Local government reform. Does size matter?

Image by Kevin Norris from Pixabay

In Shakespeare’s Hamlet Marcellus states that “[s]omething is rotten in the state of Denmark”. But if you have been exposed to the decades long debate about regional and local government reform in Croatia, Denmark’s example of 98 municipalities and 5 regions is held up as the gold standard. In comparison, Croatia has 428 municipalities, 128 towns and cities and 21 counties.

Denmark, through no fault of its own (unlike a Shakespearean tragic hero), may have little to teach us. To start with, Denmark appears to be an outlier in Europe in terms of the low number of local and regional administrative regions it has. Hungary, which is like Denmark in the sense that it is also largely a plain, has 3,177 municipalities, 23 capital towns plus Budapest and 19 counties. Slovenia has 212 municipalities, which represents an increase of 300% since independence. The likes of Switzerland, Austria and Italy, all of whom are characterised by mountainous areas, much like Croatia, have significantly more local and regional government units than Denmark relative to population. 

Cost savings are only part of the story

Unsurprisingly, much of the debate revolves around the direct cost of maintaining this set up. A new entrepreneur’s association, Glas poduzetnika, has even posted an Artificial Intelligence driven analysis of the issue. It claims reducing the number of local government areas by 430 to 127 would save over HRK1bn annually.

Calls for savings are legitimate especially when you, as a business, are paying for all this infrastructure through taxes, time lost waiting for public administration, courts and the rest of the state apparatus, including local government, to provide the permits and approvals to do business, generate profits and the taxes to fund this whole system.

Marginal and border areas require attention

Yet, focussing on first order effects is insufficient if we want to genuinely improve the administrative infrastructure of the country. This is not to say that the current arrangement in Croatia is optimal and that the number of local and regional government unit should not be reduced. In the period from WWII to 1992, Croatia had 102 local government areas (LGAs). Indeed, from Austro-Hungarian times up until 1992 the number of LGAs was more or less the same. Border areas were poorly urbanised, hence large LGAs with one town and many villages developed. After WWII as increased industrialisation and urbanisation took hold this only exacerbated the weakening of marginal areas in these LGAs.

The historical parallel goes back further still. Namely, Ottoman armies had a relatively easy time displacing people from villages, precisely because there were not many large towns, nor anything approaching a functioning local government infrastructure. The point I am making is that if you want balanced regional development and to arrest regional depopulation trends, marginal and border areas need adequate infrastructure. In other words, LGAs with centres not too far away. This is no trivial matter in a country with 47 inhabited islands, and over 1,000 uninhabited ones which also need administrative attention, mountainous regions and a lack of medium to large sized cities. Such cities would form the basis of more even regional development in Croatia.

Effectiveness of local government services is crucial

When you strip everything away, the substance comes down to how effective are LGAs services. Would, for example, a radical reduction improve the provision of local services to further away, vulnerable places? How do we motivate crucial human capital such as judges and administrators in smaller places to stay there? Would a reduction in LGAs see the number of administrative staff rise or fall? After all, places which were previously part of smaller LGAs would still need local government services. Ensuring decisions about these services happen as close as possible to smaller places, apart from being a core tenet of EU policy (subsidiarity), increases their chances of development. Money alone, as Western China demonstrates, is not enough to ensure development.

And if not, how much of the HRK1bn mentioned above would really be saved?

Be careful what you wish for

Don’t get me wrong. I firmly believe LGAs need to limit non-essential expenditures. But rather than focussing mechanically on cutting costs, making LGAs more functional should be the primary goal. That means granting them clear tasks while requiring more rational use of funds. Part of the problem with LGAs in Croatia is that their number increased too quickly. And now, we expect centres of administration which never previously had these roles, to somehow organise themselves and operate effectively. That approach has proved to be a mistake. But before we make another mistake, and suddenly return to the previous model, we need to try to reorganise our LGAs in a constructive manner. Italy, Austria, and Switzerland are all countries nearby and with enough similarities from which we can learn in this endeavour.

Focussing only on the cost of LGAs risks wasting political capital without advancing the policy debate. For the reform of LGAs to succeed, we need to properly consider demographic issues. If we seek more even economic development across the country, then arbitrarily reducing the number of LGAs risks only further centralising nodes of growth and weakening already weak peripheral areas.

Unlike Shakespeare’s Hastings in Richard the Third, we really do need to be careful what we wish for.

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