand its surface appeal.
Why run six local councils, when you can run one big amalgamated council? Surely that has to be more efficient?
Not really. The idea that larger councils are economically more efficient than their smaller counterparts is not backed up by research or experience.
So why the gap between theory and experience? The problem is one of category error. Councils aren’t businesses.
Economies of scale are traditionally derived from the higher and more intense utilisation of a capital asset. It is much harder to derive economies of scale in organisations that provide human services.
Think of the kinds of services that local councils provide: lifeguards, gardeners, swimming teachers, childcare workers, librarians, garbage collectors — for these sorts of services it is difficult to increase output without a corresponding increase in the number of staff.
Actually, in cases like these, diseconomies of scale can occur where larger and more costly management systems are required to manage a growing and diverse range of activities and staff.
Yet the potential problems with amalgamation do not, by any means, end there.
Unlike in some sectors where producers have identical production processes, councils are not homogenous. The whole point of local government is that it addresses the unique and varied needs of individual communities.
Coastal councils have different expenses to regional country councils. Small, densely populated councils require different services and management systems to large, sparsely populated councils. Some councils have large migratory populations that put stress on council assets each season, while other councils have very stable populations.
You can see how this muddies the neat, theoretical waters.
The fact is that the NSW Government’s swim toward council amalgamations is actually against the current public policy tide.
The key concept being explored all over the globe today is in fact "devolution" — the opposite to amalgamation.
The idea behind devolution is to bring decision makers closer to the end user, shortening the feedback loop and thereby improving the quality of service delivery. The devolution of authority to line managers allows them to flexibly respond to external changes and tailor delivery to individual needs.
Amalgamations, on the other hand, reflect the old and opposite mode of thinking: centralisation and standardisation. Representative government is a different beast to most other organisations. It is not just about service delivery or production.
Councillors serve the unique purpose of representing and advocating for the communities in which they live. Most residents enjoy the fact that their councillors are easily accessible and can be found at the local supermarket on Thursday night or at nippers on Sunday morning.
Instead of rushing in to restructure local government, the Independent Local Government Review Panel should be careful it is taking into account the unique needs of each community, the representative function of councils and the accessibility of councillors to their constituents.
It needs to ensure it is not attempting to apply a solution designed for a very different problem.
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