Is decentralization good for development? : perspectives from academics and policy makers

352 Pages·2015·1.54 MB·English

by  Faguet

OUPCORRECTEDPROOF–FINAL,16/7/2015,SPi
Is Decentralization Good for Development?
OUPCORRECTEDPROOF–FINAL,16/7/2015,SPi
OUPCORRECTEDPROOF–FINAL,16/7/2015,SPi
Is Decentralization Good
for Development?
Perspectives from Academics
and Policy Makers
Jean-Paul Faguet and Caroline Pöschl
1
OUPCORRECTEDPROOF–FINAL,16/7/2015,SPi
3
GreatClarendonStreet,Oxford,OX26DP,
UnitedKingdom
OxfordUniversityPressisadepartmentoftheUniversityofOxford.
ItfurtherstheUniversity’sobjectiveofexcellenceinresearch,scholarship,
andeducationbypublishingworldwide.Oxfordisaregisteredtrademarkof
OxfordUniversityPressintheUKandincertainothercountries
©thevariouscontributors2015
Themoralrightsoftheauthorshavebeenasserted
FirstEditionpublishedin2015
Impression:1
Allrightsreserved.Nopartofthispublicationmaybereproduced,storedin
aretrievalsystem,ortransmitted,inanyformorbyanymeans,withoutthe
priorpermissioninwritingofOxfordUniversityPress,orasexpresslypermitted
bylaw,bylicenceorundertermsagreedwiththeappropriatereprographics
rightsorganization.Enquiriesconcerningreproductionoutsidethescopeofthe
aboveshouldbesenttotheRightsDepartment,OxfordUniversityPress,atthe
addressabove
Youmustnotcirculatethisworkinanyotherform
andyoumustimposethissameconditiononanyacquirer
PublishedintheUnitedStatesofAmericabyOxfordUniversityPress
198MadisonAvenue,NewYork,NY10016,UnitedStatesofAmerica
BritishLibraryCataloguinginPublicationData
Dataavailable
LibraryofCongressControlNumber:2015932090
ISBN 978–0–19–873750–6
Printedandboundby
CPIGroup(UK)Ltd,Croydon,CR04YY
LinkstothirdpartywebsitesareprovidedbyOxfordingoodfaithand
forinformationonly.Oxforddisclaimsanyresponsibilityforthematerials
containedinanythirdpartywebsitereferencedinthiswork.
OUPCORRECTEDPROOF–FINAL,16/7/2015,SPi
Foreword
Decentralization is everywhere around us. Throughout the developing and
developedworlds,boththearchitectureofthestateandthedeeperrelationship
between citizens and governments are being re-shaped by decentralization,
devolution,andoutrightsecession.Thirtyyearsago,academicresearchersand
organizationsliketheWorldBankandUnitedNationsmarveledatthenumber
of decentralization programs across the world. Since then the number of
reformshasgrownandgrown.
Decentralizationchangescountriesinbig,deep,andlastingwaysbecauseit
changes not just financial flows and formal structures of authority, but the
fundamentalincentivesthatpublicofficialsmustrespondto.Inacentralized
system,officials’incentivesare“upward-looking”inthesenseofresponding
to the wishes and priorities of officials higher up in government. Their per-
formanceisjudged,andtheyarerewardedornot,accordingtohowwellthey
servetheagendasofsuperiorbureaucrats.Inadecentralizedsystem,officials’
incentives are pointed firmly downwards to the citizens and voters who
electedthem.Theyarejudgedbycitizens,andtheircareertrajectorydepends
onsatisfyingenoughofthemthatvoterschoosetoreturnthemtooffice.By
changingsuchdeepincentivesthatoperatethroughoutgovernment,decen-
tralization sets in motion a dynamic that leads to long-term, fundamental
changesinpublicofficials’behavior,andpublicsectordecisionsandoutputs,
aswellastheunderlyingrelationshipbetweengovernorsandthegoverned.
Thesearenotabstracttheoreticalpoints,butreal,tangible,definingfeatures
of countries, states, and economies. Just look at the raucous, diverse,
colorful—but also stable and legitimate—democracy that federalism under-
pins in India; compare it to the winner-take-all, brittle, chronically unstable
governments that six decades of centralization have bestowed on Pakistan.
Thesecountriesdifferinwaysotherthandecentralizationofcourse.Butitis
usefultorememberthattheyweregovernedforcenturiesbythesameBritish
colonial administration, and their politics diverged only at independence
when one became a federal, and the other a unitary, state. Think also of
Germany vs. the UK, orSpanish South America vs. Brazil,and consider how
variations in centralization help shape national economies and the spatial
distributionofeconomicactivity.
OUPCORRECTEDPROOF–FINAL,16/7/2015,SPi
Foreword
Bigreformshavespawnedabigliteraturededicatedtoevaluatingdecentral-
ization’s effects, numbering in the hundreds of published works and thou-
sandsofagencyreports.Buttheyhavemostlyignoredquestionsconcerning
governance,politicalcompetition,stability,andlegitimacy,whicharehighly
consequentialbutmethodologicallydifficulttoaddress,infavorofeasier-to-
measure, technocratic issues like public investment levels, inflation, fiscal
deficits, and education and health attendance. Such second-order issues are
alsoimportantandworthyofstudy,ofcourse.Buttheshiftinfocusawayfrom
themostimportanteffectsofreformhashadalessobvious,morepernicious
effectonourunderstandingofdecentralization.Ithaspushedresearchersand
thinkers toassume theperspective ofasocialplanner or policyanalyst—the
disinterested, benevolent dictator who maximizes some concept of good in
society,beitwealth,health,orsomeothermeasureofwell-being.
Withoutdoubtthisisausefulwaytoapproachsuchquestions.Butitalso
serves to divorce a huge literature from the principal concerns of policy
makers and politicians: Will decentralization increase or decrease my power
and control? Will itget me re-elected? Will ithelp or harm my party’s long-
termprospects?Nottomentiontheprincipalprioritiesofcitizens:Willdecen-
tralization increase or decrease political stability? violence? citizens’ rights
andfreedoms?prosperity?inequality?Theseare,indeed,themainthingsthat
we as development specialists, thinkers, and indeed citizens should be con-
cerned withtoo. Insodoing, theshiftin focusmakesthe majority ofdecen-
tralization studies—regardless of how rigorous and technically competent
many undoubtedly are—less interesting and much less relevant to precisely
those people who must lead the difficult changes required to decentralize
anycountry.
When policy makers approach academics for advice about a major, risky
reformthatseekstochangetheshapeofgovernment,answeringintermsof
itssecond-andthird-ordereffectsisastrangethingtodo.Whentheseeffects
areadditionallythingsthatpolicymakerscarelessabout,theeffectisdown-
rightperverse.
Thisbookisuniqueinthatitturnsthetablesonanentirefield.Itexamines
decentralization through the eyes of policy-making politicians, but with the
methodological rigor and theoretical clarity of academics, asking first: Why
wouldpoliticianswanttodoit?Andiftheydid,howwouldtheydoit?Itthen
analyzes key issues of governance such as democracy, stability, inclusivity,
andstatestrength.Afurtherthreechaptersdrawthelessonsoffourdecadesof
reformthroughouttheworldonhowbesttodesigntax,transfer,andexpend-
ituresystems.Lastlyitreturnstomoretraditional,technocraticissues,asking:
What happens after reform is implemented? These last four chapters update
ourknowledgeofdecentralization’seffectsonhealth,education,anti-poverty
vi
OUPCORRECTEDPROOF–FINAL,16/7/2015,SPi
Foreword
programs, etc. using evidence from twelve countries across Africa, Asia, and
LatinAmerica.
The editors have achieved this synthesis of academic and policy-making
perspectives by carefully choosing and pairing authors to write on specific
topics. While a few authors are “pure” academics (e.g. Myerson) or “pure”
policymakers(e.g.Aiyar),mosthaveafirmbaseinonecampbutmaintainan
ongoing,vigorouspracticeintheother(e.g.Bossert,Faguet,Khan,etc.).Five
chaptersarewrittenbyacombinationofpolicymaker(s)andacademic(s),four
chapters by individuals who significantly span that frontier, two by “pure”
academics,andtwoby“pure”policymakers.
ThisbookisaproductoftheInitiativeforPolicyDialogue’sDecentralization
TaskForce,andwasfirstconceivedataconferenceheldatColumbiaUniver-
sityinNewYorkin2009.Althougheachchapterhasnamedauthors,thereisa
broader sense in which the volume reflects the collective thinking of all
involved.
Bringingpolicymakersandacademicstogethertothink,discuss,andwrite
aboutcommonthemeshasbeenneithereasynorstraightforward.Thesetwo
constituencies use different languages, are motivated by different concerns,
andhavecompletely,utterlydifferentworkstyles.Theauthorsaretrainedin
economics, political science, public health, and philosophy, and include
women, men, old, young, Asians, Europeans, and North and South Ameri-
cans.Butthese differences were asnothingcomparedtothe policy-making–
academic divide. Breaching it took five years and an enormous amount of
work,energy,anddedication.
I hope readers will agree that the effort was worthwhile. The result of my
colleagues’ labors is an unparalleled synthesis of theory and practice, an
analyticalmemoryofkeysuccessfulandunsuccessfulreforms,andapractical
guideforthosewhowoulddecentralizetheircountries.
JosephE.Stiglitz
NewYork,September2014
vii
OUPCORRECTEDPROOF–FINAL,16/7/2015,SPi
OUPCORRECTEDPROOF–FINAL,16/7/2015,SPi
Contents
ListofFigures xi
ListofTables xiii
ListofContributors xv
1. IsDecentralizationGoodForDevelopment?Perspectives
fromAcademicsandPolicyMakers 1
Jean-PaulFaguetandCarolinePöschl
PartI. Decentralization,Stability,andthe
StrengtheningoftheState
2. “WhyIDecentralizedBolivia” 31
GonzaloSánchezdeLozadaandJean-PaulFaguet
3. BreakingtheCountercyclicalPatternofLocalDemocracy
inPakistan 68
AliCheema,AdnanQ.Khan,andRogerB.Myerson
4. InclusiveGovernanceforInclusiveDevelopment:TheHistory,
Politics,andEconomicsofPanchayatRaj 80
ManiShankarAiyar
5. IsLatinAmericaonaPathtoSustainableFiscalDecentralization? 109
MatteoGrazziandFidelJaramillo
6. DoesDecentralizationStrengthenorWeakentheState?
AuthorityandSocialLearninginaSuppleState 129
Jean-PaulFaguet,AshleyM.Fox,andCarolinePöschl
PartII. DesigningDecentralization:Taxes,
Transfers,andExpenditures
7. AFiscalInterestApproachtoSubnationalGovernmentIncentives:
ImplicationsfortheDesignofTaxandTransferSystems 163
CarolinePöschlandBarryR.Weingast