ECONOMIC ASPECTS OF LOCAL GOVERNMENT REFORM*

AuthorJ. T. Hughes
DOIhttp://doi.org/10.1111/j.1467-9485.1967.tb00762.x
Publication Date01 Jun 1967
ECONOMIC ASPECTS OF
LOCAL
GOVERNMENT
REFORM*
J.
T.
HUGHES
I
THE
structure
of
local government has been under close examination
during recent years. In a short time the system will probably be sub-
jected to major surgery following the reports of the two Royal
Commissions appointed to investigate the systems of England and
Wales and
of
Scotland. There have been very few contributions from
economists on the reasons for the present
malaise
in local govern-
ment and on the principles which ought to guide attempts to reshape
the system. Yet it must, surely, be generally agreed that a reformed
system of local government must be justified, at least in part, by lead-
ing to an improvement in the efficiency of public expenditure. This
article does not attempt to suggest a new system of local government;
it attempts to define the problem of local government reform in terms
which the economist would use, rather than those of the student of
politics. This approach may be justified on three counts. First, it is
too early in the discussion to attempt a synthesis of the economic
factors and the contributions of other disciplines. Secondly, it
is
inevitable that the administrative and political requirements will
overshadow economics in working out the details
of
the system. Thirdly,
I
am at pains to emphasise throughout that the economic criteria can-
not be met by simply re-arranging areas
or
the administrative structure;
these re-arrangements are a necessary but not a sufficient condition of
meeting the criteria which will be discussed below.
What economic discussion has taken place mainly involves criti-
cism of the system of local taxation, in Britain’s case the local rating
system. This, it seems, is the fiscal tail wagging the economic dog. It
seems sounder to ask why we need the money from local taxation, or
any other source, than to assume expenditure fixed and minimise the
cost of raising the money. This preoccupation with the costs marks a
great deal of discussion on the economic effects of government activity,
not only at local but also at national government level. The study and
teaching of public finance in economics has long had
a
‘taxation
*I
am grateful for comments
to
Dr.
L.
C.
Hunter,
W.
J.
Money and R.
Smith,
all
of
the
Department of Social and Economic Research, University
of
Glasgow.
118
ECONOMIC
ASPECTS
OF
LOCAL
GOVERNMENT REFORM
119
complex
'.
However, the use of economic analysis in ensuring greater
efficiency in public expenditure is by
no
means straightforward.
Methods have to be found which are administratively feasible, a con-
sideration upon which few economists are qualified to comment. The
economist has partly contributed to the lack of economic assessment
in
public decisions by a lack of interest in these applied problems
and, more important, by failing to frame the many sensible things
which he has to say in terms which are readily understood.' How-
ever there are undoubtedly difficulties in fitting the economist into
the administrative team.
On
the local level an important reason for the absence
of
economic
assessment of policy has been that the administrative structure makes
it difficult. Planning decisions, for example, are taken in such small
areas that they effectively mask many of the economic issues. Where
these issues
do
come to the fore, the traditional local authority area
is
an
unsuitable context in which to study them. One must, however,
be clear on whether the area is simply too small
or
whether the
boundary lines cut through the areas which are economically inter-
dependent. For example, people may work in one area and live in
another or the obvious direction for the expansion 'of an urban area
may be blocked by the presence of a separate administrative district.
A
great deal of the pressure for larger areas arises from this latter
problem. Larger areas may be necessary in a scheme for local
authority reform but, unless there is clarity
on
the two distinct effects
mentioned above, the need for larger areas may be confused with
the need for more careful drawing of boundaries.
Part of the pressure for local government reform, therefore, arises
from the need for greater application of economic analysis to local
government policy. The pressure from this direction has been increas-
ing in recent years for a number of reasons
:
(i)
(ii)
(iii)
There has been an extension of responsibility upon local authori-
ties for the provision of services such as education, housing and
many aspects of social welfare.
The decisions about these services have become more complex,
partly because of the greater significance attached to them by the
community at large and partly because of the increasing com-
plexity of modem technology.
The increased rate of population growth and household for-
mation and the need to redevelop the overcrowded areas of our
A
review
of
the problems may be found in Roland N. McKean,
Efficiency
in Government Expenditures by Systems Analysis,
New
York,
1958.
Also
Anthony
Barker,
The Planning and Control
of
Public Expenditure,
Moorgate
and Wall Street, Spring,
1964.

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