The term "decentralization" embraces a variety of concepts which must be carefully analyzed in any particular country before determining if projects or programs should support reorganization of financial, administrative, or service delivery systems. Decentralization -- the transfer of authority and responsibility for public functions from the central government to intermediate and local governments or quasi-independent government organizations and/or the private sector -- is a complex multifaceted concept. Different types of decentralization should be distinguished because they have different characteristics, policy implications, and conditions for success.
Choosing the Most Appropriate Form of Decentralization
Under appropriate conditions, all of these forms of decentralization can play important roles in broadening participation in political, economic and social activities in developing countries. Where it works effectively, decentralization helps alleviate the bottlenecks in decision making that are often caused by central government planning and control of important economic and social activities. Decentralization can help cut complex bureaucratic procedures and it can increase government officials' sensitivity to local conditions and needs. Moreover, decentralization can help national government ministries reach larger numbers of local areas with services; allow greater political representation for diverse political, ethnic, religious, and cultural groups in decision-making; and relieve top managers in central ministries of "routine" tasks to concentrate on policy.
In some countries, decentralization may create a geographical focus at the local level for coordinating national, state, provincial, district, and local programs more effectively and can provide better opportunities for participation by local residents in decision making. Decentralization may lead to more creative, innovative and responsive programs by allowing local "experimentation." It can also increase political stability and national unity by allowing citizens to better control public programs at the local level.
But decentralization is not a panacea, and it does have potential disadvantages. Decentralization may not always be efficient, especially for standardized, routine, network-based services. It can result in the loss of economies of scale and control over scarce financial resources by the central government. Weak administrative or technical capacity at local levels may result in services being delivered less efficiently and effectively in some areas of the country. Administrative responsibilities may be transferred to local levels without adequate financial resources and make equitable distribution or provision of services more difficult. Decentralization can sometimes make coordination of national policies more complex and may allow functions to be captured by local elites. Also, distrust between public and private sectors may undermine cooperation at the local level.
Project and program planners must be able to assess the strengths and weaknesses of public and private sector organizations in performing different types of functions. Before developing elaborate plans for decentralization, they must assess the lowest organizational level of government at which functions can be carried out efficiently and effectively and for functions that do not have to be provided by government -- the most appropriate forms of privatization. Even program planners who do not see ‘decentralization’ as their primary motive must carefully analyze the types of decentralization already present in a country in order to tailor policy plans to existing structures.
Centralization and decentralization are not "either-or" conditions. In most countries an appropriate balance of centralization and decentralization is essential to the effective and efficient functioning of government. Not all functions can or should be financed and managed in a decentralized fashion. Even when national governments decentralize responsibilities, they often retain important policy and supervisory roles. They must create or maintain the "enabling conditions" that allow local units of administration or non-government organizations to take on more responsibilities. Central ministries often have crucial roles in promoting and sustaining decentralization by developing appropriate and effective national policies and regulations for decentralization and strengthening local institutional capacity to assume responsibility for new functions. The success of decentralization frequently depends heavily on training for both national and local officials in decentralized administration. Technical assistance is often required for local governments, private enterprises and local non-governmental groups in the planning, financing, and management of decentralized functions.
Rationale for Decentralization
Much of the decentralization which has taken place in the past decade has been motivated by political concerns. For example, in Latin America, decentralization has been an essential part of the democratization process as discredited autocratic central regimes are replaced by elected governments operating under new constitutions. In Africa, the spread of multi-party political systems is creating demand for more local voice in decision making. In some countries, such as Ethiopia, decentralization has been a response to pressures from regional or ethnic groups for more control or participation in the political process. In the extreme, decentralization represents a desperate attempt to keep the country together in the face of these pressures by granting more autonomy to all localities or by forging "asymmetrical federations."
A variation on this theme has been decentralization as an outcome of long civil wars, such as in Mozambique and Uganda, where opening political opportunities at the local levels has allowed for greater participation by all former warring factions in the governance of the country. The transition economies of the former socialist states have also massively decentralized as the old central apparatus crumbled. In many countries, decentralization simply has happened in the absence of any meaningful alternative governance structure to provide local government services. In some cases (particularly in East Asia) decentralization appears to be motivated by the need to improve service delivery to large populations and the recognition of the limitations of central administration.
Although the main reason for decentralization around the world is that it is simply happening, there are a multitude of design issues that affect the impact of different types of decentralization on efficiency, equity and macrostability. In this regard, there is a growing body of literature examining the economic rationale for decentralization.
Although politics are the driving force behind decentralization in most countries, fortunately, decentralization may be one of those instances where good politics and good economics may serve the same end. The political objectives to increase political responsiveness and participation at the local level can coincide with the economic objectives of better decisions about the use of public resources and increased willingness to pay for local services. At least five conditions are important for successful decentralization:
1) The decentralization framework must link, at the margin, local financing and fiscal authority to the service provision responsibilities and functions of the local government - so that local politicians can bear the costs of their decisions and deliver on their promises;
2) The local community must be informed about the costs of services and service delivery options involved and the resource envelope and its sources - so that the decisions they make are meaningful. Participatory budgeting, such as in Porto Alegre, Brazil, is one way to create this condition.
3) There must be a mechanism by which the community can express its preferences in a way that is binding on the politicians --so that there is a credible incentive for people to participate;
there must be a system of accountability that relies on public and transparent information which enables the community to effectively monitor the performance of the local government and react appropriately to that performance- so that politicians and local officials have an incentive to be responsive; and,
4) The instruments of decentralization --the legal and institutional framework, the structure of service delivery responsibilities and the intergovernmental fiscal system-- are designed to support the political objectives.
5) Fulfilling these goals (or at least having local governments improve upon the central government’s record) is a tall order, but achievable.
Types of decentralization
Political
Political decentralization aims to give citizens or their elected representatives more power. It may be associated with pluralistic politics and representative government, but it also means giving citizens, or their representatives, more influence in the formulation and implementation of laws and policies. Depending on the country, this may require constitutional or statutory reforms, the development of new political parties, increased power for legislatures, the creation of local political units, and encouragement of advocacy groups.
The European Union follows the principle of subsidiarity, which holds that decision-making should be made by the most local competent authority. The EU should decide only on enumerated issues that a local or member state authority cannot address themselves. Furthermore, enforcement is exclusively the domain of member states.
In Finland, the Centre Party explicitly supports decentralization. For example, government departments have been moved from the capital Helsinki to the provinces. The Centre supports substantial subsidies that limit potential economic and political centralization to Helsinki .
Administrative
Four major forms of administrative decentralization have been described.
· Deconcentration, the weakest form of decentralization, shifts responsibility for decision-making, finance and implementation of certain public functions from officials of central governments to those in existing districts or, if necessary, new ones under direct control of the central government.
· Delegation passes down responsibility for decision-making, finance and implementation of certain public functions to semi-autonomous organizations not wholly controlled by the central government, but ultimately accountable to it. It involves the creation of public-private enterprises or corporations, or of "authorities", special projects or service districts. All of them will have a great deal of decision-making discretion and they may be exempt from civil service requirements and may be permitted to charge users for services.
· Devolution transfers responsibility for decision-making, finance and implementation of certain public functions to the sub-national level, such as a regional, local, or state government.
· Divestment, also called privatization, may mean merely contracting out services to private companies. Or it may mean relinquishing totally all responsibility for decision-making, finance and implementation of certain public functions. Facilities will be sold off, workers transferred or fired and private companies or non-for-profit organizations allowed to provide the services. Many of these functions originally were done by private individuals, companies, or associations and later taken over by the government, either directly, or by regulating out of business entities which competed with newly created government programs.
Fiscal
Fiscal decentralization means decentralizing revenue raising and/or expenditure of moneys to a lower level of government while maintaining financial responsibility. While this process usually is called fiscal federalism it may be relevant to unitary, federal and confederal governments. Fiscal federalism also concerns the "vertical imbalances" where the central government gives too much or too little money to the lower levels. It actually can be a way of increasing central government control of lower levels of government, if it is not linked to other kinds of responsibilities and authority.
Fiscal decentralization can be achieved through user fees, user participation through monetary or labor contributions, expansion of local property or sales taxes, intergovernmental transfers of central government tax monies to local governments through transfer payments or grants, and authorization of municipal borrowing with national government loan guarantees. Transfers of money may be given conditionally with instructions or unconditionally without them.
Economic or market
Economic decentralization can be done through privatization of public owned functions and businesses, as described briefly above. But it also is done through deregulation, the abolition of restrictions on businesses competing with government services, for example, postal services, schools, garbage collection. Even as private companies and corporations have worked to have such services contracted out to or privatized by them, others have worked to have these turned over to non-profit organizations or associations,
Since the 1970s there has been deregulation of some industries, like banking, trucking, airlines and telecommunications which resulted generally in more competition and lower prices. According to Cato Institute, an American libertarian think-tank, some industries deregulation of aspects of an industry were offset by more ambitious regulations elsewhere that hurt consumers, the electricity industry being a prime example. For example, in banking, Cato Institute believes some deregulation allowed banks to compete across state lines, increasing consumer choice, while an actual increase in regulators and regulations forced banks to do business the way central government regulators commanded, including making loans to individuals incapable of repaying them, leading eventually to the financial crisis of 2007–2008.
One example of economic decentralization, which is based on a libertarian socialist model, is decentralized economic planning. Decentralized planning is a type of economic system in which decision-making is distributed amongst various economic agents or localized within production agents. An example of this method in practice is in Kerala, India which started in 1996 as, The People's Planning in Kerala. They find that while there may be a need for public regulation if public safety is at stake, private creation of standards usually is better because "regulators or 'experts' might misrepresent consumers' tastes and needs." As long as companies are averse to incompatible standards, standards will be created that satisfy needs of a modern economy.
Environmental
Central governments themselves may own large tracts of land and control the forest, water, mineral, wildlife and other resources they contain. They may manage them through government operations or leasing them to private businesses; or they may neglect them to be exploited by individuals or groups who defy non-enforced laws against exploitation. It also may control most private land through land-use, zoning, environmental and other regulations. Selling off or leasing lands can be profitable for governments willing to relinquish control, but such programs can face public scrutiny because of fear of a loss of heritage or of environmental damage. Devolution of control to regional or local governments has been found to be an effective way of dealing with these concerns. Such decentralization has happened in India and other third world nations.
Conclusion
Successful decentralization is closely related to observing the design principles of: finance following functions; informed decision making; adherence to local priorities; and accountability. However, applying these principles in practice has not proven to be simple. Country circumstances differ, often in subtle and complex ways, consequently the policy and institutional instruments that establish decentralization have to be shaped to the specific conditions of individual countries.
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