improving efficiency in australian local government: structural reform as a catalyst for effective...

Improving Efficiency in Australian LocalGovernment: Structural Reform as a Catalyst forEffective Reform

BRIAN DOLLERY1*, LIN CRASE2 and SUE O’KEEFE3

1School of Business, Economics and Public Policy, University of New England, Armidale, NSWAustralia, 2351.2Campus Director, La Trobe University, Albury Wodonga, Victoria, Australia, 3689.3School of Business, La Trobe University, Albury Wodonga, Victoria, Australia, 3689.*Corresponding author. Email: [email protected]

Received 26 November 2007; Revised 4 April 2008; Accepted 4 April 2008

AbstractMunicipal amalgamation has been the main policy instrument of local govern-ment structural reform programmes in Australia for well over a century.However, council consolidation programs have not achieved the intended costsavings or improved service provision promised by advocates of this means ofstructural reorganisation. This paper considers whether the failure of municipalamalgamation processes to produce significant economic benefits necessarilyimplies that structural reform programs that invoke consolidation have no placein Australian local government policy. It is argued that ‘top-down’ state gov-ernment structural reform policy initiatives carrying the threat of amalgamationconstitute an efficient mechanism for evoking optimal ‘bottom-up’ structuralchange models.

KEY WORDS amalgamation; local government; public policy; structuralreform

IntroductionIn Municipal Reform in Canada, Joseph Garceaand Edward LeSage (2005) examine the pur-poses, processes, politics and final conse-quences of attempts at local government reformacross the different Canadian provincial and ter-ritory municipal systems. In this seminal study,they identified five distinct dimensions oflocal government reform programmes: struc-tural reforms; jurisdictional reforms; functionalreforms; financial reforms; and internal gover-nance and management reforms. This exceed-ingly useful conceptual taxonomy can also beapplied to local government reform pro-grammes in other countries, including Australia,even if the range and mix of municipal serviceprovision differ markedly.

Australian local government is comprised ofseven separate state and territory local govern-ment systems that all perform essentially similarfunctions and are run along common lines.Moreover, in respect to the operation of localgovernment jurisdictions, there are no essen-tial differences between states and territories. InAustralia, the terms ‘local government’, ‘localcouncil’, ‘local authority’ and ‘municipality’ areused synonymously to describe the basic localgovernmental entity.

Most Australian local government systemshave undergone comprehensive episodes of re-form that have embraced all of the five elementscontained in the Garcea and LeSage typology(Garcea and LeSage, 2005). However, a criticalcharacteristic of Australian state government

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municipal reform programs has been an em-phasis on council amalgamations, especiallyin non-metropolitan areas (Vince, 1997). Forexample, during the nineties, South Australia,Tasmania and Victoria all experienced municipalconsolidation to some degree (May, 2003),more recently New South Wales launcheda program of compulsory amalgamation in2004, substantial forced mergers were enactedin Queensland in mid-2007 and the NorthernTerritory seems set to radically reduce the num-ber of councils within its jurisdiction in theforeseeable future.

In general, the consequences of structuralreform programs in Australian local govern-ment have typically consisted of forced andvoluntary council amalgamations, the develop-ment of a multitude of co-operative organisa-tional arrangements between adjacent municipalcouncils, especially in regional, rural and re-mote areas of the country (Dollery and Johnson,2005), as well as boundary changes to the spatialconfiguration of council responsibilities, largelythrough recommendations by the various state-based Local Government Boundary Commis-sions to reform-minded state governments. TheLocal Government Association of Queensland(LGAQ, 2005, 15) has identified four differentmodels that have been employed in Australianstructural reform: ‘merger/amalgamation’, wheretwo or more councils are consolidated into asingle larger local authority; ‘significant bound-ary change’, where the spatial area of municipaljurisdictions is altered substantially; ‘resourcesharing through service agreements’, in whichone local authority undertakes specific functionsfor other councils, like strategic planning andwaste management; and ‘resource sharingthrough joint enterprise’, in which municipalitiescombine their activities in a given service func-tion in order to reap scale economies, such asofficial record keeping and storing.

The impact of structural reform programmeshas fallen most heavily on local councils in non-metropolitan areas. While the reasons for thisvary, the most common factors appear to derivefrom the fact that ‘country’ councils are typicallysmaller than their ‘city’ counterparts in terms ofpopulation size, plagued to a greater extent byadministrative and technical capacity constraintscontingent on problems experienced in securingskilled labour, and often in more desperatefinancial circumstances. Amalgamation has alsoproved more problematic for non-metropolitanlocal authorities due to the ‘tyranny of distance’

usually facing spatially separated councils desig-nated for consolidation.

In essence, Australian local government struc-tural reform programs rest on the basic proposi-tion that ‘bigger is better’ in the sense that largercouncils can not only deliver a given range ofservices more cheaply, but also increase both therange and quality of service provision itself.Syme Marmion and Company (2005, 8) hasargued that the notion that ‘bigger is better’ hasthree main pillars. In the first place, ‘there is ageneral consensus that larger local governmentshave an improved capacity’ but additional capac-ity is subject to diminishing returns since itdepends ‘on the scale at which local governmentsoperated previously’. Thus ‘for very small localgovernments, the improved capacity is consider-able’ whereas ‘for larger ones, this benefit is lesspronounced’. Secondly, what may be termedpolitical economies of scale are present because‘larger local governments have an enhancedability to cooperate more effectively on a largerstage’ (p.9) with Commonwealth and state gov-ernments. In particular, ‘the ability to presentregional issues in a unified manner is importantwhen lobbying government or attracting busi-ness or industry to a region’ (p.9). Finally, theycontend that larger local governments have thecapacity to employ more skilled and specialiststaff which ‘enhances the local government’sability to set a strategic direction and developlong-term planning strategies’ (p.10).

Although not included in the Syme Marmionand Company (2005) tripartite rationale for thebelief that ‘bigger is better’, economies of scaleare almost always claimed in state and territorystructural reform programs as the major benefitinvariably associated with larger municipalities(Byrnes and Dollery, 2002a), even though it isroutinely confused with scope economies andsize economies (Dollery and Fleming, 2006).Syme Marmion and Company (2005, 8) justifytheir rejection of scale economies on groundsthat ‘economies of scale, oft cited as one of theprincipal benefits of amalgamations, have notbeen clearly demonstrated in any of the reviewsof structural reform outcomes although somereviews imply scale benefits’. Nonetheless,‘many of the savings quoted in reviews relatemore to structural changes in the administrationof councils, rather than lower costs associatedwith the delivery of facilities and services’ (p.8)1.

However, it has been demonstrated both inAustralia and elsewhere that not only do many ofthe claims asserted by proponents of municipal

270 Geographical Research • September 2009 • 47(3):269–279

© 2009 The AuthorsJournal compilation © 2009 Institute of Australian Geographers

consolidation lack credible empirical supportin the literature, but even the more plausiblebenefits purportedly flowing from council amal-gamations have often been overstated (Dolleryand Crase, 2004). If this argument is accepted,and amalgamation as the chief weapon in thearmoury of Australian state and territory localgovernment policy makers is indeed defectivein achieving its intended outcomes, then whatcan be said of structural reform programs thatemploy either the threat of forced amalgamationor reward councils that consolidate? Should theybe viewed as ill conceived and clumsy effortsaimed at enhancing municipal efficiency that aredoomed to failure? Or can they still be justifiedon the traditional equity and efficiency criteria ofpolicy analysis? The present paper seeks toanswer these questions by exploring the litera-ture on local government reform per se and thepolitical economy of radical reform programs.

The paper itself is divided into four main sec-tions. Section 2 briefly summarises the effectsof recent council consolidation programmes inAustralia. Section 3 provides a synoptic reviewof the Australian and international scholarly lit-erature on structural reform and municipal amal-gamation. Section 4 explores theoretical work onthe political economy of reform programmes andattempts to bring this conceptual corpus to bearon the question of the efficacy of Australian localgovernment structural reform programmes. Thepaper ends with some brief concluding com-ments summarising the central thrust of the paperin Section 5.

Structural reform in AustraliaIn its Local Government National Report 2003–04, the Commonwealth Department of Transportand Regional Services (DOTARS) (National

Office of Local Government, 2005, 66) observedthat during ‘the 80 years from Federation to1991, the number of councils in Australia fell byover 20 per cent’ and ‘in the 13 years since 1991,council numbers have fallen by a further 27 percent’. An aggregated perspective on the impact ofstructural reform through municipal consolida-tion programmes on the absolute number of localauthorities by state and territory is provided inTable 1.

It is evident from Table 1 that in the post-1991 period the most radical restructuring hasoccurred in the state of Victoria with a 61.9%fall in the number of councils, followed bySouth Australia with a drop of 44.3%, and thenTasmania with a 37% decrease. The most recentepisode of structural reform took place in NewSouth Wales in 2004, with its program of forcedamalgamation; although Table 1 shows a declineof 13.6% in total municipal councils. As yet thefull impact of the compulsory amalgamationprogram has still to be felt in Queensland and thegovernment in that state continues to face strongopposition. Finally, if the forced mergers in theNorthern Territory are as extensive as policymakers have indicated, then this will make theTerritory amalgamation program the most drasticin Australian local government history If thelocal government reform programs in Queens-land and the Northern Territory unfold as planned,then we can anticipate that the impact of theseprograms is likely to be reflected in future num-bers of local authorities in these two local govern-ment systems.

Theoretical and empirical perspectives onmunicipal amalgamationWe have seen that the proposition ‘bigger isbetter’ in local government has informed

Table 1 Local Government 1910–2004 by State and Territory.

State Councils Councils Councils Councils % change1910 1991 Sept. 2001 Sept. 2004 1991–2004

NSW 324 176 172 152 -13.6Vic. 206 210 79 80 -61.9Qld 164 134 125 125 -6.7WA 147 138 142 142 2.9SA 175 122 68 68 -44.3Tas. 51 46 29 29 -37.0NT n/a n/a 7 7 n/aTotal 1067 826 622 603 -27.1

Source: National Office of Local Government, 2005, Table 3.2.

B. Dollery et al.: Improving Efficiency in Australian Local Government 271


Australian local government policy formulationfor a very long time. Furthermore, advocates ofmunicipal amalgamation typically contend thatexisting empirical evidence supports this propo-sition. For instance, in its Local GovernmentNational Report 1997–98, the CommonwealthNational Office of Local Government (NationalOffice of Local Government, 1998, 51–52)argued that the Commonwealth governmentfinancially assisted structural reform in localgovernance involving municipal amalgamationfor three principal reasons. Firstly, ‘larger coun-cils have a more secure and adequate financialbase; are better able to plan and to contribute toeconomic development; are more effective com-munity advocates; and interact more effectivelywith government and business’. In essence, thisargument invokes the notion that small rural andregional local authorities lack administrative andtechnical capacity compared with larger munici-palities. Secondly, because the CommonwealthFinancial Assistance Grants constitute aboutten per cent of council income, councils must‘deliver value-for-money services to local com-munities’, and because ‘structural reform deliv-ers economies of scale and permits councils toemploy a wider range of professionals’, councilamalgamation will generate a greater range ofservices and improved quality of service. Finally,the 1997–98 Report argues that structural reformis pivotal since ‘without change, councils facethe possibility of an ever-diminishing role asindividual services are contracted to the privateor voluntary sectors, while other concerns, suchas the environment, are addressed by specialinterest groups or agencies’, which can ‘under-mine local democracy and reduce service inte-gration’. The Local Government National Report1998–99 (National Office of Local Government,1999, 51) added a fourth argument that ‘animportant advantage of structural reform is thatmoney stays in the community’ since ‘moneythat would have been spent on council depots orstores or on administration can be spent insteadon service improvement or infrastructure for thebenefit of the local community’.

In support of these empirically unsubstantiatedarguments, the 1997–98 Report (National Officeof Local Government, 1998, 52) maintained that‘amalgamations have saved the communitymoney’, noting that the Victorian governmentclaimed a saving of ‘about A$160 million a yearor about A$1 billion over the four years sinceamalgamation’ in its 1993 structural reformpackage. However, it did concede that in the

Victorian case that ‘it is difficult to isolate theimpacts of amalgamations in Victoria from theimpacts of other elements of the reform process’(National Office of Local Government, 1998,56), an observation strongly endorsed by Allan(2003). It also cited ‘recurrent savings’ in SouthAustralia ‘estimated at A$20 million per annum’.Claims made in the 1997–98 Report on SouthAustralia apparently originate with the SouthAustralian Local Government Boundary ReformBoard January 1996 – September 1998 Report(South Australian Local Government BoundaryReform Board, 1998), where it was observed thatan estimated A$19.4 million in gross recurrentsavings would result from the South Australianstructural reform program, together with antici-pated ‘one-off’ savings of A$3.9 million – atrivial percentage of the total South Australianlocal government budget that was in excess ofA$2 billion

However, the 1997–98 Report (1998, 56) didacknowledge a negative dimension to structuralreform, albeit with several caveats. For example,it noted that ‘structural reform does have someperceived negatives’, including ‘diminishedcommunities of interest and voter representa-tion’, potential ‘dominance of one area overanother’ and attendant ‘loss of identity’. More-over, the Report acknowledged that ‘amalgam-ations are unlikely to be viable for sparselypopulated councils in remote areas’, although itadded that many rural shires that ‘serve verysmall populations over relatively small areaswhich are not in remote localities’ would stand togain from amalgamation with adjacent councilsbecause ‘larger and better resourced councils’ areable to ‘better identify community needs’, ‘betterarticulate community views’, ‘improve commu-nity involvement in decision making’, ‘boostlocal economic development’, ‘take a morestrategic approach to urban design and land useplanning and sustainability of council-ownedinfrastructure’, and ‘create a greater sense ofcommunity cohesion and well being’.

All of these claims have been contested. Forinstance, Allan (2003, 75) has argued that despiteexaggerated claims by advocates of the SouthAustralian and Victorian municipal amalgam-ation programs in 1990s, the financial outcomesof these programs have been disappointing.Whereas the Victorian state government claimedthat its restructuring process would yield directcost reductions of 20%, the result has been 8.5%,mostly from the implementation of competitivetendering and not consolidation. In a similar



vein, the South Australian government promisedsavings of 17.4%, but only achieved 2.3%. More-over, these cost reductions did not include theexorbitant indirect costs of council amalgam-ations. These include redundancy payments tolaid-off staff, relocation costs for plant andequipment as well as staff, and the costs oforganisational transformation, quite apart fromthe ‘psychic costs’ involving the loss of spatialidentity by affected communities.

These particular cases accord with the thrustof both international and Australian empiricalliterature on the question of the economic effi-cacy of municipal amalgamation. For example,in his Merger Mania, Andrew Sancton (2000, 83)assessed the economic results of municipal amal-gamation programs in Australia, Britain, Canadaand New Zealand, and concluded that ‘theefficient delivery of municipal services does notrequire large municipalities’. Similarly, in a studyof the relationship between the costs of serviceprovision and municipal size in the United States,George Boyne (1998, 252) concluded that ‘thebroad pattern of evidence suggests that lowerspending is a feature of fragmented and deconcen-trated local government systems’, while ‘consoli-dated and concentrated systems tend to beassociated with higher spending’. Moreover, intheir analysis of the international literature on theresults of municipal amalgamation programmes,Dollery and Crase (2004, 274) contend that ‘thereare scant grounds for anticipating substantialfinancial benefits to flow from amalgamation,except possibly in terms of local governmentcapacity and scope economies’. In his evaluationof Australian evidence, Allan (2003, 80) estab-lished that ‘at the administrative level the effi-ciency and effectiveness of a local council is not afunction of size’ and ‘all the empirical evidencesuggests that big is not better when it comesto local government’ (see also Thornton, 1995;Dollery, 1997; Oakerson, 1999; Bish, 2000;Allan, 2001; May, 2003).

Why does structural reform centred on localgovernment consolidation have such a poorrecord in achieving a reduction in the cost ofmunicipal service delivery? In their analysisof the Australian dimensions of the problem,Dollery and Crase (2004) have argued that threemain factors account for the failure of councilamalgamation programs to reduce costs signifi-cantly. Firstly, the expectation that substantialscale economies exist and can be exploited bylarger consolidated councils has proved illusory;no uniform pattern of economies of scale exists

across even the relatively narrow ‘services toproperty’ range of services provided byAustralian councils. For instance, it is mostimprobable that the optimal service district forlibraries will coincide with, or even resemble,optimal service districts for domestic garbagecollection, public parks, or sewage treatmentservices (Dollery, 1997). Accordingly, whereasbigger local authorities may secure scale econo-mies in some services, they will also experiencediseconomies of scale in other areas (Dolleryet al., 2007). Sancton (2000, 74) has put theproblem in a nutshell: ‘There is no functionallyoptimal size for municipal governments becausedifferent municipal activities have quite differentoptimal areas’. In a review of empirical evidenceon scale economies in local government serviceprovision, Byrnes and Dollery (2002a, 405) con-cluded that while ‘advocates of amalgamationhave based their arguments on the propositionthat substantial efficiency gains would flow fromthe formation of larger local authorities, researchon economies of scale in local government doesnot support this proposition’.

Secondly, even if substantial scale economieswere present for fiscally important services thatabsorb a significant proportion of Australiancouncil operating revenues, this still does notprovide a comparative advantage to municipalamalgamation over other forms of inter-councilengagement, such as regional organizations ofcouncils (ROCs) and strategic alliance models.This is because provision of these services canbe separated from their production through theso-called purchaser-provider split, and scaleeconomies typically only arise during the pro-duction phase. Thus, councils too small toachieve scale economies in these service areas ontheir own can still achieve the financial benefitsof scale economies by operating the services inpartnership with other councils or purchasing theservice in question from public agencies orprivate firms that are large enough productionunits to generate economies of scale.

Thirdly, the financial advantages of size thatdo accrue to larger municipalities through econo-mies of scope and enhanced administrative andtechnical capacity are generally overestimated.Furthermore, cost savings from these sourcestend to be overwhelmed by the high direct costsassociated with amalgamation processes them-selves, particularly the capital costs of the relo-cation of council activity and staffing costs in theform of redundancy payments and higher wagebills bargained by employees to meet their



altered circumstances. In the specific case ofnon-metropolitan local councils, the ‘tyranny ofdistance’ has also imposed significant costs onthe consolidated new entities.

While these considerations are all focused onexplaining the disappointing financial outcomesof council amalgamation programs, it should notbe forgotten that numerous other problems alsoderive from municipal consolidation, particularlyin non-metropolitan areas of the country. Fore-most among these are a fall in the vibrancy oflocal democracy, less political representation andlower public participation, various deleteriouseffects on local economic development, includ-ing decreased economic activity, rising unem-ployment and the creation of ‘ghost’ towns andvillages, and a loss of ‘sense of place’ by localpeople (see, for example, Dollery et al., 2006)2.

Political economy of local governmentstructural reformRegardless of the accuracy of the diagnosis ofthe ills of Australian local government, we haveargued that treatment by means of structuralreform centred on municipal amalgamation hasnot improved the prognosis in those Australianstate and territory systems to which it has beenapplied. This raises the larger question: whatpositive role, if any, can structural reform pro-grams play in the Australian municipal milieu?In order to address this question, it is necessaryto contemplate the efficacy or otherwise ofAustralian structural reform programs in thecontext of the economics and public administra-tion literature on institutional reform.

A substantial economics literature exists onthe political economy of reform (see Rodrick(1996) for an excellent survey of this literature),although little effort has been directed at anal-ysing local government reform programs inadvanced countries per se, with some exceptions(see, for example, Dollery and Wallis, 2001).This literature can assist in clarifying the natureof Australian municipal consolidation episodes.For instance, one aspect of this body of thoughtis the debate between exponents of a ‘big bang’approach to economic and political reformand advocates of a ‘gradualist’ strategy. InAustralian local government structural reformprogrammes, both these schools of thoughthave been evident. The drastic and rapid Victo-rian amalgamation process, for example, epito-mised the ‘big bang’ approach whereas themuch more consultative South Australian expe-rience typified ‘gradualism’.

A second strand of the literature distinguishesbetween the normative political economy ofreform, which emphasises ‘agenda-setting’ bypolicymakers and the optimal design of ‘all-or-nothing’ reform proposals, and the positivepolitical economy of reform, with its focus on the‘clash’ of interest groups affected by the reformprocess (Roland, 2002). Very useful policy toolshave been developed in this literature. Forinstance, it is argued that potential reformers facetwo distinct categories of political constraints. Exante constraints can block the acceptance of areform package whereas ex poste constraints dealwith the prospects of a post-policy backlashand possible subsequent policy reversal. Fourmethods of overcoming ex ante constraints havebeen identified: (a) promising compensation topeople who are likely to lose from reformprograms; (b) bolstering compensation offerswith a credible mechanism for delivering thecompensation; (c) making a reform package only‘partial’ to minimise opposition; and (d) waitingfor a deterioration of the status quo beforeembarking on reform.

These constraints and the methods of deal-ing with them can readily be recognised inAustralian local government structural reformprogrammes. For instance, the fact that localgovernment is a statutory creature of stategovernment legislatures, and therefore entirelydependent on the whim of Parliament, means thatno de jure constraints are placed on the ability ofstate governments to impose structural or anyother reforms on local government. Of course, itmust immediately be added that de facto politicalconstraints of varying degrees of effectivenessare nevertheless present. In general, this meansthat structural reform programs may be enactedin a ‘big bang’ fashion and take the form ofsweeping ‘all-or-nothing’ packages. Examples ofthis kind of reform include the Victorian consoli-dation program, the New South Wales forcedamalgamation process, the current compulsorymerger program in Queensland and the prospec-tive drastic amalgamation proposal in the North-ern Territory. But even in these cases, evidence offunctioning political constraints may be found.Thus, in the New South Wales electorate ofNorthern Tablelands, held by a Labor-leaningIndependent, it can be argued that local councilsescaped compulsory amalgamation because thestate Labor government did not want to antago-nise public opinion and thereby unwittingly endup unseating a political ally. Moreover, the NewSouth Wales government offered some consola-



tion to potential losers in the structural reformprocess by guaranteeing the jobs of all affectedmunicipal non-managerial employees for threeyears and by providing funding to amalgamatedcouncils in order to assist them in the transitionprocess.

Although these conceptual insights are usefulin understanding the nature of Australian localgovernment structural reform programmes andthe manner of their implementation, they cannottackle the normative policy question of whetherstructural reform processes make any worthwhilecontribution. Fortunately, the public administra-tion literature can shed light on this problem.

In his The Art of the State, Christopher Hood(2000) proposed a useful taxonomy of fourorganisational types each with its own character-istic ‘Archilles’ Heel’ bias towards organisationalfailure. Table 2 provides a synoptic summary ofHood’s typology.

Failures in hierarchical structures ‘are likely toconsist of cases where authority or expertise isinsufficiently questioned, such that a large edificecomes to be built on shaky foundations, leading todramatic collapse’ (Hood, 2000, 28). By contrast,failures in egalitarian administrative structureswill ‘consist of cases where debate cannot beclosed [and] feuding and factionalism goesunchecked, and the organisation collapses amid awelter of mutual recrimination’. Individualistfailures ‘are likely to consist of cases whereprivate self-interest is put before public or collec-tive interest, for example turning justice or law-enforcement into private-market transactions’.Finally, fatalist failures are ‘more likely to consistof inaction or an inability to change course even inextreme and pressing circumstances calling for aresponse outside normal routine’.

As complex organisations, with a multi-faceted organisational structure embracingeconomic, political and social elements, localcouncils are undoubtedly prone to all four typesof organisational failure. Indeed, an embryonictheoretical literature already exists on Australianlocal government failure (see, for instance,Dollery, 2003), which has an empirical dimen-sion (see, for example, Byrnes and Dollery,2002b). Dollery (2003) contends that there arefive generic sources of local government failurein Australia: ‘Voter apathy’ stems from the factthat Australian municipal systems provide only anarrow ‘services to property’ range of localpublic goods and services and are in any eventhighly regulated by state and territory govern-ments – citizens thus tend to view them as rela-tively unimportant in the larger framework ofAustralian federalism; ‘asymmetric informationand councillor capture’ refers to imbalance inknowledge and expertise between professionalmanagers running local government operationsand part-time elected ‘amateur’ councillors thatcan result in the ‘capture’ of elected representa-tives by the bureaucracy; ‘iron triangles’ describethe rentseeking coalitions formed by municipalmanagers, elected councillors and private con-tractors that is facilitated by the standing com-mittee system typically employed in Australianlocal government to oversee aspects of localauthority operations, like ‘parks and gardens’ and‘roads and maintenance’; ‘fiscal illusion’ focuseson the complexity of local government financeand the difficulties citizens have in determiningthe cost of municipal services and whether theyare receiving ‘value for money’; finally, ‘politicalentrepreneurship’ deals with the widespread phe-nomenon whereby elected representatives treat

Table 2 Institutional Weaknesses of Major Organisational Types.

Type oforganisationalbias

Achilles’ Heel Makes it vulnerable to:

Hierarchist Misplaced trust in authority and expertise coupledwith high mobilisation capacity

Dramatic collapse of ambitious ‘think big’ plans orprojects

Egalitarian Unwillingness to accept higher authority to breakdeadlocks

Failures stemming from unresolved feuds orcollegiality degenerating into coexistence

Individualist Tendency to put individual before collective benefit Failures stemming from lack of co-operation orindividual corruption

Fatalist Unwillingness to plan ahead or take drasticmeasures to extreme circumstances

Failures stemming from excessive inertia andpassivity

Source: Hood, 2000, Table 2.2, 28.



local government as a first step in a more ambi-tious political career and are thus prone to gran-diose behaviour aimed at catching the public eyerather than providing local government serviceseffectively. In addition to this literature onAustralian local government failure, a statisticalanalysis of official performance evaluations ofindividual councils purportedly ‘at risk’ byMurray and Dollery (2006) has demonstratedthat all types and sizes of local authorities can beclassified as failing on various criteria.

It is not difficult to find instances of hierarchi-cal failure, egalitarian failure, individualisticfailure, and fatalist failure in Australian localgovernment3. For example, institutional failingsderived from the characteristic hierarchical‘unfounded trust in expertise and authority’,which frequently result in ‘expensive fiascosproduced by “groupthink”, erroneous over-confidence in “think big” solutions, excessivetrust in top-level leadership, in the authority of(natural or social) or professional wisdom’(Hood, 2000, 35), abound in contemporaryAustralian councils, typically making headlinesin the form of the collapse of municipal invest-ments in public-private partnerships, such as the2004 debacle in the Liverpool Council of westernSydney, where real estate transactions betweenthe Liverpool Council and private land develop-ers resulted in criminal convictions and a well-publicised state government inquiry. Similarly,one of the most common reasons for the dis-missal of elected councils and the installationof state-government administrators resides in‘deadlocked’ councils riddled by internal dissen-tion, division and internecine conflict, illustratingthe importance of egalitarian failure. Moreover,individualistic failures are legion in local govern-ment systems throughout the world, most oftenin the manipulation of zoning regulations for theprivate profit of elected representatives, salariedbureaucrats and their accomplices in propertydevelopment.

Despite these caveats, we nonetheless arguethat of the four taxonomic categories identifiedby Hood (2000), the fatalist model most closelyapproximates contemporary Australian localgovernment. Two propositions are advanced insupport of this contention. In the first place, thecapacity of local authorities in Australian localgovernment systems to respond effectively andswiftly to changing external circumstances isseverely circumscribed by the restrictive legisla-tive environment within which they are obligedto operate. For example, environmental and

zoning requirements set down in state govern-ment legislation allow individual councils verylittle latitude for discretion. Furthermore, limita-tions on borrowing and, in New South Wales atleast, an enforced regime of ‘rate pegging’, makeit exceedingly difficult for financially strappedcouncils to make ends meet. In other words,Australian municipal councils lack not only theresources, but also often the legal powers torespond to significant changes in their operatingenvironment.

Substantial additional empirical evidence hasbeen adduced by recent official inquiries intolocal government in four different state localgovernment systems that provide additionalsupport for the fatalist model by demonstratingthat local councils had not adapted efficaciouslyto the changing local government landscape.In South Australia, the Final Report of theSouth Australian Financial Sustainability ReviewBoard (FSRB) (2005, 4), entitled Rising to theChallenge, found that the parlous financial situ-ation of local councils in that state could partlybe ascribed to the inability of many councils torespond to changes in their environment. Forinstance, many South Australian municipalitiesmaintained ‘service levels and service standardsin excess of those which could be sustainablyfunded by councils themselves’, in part becauseof ‘deficiencies in asset management practicesand associated depreciation and asset valuationpolicies’, and also as a consequence of ‘a wide-spread reluctance to borrow when it is prudent todo so’ (FSRB, 2005, 4). In other words, an insti-tutional inability to adapt to changed circum-stances constituted a key factor in financialdistress.

In New South Wales, the Independent Inquiryinto the Financial Sustainability of NSW LocalGovernment (2006) produced a comprehensiveFinal Report entitled Are Councils Sustainablewhich also found evidence in support of the fatal-ist model. For example, the Independent Inquiry(2006, 190) established that councils werepre-occupied ‘by day-to-day operational issues’which precluded a longer-term strategic perspec-tive that would allow them to plan for change.The unfortunate consequences of this approachincluded an increasingly depleted infrastruc-ture base, problems with accommodating urbangrowth, difficulties in tackling the inevitableresults of demographic change, and a host ofother problems.

The final reports of both the now defunctQueensland Local Government Association



(LGAQ) (2006) Size, Shape and Sustainability(SSS) project and the Western Australian LocalGovernment Association (WALGA) (2006) InYour Hands Inquiry have raised similar concerns.These inquiries find similar support for the fatal-ist model in their respective state systems.

Secondly, as we have seen, work on Australianlocal government failure indicates that munici-pal councils are predisposed to certain types ofbehaviour as a consequence of various factors,including ‘voter apathy’, ‘asymmetric informa-tion and councillor capture’, and ‘iron triangles’(Dollery, 2003). In aggregate, these factors cancontribute towards an overall institutional leth-argy and an attendant incapacity to act decisively.Accordingly, municipal councils as an organisa-tional genre thus fall within the fatalist model.

If this argument is accepted, then it can formthe foundation for a general political economycase in favour of municipal reform programmesthat advance structural reform as a primaryengine of change. In terms of this argument, itis the threat of structural reform through com-pulsory amalgamation, rather than the actualimplementation of consolidation-based struc-tural reform per se, that represents efficaciouspublic policy since it acts as an energising cata-lyst to overcome council inertia attendant on itsfatalist characteristics. Following the standardpublic choice presumption that, when con-fronted by involuntary change, local authoritieswill act to preserve the status quo and therebytheir interest in it as much as possible, theannouncement of structural reform processesembodying compulsory amalgamation will thusgalvanise municipal councils into action aimedat avoiding or at least mitigating the impact ofimpending amalgamation4.

Given the legislative authority state govern-ments enjoy to implement structural reform anddissolve existing councils, three distinct types ofreactive conduct can be anticipated on the part oflocal authorities. In the first place, councils canaccept inevitable extinction and reformation aslarger consolidated entities, and seek to maxi-mise compensation from the state governmentthrough various strategies, including threats ofresistance or promises of co-operation. Secondly,following option (b) in the political economyliterature outlined above, affected councils canpropose alternative structural plans to the stategovernment amalgamation ultimatum in the hopethat a ‘partial’ reform package will represent asatisfactory outcome for state policy makers.Finally, councils can mount political campaigns

aimed at neutralising the legal authority of stategovernments and defeating structural reform inthe ‘court’ of public opinion.

In this context, it is interesting to note that allthree of these reactive strategies were evident inthe initial stages of the New South Wales struc-tural reform program. Different local councilsemployed different tactics when faced with thethreat of compulsory consolidation with neigh-bouring local governments. For example, theTamworth City Council and several of the smallsurrounding councils accepted inevitable amal-gamation and sought state government funding toimplement this amalgamation. By contrast, thesmall rural Murrirundi Shire Council and manyof its residents chose the confrontational politicaloption and launched a ‘Bugger off Bob’ cam-paign, aimed at the (then) Premier of New SouthWales Bob Carr, that was ultimately unsuccessfulinsofar as the affected municipalities were allamalgamated. However, other groups of councilsthreatened with enforced amalgamation, likethose involved in the Wellington-Blayney-Cabonne Strategic Alliance and the New EnglandStrategic Alliance, reacted with the formulationand presentation of ‘partial’ structural reformpackages that were ultimately accepted by thestate government.

Concluding remarksThis paper has argued that structural reform inthe guise of council amalgamation has not livedup to the claims of its architects in terms ofdelivering substantial cost savings or signifi-cantly improved service quality. This outcomeshould not have been unexpected in the light ofthe well-documented experience in other localgovernment systems around the globe. Thequestion thus naturally arises: under these cir-cumstances, can structural reform programsinvolving council consolidation still representrational public policy?

We have sought to answer this question in theaffirmative by developing a rough ‘model’ basedon the premise that Australian councils are typi-cally characterised by inertia and a chronicinability to react efficaciously to changes in theeconomic and social environment. By forcinglocal authorities to take stock of their situationand obliging them to act decisively, structuralreform processes that threaten (but do notenforce) amalgamation represent an efficientpolicy instrument for overcoming municipalinertia. Moreover, since the individuals compris-ing councils are also the most knowledgeable



regarding local problems, and thus the most ableto formulate efficient solutions to these localproblems, the ‘partial’ reform alternatives theycreate are likely to be superior to the heavy handof state government imposed amalgamation. Inother words, ‘top-down’ state government struc-tural reform policy initiatives carrying the threatof amalgamation constitute an efficient mecha-nism for evoking optimal ‘bottom-up’ structuralchange models, providing state governmentsdo not enforce amalgamation and allow localmodels of inter-council collaboration to flourish.

This explanation for the efficacy of the threatof amalgamation as a policy instrument in localgovernment can account for observed changethat takes place in local government systemswhen compulsory consolidation looms large. Forinstance, state local government associationstypically respond by producing alternatives toamalgamation, such as shared service modelsand the like, in the hope of avoiding forcedamalgamation. Similarly, as examples like theWellington-Blayney-Cabonne Strategic Allianceand the New England Strategic Alliance cited inthis paper show, groups of councils, predomi-nantly in regional and rural areas, react byproposing to achieve efficiency gains throughcollaborative service provision.

However, this kind of explanation is essen-tially instrumentalist. While it can account forsome of the observed reaction by the local gov-ernment community, it cannot explain why stateand territory policy makers have relied soheavily on the blunt instrument of forced amal-gamation for so long. Although this questionlies outside the scope of this paper, it wouldappear that the ‘bigger is better’ view of localgovernment still holds sway amongst thesepolicy makers, despite the weight of empiricalevidence to the contrary.

ENDNOTES1. In some Australian episodes of forced amalgamation,

additional idiosyncratic reasons for amalgamation havebeen advanced. For instance, in Victoria, the (then)Kennett government seems to have believed that ‘biggeris better’ since larger councils could more easily developa ‘purchaser/provider’ split that would facilitate greatercontracting out and privatisation in the local governmentsystem (see, for example, Alford and O’Neill (1994). Ina similar vein, Gerritsen (1998) has shown that the Vic-torian episode was atypical when placed in internationalcontext.

2. The presumed deleterious effects of amalgamation onlocal democracy have been questioned by various schol-ars. For example, Ken Dempsey (1990; 1992) has arguedthat the ‘old system’ of Australian local government

served to stifle democratic participation in rural areas.Amalgamation thus can act to increase the vibrancy oflocal democracy.

3. This is not to suggest that all local councils ‘fail’ on allcounts all of the time. Indeed, local government hasseveral strengths relative to other tiers of government,most notably it has superior knowledge of local condi-tions and it is thus best placed to find local solutions tolocal problems. ‘Failure’ in this sense should be seen inthe comparative context of the generic category of ‘gov-ernment failure’; all organisations ‘fail’ in the absolutesense insofar as they do not deliver perfect outcomes, andthis is true of central, state and local governments. Whatmatters is the comparative advantage of local govern-ment relative to other tiers of government. The degree towhich particular local councils fail depends on variousfactors, not least their administrative and technicalcapacity, which is often weaker in remote and rural localauthorities.

4. While most local councils faced with the prospect offorced amalgamation seek to avoid this outcome, this isnot always the case. Moreover, resistance is generallystronger in remote, rural and regional councils, where itis commonly thought that amalgamation will mean a lossof municipal jobs that will set in motion a negative mul-tiplier effect that can threaten the very existence of smallisolated communities.

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