Over the past few decades decentralization has become one of the most hotly debated policy

issues throughout both developed and developing worlds. The need for more decentralization
came as a result of increased dissatisfaction brought in by previously prevailing centralized
system. This system was driven by the growth of welfare state in the industrialized world, and
in the developing world initially by the political necessity of creating national identity out of the
ashes of colonialism, and subsequently by developmental attempts to guide the economy to
growth and prosperity through central administration. Nowadays, the World Bank estimates
that between 80 percent and 100 percent of the world’s countries are experiencing some
version of decentralization. However, the debate – both theoretical and empirical – on whether
decentralization increases or decreases social welfare and public sector efficiency is still very
much unresolved.

Before diving into the analysis of the effectiveness of decentralization, it is important to review
the various meanings which the term holds. According to the World Bank, types of
decentralization include political, administrative, fiscal, and market decentralization. Each of
these types can also appear in different forms and combinations according to the status of unit
to which responsibility and authority are being transferred, i.e. sub-ordinate, semi-
autonomous, autonomous or external units.

A dominant taxonomy of these various forms organizes them into four categories:
deconcentration, delegation, devolution, and privatization or divestment.

Firstly, Deconcentration is the handing over of some amount of administrative authority or

responsibility to lower levels within central government agencies. It gives limited discretion to
field agents to plan and implement programs and projects, or to adjust central directives to
local conditions, within guidelines set by central government.

Secondly, Delegation transfers managerial responsibility for specifically defined functions to

organizations that are outside the regular bureaucratic structure and that are only indirectly
controlled by the central government. It implies that the agent has broad discretion to carry out
the specified duties, however, the ultimate responsibility remains with the sovereign authority.

Thirdly, Devolution is the creation or strengthening of subnational units of government, the

activities of which are substantially outside the direct control of the central government. Under
devolution, local units of government are autonomous and independent, and usually have
exclusive authority over explicitly reserved functions.

Finally, Privatization is the government’s disposal of functions that are either transferred to
voluntary organizations or left to the private sector (Rondinelli et al., 1984).

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It is worth noting that none of these definitions “is” decentralization although they provide very
useful insights to it. One can imagine the concept of decentralization assorted as a matrix of
definitions with the aspect of government being transferred or shared on the horizontal axis,
and the type of unit to which authority is transformed on the vertical axis.

I believe however that devolution might be the most common understanding of genuine
decentralization. Devolution implies the need to develop local governments as “institutions” in
the sense that they are perceived by local citizens as organizations providing services that
satisfy their needs, and as governmental units over which they have some influence. Under
devolution, public service providers may face better incentives because lines of authority and
accountability go downwards to local voters rather than upwards to central authorities. Hence I
find the definition of the best type of decentralization is that it is “the devolution by central (i.e.
national) government of specific functions, with all the administrative, political and economic
attributes that these entail, to democratic local (i.e. municipal) governments that are
independent of the center within legally delimited geographic and functional domain (Faguet,
2004).

Why decentralization?

The UBT proposes that urban classes in poorer countries use their social power to bias (distort)
a range of public policies against members of the rural classes (Lipton, 2005). Rural areas of
developing countries suffer from too little spending on education and health care. Many rural
people are stereotyped as backward or ignorant and are treated by government officials on
that basis. Even when the administration is benevolent, large-scale federal development
projects directed from above by an insulated, distant bureaucracy are often treat poor people
as objects of the development process (not involving them in the participatory or deliberative
processes), and end up primarily serving as channels of largesse for middlemen and contractors
(Bardhan and Mookherjee, 2006).

The main argument for decentralization is that it can bring government “closer to people”
through; (a) providing government with more and better information on local conditions and
local needs, (b) increasing voice and participation in public affairs, (c) and improving the
accountability of public officials to citizens via regular elections, lobbying and other practices of
local democracy (World Band, 1997). Another argument related to quality of governance is that
decentralization can cut through bureaucracy and improve the efficiency of centralized state
which consists of too many layers, distant and wasteful. Decentralization can solve these
problems by relocating power and resources related to local services in small government units
that will tend to be less bureaucratic and less wasteful than central government (Rowland, 2001
and Blair, 2000).

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Opposite arguments concerning the relative accountability of local and national governments
have also been made. Critics argue that local governments are; (a) too susceptible to elite
capture who can systematically distort policy to their favor, (b) too lacking in technical, human
and financial resources which may result in services being delivered less efficiently and
effectively, (c) and too corrupt to produce a heterogeneous range of public services that
respond efficiently to local demand (e.g. Bardhan and Mookherjee, 2006). For example,
decentralization in Uganda has not led to independent, accountable local governments, but
rather to their capture by local elites (Francis and James, 2003), and Porter (2002) agrees for
Sub-Saharan Africa more generally.

As far as they are vigorously promoted, theoretical arguments for and against decentralization
are not much supported with decisive empirical evidence. Any particular conclusion about one
aspect is contradicted by at least one opposite finding of apparently equal weight. An
underlying reason for this confusion in the literature on decentralization is the failure to
capture its various forms in comparative context. When comparing countries that implement
different types of decentralization, it is not surprising that the comparison turns fruitless. A
review of experience with decentralization in developing countries reveals that each form has
advantages and disadvantages and so that different countries have had different results from
their experiments with it (Rondinelli et al., 1984). Even in the same country, decentralization
may have different outcomes. In the context of Brazil and India, for instance, empirical
evidence shows that the effects of decentralization are likely to vary substantially across
different regions (Baiochhi 2005, Chaudhuri 2005). This evidence suggests that outcomes may
be highly context-specific.

Decentralization in Bolivia provides a very interesting case for context-related results. In Bolivia,
decentralization was announced in January 1994 as a radical “shock therapy” treatment for
earlier failure of state-led development strategy. Centralized investment was economically
regressive, concentrating public investment in richer municipalities and ignoring poorer ones.
This was reflected on central education investment since central government chose to
concentrate education resources where literacy was higher. Decentralization, by contrast,
shifted resources towards poorer districts and invested progressively more where illiteracy was
higher. Interestingly, these changes were driven by the smallest and poorest municipalities
investing devolved funds in their highest-priorities projects (Faguet and Sanchez, 2008). This
contradicts common claims in the literature that local government is too corrupt, institutionally
weak, or prone to interest-group capture to improve upon central government. At least for
Bolivia it is not the case.

However, a scrutinized look will reveal a significant variation in the way that different Bolivian
municipalities responded to the reform shock. In Viacha, at the lower extreme, local

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government was unresponsive, violent and corrupt. Furthermore, the elite capture threat was
high. Local politics was monopolized by the owner of the dominant economic enterprise, which
is the bottling plant of the Bolivian National Brewery (abbreviated CBN in Spainsh), to the
extent that citizens felt little real political competition and voter turnout felt sharply. At the
other extreme, Charagua’s local government was participative, responsive and produced high-
quality policy outputs. A competitive local economy led by pluralistic cattle ranchers with none
of them large enough to direct local politics was one of the key causes of high-quality local
government. Another cause was a highly organized and coherent civil society that played an
active role in the oversight committee, which is a channel for representing popular demand in
the policy-making process (Faguet, 2005). Why is there stark contrast in outcomes? This is
explained by the model of governance present in the 8 th paragraph in the essay on democratic
elections and government accountability.

Decentralization should not be so much a theory, as it is a common and variable practice in

most countries to achieve a diverse array of governance and public sector reform objectives. It
is primarily a function of the application and context. Overall, arguments supporting the
positive impact of decentralization on government accountability seem be valid in some
countries/regions under certain conditions such the supporting institutional framework, while
the opposite arguments prove true in other areas lacking these conditions (mainly developing
countries and rural areas). It is important to note that structures of local accountability are not
in place in many developing countries, and local governments are often at the mercy of local
power elites, who may frustrate the goal of achieving equal public delivery of social services
(Bardhan, 2002). In fact, empowering local institutions that are not accountable to local
population (i.e. deconcentration) may not produce outcomes that decentralization opponents
promise. Similarly, creating accountable local authorities without sufficient fiscal and
administrative abilities will certainly not deliver the public goods.

This means that decentralization to be really effective has to be accompanied by serious

attempts to change the existing structures of power within communities and to improve the
opportunities for participation and voice, and engaging the hitherto disadvantaged or
disenfranchised in the political process. After all, the logic behind decentralization is not just
about weakening the central authority, nor about preferring local elites to central authority, but
it is fundamentally about making governance at the local level more responsive to the felt
needs of the large majority of the population.

An ideal decentralized system ensures a level and combination of public services consistent
with voters’ preferences while providing incentives for the efficient provision of such services.
Some degree of central control or compensatory grants may be warranted in the provision of

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services when spatial externalities, economies of scale, and administrative and compliance
costs are taken into consideration. The practical implications of this theorem, again, require a
large number of overlapping jurisdictions.