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Localism – The Swiss Way Why New Zealand needs more, yes more, councils

Localism - The Swiss Way - Featured Image - Local Government Nov 2017

When Oliver Hartwich told delegates at the recent SOLGM Summit that our country needs more local authorities, he was talking to a receptive audience. Call it localism. Call it subsidiarity. His big idea is that if our country were more like Switzerland, which among other things is awash with local government, we might be more likely to match that country’s GDP. Ruth Le Pla reports.

Oliver Hartwich is the executive director of The New Zealand Initiative and a skilled economist to boot. He’s fond of noting that Switzerland’s GDP per capita lagged 23 percent behind ours back in 1960. Now it’s 93 percent ahead.
If we made some changes, he reckons our people could be 50 percent less likely to be unemployed, we’d make 80 percent more money and be able to spend 2.7 times more money on healthcare. The positive stats go on and on.
Okay, there are a few other changes in the mix too. Those include what he calls a dual education system (universities and technical training schools).
And he advocates for a more flexible labour market in which it is very easy to both enter and terminate employment contracts. In Switzerland’s case this gets a big boost from geography which enables people to live in neighbouring France or Germany, for example, and pootle over the border each day to work in Switzerland.
If we took up the council part of Oliver’s Swiss idea we wouldn’t have 78 sub-central councils like we currently have. We’d have closer to – wait for it – 1368 of them. Yes, 1368.
Importantly, the rules would change so councils would work within well-defined incentive schemes to help drive growth in their areas. Tax regimes could be turned on their head with local authorities being able to hold on to personal and business tax generated by people in their areas.

Federalism and localism
Switzerland’s structure of government is the antithesis to New Zealand’s centralism. Political decisions are taken much closer to the people affected by them.
Smaller political units may lack economies of scale but make up for scale effects by greater efficiency.
Swiss local and regional government has much stronger financial incentives to promote economic growth than their New Zealand counterparts.
Competition between neighbouring jurisdictions ensures that councils pay close attention to the wishes and needs of their residents.
Tax competition at the local level is a crucial element of this competition.
Councils can voluntarily cooperate in service delivery without having to amalgamate.
Source: Go Swiss: Learnings from The New Zealand Initiative’s visit to Switzerland, 21–26 May 2017

Such incentives, in turn, would lead to competition between councils for the best opportunities to encourage investment. (See box stories A direct and participatory democracy and Federalism and localism.)
In effect, councils would nestle closer to their communities in ways they can only now imagine.
Oliver’s thinking turns on its head our country’s centrist mantra: shifting incentives, power and dollars from the Beehive to local councils dotted around the country. It also flies in the face of the hugely unpopular drive towards council amalgamations.
“We don’t need more central government,” Oliver told SOLGM delegates, “we need much more local government.”
Oliver has for years been boldly taking his message to many less friendly ears.
He started looking at the Swiss model back in 2005. He’s lived in the UK, Australia and now New Zealand and in all three countries has repeatedly recommended Switzerland as an alternative model to those nations’ centrist approaches.
He’s well aware his ideas take some getting used to. “Counterintuitive” is his polite term. Put more bluntly, when many people first hear them they think he’s mad, nuts, crazy.
Not only that, but at first glance, the very notion sounds exceptionally unlikely to succeed. In this country it flies in the face of ongoing and unflinching criticism of local government from many quarters.
Just to pick Auckland examples at random, the Auckland Ratepayers’ Alliance recently slammed Auckland Council for claiming the average annual rates bill is $2340 when it is $3210.
There’s been widespread criticism of how much staff are paid. Bernard Orsman, writing in the Herald, recently revealed that one in five Auckland Council staff is earning more than $100,000 as the wages bill for the Super City blows out for the third year in a row.
“What’s more, the number of executives earning more than $200,000 has increased by 25 percent in the past year, from 155 to 194,” he wrote, citing figures from the council’s 2016-2017 annual report.
Meanwhile, a former Auckland Council employee collected a whopping $405,000-plus severance packet in the past financial year: a matter that has been referred to the Office of the Auditor General for independent scrutiny.
More recently, LGNZ has been in a stoush with the Taxpayers’ Union over comments LGNZ president Dave Cull made about the quality and utility of the union’s Ratepayers’ Review of council league tables which was published earlier this year.
According to the union, Dave Cull later apologised and made a “modest financial payment” in settlement of the matter.
Tellingly, the sector’s own research shows its reputation stumbles along with a score of 28 out of 100 – a tally pretty much on a par with the results of a similar survey three years’ earlier.

A direct and participatory democracy
In Switzerland, elections are important but referenda are more important. The people as the sovereign have the final say in all matters local, regional and national.
Legislation becomes more cautious given the possibility of referenda. This slows down decision-making but ensures better quality outcomes.
Referenda have a disciplining effect on fiscal policy at all tiers.
As a part-time institution, Parliament can attract high calibre candidates, bringing considerable professional expertise into the legislative process.
The level of civic engagement in politics is much higher than in New Zealand. Public office and public administration are held in high regard.
Source: Go Swiss: Learnings from The New Zealand Initiative’s visit to Switzerland, 21–26 May 2017

SAY WHAT?

So what leads Oliver to believe now is a good time to advocate for his seemingly preposterous idea?
For a start, there’s the pressing need to address some of the country’s problems such as housing affordability and infrastructure funding – neither of which look likely to get resolved without some big-picture changes.
A group of mainly private sector Kiwi chief executives visited Switzerland with The New Zealand Initiative in May this year to see for themselves how the Swiss model works. LGNZ CEO Malcolm Alexander was part of that group.
Writing for Stuff earlier this year Pattrick Smellie noted that it was telling the trip took place “at a time when fundamental change to urban planning and environmental law is rising up the political agenda”.
Pattrick went on to say, “It’s not only consistent with the cross-party support for reform, but with the accompanying clamour now coming from environmental, developer, business and local government lobby groups.”
But isn’t this neat economic argument missing other elements such as the political will to make it happen?
Oliver says that what’s really missing is about 700 years of history.
“Switzerland never had to decentralise,” he says “it simply never centralised in the first place. So, yeah, the Swiss kind of get it better than we do because they just grew up with it…
“Whereas in our case, of course, we are coming from the opposite extreme… We are coming from a situation where local government is extremely weak and we are miles away from where Switzerland is. But we have to start somewhere.”
Asked to score the chances of getting this idea over the line in the next five years, he jokes that it’s “marginally over zero”.
“The DNA of this country is centrist so we are working against 150 years of New Zealand history here with our model so it would take, maybe not 150 years, but probably more than five to get there.”
He’s not suggesting our country adopts holus bolus the three-tier Swiss model of government with its regional authority, cantons and communes.
“But we could definitely have better incentives for local government,” he says.
“We’ve been preaching the stuff for five years now. We’re now at a point where people find it at least interesting, whereas when we started people just thought I was crazy.”

SUPPORT?

Oliver says LGNZ is considering whether it should do some follow up research on the idea or maybe even a follow up visit to Switzerland.
“They now have to take it to their members. But we have… convinced, I think, a large chunk of the business community that a different way of doing local government is possible and maybe desirable. And LGNZ now has to take that message to their members.
“I spoke to LGNZ on a few occasions of Swiss matters and I think they are starting to completely rethink the way local government should look.”

LOCAL HEROES

Oliver posits that the sector now needs local government heroes to champion the idea of localism.
“Ideally a hero mayor or chief executive,” he says. He says it’s time for someone to step up and offer to show how much more local government could do if empowered differently.

MISSING LINK

Local government now needs to approach central government and say what it can do, he says.
“It needs to say to central government, ‘we’ve heard that in principle you’re open to the idea of special economic zones, which is another form of localism, and here is what we could do if you let us’.”
As to who has the mana to step forward and do that, he notes there are a number of very experienced people in local government – many with central government expertise too. He won’t be drawn on the specifics but Phil Goff, Stevie Chadwick and Lianne Dalziel all fit that bill.

Practical steps

Local Government Magazine: Do we need to overcome the problem of local government’s poor reputation before there is any chance of changing its structure towards the Swiss model?
Oliver Hartwich: It’s a bit of a chicken and egg problem. If you don’t give local government the right incentives and you don’t give them the right freedom and the right funding you will always struggle to attract the best people to local government.
In Switzerland, it’s a more prestigious affair to be involved in local and canton affairs and therefore you attract better people, probably, into the sector.
Here we struggle. It’s very difficult to find people willing to give time to serve as councillors when they know they will probably be quite limited in what they can really achieve in that job.
Could it be a step-by-step process? Don’t create cantons but give councils more powers – an incentive system?
Definitely. We could start with special economic zones where we give an individual part of the country rights to deviate from national legislation. You could try out that idea immediately.
There are also ways in which you could try out incentives. Say, we abolished the rates system tomorrow or we passed on the rates revenue to central government rather than local government and instead let local government share in income tax, for example, or corporate tax. That would immediately change behaviour because councils would have a stake in the local economy.
Where would be a good place to start a special economic zone?
Lower Hutt. Why not? Lower Hutt would like to regenerate its inner city because the shopping area looks a bit rundown and they can’t compete with the rising settlement of Petone.
Lower Hutt also has some socio-economic problems – some really disadvantaged poor communities. They could definitely do with a bit more economic development.
So why not let Lower Hutt experiment with, for example, abolishing the Overseas Investment Act and see what kind of investments we could attract to the place? Maybe take Lower Hutt out of the RMA too.
Give them a completely different regulatory set up from the rest of New Zealand and let them experiment.


This article was first published in the November 2017 issue of NZ Local Government Magazine.

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