Devolution and Development

Governance Prospects in Decentralizing States

Mwangi S. Kimenyi

• Publisher: Routledge
• Year: 2018
• eBook ISBN: 9781351159982
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Through a collection of unique case studies and theoretical analyses, this work examines the genesis and impact of decentralization reforms in developing and transition countries. In particular, the volume shows how decentralization affects governance and efficiency in the provision of public goods and under what conditions decentralization seems to deliver its theoretical benefits. Analyses in the book address current concerns about the interaction of decentralization with social and political structure, resource mobilization, public goods provision and corruption. This work will be invaluable to scholars of politics, development studies and regional studies.

1
General Introduction

Mwangi S. Kimenyi and Patrick Meagher

Stability and prosperity depend on the quality of governance. On this point, scholarly perspectives have achieved a convergence over the last decade or so, with rhetoric and practice in the policy sphere following behind. At the same time, the world has seen a deterioration in the quality of life across many developing countries, along with a chaotic transition from communism in Central Europe and Eurasia—with bright spots, but generally quite disparate results. In short, theoretical predictions of convergence appear greatly exaggerated at this time. Indeed, the gap in levels of income between developed and developing countries, as between emerging and stagnating transition countries, continues to widen. In addition to suffering poor economic performance, many of the poorer nations face intensifying problems of corruption, instability, and conflict. The reason, to reiterate, lies to a large extent, in differences across polities in those rule systems, organizing capabilities, and social and political principles captured in the concept of governance.

At the core of governance are institutions, understood as structures of rules, procedures, and organizations, whether state-provided or otherwise. They range from transnational constitutions to the microstructures of reciprocity and self-regulation in informal commerce. Institutions are not synonymous with governance. They are not the alpha or the omega but the mid-point—they mediate between society's conflicts and capacities, on the one hand, and its need for results on the other hand. The sage observation that '[c]ulture is the mother and . . . institutions are the children' (Etounga-Manguelle 2000, p. 75) captures one part of this, while the burgeoning New Institutional Economics literature linking institutions to effective government and economic growth expresses the second aspect. We are past the time when capital transfers were thought to fuel 'take-off,' or structural adjustment to 'get prices right' was considered the key to development. We have come full circle, through the work of scholars such as Douglass North and Robert Putnam, to the much earlier insights of Max Weber. The matrix of social, cultural, demographic, and historical factors influences a society's ability to translate leadership into effective institutions, that is, structures capable of offering adequate answers to the challenges of coordination and public goods provision.

Institutions in this sense are the subject of this volume. We focus in particular on frameworks for decentralization. Our question is how these structures have come into being, how they operate, and especially how well they have addressed the challenges of collective action in emerging nations. The challenges are many and varied. Both developing and transition countries are moving (or purporting to move) from highly centralized, directive government towards a devolved approach that places greater authority in the market, in non-governmental provision of moral leadership and welfare, and in local and regional governments. In many cases, this is a political response to failure—in some, it appears partly to be a reaction to external pressure. The failures being addressed in this way range from economic stagnation to social disruptions, conflict, corruption, and the inability of previous regimes to marshal resources for the public good. Our concern in this volume is with decentralization in the sense of devolving power to lower level governments. What governance challenges does it seem to address successfully? What new challenges arise? Which approaches, in which settings, have proven successful, and why?

In this book, we aim to do two things. First, we attempt to broaden the theoretical debate on decentralization, its purposes and outcomes, and the reasons why it succeeds or fails. A review of the literature on fiscal federalism and political decentralization leads into two essays offering a broader perspective, taking in governance concerns that have not been adequately treated or theorized. These wider concerns relate to the relative newness and socially plural character of most of the countries discussed in the volume. The treatment of difference—whether based on localism, historical patterns, ethnicity, language, religion, or other factors—is potentially a major underlying determinant of governance quality, and an important argument for some form of decentralization. Related to this is the scale of organization required to govern, given the sheer size and variation in countries' geography. In such contexts, one should not be surprised by the ubiquity of governance failures, from systematic corruption to degraded public services and tax administration, to the erosion of legitimacy and public order. These situations pose difficult challenges in terms of the design and implementation of decentralized governance structures—indeed sometimes the very notion of a meaningful institutional reform process is open to question.

Second, we support this initial aim by presenting a series of case studies. These cover a wide range of contexts, from Francophone West Africa, to South and Southeast Asia, to post-Soviet Russia. They also address different policy and governance concerns. One (West Africa) centers on mobilization and management of fiscal resources, another (the Philippines) the provision of public health and education services, a third (Nepal) efforts to foster local control and monitoring of small-scale infrastructure projects, and the last (Russia) the environment for market development and economic growth in a context of national-regional power struggles. In each case, decentralization reforms confronted an environment of heavy-handed centralism, politicized administration, and high levels of corruption. A decentralized approach offered some hope of 'bringing government closer to the people,' hence improving monitoring and preference-matching by means of governmental structures that increase information. Better accountability and responsiveness, it was hoped, would bring political and efficiency benefits. The successes and failures here provide a story that illustrates our broad theoretical concerns.

The papers included in this volume largely arise from work on decentralization carried out under the auspices of the Center on Institutional Reform and the Informal Sector (IRIS), University of Maryland. The founder of IRIS, Mancur Olson, was a pioneering theorist of collective action and its nexus with the design and scope of government. He well understood that the outcomes of decentralization are highly dependent not only on design but on initial conditions as well, and he spent much of his final years examining and modeling the outcomes of different vertical arrangements of power. Thus, as Olson and other scholars suggest, there is no single answer to the question of what impact decentralization has on the quality of governance. Theory and experience alike present complications. Our task, as we see it, is both to account for the factors in play and to understand the patterns left behind by experiments—whether successes or failures.

We turn now to an overview of the essays presented in this volume. In Chapter 2, Omar Azfar, Satu Kähkönen, Anthony Lanyi, Patrick Meagher, and Diana Rutherford provide a detailed review of the literature on decentralization. The chapter assesses theory and empirical evidence on the impact of decentralization in terms of resource allocation, cost recovery, accountability and corruption.

In theory, decentralization is usually expected to enhance transparency and information flow, thus increasing accountability and responsiveness, and in turn improving service delivery. The postulated benefits of decentralization include improvements in allocative efficiency. Local governments are better able to match public goods to preferences, and competition among sub-national governments provides further discipline, as individuals are sometimes able to exercise an exit option. Theory also points to increased productive efficiency arising from decentralization. Local governments are expected to be able to provide public goods at lower cost because decentralization promotes accountability and thereby reduces corruption. Citizens, in this scenario, have better information and are able to hold their officials accountable. On the other hand, decentralization poses several risks, including the 'capture' of government by local elites. Empirical evidence regarding the impact of decentralization is limited and mixed, in the sense that the findings weigh both for and against the theoretical postulates.

The chapter focuses its analysis on key determinants of decentralized government performance, with particular reference to public service delivery. Five factors are discussed: the political framework, fiscal decentralization, public sector transparency, citizen participation in service delivery, and civic and social structures. The political framework takes in the constitutional and legal structure, the political and electoral systems, and the role of the central government. These elements define incentives and set the terms of vertical accountability between citizen and local government, and between levels of government. Fiscal decentralization issues include overlapping tax bases and the resulting vertical externalities, as well as matters of jurisdictional design and the incentive effects of fiscal decentralization. Since most sub-national jurisdictions do not have significant tax bases, they depend substantially on transfers from the central government. Thus, the choice of transfer systems is important to the success of decentralization.

Informational, civic, and social factors play an equal role alongside the macro-structural issues just discussed. Information flows in both directions are critically important in producing the preference-matching and accountability benefits of decentralization. In one direction, the public needs to know what goods and services are provided, and how efficiently this is done, in order for there to be monitoring, inter-jurisdictional competition, and accountability. Access to information complements mechanisms for citizen participation and oversight by the central government. Media access in the periphery is critical here, along with regular disclosure of budgets, audits, and similar data that have often been withheld by governments in the past. Further, the allocative efficiency benefits of decentralization can only come about if sub-national governments are better informed of preferences than central governments. This depends on there being various modalities of citizen participation and voice. Last, social structures have an important impact. Heterogeneous populations, low levels of social capital and trust, and other impediments to cohesion at the local level pose special challenges to the design and implementation of decentralization reforms.

In Chapter 3, Patrick Meagher turns to the institutional design and governance challenges facing plural societies in the developing and transition worlds. The chapter focuses on governance problems associated with heterogeneous societies characterized by strong ethno-linguistic, religious, geographic, and status differences in a context of weakly emerging state institutions. Meagher examines the literature on these points, addressing the question of why heterogeneity is so often associated with weak governance—and what the implications are for institutional design. Using a wealth of theoretical and empirical evidence, the analysis reveals that much state-building and statecraft is guided by fundamentally inappropriate models that fail to take account of heterogeneity—and the paucity of shared norms and experiences on which to build a national framework of governance.

The chapter focuses on coordination as the central preoccupation and mechanism of governance. It reviews the research dealing with social capacities for coordination; examines the contribution of heterogeneity to governance failures, notably corruption; and considers approaches to governmental design that can accommodate social heterogeneity while fostering coordination for shared objectives. The approaches considered include models of devolution that enhance status group authority, leverage extant social norms, or otherwise build on underlying social capacities for collective action.

The main concern of this chapter is the relationship between the scale of governing jurisdictions—in social, demographic, and spatial terms —nd the quality of governance. Meagher suggests that the design and scale of many such states is at odds with the realities of extreme diversity and limited social cohesion. The author highlights an important dimension of institutional reform: accommodating rather than ignoring social structure. Meagher suggests that such an effort could take a number of different forms. In some cases, it might mean formalizing social status as a principle of government, but in most instances an informal or proxy approach is likely to be more successful. A likely key to successful governance will be more proactive use of prevailing social norms and patterns of solidarity. Examples of this are discussed in the chapter.

It is evident from the analysis in this chapter that a strongly centralized and directive state apparatus inevitably faces severe challenges in poor countries, especially large and diverse ones. According to the author, plural societies need plural governance structures—at least in the early stage of national integration typical of many developing and transition countries. In fact, the analysis highlights the need for further integration—but with a larger role for small, cohesive units that accommodate heterogeneity. This chapter concludes by placing greater emphasis on devolving and federating public authority to capture the gains from cohesion.

In Chapter 4, Mwangi S. Kimenyi and John Mukum Mbaku focus more specifically on the issue of ethnicity and its impact on governance in Africa. The chapter starts by looking at the impact of colonialism on African institutions. Focusing on the way African countries were set up following partition, the authors argue that colonialism and its aftermath often forced different ethnic groups together under the same government, with little concern for the resulting social dynamics or the impact on governance. In addition both the colonial and post-colonial governments established institutions of governance that were highly centralized with power concentrated in the executive. The authors argue that such institutions have not been well suited for societies that are ethnically fractionalized. In particular, centralized states in Africa have encouraged ethnic competition leading to conflicts, poor governance and poor delivery of services.

Focusing on the provision of public goods, Kimenyi and Mbaku argue that, given that each of the ethnic groups occupy specific territories of the various countries, provision of spatial public goods always benefits some ethnic groups disproportionately. Rulers are therefore able to transfer benefits to members of their ethnic groups through provision of excludable public goods. The tendency therefore in ethnically fractionalized societies is for rulers to reduce provision of non-excludable public goods (that benefit all groups) and instead increase the provision of excludable public goods and also patronage goods. Such ethnic-based allocation of public resources tends to fuel ethnic tensions in those societies.

Kimenyi and Mbaku argue that ethnicity is actually an important institution that can be used to advance the welfare of communities by provision of local public goods. This suggests that ethnically fractionalized societies can be better served by decentralized institutions of governance. The chapter provides examples of cases where ethnic groups have been effective in delivery of goods and services, and proposes that decentralization can reduce conflicts and improve governance and service delivery. The authors nevertheless highlight the need for appropriate design of decentralization schemes particularly taking into account the capacity of lower level governments.

In Chapter 5, Georges Korsun and Patrick Meagher focus on fiscal decentralization in West Africa during the mid- to late-1990s. The analysis largely focuses on the Republic of Guinea but offers comparisons with other countries in Francophone West Africa, notably Mali and Senegal. The authors suggest that decentralization failed to deliver the expected benefits primarily because decentralization was poorly designed. The benchmark for effective decentralization used in the analysis is a structure comprised of devolved government units, each with its own budget, separate legal existence, authority to allocate substantial resources, and power over a range of functions—with decisions made by representatives of local populations.

The three country cases examined in the chapter pose a stark contrast to this standard. Characteristic of all three are extremely limited fiscal resources at the disposition of most sub-national governments, a highly uneven spread of revenue-generating economic activities, limited political and fiscal initiative at devolved levels, and serious problems of public sector transparency and expenditure management. Guinea's experience most forcefully illustrates the perils inherent in piecemeal decentralization from a starting point of strong centralism. By contrast, Mali and Senegal have moved substantial authority to the local level, with a range of transfer and grant funds being used to address some of the resulting fiscal imbalance. The latter two countries have also provided better incentives—material and social—for public initiative at the local level.

The chapter uses these comparative case studies to understand the outcomes of decentralization in the Francophone West African region, as well as the underlying reasons for them. An overview of the reforms in the three countries leads into a discussion of these outcomes. The analysis here focuses primarily on fiscal results, linking this to the quality of public goods and service delivery. Three explanatory factors are investigated for these outcomes: the effectiveness of revenue administration, the transparency and integrity of expenditure management, and the overall structural design. In the end, it is the design of these decentralization reforms, as it interacts with underlying social and political dynamics that seems to be the most powerful determinant. All three programs, but most obviously that of Guinea, are in some sense designed to fail. This is virtually unavoidable in a decentralization reform initiated by a predominant center within a unitary system.

On the other hand, history suggests that even quite limited reforms can create the conditions for fundamental change in the future. One telling phenomenon seems to hold promise for the future. While governmental funding of local public goods is quite small in these countries, and donor-financed NGOs are taking up some of the slack, remittances and informal revenue-raising by ethnic and locality-based associations have reached significant levels and are being used in part for public goods in such areas as health and education services. How governments deal with this informal system of governance will do much to shape the future.

In Chapter 6, Omar Azfar, Tugrul Gurgur and Patrick Meagher focus on decentralization in the Philippines. This chapter examines whether political disciplines are more effective at the local level, using the results of empirical surveys administered to over 1,100 households and 300 officials across 20 provinces of the Philippines. There, decentralization got fully underway with the enactment of the Local Government Act of 1991, providing for the devolution of significant responsibility for public services and the transfer of some 40 percent of central revenues. The aim of the chapter is to analyze to what extent patterns of political action, media coverage or mobility create political disciplines on local governments—that is, pressures to improve provision of public goods, especially health and education services. As it turns out, the Philippines results suggest that there may not be more exacting political disciplines on local as compared to national governments.

Fiscal federalism theory provides a framework for the discussion. On this basis, the chapter assesses the potential gains to decentralization by i...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Tables
• List of Figures
• List of Boxed Materials
• List of Contributors
• Acknowledgments
• Acronyms
• Dedication
• 1 General Introduction
• 2 Decentralization, Governance and Public Services: The Impact of Institutional Arrangements
• 3 Institutional Design and the Governance Challenges of Plural Societies
• 4 Ethnicity, Institutions and Governance in Africa
• 5 Failure by Design? Fiscal Decentralization in West Africa
• 6 Political Disciplines on Local Government: Evidence From the Philippines
• 7 Roads to Somewhere: Localizing Governance of Rural Infrastructure Programs in Nepal
• 8 Decentralization in Russia: Impact on Quality of Governance
• Index