Development Management

Chapter 3: Democracy and Decentralization

Handout 3.2

Arguments For and Against Decentralization

• Keeping the definition Faguet has given for decentralization in mind, the underlying theoretical
arguments for and against decentralization can now be considered.

Arguments for Decentralization:

1. The first of these is that reform can bring government ‘closer to the people’.
- However, one cannot jump straight to the government becoming “closer to the people”

1.1 The first component of ‘bringing government closer to the people’ is that decentralisation
can provide government with more and/or better information on local conditions and local
needs.
> This will allow government to take better decisions about what sorts of public services to
offer in each locality, and thus improve the efficiency and responsiveness of the state.
> Which in the end will lead it to become closer to the people of that locality.

1.2 Secondly, the argument refers to increased voice and participation in public affairs.
> By locating public authority and resources closer to citizens, the citizens will more easily
make their voices heard, and more fully and more frequently participate in public decisions.

1.3 A third interpretation of ‘bringing government closer to the people’ is that decentralisation
can improve the accountability of public officials to citizens.
> This is done by putting the fate of the public officials in the hands of the citizens via
regular elections, lobbying, and all of the usual accoutrements of (local) democracy.

2. A second argument in favour is that decentralisation will deepen democracy by providing a

fuller and more intimate version of it for citizens far from the main cities, where national politics
tend to be focused.

- This argument is in essence a reformulation of the first argument, but focusing more on
politics and the value of participation per se, and less on technocratic notions like information,
voice, and responsiveness.

3. A third argument in favour of decentralisation is that it can ‘cut through’ bureaucracy and
improve the efficiency of the state.

- The problem of a bureaucratic, inefficient state is that it consists of too many layers, arranged
in a centralised administration that is distant and wasteful.

- Cutting across these layers /levels take too much time and it would take far longer to get
approval for even the minor decisions being made in the municipalities let alone the major
ones.
 - Decentralisation 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.

4. A fourth argument in favour is that decentralisation can reduce public spending.

- This is a claim frequently made by those promoting decentralisation in a specific country.
- The argument is frankly a red herring, and is frequently used by national elites who seek to
reduce fiscal deficits by devolving responsibility for service provision to local governments
without providing adequate resources.

- In these cases, decentralisation can be a rallying cry designed to obscure a series of

unfunded mandates, and a relocation of political responsibility to local politicians whose efforts
are systematically underfunded.

- In theory, by contrast, there is no strong reason for thinking that a decentralized government
will be cheaper or more expensive than centralised government.

- In other words, theoretical arguments go both ways, and therefore are indeterminate of
whether decentralisation is good or bad.

• There are solid reasons for thinking that local governments will enjoy lower unit costs in the
production of public services, as the markets in which they operate typically feature lower prices
than those of large cities.

- This is in large part a function of lower property prices in towns and villages, which feed through
to lower product prices and lower wages.

- But on the other hand, a decentralised system of government will be expected to have higher
overhead costs, as economies of scale in administration are lost by locating elected governments
and their administrative apparati in localities throughout the country, instead of centralizing them in
the capital.

- The question of which affect will dominate – higher overheads or lower unit costs – cannot be
resolved theoretically, and is the proper subject.

Arguments against Decentralization

1. The principal argument against decentralisation is that it will abet elite capture.
- This is because local elites (landowners, businessmen, or other notables) are small
compared to national government, but can be very large compared to local government.

- In the latter case, local elites can capture the local policy-making process, and systematically
distort policy to favour it themselves and their interests, and not those of the majority.

- When it comes to the national government, these local elites would have to face tough
competition with other strong elites from other areas of the country.
- But in their own localities they don’t face such competition and thus can easily capture
positions in the local government institutions.
2. A second argument against decentralisation is that it will tend to generalise graft and
corruption.

- An advantage of centralisation is that it limits the number of people with discretion (power)
over public authority and the public purse.

- Decentralisation, by contrast, allows far more people to ‘put their hands in the pot’, and will
thus exert a corrupting influence on the state and the nation.

- Local government is ‘naturally’ corrupt, some claim, and hence the last thing reformers
should do is to put more power and resources at its disposal.

- A curious footnote to this argument is that the president of Bolivia, when announcing his
decentralisation programme, turned this argument on its head.
> If the only thing achieved is that more people steal public funds, he claimed, at least that will
be preferable to the current situation, where a few steal everything, and much of the money
leaves the country.

3. A final argument against decentralisation is that it will undermine macroeconomic stability.

- This is because local politics is less transparent than national politics, which allows local
governments to run large deficits and become highly indebted.

- Although central governments may proclaim their determination to not bail out local
governments, in practice this will be extremely difficult politically, especially around election
time, when local fiscal crises can lead to economic and social displacements.

- In this way, decentralisation can destabilise the central government’s accounts, and lead to
macroeconomic instability.