NZ Initiative's Natanael Rother says decentralisation has fostered an ever-prosperous Switzerland

By Natanael Rother*

Switzerland, my home country, is often referred to as the poster child of localism.

A substantial part of the political decision making, taxation and public spending is done on a sub central level. Things that the central government is responsible for have to be mentioned explicitly in our constitution.

I genuinely think that decentralisation has fostered an ever prosperous Switzerland. It helped to prevent the public administration from overly expanding the way it did in other countries. And - together with our direct democracy - it made sure politicians and the public administration chose a citizen-oriented approach (most of the time).

After working in the field of federalism and having published a reform strategy for Swiss localism, I am happy to share some of my insights from back home.

Rest assured that even though I like the Swiss way of doing things, I am convinced that our system is far from perfect and certainly not a silver bullet for fixing every policy-related problem that arises (find out more about that in one of my earlier blogs). I understand that even though New Zealand is as far away from decentralisation as it is from Europe, localism is nevertheless a topic that Kiwis have started to consider.

For what it’s worth, here are the five most important topics to be discussed before New Zealand decides to look for the kiwi-version of localism:

1) Make sure you don’t create shared responsibilities.

There is a tendency to develop a system of shared responsibility within localism. The idea behind it is that it is meant to be easier to bear the burden of public service (for example in education) when another layer of the state helps to pay for it. Well, it’s not. This is for at least two reasons: Firstly, shared responsibilities often result in an inefficient process that encourages political actors at one level to influence the overall policy frame. Their ultimate aim here is to pay as little as possible and influence decisions as much as possible. This rent-seeking activity is not what politicians are meant to do. Secondly, the very idea of sharing the burden means that neither one of the actors has to bear the full responsibility for their choices. This is not the incentive one should be looking for.  

2) How different do you want your councils to be?

If you go local, think about the disparities between local authorities. Once power is given to the local level, it can be expected that differences in the level of prosperity become more apparent as there is less central government money involved that could otherwise equalise the regions. Switzerland’s federalism is quite decentralised and relies upon fiscal competition, but the weakest financially are not left behind. There is a transfer system in place that makes sure the more deprived regions are able to provide public services similar to those in more prosperous areas. Think of it as a social security system for subcentral regions. You have to try to make sure however, that this transfer system doesn’t create incentives that make the poorer regions not want to improve (because it’s not worth it anymore) or  the richer regions stop trying to get better (because they have to share too much of what they gain).  

3) Be aware: it’s about spending your own money.

Localism means having certain parts of public services that local authorities, and not the central government, are in charge of. The main thing about it is, however that local authorities get a chance to spend their own money. It is not about spending money the local authorities had to beg for from the central government. What is necessary is that subcentral authorities are able to get enough tax revenue for themselves. The goal is to achieve as much fiscal equivalence (local money for local services) as possible. Otherwise, they’d lose the incentive to spend the money wisely. So looking at some of the European countries where local authorities just get to spend central governemnts money, as for example in Austria, is probably not the best approach.

4) Don’t get lost on short-term debates.

There seems to be some sort of misconception as to how localism could save money. The sceptics often argue that money can’t be well spent when public servants are doing the exact same job in different subcentral authorities that are close to each other. The other extreme, however, is that optimists may think that in a local system most of the work can be done by volunteers. While the latter gives hints about the importance of having a civic duty, they both miss the point. Most of the positive effects of decentralisation happen in the long run. Localism works as a laboratory where different subcentral entities can try out different policies. Testing these different policies throughout the country gives the regions a chance to monitor the various outcomes. This then offers others the opportunity to learn from each other (assuming they’re interested). And, local ideas can even help the central government. The canton of St. Gallen in Switzerland, for example, pioneered the “debt brake” – a mechanism automatically limiting borrowing – which was introduced as long ago as 1929. Since then, almost all the other cantons and since December 2001, the Confederation itself, have followed suit.

5) Localism is not a one-off effort.

I am well aware of what federalism means in the long run. It needs constant attention and it’s definitely not a one-off effort. The default option of politics often is centralisation (also in Switzerland). And sometimes there is no other option than to go for a reform. In Switzerland, for example, we had our last substantial reform in 2007. This change was being prepared for probably more than a decade. And now, just a bit more than ten years later we are already having talks about our next effort to revitalise our localism system.

Localism is a topic very close to my heart and I will be following New Zealand’s progress, and the debates, with interest, from Switzerland.


*Natanael Rother is a Research Fellow at Swiss think tank Avenir Suisse and has joined the NZ Initiative team for six weeks.

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12 Comments

Localisation sounds interesting but Councils are just so unaccountable to the ordinary citizen. I try to be a well-informed local government voter but it is hugely difficult finding what policies local candidates actually are offering. A number of my friends, like many others, don't even bother to vote. My fear is that localisation will just be a boon to strident pressure groups and well connected fat cats.

The opposite is true. The more centralisation you have, the less accountability there is and corruption becomes more prevalent. It is a simple fact and the reason why empires fail and large monopolies and corporates also fail. Plenty of examples at play around us today...the EU, ESA, Fletchers, Fonterra, etc. People engage more on a local level and when the leaders/politicians are known to them then they have more skin and exposure in the game, so they are generally more accountable.

I think BS is correct.. I'm one of those that didn't vote in the last local body elections.. Only information I had about the people and the policies was the two paragraph self-promoting blurb in booklet that came with the voting form. Most of them I'd never heard of, and the ones I had heard of Dick Quax etc. were not known to me for anything that is relevant to running a city.

Of course people don't vote in local elections in New Zealand. NZ is one of the most centralised governments on the planet, so you care about the central elections.

If Auckland Council decided your income tax rate, would you be more likely to vote in local elections?

It would depend how much of total income tax went to local govt and how much went to central govt. There are things that only make sense to tax and fund by central govt (Defence, security services, legal system, nationally important infrastructure etc) so there is no way you are getting away from a central govt that taxes you somehow.

And i'd prefer to avoid anything like the american system where you can have municipal, state and federal income taxes, and bizarre outcomes like people living a few streets away having access to entirely different levels of schooling, healthcare etc simply because they live either side of a boundary. (and yes, it does happen to a fairly small level already with DHB areas etc)

Not to mention the Swiss are honest people whereas localism in NZ would end up in corruption, bribery and minorities with loud voices ruining it.

All that tells me is that Kiwis aren't very perceptive

The difference being they would only ruin their area as opposed to the whole country. Bribery (NZ first and labour) are the reason they are in power so with centralisation the stakes are raised.
It would also have the benefit of showing different methods operating in the same time frame so you can more objectively compare what works and what doesn’t.

The Maori land wars stopped NZ evolving into a federal state. NZ governments have not respected any sovereignty wrt local communities for over 140 years. In this respect NZ has quite a different history compared to other colonies, such as, Canada. NZ moved away from European bottom up political ideals. These tensions are not fully resolved in our society and periodic ruptures are inevitable.
https://medium.com/land-buildings-identity-and-values/rupture-2e7f66e20789

I would suggest you chew the fat with Iain Parker at Public Credit or Bust over the money lending that went on to fund the New Zealand wars. I give you a hard time over the credit creation side of housing, and this is another dimension to that. But thanks for the article, a worthy read.

This is actually quite a good article, i am surprised it didn't get more traction or more comments.