External Individualism

As previously demonstrated, the local government level is characterized by collectivistic principles when it comes to managing the municipal organization internally. It is crucial for the municipality’s viability to shift resources from profit-making units to loss-making ones, in order to sustain current service levels. In this paragraph, however, I am turning to the municipalities’ principles in relation to its external environment and especially to other neighboring municipalities. As this analysis will show, local government is characterized by an individualistic notion in dealing with its neighbors, and I am arguing that this notion is not a result of entrepreneurialization, but has already existed prior to it.

As a result, local government can be described as an internal collectivistic, but externally individualistic, actor. This distinction is important for understanding the difficulties municipalities have in merging their services operations and assets together, and how comparatively easy it is to execute structural changes within one single municipality.

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Table 6-2 Size Distribution of Municipalities in 2002 Inhabitants Municipalities Municipalities, %

< 2 000 88 19.7%

2 001-5 999 180 40.4%

6 000-9 999 76 17.0%

10 000-19 999 50 11.2%

20 000-39 999 34 7.6%

40 000-99 999 12 2.7%

100 000 < 6 1.3%

N= 446 100%

Source: Finnish Water and Waste Water Works Association (2002)

The Finnish local government level is rather fragmented, with 432 local municipalities.

The municipalities are comprised of 114 cities and 318 other municipalities as of 2005.

Table 6-2 shows a similar size distribution of municipalities as the water sector does, and which can be explained through the fact that water supply and sanitation have been a local municipal affair for decades. Municipalities smaller than 10,000 in particular (but also larger municipalities) have been the target of efforts to merge them together entirely or by just creating regional services units. But despite the efforts by the national governance level to promote this process, the number of municipalities has been only slightly decreasing over the past years—for example, from 446 in 2002 to 432 in 2005.

As a study by the Association of Finnish Local Authorities conducted in the year 2000 found, the support for merging municipalities in general was especially low among citizens of municipalities up to the size of 10,000 inhabitants, although they were slightly more in favor of it than their candidates in the municipal elections (Sandberg, 2005).

These results are partly explained by the strong tradition local self-governance has in Finland and by the fact that if municipalities were merged together, the candidates’

chances to get elected to the municipal council would decrease, especially for those candidates from previously smaller units.

Sandberg (2005) points out efforts to restructure the Finnish municipalities by increasing their administrative size date, at least, back to the 1960s, when the state tried to implement a local government reform that would have reduced the number of municipalities to almost half. However, the state faced resistance from the municipalities and finally it was agreed that the state would resign from its right to merge municipalities. Nevertheless, the number of municipalities decreased from 1965 to 1980 by about 100 (Sandberg, ibid.).

The regionalization process of local administration and local services, therefore, has a history of at least four decades. The municipalities’ resistance against the state’s efforts to restructure the local level, then, can be taken as an indication for the municipalities’ will to remain independent and locally rooted, while the state has been trying to achieve a more regionalized structure of local government.

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Local services are deeply rooted in local communities and, hence, may be individualistic by default. And as water services are local services, it is rather natural for municipalities and citizens to think about them individualistically and reject merging them with neighboring units, as it would decrease their independence and de-root them from the local community.

“Why should we have a bigger size for everything…the local services are very important for our local democratic system…our inhabitants have a feeling that they can affect them, but when everything becomes bigger, it disconnects the local people…it is important for our identity…but maybe it is not the modern way to do it anymore” (Municipal Manager)

The 1990s had seen an increase in autonomy for municipalities. According to the Local Government Act of 1995 the state could not transfer new tasks to the municipalities without their agreement. At the same time, municipalities have been confronted with decreasing state funds for municipal service production. The grand strategy of the state’s governance reform had been to decentralize administration and give more powers to the local level and new efforts to reduce the number of municipalities were made based on the municipalities’ voluntary action and incentives offered by the state. But only about ten such mergers were accomplished during the 1990s and ten to twenty more were planned; as Sandberg (ibid.) writes, these mergers mostly concerned larger cities and were rather ineffective in reducing the number of small municipalities.

As a result of the unsuccessful efforts to reduce the number of municipalities, the state has been emphasizing since the 2000s the implementation of national standards and regional cooperation among municipalities, in order to achieve the regionalization, at least in service production, instead of merging entire municipalities (Sandberg, ibid.). Not only would the state governance actors like municipalities to merge; managers of the Association of Finnish Local Governments recommend a minimum population size of 10,000 inhabitants as they pointed out in their interviews. Further, the PARAS project by the Ministry of the Interior to investigate the restructuring of municipalities and their services concluded that for example for health service a population base of at least 20.000 inhabitants is required; one of the project outcomes was a government proposal to the parliament that would provide an incentive for municipalities to merge (Ministry of the Interior, 2007).

Besides the municipalities’ resistance in regionalizing municipal administration and services, I found a widely shared agreement among municipal, state governance, and water sector actors that cooperation and regionalization of services is the solution to many problems the municipalities face today. However, municipalities do not eagerly cooperate with each other, according to municipal managers. The Association of Finnish Local Authorities, which also focuses on enhancing the effectiveness of local government, has been trying to increase municipal cooperation; their managers admit that this is tough. As municipal managers admit, much cooperation in water services has been

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established because of some constraint (and not voluntarily). For example, the lack of groundwater in a municipality or water safety concerns are often reasons why municipalities cooperate in water supply. The nearing retirement of the post-war generation represents another reason why municipalities may have to deepen their cooperation, as especially the smaller ones run out of employees. But what has started as compulsory cooperation may also mark the beginning of deeper cooperation in other areas.

“They only cooperate if they really have to. If they can afford to do things independently by themselves, they will do it, and only cooperate if they are obliged.” (Municipal Actor)

“Our lack of groundwater was a big problem and that is why we had to cooperate with the neighbor cities. In the beginning it was very hard, fifteen years ago, but now things are going well. It was hard because the city majors did not get along very well […] they also take care of our customer billing now although we had difficulties, of course, in the beginning. But now it goes well. We might have a limited company for water services together in the near future, and [we] must be in that company, because we don’t have groundwater.” (Municipal Manager)

One crucial explanation why regionalization fails is the municipalities’ individualistic thinking and, subsequently, its inability to make compromises. By definition, to compromise means “to come to an agreement by the partial surrender of position or principles” (Oxford English Dictionary). Restructuring and improving the effectiveness of water services is linked to creating larger service units, and therefore merging service operations and/or assets of several neighboring municipal water utilities. The differences in opinions about the distribution of benefits and costs occur among the negotiating parties. At the end of such a negotiating process and the merging of several water utilities usually stands a compromise of financial or political nature, meaning that somebody needs to give up some of their money or power. Whether that party is receiving something in exchange is often a matter of perspective. From a local point of view, the municipality may think to have gained nothing and lost significant resources and power, but from a regional perspective, the municipality may think that the regional water company will strengthen the long-term viability of the service and also bring additional benefits to citizens and employees by being a more professional organization.

Such compromises are often perceived by municipal manager as a weakness and exemplary of unprofessional behavior. Municipal managers identify themselves with an idea of professionalism as they imagine it to be in the private sector. The notion is that private sector companies do not ‘subsidize others’ because they are efficient and competitive. This idea is imitated in the public domain, where compromising the distribution of profits and investments is seen as a weakness and lack of professionalism.

To justify one’s own individualistic thinking, it is explained that no municipality would agree to finance or subsidize others, either.

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“If we establish a private company, like a business company that is owned by the municipalities, it is a limited company, and that is very different. You cannot make a deal like that then…it is different and all these municipalities think the same way. If they have a company, they would not want to subsidize somebody else either, they would have deals like in the private sector.” (Municipal Manager)

Agreeing on the distribution of financial resources is one thing, but giving up decision-making power is another. In most cases of regionalizing municipal water services, a larger core municipality merges its water services with its surrounding, smaller municipal neighbors. Usually, the size of the assets of the larger core municipality might exceed even the combined assets of the remaining negotiating municipalities. This means that if the share of assets determines the share of seats in the supervisory board of the new combined water utility, a power imbalance arises that leaves the smaller municipalities vulnerable to the largest one, which then would have the power to decide against the will of the others. To avoid such a situation, smaller municipalities may leverage their power by striking deals where the large municipality gives up a share of its seats on the board, and as a result, its share of decision-making power in the new water utility is smaller than the share of the assets it brought into the new entity. That kind of compromise is seen as a strategy of last resort.

“We gave up the majority stake in the company even though we had the most assets in it. We needed the company so badly that we needed to give up.”

(Municipal Manager)

“Most pipe nets and treatment plants of the new water utility are inside our municipality…when politicians discussed how to make the executive board of the company, though we must have a majority in the board because we own the majority of the shares, but the other municipalities said that they want to have the majority together, so that if they all think in a different way than us, we cannot do anything on our own against the will of all others. Our politicians decided to give up the majority. There are now altogether nine board members and four of them are from us and five are from the surrounding municipalities.” (Municipal Manager)

What is described by the municipal manager in the statement above is an example of a municipality willing to compromise and to create a regional water utility (Hämeenlinnan Seudun Vesi OY). In return for its compromise to give up the majority of the seats on the new executive board, it gets easier access to drinking water resources it needed through the new company’s larger territory. Therefore, in this case a significant constraint (lack of water resources in the largest municipality) was a major driving force for creating the new company and for agreeing on the compromise to give more decision-making power to the smaller owners. The smaller municipalities received a good deal because their water and sanitation services were improved through investments and better management. The water and sewerage tariff in all these municipalities is the same although the largest municipality has scale advantages compared to the small, more rural

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municipalities. All municipalities gain from a more flexible investment planning schedule where urgent investments can be prioritized.

Municipal entrepreneurialism is an institutional logic that was shaped through increasing the municipalities’ legitimacy by adapting private sector practices and principles. The private sector is used as a standard of comparison for different reasons. First, it is framed as a desirable model when justifying public sector reform and managerial action. Second, it is framed as an undesirable model when it is perceived as competition, especially when the municipality tries to keep certain activities in-house that theoretically could also be performed by the private sector.

“I think if the utilities are profitable, the business world is interested. But if they are interested, you should keep it yourself, because you get money every year from it. If it is not profitable, than no one wants it, and then you have to keep it anyways […] we, the city, also think of society.” (Municipal Manager)

“The prices for water are on a quite high level, and annual profits from water and energy especially are used for financing other sectors, so-called soft sectors that would be hard to support otherwise, such as cultural and leisure services.” (Municipal Manager)

In both cases, however, the framing of the private sector and entrepreneurship contradicts what private companies and entrepreneurs actually do by over-emphasizing their rational aspect. Entrepreneurs calculate and plan carefully, based on loads of information. They do not compromise their goals. They have to maximize their profits—or benefits in general—in order to survive. However, there is plenty of evidence in literature on entrepreneurship and business management explaining that entrepreneurship is rather the opposite and comprises vision, dealing with ambiguity, listening to one’s own gut feeling, making compromises, building constituencies, and forging cooperation.

Thus, municipal actors have to some extent a mythical understanding of the private sector. The eager adaptation of private sector practices and principles shows that municipal actors are serious about absorbing private sector characteristics. However, the private sector discourse may sometimes also serve as a rather convenient, rhetorical excuse for justifying managerial actions and decisions.

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