When Local Governments Become Too Big: The Risks Of Over-sizing

Amalgamations of local governments produce substantial political costs which can jeopardize benefits of decentralisation. In a globalized world, people need a place where they feel home. Central governments have to be very careful not to over-size local governments.

Government confidence at a record low

Trust of the Ukrainian population towards politicians has dropped a great deal in recent years from its already very low levels. This worrying trend is certainly not unique to Ukraine. Confidence erodes in many former Communist countries in Central and Eastern Europe. In Ukraine, however, confidence levels have now reached a never-seen global record low of only 9 % of all Ukrainians trusting their government – a score which is certainly challenging democracy. A popular and frequently discussed measure to restore trust is decentralisation, which is also on the way in Ukraine. Decentralising public services from national to local governments empowers local politics and brings decision making closer to the people. This can ease monitoring of politicians by voters, increase accountability, and facilitate trust towards administrations and politicians. Self-governing municipalities and cities also provide powerful training grounds for democracy and positive effects may spill over to higher levels of government. Switzerland is certainly the most shining example of a highly decentralised system even within a very small territory. But multi-level governance is on the rise in many countries around the globe.

Decentralisation requires administrative capacities

Decentralisation reforms often come with amalgamations of local governments. Amalgamations reduce the number of local governments, and increase the average size of administrations. An important argument for the amalgamation are economies of scale – larger municipalities are supposed to use resources more efficiently. However, economic outcomes of isolated amalgamation reforms are at least mixed. Evidence from numerous reforms where tasks assigned to local governments did not change has shown that simply lumping together local governments does not per se increase efficiency. However, decentralisation is different because new tasks require additional administrative capacities and specialized know-how which very tiny administrations often are not able to deliver. For this reason, the Greek government merged almost 6,000 former municipalities into 325 new ones before assigning tasks to the local level. Denmark is another example. Increasing size of local governments is often seen as a precondition for efficient decentralisation, which in turn can facilitate trust. That is, in a nutshell, the very well-known theory.

Political costs of over-sizing

Empirical studies have now shown that things are a bit more complex. The argument of this article is that amalgamations of local governments are never costless. Enlarging jurisdictions produces substantial political costs which can jeopardize all uncontroversial benefits of decentralisation. Amalgamations can even do more harm than good if mergers produce too big geographical units. Net effects on government trust are then far from clear. In recent years, empirical research has started quantifying the political costs of amalgamations and revealed severe political downsides when local governments become over-sized:

• Participation. Incentives to turn out to vote decrease in population size. Voter turnout in local elections is found to decrease after amalgamations, indicating decreasing satisfaction with the local government. And the number of candidates in local elections declines.
• Preferences. If urban and rural municipalities are amalgamated, very different preferences on public goods clash. Fragmentation of and tensions within the local council increase. Populous regions tend to dominate in amalgamated local councils.
• Spatial inequalities. After amalgamations of local governments, centres grow at the cost of the periphery. When administrations are lumped together, jobs, income and inhabitants relocate to the new centre and distances and commuting increase. This may increase the urban-rural gap.
• Representation. Amalgamations reduce the total number of local politicians because amalgamated councils usually increase less than population. Multiple waves of local government amalgamations in East Germany since 1990 therefore eliminated more than 80,000 out of 120,000 seats in local councils, leaving hundreds of villages and neighbourhoods without representation and the remaining local politicians with a much higher workload.
• Protest. In summer 2017, tens of thousands of citizens rallied against forced amalgamations of local governments in two East German federal states. In some cities, participation rates even grew to the level of 1989 when East Germans marched against the Communist regime. Facing spreading protest and direct democratic initiatives, governments entirely cancelled their plans of forced amalgamations.
• Trust. Voters in merged local governments feel less informed on local politics as anonymity and complexity increases. Monitoring becomes more and more difficult, trust toward local politicians and the administration decreases. Populists absorb the dissatisfaction.

Bigger is not always better

Restoring trust through decentralisation may require somewhat larger administrations which are able to provide public services at an efficient level. However, new research shows that positive effects can very soon turn into negative ones, when amalgamations overshoot. If too many and too heterogeneous local governments are lumped together, the urban-rural gap increases, representation and participation decreases, protest and populism grows, and finally trust erodes – leaving everything even worse off. Unfortunately, there is no easy rule of thumb for an optimal size of local governments. After decades of research on this issue, the literature tends to conclude that size hardly matters for efficiency at all, and scaling very much depends on local conditions and tasks.

However, the risks of too large local governments were underestimated for a long time. Recent big protests against forced local government amalgamations in East Germany have shown that local government is much more than bureaucracy – local boundaries are about emotions and local identity. In a globalized world, people need a place where they feel home. Forced amalgamations put local identity at risk. Completely voluntary mergers, however, may leave poorer communities without a partner and increase inequalities. Central governments have to be very careful in balancing both identity and inequality concerns. The main lesson from amalgamation reforms in other countries is not to over-size newly amalgamated local governments in a final rush for efficiency, potentially causing in all good intention a bad outcome.