1 The Benefits of Devolution and Local Control

1.1 Better results/Better resource utilization

Many of us intuitively feel that local control  often produces better results than central control. However, intuition is usually not considered a valid argument in the political or scientific marketplace. In some fields, however, studies have been done that supports our intuition.

Education

In the United States, Americans have studied the effects of local funding on graduation levels and SAT (Standard Aptitude Test) scores.  Test scores and graduation rates generally improve when schools are primarily funded by local communities, and opposed to state or federal funding.

Many states with a greater local control also have better funding of the school system. When people know where their taxes are going, they may be willing to spend more. This could be part of the explanation accounting for the difference in test scores and graduation rates. On the other hand, the study also shows that more money reaches the individual school in locally funded systems. Proportionally less money is wasted in bureaucracy.

Table Local funding and educational results

(Source: Warren Brookes: Public Education & the Global Failure of Socialism", IMPRIMIS, April 1990, Vol. 19, no. 4, pages 4 and 5.)

When comparing New Hampshire and Vermont for instance, we find that teacher salaries and teacher-to-student ratios are virtually the same in the two states. While Vermont spends 14% more per student and 39% more per capita, New Hampshire students' performance on standardized tests (SAT) are consistently better than their Vermont counterparts. Thus Vermont spends more, with poorer results. Funding in New Hampshire is over 90 % local, while spending in Vermont is only 60 % local.

Number of public employees

The following table lists the average size (in population terms) of the lowest governmental level, gemeinde in Switzerland and kommune in Scandinavia, compared with the total number of public sector employees as a percentage of total employment.

Table Governmental devolution and effectiveness

Sources:         Population figures: national statistics

                        Public employees: OECD in figures, 1990

This table shows that larger more centralized local authorities go with many public employees, and that smaller less centralized societies also have fewer governmental employees.

These numbers by themselves, don't say anything about cause and effect. But if it is true that there are large untapped economies of scale in government, how come the Swedish government needs almost three times as many employees as the Swiss?

The opposite tenet seems much more likely. Though, from a theoretical point of view, large scale economies of scale may seem to exist, they are not realizable in the real world. In other words, the diseconomies of organization quickly overcome the economies of scale of service production.

Size and economic growth

The two previous examples are from the realm of local government, but the same tendencies appear true at the national level. According to a new study by University of Pennsylvania economist Robert Summer, ("Actually, small-fry nations can do just fine," International Business Week, October 1, 1990, page 12) the average economic growth among large nations is no higher than the average among small nations. Countries with small areas and high population densities, even grew a little bit faster than phys­ically large countries. Incomes in countries with either large populations or large areas tend to be lower than per capita incomes in smaller countries.

Though small countries suffer disadvantages in market access and access to raw materials, this is counterbalanced by the more important conflicts between interest groups in the larger countries and the resulting inefficiency of government.

1.2   Devolution and citizen satisfaction, an example

What is meant by more satisfaction? In this context it means that more people (i.e., a higher fraction or the total) get what they want. Let us suppose for instance, that we have two countries Centralia and Devolutia with the same number of people. In both countries a decision about whether to abolish blue laws (i.e. allow open grocery stores on Sundays) are to be decided by popular vote (referendum). In Centralia the 400 voters are divided into 4 polling districts, while in Devolutia the 400 voters are divided into 4 districts that are also, in this respect, self-governing states. The votes in each district are as follows:

Table Voting district example

The results for Devolutia and Centralia are shown next.

Table Devolutia

Table Centralia

In Centralia 201 voters are happy as the blue laws are not abolished. In Devolutia, however, 321 people got their way. In state 1 and 2, blue laws were retained, while in state 3 and 4 they were not.

This simplistic example shows the fundamental power of devolut­ion, it makes more people happy by allowing greater diversity.

(Adapted from Kendall, Frances and Louw, Leon: Let the People Govern, pages 148-150).

1.3   Summary

This chapter has given examples of the benefits of local control in education and in local government. There are two principal benefits associated with devolution and local control: a) The better resource utilization or operational efficiency compared with a centralized system, and b) the increased allocational efficiency, meaning that devolution increases the fit between people's wants and what they get.

Copyright © 1991-2003 John F. Knutsen

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