Where Local Government Belongs

In March municipal council elections were held in Lithuania. Although there was nothing new about municipal elections, this year they attracted far more attention from voters than usual. The leading political parties stepped up their efforts as well. The parliamentary elections that are to be held in October may be one reason for this: the municipal elections may have served as a final rehearsal for them. Another reason is that people are realising more and more that local governments play an important role in their lives.
But what, exactly, do today’s municipalities do and what should they be? Today’s municipalities may be seen as local economic divisions of the central government. They are like governmental holding companies that, by right of ownership, govern and manage entire cities or districts. Municipalities own the so-called joint stock companies of special designation that provide transportation services and public utilities. They collect refuse, carry passengers, deliver heating and utility services, repair damages, etc. Municipalities run schools and hospitals, as well as manage theatres, bookshops, and pharmacies. They own shares in various shops and enterprises. They organise festivals and contests. They rent premises, finance repair works in private houses and carry out other activities that are suitable for entrepreneurs, but not government officials. These functions create an impression that a municipality is not a governmental institution, but a select, privileged entrepreneur.
In addition to that, local governments determine the conditions in which businesses operate. They establish the rate of certain taxes, such as lump-sum income taxes and local dues, in their territory. They can reduce certain tax rates in the whole area, for separate economic agents or for individual residents. Municipalities or municipal enterprises establish payment procedures for utilities. They issue permissions for construction works in the municipal area, they select and sell plots for outdoor advertising. They decide where to cut or to plant trees or to build infrastructure facilities. They draw general and detailed area plans, establish transport itineraries and regulate the number of carriers. They issue warrants, certificates, approvals, consents, and notifications, as well as perform a mass of other functions the essence of which is to either allow or forbid people or enterprises to freely conduct their activities.
The functions that a municipality performs, both as an entrepreneur and a local authority, contrast sharply with genuine self-government. True self-government derives from the local community and is created by people to satisfy their general needs. An example of genuine self-government could be cooperation of people living in the same street or house aimed at cleaning the neighbourhood, ensuring safety or addressing any other need.
True self-government is not when an authority is elected for a number of years; it is when every problem is solved through voluntary participation of anyone who wishes to solve it. Unlike with today’s municipalities, true self-government does not own municipal enterprises or, as a representative of the government, municipal property. Private individuals – both customers and service providers – are the only actors. Decisions are made only on a voluntary basis; they are not mandatory to those who disapprove of them.
As was mentioned, today’s municipalities are divisions of the central government performing economic and regulatory functions. But they are not the most efficient divisions of the government. Quite the contrary, they are the most non-transparent and, as business people judge from their own experience, the most corrupt and yielding to the influence of group or personal interests. While decisions of the state are published officially, decisions that municipalities adopt become known only when people directly encounter one or another problem.
Despite being well aware of what genuine self-government is like, during the municipal elections all political parties came up with more or less the same slogans: “We will do better than others.” But, generally speaking, can state officials be good managers? We all know that government is a poor entrepreneur, no matter whether it’s local or central, right or left. It cannot be a good entrepreneur because it runs other people’s businesses with other people’s money. It runs all our businesses with our money. Municipal property does not have a real owner; therefore, there is no healthy profit-seeking, no control, no quality, and no concern for the consumer. Profit-seeking, not party interests or commands, should be the motive for doing business. In general, politicians should strive to hand over this function to those to whom it belongs and who know how to perform it better – people and private enterprises.
Regretfully, none of the electoral programs stated that economic affairs in the municipalities would be run by the people and private businesses rather than by local governments. None of the parties that took part in the municipal elections proposed a clear plan for privatisation of municipal enterprises that would transfer the management from the government to the people. Sadly, this means that the birth of true self-government is very unlikely during the next three years.
Admittedly, municipalities themselves can do little to change this faulty system. They do perform a multitude of functions and jobs, but most of them are not independent. Functions that are delegated by the central government absorb almost 90 percent of municipal expenditures. Even with the best of intentions they would not be able to effect a fundamental revision of the responsibilities of local government, as these responsibilities are established in a law adopted by the parliament. Independence of local governments is only nominal. Every bureaucratic institution is independent in this sense.
One may naturally ask what then municipal elections are for if every elected party has to play according to the rules dictated by the central government. After all, we don’t elect the heads of the cabinet or ministers or district governors? Still, let us look at what the newly elected municipalities can accomplish. Even if they play according to the rules imposed from the centre, they can reduce the influence and limits of the government.
First of all, they can privatise municipal property and enterprises. This would bring additional revenues to local budgets, eliminate loss-making entities, and, more importantly, ensure cheaper and better services for the people. Local governments can lift the tax burden and activate the land market by removing the defective land tax. They can do away with functions that are atypical of local governments. They can reduce bureaucracy and regulatory constraints on people’s activities. They can unleash private initiative by removing restrictions imposed on private carriers and private utility suppliers. Local governments can abandon dangerous schemes to issue municipal bonds and stop overspending.
Finally, local government, as with any other tier of government, should remain where it belongs. It should not become a father or a mother, working for us and with our money. It should become an un-intrusive arbiter that does nothing more than defines the basic rules of the game.