The literature on shrinking cities often portrays local initiatives in two contrasting ways: either as marginal, powerless, and somewhat backwards-oriented actors, or as human capital, a resource for development, and even as the hope for a more democratic development. However, there is a risk that scholarship unintentionally contributes to local initiatives being included in neoliberal development agendas. During our field research in two small, shrinking, and peripheralized towns in Finland and Germany, we discovered that both perspectives are misleading. They distract from the actual conditions of the initiatives' work, the causes of their financial or demographic precarity, and the self-responsibilization that is common among such initiatives. Scarcity motivates a DI(F)Y approach, organizing services and amenities on limited resources to enhance the quality of life in the area. This limited availability may seem like a natural result of population decline. By comparing the German and Finnish cases, we can see how state policies towards peripheral areas affect the work of local initiatives. This demonstrates that precarity in shrinking places is a result of policies rather than demographic development trajectory. •Local initiatives in shrinking towns are neither powerless, backward-looking actors nor human capital for local development.•Peripheralization - shortage of resources, dependence and population loss - affects the modus operandi of local initiatives.•(Self-)responsibilization is a main feature of a Do-It_(For)Yourself attitude of initiatives stepping in for public services.•The comparison between Finland and Germany shows the significance of state policy toward peripheralized locations.•Neoliberal policies promoting centralisation, market solutions and (self-)responsibilization do naturalize peripheralization.