Implementing Decentralized Local
Governance in South Asia and the
World: A Comparative Review
Anwar Shah, World Bank
ashah@worldbank.org
GINI Workshop,
Singapore, August 8-9, 2010
THE VISION
Decentralization – what???
“If you do not know where you are going then
every road will take you somewhere else”.
- Yogi Bera
True decentralization: Community empowerment to think
globally but act locally.
Emerging Vision of Local Government
20th versus 21st century
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•
•
•
•
•
•
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Residuality principle
Ultra vires
Focus on government
Agent of central/provincial
governments
Dependent on higher govt
transfers
Accountable to higher
governments
Direct provider
Dependent on central directives
Rules driven, bureaucratic,
technocratic
Exclusive with elite capture
Overcomes market failures
Boxed in a centralized system
•
•
•
Subsidiarity principle
Community governance
Focus on governance and
growth
• Primary agent for citizens and
gatekeeper for shared rule
• Access to sustainable finance
• Accountable to voters
• Network facilitator
• Autonomous
• Strengthens voice, choice and
exit and results based
accountability.
• Inclusive and participatory
• Overcomes market and
government failures
Anwar Shah, World Bank
• Global and local connectivity
Local Govt as a leader/facilitator of Network Forms of Local Governanc
National
Government
Local
Government
(chair)
Regional
Government
Private (for profit)
Providers
Community
Associations
Interest-based
Networks
Hope-based
Anwar Shah, World Bank
Networks
Other good
Samaritans
For South Asia it may be back to
the future!
• “My idea of village swaraj (independent republic)
is that it is a complete republic, independent of
its neighbors for its own vital wants, and yet
interdependent for many others in which
dependence is a necessity”. Mahatma Gandhi as
quoted in Alok (2006)
• Self-governing village communities in India in
1200 BC. Rig Veda as quoted in Alok (2006)
• Self –governing urban local governments in
Harrapa and Mohenjo-Daro (Pakistan) in 2500
BC.
Anwar Shah, World Bank
THE CHALLENGE
A disgruntled citizen’s perceptions
about his government
• “Government
is the coldest
of all cold monsters –
whatever it says it lies – and
whatever it has -it has
stolen.”
»Nietzche
Perceived Problems of
Government in South Asia
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Too remote
Too arrogant
Too bureaucratic
Too big
Too inefficient, ineffective
Too unaccountable
Too opaque
Too corrupt
Why governments do not deliver?
Authorizing
Environment
Mandate
Operational
capacity
Outputs,
reach,
outcomes
Goals of decentralization reforms –A government
that works and serves.
But sometimes there are ulterior political
motives..
Motivation
Countries/Regions
Motivation
Countries/Region
Political & economic
transformation
Central and Eastern
Europe, Russia
Improving service
delivery
Chile, Uganda, Cote
D’Ivoire
Political crisis due to
ethnic conflict
Bosnia-Herzegovina,
Ethiopia, Yugoslavia,
Nigeria, Sri Lanka, South
Africa, Philippines
To centralize
Turkey, European Union
Political crisis due to
regional conflicts
Indonesia, Madagascar,
Mali, Senegal, Uganda,
Mexico, Nepal, Philippines
Shifting deficits
downwards
Eastern and Central
Europe, Russia
Enhancing
participation
Argentina, Brazil, Bolivia,
Colombia, India, Pakistan,
Philippines
Shifting responsibility for
unpopular adjustment
programs
Africa
Interest in EU
Accession
Czech Republic, Slovakia,
Hungary, Poland
Prevent return to
autocracy
Latin America
Political maneuvering
Peru, Pakistan,
Afghanistan, Bangladesh
Preservation of
Communist rule
China
Fiscal crisis
Russia, Indonesia,
Pakistan
Globalization and
information revolution
Most countries
THE RESPONSE:
The Silent Revolution
of the 1990s
Safeguards against arbitrary dismissal of
local governments have improved.
• 1 Constitutional/legislative safeguards against dismissal of LG
council by CG; 0.5 - LG can be dismissed under certain
circumstances; 0 - LG can be dismissed in an arbitrary manner
Scorecard on Political Decentralization
Region --
Component
Constitutional safeguards
A
F
R
L
E
A
P
L
E
C
A
M
L
A
C
M
M S
N A
A
L M
A
L
L
M
Elections -Council
M M M H L H
M
Elections - Head
L
L M H L M M
Participation
L
L M M L M L
Recall provisions
M L M H L H
M
Contestability
Security of existence
L
L
L M H L H
L L M L L
M
L
Overall
L
L M H L M M
“Taking stock” of reforms in DTEs:
Political decentralization
Progress made:
• Legal status of local government
• Popular election of local councils and their heads
Where accountability is incomplete:
• Low participation and contestability in elections
• Lack of provisions for popular recall of local
officials
• Disbandment of local councils by higher level
governments
Good progress: Latin America, C. and E. Europe
Little progress: C. America, Middle East/N. Africa
Higher tax autonomy
Revenue Autonomy-Taxes
• Tax autonomy important for
accountability
• Local governments have very limited
access to own source revenues,
even on immobile bases
• Tax base sharing rarely practiced
Intergovernmental transfers mostly formula
based and unconditional ..But ?
Perceptions on intergovernmental
finance are generally negative
• Federal/Central View: Giving money and
power to sub-national governments is like
giving whiskey and car keys to teenagers.
• Provincial and Local View: We need
more grant monies to demonstrate that
“money does not buy anything”.
• Citizens: The magical art of passing
money from one government to another
and seeing it vanish in thin air.
Ironically these perceptions are
well founded in reality as most
transfers are of “manna from
heaven” or pork barrel variety
lacking any incentives for local
accountability in service delivery
performance.
Somewhat greater freedom to
borrow
But access to credit is almost
non-existent in South Asia
• Access to credit – limited or non-existence due to
-Low development of financial markets
-Tax centralization
• Central policy focus on prohibitions or
administrative controls
• First steps for credit market access
– Tax decentralization
– municipal credit rating agencies
– Municipal finance corporations
Scorecard on Fiscal Decentralization - 1
Region --
Component
Rate and Base Autonomy
Revenue Adequacy
Self financing
Munc Services control
Health, Education & W
Local planning
Local procurement
Formula transfers
A
F
R
L
L
M
H
L
L
L
M
E
A
P
L
M
L
H
H
L
L
H
E
C
A
L
L
L
H
H
H
L
H
L M S
A N A
A
M L L
H L H
M L H
H M H
L L L
M L L
L L L
H L H
A
L
L
L
M
M
H
M
L
L
H
Scorecard on Fiscal Decentralization -2
Region --
Component
Results based finance
Domestic borrowing
Domestic Bonds
Foreign bank borrowing
Foreign bonds
capital finance assistance
Range of functions
Overall
A
F
R
L
L
L
L
L
L
L
L
E
A
P
L
M
L
L
L
L
M
M
E
C
A
L
M
M
L
L
L
M
M
L M S
A N A
A
L L L
H H H
M L L
M L L
L L L
L L L
M L L
H L L
A
L
L
L
M
L
L
L
L
L
M
“Taking stock” of reforms in DTEs:
Administrative decentralization
• Ability to hire, fire and set terms of
employment of local staff
• Ability to contract own taxing and spending
responsibilities
• Authority to pass bye-laws in their spheres of
responsibility
• Local governments have regulatory authority for
municipal services in most countries.
• Significant progress in transition countries (but not
in developing countries)
Greater freedom to hire and fire
Scorecard on Administrative
Decentralization
Region --
Component
Human Resource
Management
Contracting out/
partnerships
Bye-laws
Overall
A
F
R
L
E
A
P
L
E L M S
C A N A
A
A
H H L L
A
L
L
L
L M H H L M M
M M H H L H M
L L H H L L M
Decentralization reforms in South Asia have been celebrated
with great fanfare but did they bring about F.A.I.R. Local Govern.
Will decentralization be
sustained?
More likely if
• broad societal consensus
• grassroots support
• Big bang
Less likely if
• Gradual and incomplete e.g back-tracking with
opposition by central bureaucrats (Bangladesh,
India, Kenya, Pakistan, Sri Lanka); by national
politicians – Argentina, Pakistan and Philippines
Local Capture?
• Greater risk when civic participation low,
especially since ability to “vote with one’s
feet” low in DTEs.
• Particular problem where high inequality of
land ownership as I Pakistan
• Endogeneity of civic participation?
• Non-party elections
THE IMPACT: The
zone of our ignorance
Fiscal Dec and fiscal management
– empirical evidence
Fiscal performance
Quality of debt manag.
Quality of FP and Inst.
Eff. Revenue Collection
Prudent use of taxes
Growth of public exp.
Control of deficit
Growth of public debt
PSM
GDP growth
Impact of Fiscal Dec
Positive but insignificant
Positive significant
Mixed but insignificant
Positive significant
Negative but insig.
Negative but insig.
Positive but insig.
Positive but significant
Positive but insig.
Impact of Decentralization on Service
Delivery (empirical evidence)
Positive
Municipal services
Pakistan, Bolivia,
Colombia, Brazil,
Indonesia
Education and
Health
Argentina, Bolivia,
Nicaragua
Social protection
Albania
Access to the poor
Bangladesh, India,
Brazil
Impact on corruption India, China,
Bangladesh,
Colombia, Cote
Negative
Argentina, Uganda
Russia
LESSONS
Lessons
• Decentralization to intermediate levels (states or
provinces) in large countries could pose a potential
threat to internal peace and political stability. True
decentralization means localization.
• Localization - a key to local economic development.
• Decentralization as a means to an end and not an end
itself.
• Decentralization is a long and difficult process. Requires
a long term holistic vision, patience and persistence. All
pieces must fit together.
• “Big bang” vs small steps: Long period of consensus
building but big bang in implementation
• Top down approaches likely to fail.
……..Lessons (2)
• Localization is not a gamble but a “no-regrets”
approach
• No unique model. Custom tailoring a must.
• A more nuanced approach to cost recovery
desirable.
• Capacity constraints less binding than commonly
believed and are excessively used to stall
reforms.
• Reforming government organization and culture
is the key to the success of decentralization
policies.
Epilogue
REFORM IS ETERNAL, WE
DO NOT ALWAYS
SUCCEED BUT WE MUST
KEEP TRYING.