Re: The limits of localism

Paul has written a very good post today about some of the limits of localism, but I disagree with his conclusions.  He is certainly right that we shouldn't be Panglossian about it.  In the short term, it is understandable that some people are concerned at what Tower Hamlets council might do with fewer checks on its spending.

That isn't necessarily a reason to be sceptical of localism overall though.  For every Tower Hamlets there is a Wandsworth or a Hammersmith and Fulham who will do a much better job than central government.  And not all localism means increasing the role alloted to councils, there is also freeing up services accountable directly either through the ballot box (police commissioners) or through consumer choice (free schools).  Education is a good example where it seems very likely that the number of schools run on more sensible lines than the current products of the education bureaucracy will be greater than the number that are run worse.  Overall we'll get better schools, and then over time competition should favour those that show strong results.  There are private schools run on the basis of the "educational ideas of the 1960s", after all.  The market in state education can settle on a balance based on parental choice in the same way the private market does.

Concerns over planning are very legitimate.  There is a real problem with scarcity of supply meaning housing becomes steadily less affordable, causing disruptive fluctuations in the housing market and getting in the way of family formation.  But a Policy Exchange and Localis report in 2005 looked at how Germany gets far better results than us with a far more localised system by ensuring that local authorities see the economic benefits of attracting more people.  There is no good reason that localism should inherently undermine development unless it is incomplete.

Fundamentally, I don't think Paul has come up with any reasons why economic growth and localism are in tension.  At the TaxPayers' Alliance, we asked Mike Denham, a former Treasury and City economist, to look at the evidence on fiscal decentralisation, public sector efficiency and growth for a book published in March.  His findings were stark and are summarised in a research note:

"An econometric study in Germany found that government efficiency increases with the degree of fiscal decentralization.  The results from that study suggest that if the proportion of local authority revenue raised from local taxes were increased to 50 per cent, then public sector efficiency could improve 10 per cent, for an annual saving of £70 billion.

Another study, from the Spanish Institute for Fiscal Studies, suggests that the same increase in fiscal decentralisation could boost economic growth by 0.5 per cent per annum."

To govern may be to choose, but there is no evidence that one of those choices is a trade off between localism and growth.