KEY POINTS:
The campaigners for a single Auckland council are promising large cost savings and efficiency gains. But an analysis of the 1989 local government amalgamations suggests that bigger is not better at all. In fact, there's even a hint that smaller communities might have been better off left as they were.
In my last column I expressed the hope that the just announced royal commission into Auckland governance would have the funds to cut through the propaganda and scientifically analyse the results of the 1989 revolution. Coincidentally, Paul Rouse, associate professor of management accounting, University of Auckland Business School, was mailing me the results of just such an analysis, completed by he and his colleague Martin Putterill, and published in Management Accounting Research, July 2005. Professor Rouse admits that "initially I was a bit biased and believed that amalgamation was a good thing". But his research showed otherwise and "while I agree with the need for a regional council (which we already have), I am unconvinced about the merits and accountability of amalgamating the existing territorial local authorities into an even bigger authority."
Speaking as a long-term resident of Mt Albert, "my feeling is that we have suffered considerably from losing our local council and the community boards don't seem to work very well. I know nostalgia dulls the memory but my recollection is that we were a lot better off with lower rates and more services under Frank Ryan with out little Mt Albert council".
Proponents of amalgamation "argue around economies of scale where efficiency improves with size especially when you are talking about assets of a capital nature. We figured that roads are pretty much capital intensive and would be a good starting point for seeing whether the 1989 amalgamation delivered on the promised efficiencies".
Road maintenance, which is what the study focused on, has long been a big item of local government expenditure, and from a research viewpoint, one that is closely documented and monitored by outside agencies, resulting in data "of an unusually high quality in terms of accuracy".
In conversation, Professor Rouse endeavoured to explain the methods used to arrive at their conclusions, but I admit to getting lost somewhere between the efficiency frontier and the Herfindhal-Hirschman Index, glazing over totally at the Kolmogorov-Smirmov test. But the conclusions are easy enough to follow.
First they tested for economies of scale between big and small pre-amalgamation local authorities and "couldn't find increasing returns to scale associated with smallness but we did find evidence of decreasing returns to scale for authorities that are bigger than they ought to".
The report observed that "considering that this is in marked contrast to the New Zealand political arguments, we surmise that the explanation could lie in the nature of maintenance provision by small [authorities] during the period. Most small [authorities] retained professional consulting engineering firms for highway maintenance administration. They were therefore able to easily expand and reduce expenditure on professional advice."
They also used outside labour and equipment, therefore highway maintenance costs for the small local bodies had "little fixed component", in marked contrast to big ones with in-house engineers and work forces.
The study revealed that efficiencies improved across the board after amalgamation, but not because of amalgamation. The researchers grouped authorities according to how much they had been affected by amalgamation - either greatly or hardly at all - and discovered there were no differences in efficiency improvements, pre and post amalgamation, between the groups.
"In fact," says Professor Rouse, "there is some weak evidence that small [bodies] pre-amalgamation would have been even more efficient if they hadn't been amalgamated."
The report concludes that the universal efficiency gains experienced after amalgamation were the result of other changes that occurred at the time, such as Government insistence on competitive price policies related to tendering, and the outsourcing of work.
He says that to his knowledge, "ours is the first study that has actually found some hard evidence concerning defragmentation of local bodies".
Professor Rouse didn't pay much attention to the anti-amalgamation protests in 1989 and when he started his study admits to a bias towards bigger probably being better. Now he's leaning the other way. He says if there's sufficient interest, he'll put his paper up on the web. Let him know at: p.rouse@auckland.ac.nz
