It means, as Carswell and Hannan rightly insist, that if we want to improve the quality of decisions in the area of public policy, those decisions should be "taken as closely as possible to the people they affect" - and ideally by the people they affect. They pile up examples, mostly from the US, which show that services such as education, policing and welfare are radically improved when the people who have to use them are given at least some control over them - usually through local referenda that ensure that those given the power to run them have to follow policies specifically endorsed by the local electorate.
Carswell and Hannan advocate devolving many of the functions directly to local people and they provide some detailed suggestions for how it could be made to happen in Britain. There are, however, limits to how far the process can be taken that stem from the extent to which people can be expected to devote to "governing themselves". It costs money, depending on how much time it takes. This is a problem which confronted Jean-Jacques Rousseau: one of the first, and most extreme, advocates of direct democracy in the modern world. He never solved it. He merely pointed out that the citizens of Athens and the Roman republic could devote themselves to politics because "slaves did the work". The division of labour involved in representative democracy - which Rousseau thought was an abdication of civic responsibility and represented a decision by the people to "become slaves themselves" - is actually a reasonable response to the fact that, for most people, taking part in political decisions is not the only or even necessarily the supreme value. For most of us, politics of any kind will not be the major focus of our lives: time with our families, pursuing leisure activities or doing whatever we have to do to pay the bills, will take precedence. It won't leave much time for thinking about, still less participating in, government of any sort, local or national.
It is not reasonable to expect that every citizen will, or could, devote most of his or her time to debating and deciding what policy decisions should be taken, which is what they would have to do if everything, from health care to planning, from welfare to education, really were devolved directly to them at the local level. Nevertheless, the "localists" are certainly right that we could all have far more influence over decisions affecting the delivery of those services than we do at the moment - and if we did, we would be better governed. If "localism" just means giving more power to local authorities, it won't be worth having. Local government follows priorities and policies dictated by central government, which provides most of its funds. Local elections are rarely about local issues, and almost never lead to any change, which is why an increasing number of people entitled to vote in them don't even bother to do so.
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