Local government’s response to dissatisfaction with centralized policies: the “do-it-yourself” approach

Introduction

Local government's relationship with the central government has both theoretical and practical consequences for local autonomy. This relationship is inherently tense, as reflected in the “quarrelsome relatives” paradox (Kröger, 2011: 150). The more the central government delegates responsibilities in the name of local autonomy (Ladner et al., 2016), the more it then attempts to exert control over local governments as implementers of national policies (Haveri, 2015: 139). In recent decades, direct centralized control has shifted to more indirect control through the use of regulatory policy instruments (Goldsmith, 2002). Several studies seek to strike the right balance in this major challenge (Pratchett, 2004).

The legal structure from which this increasing move in the west toward decentralization derives often makes this balance difficult (Ladner et al., 2019; Wilson and Game, 2011). The principle of ultra vires is an important legal constraint on the local government's autonomy (Leigh, 2000), in that, while local government exercises control over its own community, it remains subordinate to the central government's laws and regulations (Page, 1991). Tension arises when local officials seek to meet residents’ needs by providing specifically tailored services, while still depending on centralized resources and their accompanying constraints. In such cases, when local government finds itself dissatisfied with the central government's policy, it must find creative work-arounds (Bel and Fageda, 2007; Hefetz and Warner, 2007). Scholars define these methods as forms of municipal activism (Cooper and Herman, 2020; Spencer and Delvino, 2019). Municipal activism manifests in various ways, including policies providing services under controversial circumstances and despite restrictive national legal policies. The literature on the relationship between central and local governments has generally focused on decentralization as a solution, with less attention paid to the local government's actions in response.

Our research fills this gap in the literature by investigating what local governments do when they are dissatisfied with central government policies. To this end, we modified Albert Hirschman's (1970) model of exit, voice and loyalty. Local governments can use their voice through participatory channels in the administration to improve a situation. However, their voice may be insufficient or too costly. Given that they cannot exit the relationship owing to traditional institutional structure, an alternative strategy may be tempting. Therefore, they may seek a semi-exit option in the form of a do-it-yourself approach, engaging in extra-legal and semi-legal strategies to change the outcomes of the central government's policies.

Israel between 2005 and 2011 provides a good case study to test this theory. First, tension between neo-liberalism and the greater centralization of the Israeli government increased (Eshel and Hananel, 2019). The central government actively intervened in local government activity, combining local authorities, dismissing local councils and mayors, and appointing executive committees in place of existing local leadership (Beeri and Yuval, 2015). Local governments responded with outraged protests.

Second, the central government reallocated political, financial and administrative powers to subnational governments without precise guidance or oversight (Doron and Yuval, 2014), placing local leaders in a nearly untenable position. They had to balance increasing demands for better services from residents with their own financial constraints and the central government's restrictions. While the neo-liberal approach prevailed, it was evident that local leaders possessed resources in inverse proportion to the scale of the tasks they faced (Geddes and Sullivan, 2011: 398). Furthermore, Israeli political and administrative systems are characterized by what scholars have termed “alternative politics,” whereby the citizenry independently adopts extra-legal and often illegal strategies to obtain services expected from the government (Ben-Porat and Mizrahi, 2005; Mizrahi and Meydani, 2003). Moreover, Israeli political and administrative actors constantly try to bypass formal rules and procedures by marginalizing them and even via illegal activity (Cohen, 2016). The Israeli political system`s instability, coupled with politicians’ poor decision-making and an over-centralized governmental structure (Cohen, 2022), provides fertile ground for this approach (Ben-Porat and Mizrahi, 2005; Cohen, 2012; Lehman-Wilzig, 1991).

The article proceeds as follows. The next section reviews the literature on the relationship between the central and local governments. We then present a brief description of the main elements of Hirschman's model. In the third section, we attempt an explanation of the relationship between the central and local governments through the lens of Hirschman's model. The fourth section is contextual, outlining the Israeli do-it-yourself political and administrative approach vis-à-vis local governments. Next, we analyze the Israeli local governments’ response to the changes in the policies of the central government between 2005 and 2011 using data from secondary sources. We conclude with a discussion of our analysis.

Literature review

The relationship between central and local government is an obvious prerequisite for determining the issue of local autonomy. Local autonomy refers to the discretionary ability to determine local policies despite central government constraints (Ladner et al., 2019; Wolman et al., 2008). Consequently, local autonomy depends on several factors: (1) legal constraints on structures and functions imposed by the central government, (2) limits to local government's fiscal discretion and (3) financial objectives.

Pratchett (2004) observes that local autonomy involves three dimensions of freedom: freedom from, freedom to and local identity. Freedom from refers to the central government's delegation of power and authority, allowing local governments to act without fear of centralized oversight (Goldsmith, 1995). Freedom to refers to local authorities’ ability to initiate activities and influence the central government to promote their residents’ wellbeing. Finally, local identity encompasses local authorities’ freedom to practice politics in ways that express and develop a local identity (Pratchett, 2004). The European Charter of Local Self-Government exemplifies the move to increased local freedom on the part of the European Congress of Local and Regional Authorities (Crawford, 1992). The Congress speaks for Europe's 150,000 regions and municipalities with the aim of guaranteeing the political, administrative and financial independence of local authorities, which were in “jeopardy and even suppressed in certain places” (Himsworth, 2015: 17).

Recent studies show that factors such as clear legislation regulating the relationship between all levels of government, fiscal decentralization, tax independence, and the ability to make their own organizational decisions are essential for effective local government (Haček, 2020; Keuffer, 2016; Miceikienė et al., 2021; Tan and Avshalom-Uster, 2021).

Since local governments are assumed to have their own sphere of authority in which community members make their needs known, they are required “to determine for themselves the mix of local goods or services, as well as local tax rates” (Goldsmith, 1995: 229). Moreover, enhancing local autonomy legitimizes it as a democratic institution.

Ladner and Keuffer (2021: 221) review the diversity in local autonomy in various European countries. They suggest seven dimensions essential to the functioning of local governments: (1) political discretion, meaning the formal distribution of power and effective decision-making for providing services; (2) policy scope of the services for which local governments are responsible; (3) financial autonomy with regard to authority over financial resources; (4) organizational autonomy, meaning the latitude local governments have to decide on their organizational and electoral system; (5) legal autonomy, which protects the legal status of local governments; (6) access, meaning the degree of influence local governments have on the political decisions of the central government; and (7) non-interference, meaning the latitude given to them by higher government levels.

Although the delegation of power to lower governmental tiers is considered both desirable and advantageous, central governments still resist relinquishing control and refraining from interference. According to the dual state thesis (Saunders, 1984), while the central government seeks to ensure that the local government provides satisfactory services to citizens (Pratchett, 2004), various political and economic factors still constrain local autonomy (Haveri, 2015). Israel epitomizes the dual state thesis.

What strategies do local governments use when they are dissatisfied with the policies of the central government? To answer this question, we use a modified form of Albert Hirschman's exit, voice and loyalty model.

Hirschman’s model

Albert Hirschman's (1970) exit, voice and loyalty model explains the reactions of dissatisfied customers, which Tiebout (1956) expanded to residential choices in household mobility (Dowding and John, 1996). Subsequent studies have used Hirschman's model to investigate actions by dissatisfied citizens, such as informal payments for healthcare and failures in healthcare policy (Cohen, 2012; Gaal and McKee, 2004), entrepreneurial exits as a form of policy non-compliance (Gofen, 2015), and the reactions of citizens (Dowding and John, 2012) and non-governmental organizations (NGOs) (Golan-Nadir et al., 2020) to public services and the provision of local services.

According to Hirschman, those who are dissatisfied can choose either voice or exit, depending on the degree of loyalty to the workplace or brand. As loyalty increases, the voice option becomes more likely. In cases where loyalty is lacking, exit becomes more likely. However, engaging in voice or exit is very costly, usually requiring expending material and psychological resources. Hirschman (1970) also posited that if the voice option is not too costly and has a good chance of success, people will choose it over exiting (Dowding and John, 2008).

Lyons and Lowery (1989) and Rusbult and Lowery (1985) expanded Hirschman's model to include abandonment. People adopt this approach when they feel that active involvement in trying to change a situation is useless. Scholars define such behavior as quasi-exit (Lehman-Wilzig, 1991; Lyman, 1991). In the more proactive version of exit-like behavior, dissatisfied citizens seek desired services through alternative sources. In doing so, the public actually threatens the government's monopoly on that public service and causes decision-makers to re-evaluate their service delivery (Gofen, 2015). Thus, Gaal and McKee (2004) argue that when internal and external channels of influence are blocked, people forego formal channels for informal channels. For example, rather than lodging a complaint, they will pay privately for a service or use personal connections (Cohen, 2012). When people are dissatisfied with policy outcomes but cannot or will not either protest or exit, they will use illegal or semi-legal channels to create an alternative supply of public goods or services (Lehman-Wilzig, 1991). We maintain that similar processes apply to the interactions between central and local governments.

Understanding central and local government relations through the lens of Hirschman's model

Rather than applying Hirschman's framework to local citizens (Dowding and John, 2008; Pierre and Asbjørn, 2016), we use it to illuminate how local governments respond when dissatisfied with the outcomes of central government policies. For example, Hirschman (1970) claimed that loyalty to an organization could keep individuals from exiting it, choosing instead to use their voice to promote change. However, local governments cannot sever their connection with the central government. They may try to exercise their voice to influence the central government. However, doing so requires time and energy, including cooperating with other authorities. On-going competition between various local authorities makes collaboration difficult (Doron and Yuval, 2014). Indeed, the central government often leverages this competition to impose its policies (De Vries, 2000).

If voice proves ineffective, local governments may accept the situation and become indifferent to social issues (Lehman-Wilzig, 1991; Lyons and Lowery, 1989; Rusbult and Lowery, 1985). However, they then run the risk of not being re-elected. Therefore, we argue that local governments may choose alternative ways to deal with their dissatisfaction. They may engage in semi-exit behavior, adopting do-it-yourself strategies to supply their residents with desired goods and services that official government services cannot or will not provide (Ben-Porat and Mizrahi, 2005; Lehman-Wilzig, 1991). We also maintain that loyalty plays a major role here. Local governments may be torn between loyalty to the central government and loyalty to their residents. Studies show that when public servants are loyal to their citizenry, they go beyond merely implementing policy and become more engaged with the public (Tholen and Mastenbroek, 2013).

Together with Hirschman, we claim that loyalty constitutes a factor in the cost–benefit analysis public employees use when making decisions about policy implementation. Local governments make similar assessments when deciding how to deal with their dissatisfaction with central government policies. Loyalty to the central government weighs against loyalty to residents. Heads of local authorities aim to please their residents out of their desire to be re-elected (Doron and Yuval, 2014). In Israel, the mayor is directly elected by the public. The remainder of the municipal officials are chosen from a party list. Therefore, we posit that a local government will tend to be loyal to the entity that brings it the most benefit. In our case, this entity is the residents. Therefore, it is ultimately in the best interests of the local government to satisfy them. Given that local authorities are financially and legally constrained by the central government (Haveri, 2015; Pratchett, 2004) and compete with other local authorities (Tiebout, 1956), they find creative ways to provide services.

Furthermore, in countries with a tradition of bypassing formal institutions to solve immediate problems, it is more likely that local governments will adopt similar behaviors. In Israel, finding do-it-yourself solutions is a long-standing tradition.

Local governments and the Israeli political and administrative approach

Historically, Israeli local governments possessed limited autonomy yet greatly varied in their performance (Razin and Hazan, 2014). Local governments have tended to be regarded as an extension of the central government. The Ministry of Finance and the Interior Ministry dominate the central government's oversight of local governments. Two hundred and fifty-seven Israeli local authorities are divided into four types depending on their functional structure and legal status. There are 77 municipalities, 124 local councils, 54 regional councils and two industrial local councils.

Beginning in the late 1980s and increasingly in the 2000s, the neo-liberal approach has been the major catalyst underlying public sector reforms in Israel. However, centralized control over the local government remains its chief characteristic (Ben-Bassat et al., 2016). Beginning in 2003, the Ministry of Finance responded to local financial shortfalls by imposing strict fiscal rules (Uster et al., 2019). The Ministry declared that the central government would no longer automatically cover local deficits, having substantially reduced its transfers of funds to municipalities beginning in 2001. A large number of municipalities then suffered major economic crises, with a commensurate decline in the quality of their services (Ben-Bassat and Dahan, 2009). Soon after, many local authorities faced financial crisis: 76% operated under deficits, over 50% activated recovery plans and 21% deferred employee wages. Subsequently, the central government imposed several measures aimed at restoring local budgetary discipline.

Since 2004, the central government utilized three types of policies involving the administrative subordination of local governments, while increasing centralization. First, it made grants, loans and changes in local taxes conditional on improved performance, expropriated local powers and imposed recovery plans forcing extensive local cutbacks and mass layoffs (Stoker, 2006). The Minister of the Interior also appointed external public managers authorized to impose extra taxes, levies and fees, and to control the local authorities’ new appointments, contracts and tenders (Ben-Bassat et al., 2016). Finally, the Ministry of the Interior was authorized to dismiss the mayor and members of the local council and substitute an appointed board to run the municipality when necessary. Simultaneously, local authorities were pushed to achieve functional and financial independence without appropriate budgeting from the state. This pressure encouraged creative actions at the local level to find additional sources for so-called “independent income” (Levy and Sarig, 2014). Thus, Israel represents a hybrid model in which neo-liberal trends are integrated with centralized government policy at the national level (Eshel and Hananel, 2019).

All this exists in an atmosphere where both political and administrative systems are plagued by incessant attempts by all players to bypass the formal rules (Cohen, 2016). Indeed, some scholars have described the country as having a flawed culture in which decision-makers seek “to cast a thick fog that will make it difficult to distinguish between legal and illegal” (Galnoor, 2011: 205). Some refer to the Israeli political culture as characterized by “alternative politics” (Mizrahi and Meydani, 2003), meaning the strategies citizens and interest groups adopt in response to their dissatisfaction with the declining availability of governmental services (Ben-Porat and Mizrahi, 2005; Cohen, 2012). Alternative politics differs from informal politics, which focuses more on the informal connections between groups in society and those with decision-making power (see Goodfellow, 2020). In contrast, the use of alternative politics in this sense emphasizes the cultural characteristics of the administrative and political systems. The term refers to a strategy on a continuum between exit and voice or quasi-exit, which includes bypassing the traditional system of government services (Golan-Nadir et al., 2020).

Hence, the broad definition of the term “alternative politics” also refers to the manner in which public goods are supplied, including the activities of providers of public goods and services, namely, politicians and bureaucrats. Thus, the decision-makers themselves use informal institutions during the process in which they supply public goods. In this case, these informal strategies can expedite decision-making and reduce transaction costs (Reh, 2014). When structural conditions prove difficult, we should expect to see the phenomenon emerge in many areas, not just policy or particular public groups.

Structural conditions identified as encouraging the emergence of alternative politics include deep social divisions, economic problems, foreign policy and security issues, political instability (Cohen, 2022), centralization in the structure of government systems, and decision-making ability (Cohen, 2012; Lehman-Wilzig, 1991). Such conduct is not only evident in individuals and public groups seeking to solve everyday problems associated with public products, but also in the activities of decision makers themselves (Cohen, 2016). We maintain that the pervasiveness of alternative politics in Israeli culture affects how local governments respond when dissatisfied with central government policies.

Methodology

Our methodology is based on content analysis of secondary data sources (Boslaugh, 2007; Martins et al., 2018), and focuses on the period between 2005 and 2011, when the relationships between the two tiers of government were at their most tense. During this period, the central government imposed sanctions and budgetary constraints on local governments with fiscal problems, and actively intervened in their decisions (Uster et al., 2019).

We use keywords from State Comptroller's reports, such as “central” and “local government” to identify two themes. The first was the central government's policy towards local governments, and second the behavior of the local governments. Under the second theme we extrapolated topics indicating the reactions of local government, categorizing these reactions into: opposition of the local government, protests, informal and undisclosed actions, and attempts to express dissatisfaction. We then conducted a keyword search of several news sources to understand local government behavior.

Findings

Israeli local governments became increasingly dissatisfied with the central government as early as 2000, when the latter unilaterally decided about the transfer of budgets, cuts and the division of responsibilities between the two levels of government (Sarig, 2014). Funds earmarked for local authorities did not always arrive in a timely fashion, forcing local governments into short-term loans. However, paradoxically, their credit lines depended on Ministry of the Interior approval. Local governments also complained of effects from failure to approve the national budget. Delayed approval of the state budget in 2005, for example, together with the banks’ reluctance to lend, forced local municipalities to operate without a budget. To fund on-going activities, they spent money allocated for other purposes, further damaging their ability to manage their finances (Levy and Sarig, 2014). These examples accord with the theoretical literature, which notes the inability of local governments to exercise political discretion and financial autonomy (Ladner and Keuffer, 2021). In addition, the increasing number of items in the national budget reduced local discretion, resulting in numerous funding distortions. For example, the Ministry of Education has many discretionary budget lines. Rather than issuing uniform criteria for receiving these budgets, the money is allocated unequally among local authorities, resulting in a surplus in some locales and a gap in others (Sarig, 2014). Another issue concerns frequently insufficient funds earmarked for the provision of state services. In theory, the government funds approximately 75% of the cost of state services, but in reality, the local authorities expend more than the remaining 25%. Additionally, budgeting is based on the prior year, with some adjustments. In practice, such monies do not match actual expenses, and periodic increases only partially solve the problem. Furthermore, the Ministry of Finance determines whether local authorities receive grants to balance their budgets, and decisions are not always timely. Thus, for example, the 2010 budgets of certain municipalities were peremptorily cut (Sadan-Smet, 2009). Finally, researchers argue that the central government's failure to abide by its agreements deepens local government distrust. They maintain that the central government has renounced its budgetary commitments to local authorities, and, contrary to agreement, imposed additional responsibilities.

Discussion

Our study adapts Hirschman's (1970) model of exit, voice and loyalty to examine the response of local governments to dissatisfaction with the policies of the central government. Findings from our Israeli case study indicate that local responses were not limited to the traditional mechanisms of voice or exit. Instead, they resorted to a form of quasi-exit using semi-legal practices to improve outcomes. In light of the reality that a pure exit was not an option for the local governments, they found an additional way of bypassing the formal rules by using alternative politics.

We claim that a necessary condition for the use of this method is the local governments’ inability to provide the services the public demands. In the face of this inability, they first voice dissatisfaction to the central government on whom they depend financially and administratively. However, if that approach fails, they must choose between indifference and acceptance of the status quo or change using informal tools. Given the competition between local authorities and the need to create new sources of income, local governments rarely accept the status quo. From the perspective of the central government, attempts to ensure that the local governments function properly by using a centralized policy seem to lead to the opposite result. Thus, a centralized policy that results in the on-going dissatisfaction of the local authorities becomes a double-edged sword.

The case presented here is specific with regard to time, place and policy content. Thus, we do not claim that the same mechanisms will operate similarly in different cultures and situations. Nevertheless, while differing or additional factors may influence the interactions between the central and local governments differentially, our findings underscore the possibility that the literature has neglected some important elements in the relationship between these two government tiers. While there are obvious difficulties in using alternative politics to explain the response of all local governments to their dissatisfaction with the central government globally, this explanation does provide a broader perspective on the phenomenon. Its adoption also indicates the diffusion of behavior patterns to other areas of public policy. Moreover, it improves our understanding of the structural conditions that might lead local governments in both developed and developing countries to resort to this kind of mechanism.

It is more than reasonable to assume that, globally, local governments might be dissatisfied with their central government's policies. Nevertheless, many of them do not respond to such dissatisfaction with semi-legal, unilateral strategies. We maintain that wherever societies lack strong institutions to enforce legal conduct and a political culture based on local autonomy, transparency, integrity, liability, responsiveness, accountability and credibility, do-it-yourself strategies and similar phenomena will appear in interactions between the local and central governments as well as in other areas of policy. However, weak formal institutions will slowly surrender to strong informal institutions. Additional research focusing on such unilateral local government strategies in other countries is therefore needed.

The do-it-yourself approach to interactions between central and local government should not be viewed as inherently positive or negative. Depending on the circumstances, such local government strategies, in fact, strengthen political participation. They also increase the local government's involvement in public policy and the civil society, as citizens receive better responses from the state. However, this approach enables local players to internalize or make permanent semi-legal behaviors or attitudes that in essence bypass the existing mechanisms of social participation and administrative procedures. Local government's use of informal tools to achieve its goals could challenge established democratic processes, thereby creating political contradictions with the central government and negatively impacting transparency and accountability (Reh, 2014). Thus, the do-it-yourself approach may threaten the stability and values of democratic systems, with unfortunate economic and political outcomes for society.