Local Government Innovation in International Perspective: The Fiscal Austerity and Urban Innovation Project.

• Author: Clark, Terry Nichols
• Position: Statistical Data Included

This article describes a major study of local government finance across the world--the Fiscal Austerity and Urban Innovation Project. It discusses concrete results, redefinitions of classic problems, and policy implications.

Launched in 1982, the Fiscal Austerity and Urban Innovation Project (FAUI) has become the most extensive study of local government in the world. It began with a clear fiscal focus: austerity was emerging as the top priority in many localities, and what to do about it was a key concern.

The project includes surveys of mayors, council members, and administrators in about 1,400 U.S. municipalities. Related activities are underway in 38 other countries, from West and East Europe, to Argentina, Korea, and Japan, including overlapping projects covering broad regions such as Asia, Latin America, Western, and Eastern Europe. More than 700 persons have participated--social scientists, policy advisors, and local officials. It meets about three times a year in conferences, which have generated several dozen books and more than 200 articles that have been published to date.

Fiscal Stress

In the 1970s, economic growth slowed all over the world. But even though the 1970s brought the Arab oil boycott, rampant inflation, and the end of a period of economic growth experienced since 1945, governments continued to grow. Fiscal stress rose as governments grew faster than their economic base.

In 1975, the City of New York showed that even the center of Western finance could experience a huge fiscal crisis. The crisis was so publicized and its details so shocking that it transformed the rules of the game for local officials across the United States, and later, much of the world. Similarly, global shocks resulting from Paris in May 1968 and the Arab oil embargo in 1973 led to change. The Paris demonstrations for more direct democracy brought profound transformations over the next decade in the rules of the game for national and local governments in many countries. Strong hierarchical leaders declined. A few were voted out quietly; others left only after a fiscal crisis.

The new types of political candidates that emerged competed for elected and appointed office on a platform based less on how to spend and more on how to cut spending or do "cutback management." Austerity became real. These new leaders reinforced the changing political climate in many countries. The changes can be observed in shifting coefficients of models of urban political systems, as evidenced by the decline in organized groups and parties (Clark and Ferguson 1983, p. 99ff; Clark 1996, pp. 41-65).

After crises like New York City in 1976, major changes followed. Innovations emerged in management and service delivery throughout the 1980s, often moving toward market models and a global perspective. But this shift toward markets brought other problems. For instance, many local governments sought to spur private local economic development, but their economic incentives lost impact as competing localities offered similar incentives. Similarly, citizens pressed for less spending, which hampered expensive growth machine-type subsidies. Some citizens mobilized against growth. New, amenity-oriented strategies were one alternative. They build on the idea that land value comes from leisure and consumption as well as production. These policy shifts are associated with new forms of political leadership and citizen activity, a new political culture defining new rules of the game, including a more democratic government. Smaller, responsive governments are now preferred by citizens to broad regional entities, even if larger regional governments may be technically more competent.

Measuring Fiscal Stress

At the time of the New York fiscal crisis, no one in the U.S. had national measures of fiscal strain for cities, despite urgent calls for national policy. Should the federal government help New York? How should it help? The mayor of New York and many advisors argued that New York was not unique, and not particularly mismanaged. Rather they argued for national support since New York suffered...