Localism: don’t forget the democracy
Civitas, 16 May 2011
An important, and relatively uncontentious, area of coalition policy is its localism agenda. Seemingly supported across the political spectrum, is the idea that more decision making should be devolved to those who have a greater understanding of the challenges and issues facing localities – local governments not Whitehall. In a recent paper entitled: ‘The American Recovery and Reinvestment Act: Public Sector Jobs Saved, Private Sector Jobs Forestalled’, two American economists Timothy Conley and Bill Dupor, indirectly demonstrate the importance of democratic accountability when devolving power.
Their paper will surely be held aloft by the right in America who will use it to argue that Government spending, is in its very nature, value destroying. I do not wish to enter into a debate about the merits of public versus private spending or public versus private investment, rather the paper provides a salutary lesson for Britain as it administers on a dose of political devolution.
In particular Conley and Dupor chronicle some interesting results of America’s ‘American Recovery and Reinvestment Act’ (ARRA). The Act sought to mitigate the effects of falling state tax revenues, in a manner which would stimulate investment. Importantly it was not just intended as ‘free cash’ for states to spend how they pleased; funds were earmarked for different sources. One such source was ‘highway infrastructure improvement’ with the hope that infrastructure investment would stimulate economic growth in the long-term. The act provided $27.5 billion for this purpose across America. Despite this, many states reduced spending on highway infrastructure. For instance:
‘In Texas, ARRA dollars arrived and simultaneously the number of Texas highway, bridge and street construction workers declined. Employment in that sector fell from 34,600 workers in May of 2008 to 28,500 workers in May of 2010. Total capital outlay on highways in Texas (fiscal year ending on August 31) went from $3.38 billion in 2009 to $2.82 billion in 2010. This decrease in state expenditures occurred even though Texas spent $0.70 billion in ARRA highway funds during 2010.’
Texas spent ARRA money on highways while simultaneously withdrawing state funding from this area. The authors suggest that the Federal government could have required states to compliment current funding with ARRA funding, rather than substituting it: a centralised solution to a local failure – a mistake in my opinion.
American local governments at all levels possess more power than their British counterparts. It is clear that the current Government wants to change this to some degree. The idea is that local governments be given more power, and with it, more responsibility. Thus recent proposals include: allowing councils to keep revenue from business rates and increasing the borrowing power of local governments, on the basis that borrowing must increase tax revenues (Tax Increment Financing). The hope is that devolving responsibility to local governments will increase their incentive to base spending decisions on local needs, rather than stipulations from Whitehall. The key lesson to draw from the ARRA experience is that responsibility for spending decisions alone is not enough. The interests of local officials and a local area need to be aligned, money must work for the benefit of local people, not local officials.
This is why the democratic facet of the Government’s localism agenda (more local mayors, elected police commissioners) must not be forgotten. Devolution will only work if local officials are made responsive to the needs of the local citizenry. Additional money raised by keeping the revenue from business rates should be reinvested in the local area. Spending decisions should be more attuned to local needs (while ensuring that basic services are provided). More responsibility, and (hopefully) more money are good things for a local government. The need for more democracy, with appropriate checks on majoritarianism, should not be forgotten.