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Culture of co-operation makes more sense than amalgamation

Published in The Dominion Post (Wellington), 12 February 2015

Wellington has little to gain and a lot to lose by opting for a super-city, argues Oliver Hartwich.

New Zealand’s local government units are typically already large by international standards.
Dr Oliver Hartwich is the executive director of the think-tank The New Zealand Initiative (www.nzinitiative.org.nz).

SHOULD the councils in the Wellington and Wairarapa regions be amalgamated to form a single Greater Wellington Council as a new unitary authority?

This is the proposal the Local Government Commission put out for consultation in December.

The commission argues that merging nine current councils in the Wellington and Wairarapa regions into one could lead to greater efficiencies and enable more effective local government.

Size certainly matters but there are good reasons to be sceptical about the promises of amalgamations.

Some of the benefits that amalgamations might bring could also be realised in other ways. At the same time, amalgamations are not costless either since they have both political and economic drawbacks.

By far the biggest gains in council mergers arise in areas such as transport and water supply. By their nature, these are networks and therefore size increases could yield cost savings.

Put simply, larger infrastructure networks can lead to lower costs per user. But does that mean that councils have to be merged in order to realise such efficiencies? In its proposal, the commission itself discusses the idea of transferring some of these network-related functions of local government to the current Greater Wellington Regional Council. In fact, this option scored higher on potential gains while it also reduced the risk associated with changing the structure of local government in the Wellington region.

So why, one might wonder, was it not put forward as the commission’s proposal? The commission believes that the remaining councils would be ‘‘a mere shadow of their current organisations’’ and that this could make collaboration between them difficult. Tensions might then even ‘‘escalate to judicial review or other action’’, the commission warns.

That may be true but at the same time it is a little defeatist. Councils realising that the alternative to becoming ‘‘shadows of their current selves’’ is being abolished might take a more favourable view towards cooperation. Besides, the potential cost savings should be a good enough reason to encourage councils to give greater regional delivery a chance. The Wellington councils have already merged their water operations into a single entity, Wellington Water. Is the commission really saying that councils would obstruct other sensible, cost-saving solutions for no other reason than mere vanity?

Should the commission’s proposal for a Wellington supercity prevail, not everything will suddenly become more efficient. Quite the opposite may be the case.

For a start, once councils know that they will be amalgamated into one, they are likely to change their behaviour. If you know that you will soon be absorbed into a new, larger political unit, you would rationally spend more on expensive, long-term infrastructure than you otherwise would. Why? Because you know that others will partially foot the bill (and repay your debt).

Another effect that can often be observed when amalgamating councils is that they will harmonise their services.

However, this rarely goes in the direction of scaling back public services to the lowest common denominator. Instead, councils which previously supplied fewer services will feel encouraged to increase provision until they reach their neighbour’s standards.

Of course, part of the rationale of merging councils is to save on administrative expenditure. In theory, there are synergies that can be unleashed, and indeed that was promised when Auckland formed its super-city.

Unfortunately, the reality is different from the theory.

Back in 2009, the Auckland Transition Authority had calculated that their amalgamation would result in a reduction of 1200 staff and a decline of $100 million in annual staffing costs. As it turns out, staff numbers have remained constant while staff expenditure increased by $90m a year.

In a way, this development is not surprising.

As in all mergers, whether by private companies or territorial jurisdictions, established structures are hard to abolish while new structures are easy to create.

As a result, the merged new entity would create its own extra jobs and offices while it would struggle to replace existing ones, even if they should become redundant.

The most serious problem, however, with council amalgamations is not an economic one but a political concern.

Government works best when it is, to quote Abraham Lincoln, ‘‘of the people, by the people, for the people’’. Nowhere does this work better than when government is also close to the people.

New Zealand’s local government units are typically already large by international standards, but creating supercities will make them still bigger in the future. Indeed, if the Wellington super-city goes ahead, over half the population of New Zealand will be covered by just two councils. Is this what we mean by local government? This will remove decision-makers from the people they are supposed to serve.

To say it with Alexis de Tocqueville: ‘‘The strength of free peoples resides in the local community. Local institutions are to liberty what primary schools are to science; they put it within the people’s reach.’’

By amalgamating all Wellington councils, there are few efficiencies to gain but a lot of local autonomy and diversity to lose. To realise some limited network effects, we should encourage better co-operation between neighbouring councils – without forcing them to merge.

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