The ongoing European debt crisis has singled out the peripheral
economies of the European South by shedding light on their latent pathologies
and malfunctions. Often viewed as an epitome of a ‘Mediterranean’ model of
political and economic organization, Greece gave utmost expression to those
ills pertaining to a weak and inefficient social contract. The Greek post-dictatorial
political economic system has been marked by an explosive mix of statism, welfarism,
and popular distrust of public institutions that eventually gave way to a
downward spiral of state degradation and social degeneration. The country has
thus been trapped in a self-enforcing vicious cycle of low state (fiscal and
legal) capacity, high policy implementation costs, and depreciating social
capital.
The most severe repercussion of such turmoil has been to discredit or
even dismantle the social contract of state-society relations that forms an
integral part of any stable and prosperous polity. Furthermore, the erosion of
trust in state and public institutions has sapped them of their so-called
fiscal and legal capacity, i.e., their ability to extract societal resources
for the common good, to protect property rights, and to enforce the laws of a
democratically elected government.
The exigencies of the current crisis have brought all these issues to
the fore and placed them at the center of social discourse. Notwithstanding the
excessive social and economic disruptions of austerity and internal
devaluation, efforts to overcome the crisis can arguably serve as a springboard
for deep-cutting and far-ranging reforms bearing fruits in the medium and long
run. Escaping the suboptimal trap of eroded public trust, depreciated social
capital, and low fiscal and legal capacity necessitates measures that enhance
the public sector’s capacity to generate public value and more
specifically to deliver in terms of public services. This should be
regarded as one of the preconditions for the long-term political and
economic sustainability of structural reforms.
The debt crisis has heightened general demand (both home and abroad)
for the retrenchment and the regeneration of the Greek state, both in terms of
its size, its reach, and its internal organization. Although it has long since
formed part of political rhetoric in Greece, the project of ‘reinventing government’ has yet to
take off and deliver any tangible results.
There are two elements to state regeneration: public sector reform
and structural consolidation of local government. Although much can be
said about the former - drawing on the experiences of other countries -, I
choose to focus on the latter issue: more specifically on the constitutional redrawing
of local, municipal, and peripheral boundaries and the interjurisdictional
allocation of policy prerogatives. The successive projects of administrative
decentralization and jurisdictional reconsolidation under the code names of ‘Capodistrias’ and ‘Callicrates’ have constituted steps in that direction.
Greece has always been a unitary state with high levels of centralization.
The predominance of centripetal forces agglomerating discretionary power and
authority at the administrative center (e.g., Athens) can be explained through
a path dependent argument: following its liberation from foreign occupation,
the gradual territorial expansion of the state and the ensuing need to
assimilate motley cultures and populations into a homogeneous modern
nation-state led to the concentration of political and economic power at the center
and away from the periphery. The porousness and instability of borders ended up
thwarting any tendencies towards decentralization of policy formation and
public goods provision. The resulting architecture of Greek government featured
such territorial units of local government as municipalities, prefectures,
peripheries, and decentralized administrations, each with varying degrees of
organizational capacity, discretion, and political accountability. Overhauling
this fragmented administrative system of Greece has been the subject of grand
reform plans under the code names of ‘Capodistrias’
(1998) and ‘Callicrates’ (2011).
These were essentially projects of administrative decentralization and municipal
consolidation that aimed at the simplification and streamlining of local
government operations and the enhancement of the quality and efficiency of
public service provision; yet, their implementation has often met with strong
resistance at the local level. The remainder of this memo will first assess the effectiveness of local
government reform in Greece against a certain set of principles and then put forward a list of proposals
that can help take the reforms one step further in achieving their desired
outcomes and objectives.
The optimal constitutional design of government in a unitary state
like Greece refers to the allocation of public goods provision at either the
central or the local level (centralization vs. decentralization) and the assignment
of policy prerogatives as part of shared
or self- rule. The optimal size and scope of policy jurisdictions should
be guided by the following set of principles and objectives: i) they should primarily aim at achieving
economies of scale in the provision of public goods as well as administrative (budget)
efficiency (especially in light of the fact that municipalities are also
subject to the conditionalities of the Memorandum),
ii) they should minimize
diseconomies of scope in term of organizational capacity and human resource
management, iii) they should capture
positive externalities and spillover effects generated by the consumption of
public goods and services across geographical units, and finally iv) they should account for
interjurisdictional mobility and its effects on the local tax base and the
local labor market. With respect to financial consolidation and fiscal
decentralization, the size and policy scope of local jurisdictions should
correspond to their tax-collection powers and revenue-raising capacity, matching
revenues to line-item expenditures, ensuring the transparency of budgeting
procedures, and enabling the effective monitoring and enforcement of fiscal
discipline (and external conditionality imposed by the Memorandum).
In practice, the task of having the central administration redraw
municipal boundaries and jurisdictions is hampered by several factors, such as i) severe informational asymmetries
with respect to the center’s knowledge of local preferences and needs, ii) the lack of administrative capacity
at the level of central government, and iii)
the frequent display of public dissent at the local level. To that effect, local
government reform needs to be simplified and administrative decentralization
needs to be injected with more flexibility in its implementation, both however
on the basis of a clear delineation of policy jurisdictions and prerogatives
between the central and the local level.
Another dimension of optimal constitutional design that merits
attention refers to the role of local elections and the designation of either elected politicians or centrally appointed officials to
different tiers of government. Having local public officials elected serves the
main purpose of holding them accountable to their constituents. The electoral
mechanisms of accountability operate in two ways: i) elections have a moral-hazard-correcting
function by means of disciplining and/or ousting officials engaging in
corruption, wastefulness, or slack and ii)
they also play an adverse-selection-correcting
role by way of screening politicians deemed unfit or unqualified for the
position. Naturally, there is a trade-off insofar as the positive benefits of
having local officials elected may be outweighed by the adverse effects, namely
the possibility of capture by special interests or the incentives to pander
to public opinion.
In the case of Greece, the question that arises is how the above
trade-off plays out under a fuzzy framework of interjurisdictional allocation
of prerogatives between central and local government. It is quite debatable
whether the introduction of elections at the local level has led to an
improvement in the quality of services provided, in light of the fact that the
jurisdictional scope of local policy functions has been quite malleable and
subject to the fickle whims of the government of the day. The result of this is
that elected local officials are often prone to confront public criticism and
blame by deflecting jurisdictional responsibility for particular services and
public functions to other tiers of government.
In light of the above guiding principles for optimal constitutional
design, the need for municipal consolidation and policy
decentralization became quite evident in Greece in the late 90s. Clearly
the size of local jurisdictions and
their scope of policy prerogatives
have in general been ill-suited for the efficient and socially optimal
provision of public services geared towards the complex needs of modern
society. Furthermore, the pre-reform demarcation of Greek local jurisdictional
boundaries essentially undermined the role of local elections as an effective
mechanism of accountability and selection of local officials.
However, even if a more efficient architecture of local government can be
devised, the question remains how it
can be more effectively implemented.
While ‘Capodistrias’ and ‘Callicrates’ constituted centrally administered projects
of municipal consolidation at a grand scale and high level of complexity, the
lack of accurate information about local needs and preferences rendered some of
the realized mergers mutually undesirable and socially inefficient, as
evidenced by frequent instances of local protest and resistance to
implementation.
Because of the inefficiencies stemming from asymmetric information
between the center and the locality, other countries (e.g., Finland, Japan)
chose to decentralize the implementation of municipal
consolidation projects. In other words, municipal mergers were locally and
voluntarily effected by mutual consent, often subject to subsidy and fiscal
transfer schemes aimed at overcoming local conflicts of interest and opposition
by municipal councilors. In yet other countries, plans of local government
reform followed a different approach. They set the legal framework for more flexible
forms of intercommunal cooperation, such as the Établissements Publics de Coopération Intercommunale (EPCI) in
France and the Mancomunidades in
Spain. These constitute local legal entities, such as schooling and hospital
districts, joint waste-collection authorities or corporations, to which participating
municipalities delegate some of their functions and powers. Local goods and
services thus provided are financed either through municipal budget transfers or service-specific user fees.
Therefore, the degree of fiscal autonomy of such intermunicipal entities
varies depending on their composition, functions, and the national legal
framework in place. Public finance theory and practical experience hence both
dictate that the demarcation of jurisdictional policy-specific boundaries
should be subject to locally decentralized,
flexible, and unrestricted mechanisms of implementation.
Therefore, what I propose is the decentralization of such decisions
of jurisdictional demarcation and reallocation by means of incentivizing
municipal mergers, promoting interjurisdictional labor mobility, and designing
a clear framework for policy-specific intercommunal cooperation (e.g., through
joint waste-collection authorities). While in principle previous reforms have
laid out the rules for the consolidation of local jurisdictional boundaries,
Greece needs a clear institutional framework for i) the delineation of policy prerogative across different levels of
government, ii) the promotion of
regionally balanced growth and the removal of impediments to
interjurisdictional mobility, iii)
the implementation of effective and transparent monitoring and enforcement
mechanisms, and finally iv) the enhancement
of the institutional role of appointed administrative officials and secretaries
in monitoring fiscal outcomes and overviewing municipal mergers and cooperation
agreements. During such dire times of economic crisis and social turmoil, sound
public policy should take precedence
over politics, in order to
restore trust in state institutions and rekindle popular involvement in the
public sphere.
Nikitas
Konstantinidis, Fellow in
Political Science and Public Policy, London School
of Economics and Political Science, Department of Government
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