Key Issues in Decentralization: An Overview Presented to: PREM – WBI Core Course on Public Sector Governance & Anticorruption Presented by: Kai Kaiser Decentralization Thematic Group Public Sector Group kkaiser@worldbank.org February 15, 2005 The World Bank

Decentralization: A World-Wide Phenomenon Underway in over 85 countries Political and economic rationales Varieties Deconcentration Delegation Devolution Spans political/legal, fiscal, administrative…

Decentralization Trends Subnational Expenditure Shares Subnational Tax Shares Developing Countries 1970s 13.0% (48) 10.4% (43) 1980s 13.2% (43) 7.7% (35) 1990s 13.8% (54) 9.3% (28) Transition Countries 26.1% (23) 16.6% (14) OECD Countries 33.8% (22) 18.7% (22) 32.3% (23) 32.4% (23) 19.1% (23) Source: International Monetary Fund. Government Finance Statistics Year Book , various years, Country Tables

Differences Across Regions Subnational Share of Expenditures Subnational Share of Revenues Note: Simple average of most recent observations in available countries. Numbers in parenthesis indicate number of countries represented.

International Diversity

Percent of Countries with Elected Sub-national Governments Democratization & Decentralization 1 0.9 Local 0.8 Governments 0.7 0.6 Regional 0.5 Governments 0.4 0.3 0.2 0.1 1960 1970 1980 1990 2000 2010 Sources: From 1965 to 1995, Henderson (2000), available at http://econ.pstc.brown.edu/faculty/henderson/. For 1999, World Bank World Development Report 1999-2000. Cases in which Henderson and the WDR used different intermediate governments were dropped. Sample size: 43 countries , .

Positive or Negative Outcomes? If designed well, decentralization can Move decision making closer to people (subsidiarity principle) Enhance efficiency and responsiveness of service delivery Competition & Horizontal Innovation/Learning Enhance State Legitimacy/Accountability Improve economic growth Potentially alleviate poverty

But, good design is complicated Decentralization spans Political/Legal Fiscal Administrative policies and institutions…

Decentralization Design Principles Comprehensiveness Finance Follows Function Accountability/Capacity Variety of Mechanisms Local Taxing Power Clarity Sectoral/Decentralization Laws Credibility Equity/National Standards/Incentives Keep it Simple! Avoid “Fudging” or Excessive Complexity

Common Dangers Elite capture (by ethnic/racial/social groups) Opaque or arbitrary decision-making Constituents, villagers, communities unable to hold representatives accountable due to incomplete information Corruption Patronage politics Excessive discretion to reward friends, punish rivals Central civil servants over-rule local representatives … disparities in experiences across localities may be significant

Key Challenge Promoting Decentralized Accountability

Dimensions of Accountability Top-Down/Upward Federal vs. unitary country Financing & Administrative Arrangements National Priorities Downward and horizontal Citizenry and community E.g., County Councils Executive/Bureaucrats E.g., County Commissioner & Country Council Frontline providers

Allocative Efficiency (Subsidiarity) Matching local needs and preferences with local public expenditure patterns Assumes Substantial fiscal autonomy Political decentralization Are elections held? How are candidates selected? Intra-party hierarchical control mechanisms? What do elections mean?

Benefits of Political Decentralization Greater “voice and choice” Individual constituents influence decisions which affect their lives Subnational/local governments respond dynamically to constituent concerns Exit possibilities “voting with one’s feet” Empowerment Districts, villages, communities, and individual constituents

Political Decentralization: Critical Assumptions Representative elected bodies Each local representative has a mandate to articulate needs of an identifiable constituency and can be held accountable to such Periodic Elections Clearly defined jurisdictions within which local governments can “legislate” and provide services Clearly assigned local powers and functions Legal, political, and functional space Inclusive local decision-making Does not systematically exclude most vulnerable groups (e.g., poorest, specific social or ethnic groups) Mandated Representation?

Mechanisms to Strengthen Accountability Reduce capture Specify secret ballots and/or recorded votes as basis for decisions Clearly defined meeting times and decision rules (simple majority, 2/3, secret ballot, etc.) Participatory planning and budgeting Make realizations (e.g., block grants) transparent E.g. Uganda

Mechanisms to Strengthen Accountability Improve transparency Public LG meetings, citizen fora Publicize voting records Mobilize own source revenues Financial disclosure (improved budgeting) E.g., Annual Review Reports Freedom of Information Acts and/or other public disclosure laws (assets, affiliations) Monitoring by vigilance committees, NGOs, CBOs, media Media

Mechanisms to Strengthen Accountability (cont’d) Reduce corruption Chief administrator should report to entire elected body Implementation orders by council resolution Ensure multiple signatories for funds release Financial management and accountability systems Ensure political autonomy Central civil servants must not have power to intervene/ override LG decisions on behalf of higher levels Establish framework for intergovernmental dialogue and dispute resolution

From Local Government to Local Governance Broaden decision-making by empowering other stakeholders and civil society Promote Client Power Encourage Contracting-Out Community Based Organizations (CBOs) to partner with or lobby local governments as appropriate Use LG-CBO partnerships to leverage service provision, and foster information flows and two-way accountability Works best where LGs are well designed and governance processes in place Ownership

Improving Local Governance through LG- CBOs Partnerships LGs gain from partnerships with CBOs Stretch service provision Extending reach of service provision, implementation Deepen the role of citizens with local activities Higher level collective action required—pastoral lands, irrigation CBOs gain from partnership with LGs Promote external linkages Enhance effectiveness Reduce costs (economies of scale and transactions costs)

Stretching and Deepening Example of stretching CBOs serve as contractors for education works and water supply (e.g., Ghana) Technical capacity important. Examples of deepening Porto Alegre (Brazil), collaborate with CBOs across a number of sectors Social mobilization and collective action capacity much more important than technical capacity; voice in design crucial and improves cost-sharing

Strategic Considerations Strategies Decentralization Objectives? Champions Early design has long-run implications Sequencing/Priorities (esp. w/ low starting capacity) Monitoring & Evaluation / Base-lining / Diagnostics Managing Change/Long Run Process New modes of operating Expectations Credibility that LGs can deliver services? Capacity, Accountability, & Resources? Phasing

Further Resources Decentralization Thematic Group Website Sign-up for Decentralization TG Decentralization & Local Financial Management Course March 29-30, 2005 Decentralization Core Course AskGov

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