Implementing Decentralized Local Governance in South Asia and the

World: A Comparative ReviewAnwar Shah, World Bank

ashah@worldbank.orgGINI Workshop,

Singapore, August 8-9, 2010

THE VISION

Decentralization – what???

“If you do not know where you are going then every road will take you somewhere else”.

- Yogi Bera

True decentralization: Community empowerment to think globally but act locally.

Anwar Shah, World Bank

Emerging Vision of Local Government 20th versus 21st century

• Residuality principle• Ultra vires• Focus on government• Agent of central/provincial

governments• Dependent on higher govt

transfers • Accountable to higher

governments • Direct provider• Dependent on central directives• Rules driven, bureaucratic,

technocratic• Exclusive with elite capture• Overcomes market failures• Boxed in a centralized system

• Subsidiarity principle• Community governance• Focus on governance and growth• Primary agent for citizens and

gatekeeper for shared rule• Access to sustainable finance• Accountable to voters• Network facilitator• Autonomous• Strengthens voice, choice and exit

and results based accountability.• Inclusive and participatory• Overcomes market and

government failures• Global and local connectivity

Anwar Shah, World Bank

Interest-based Networks

Hope-based Networks

Other good Samaritans

Private (for profit) Providers

Community Associations

Regional Government

National Government

Local Government

(chair)

Local Govt as a leader/facilitator of Network Forms of Local Governance

Anwar Shah, World Bank

For South Asia it may be back to the future!

• “My idea of village swaraj (independent republic) is that it is a complete republic, independent of its neighbors for its own vital wants, and yet interdependent for many others in which dependence is a necessity”. Mahatma Gandhi as quoted

in Alok (2006) • Self-governing village communities in India in 1200

BC. Rig Veda as quoted in Alok (2006) • Self –governing urban local governments in

Harrapa and Mohenjo-Daro (Pakistan) in 2500 BC.

THE CHALLENGE

A disgruntled citizen’s perceptions about his government

• “Government is the coldest of all cold monsters – whatever it says it lies – and whatever it has -it has stolen.”

»Nietzche

Perceived Problems of Government in South Asia

• Too remote• Too arrogant• Too bureaucratic• Too big• Too inefficient, ineffective• Too unaccountable• Too opaque• Too corrupt

Why governments do not deliver?

Mandate

Authorizing Environment

Outputs, reach, outcomes

Operational capacity

Goals of decentralization reforms –A government that works and serves.

But sometimes there are ulterior political motives..

Motivation Countries/Regions Motivation Countries/Region

Political & economic transformation

Central and Eastern Europe, Russia

Improving service delivery

Chile, Uganda, Cote D’Ivoire

Political crisis due to ethnic conflict

Bosnia-Herzegovina, Ethiopia, Yugoslavia, Nigeria, Sri Lanka, South Africa, Philippines

To centralize Turkey, European Union

Political crisis due to regional conflicts

Indonesia, Madagascar, Mali, Senegal, Uganda, Mexico, Nepal, Philippines

Shifting deficits downwards

Eastern and Central Europe, Russia

Enhancing participation

Argentina, Brazil, Bolivia, Colombia, India, Pakistan, Philippines

Shifting responsibility for unpopular adjustment programs

Africa

Interest in EU Accession

Czech Republic, Slovakia, Hungary, Poland

Prevent return to autocracy

Latin America

Political maneuvering Peru, Pakistan, Afghanistan, Bangladesh

Preservation of Communist rule

China

Fiscal crisis Russia, Indonesia, Pakistan

Globalization and information revolution

Most countries

THE RESPONSE: The Silent Revolution

of the 1990s

Safeguards against arbitrary dismissal of local governments have improved.

• 1 Constitutional/legislative safeguards against dismissal of LG council by CG; 0.5 - LG can be dismissed under certain circumstances; 0 - LG can be dismissed in an arbitrary manner

Scorecard on Political Decentralization

Region --Component

AFR

EAP

ECA

LAC

MNA

SA

ALL

Constitutional safeguards L L M M L M MElections -Council M M M H L H MElections - Head L L M H L M MParticipation L L M M L M LRecall provisions M L M H L H MContestabilitySecurity of existence

LL

LL

ML

HM

LL

HL

ML

Overall L L M H L M M

“Taking stock” of reforms in DTEs: Political decentralization

Progress made: • Legal status of local government• Popular election of local councils and their heads

Where accountability is incomplete: • Low participation and contestability in elections• Lack of provisions for popular recall of local officials • Disbandment of local councils by higher level

governments

Good progress: Latin America, C. and E. EuropeLittle progress: C. America, Middle East/N. Africa

Higher tax autonomy

Revenue Autonomy-Taxes• Tax autonomy important for

accountability

• Local governments have very limited access to own source revenues, even on immobile bases

• Tax base sharing rarely practiced

Intergovernmental transfers mostly formula based and unconditional ..But ?

Perceptions on intergovernmental finance are generally negative

• Federal/Central View: Giving money and power to sub-national governments is like giving whiskey and car keys to teenagers.

• Provincial and Local View: We need more grant monies to demonstrate that “money does not buy anything”.

• Citizens: The magical art of passing money from one government to another and seeing it vanish in thin air.

Ironically these perceptions are well founded in reality as most transfers are of “manna from heaven” or pork barrel variety lacking any incentives for local

accountability in service delivery performance.

Somewhat greater freedom to borrow

But access to credit is almost non-existent in South Asia

• Access to credit – limited or non-existence due to-Low development of financial markets-Tax centralization

• Central policy focus on prohibitions or administrative controls

• First steps for credit market access– Tax decentralization– municipal credit rating agencies– Municipal finance corporations

Scorecard on Fiscal Decentralization - 1

Region --Component

AFR

EAP

ECA

LA

MNA

SA

ALL

Rate and Base Autonomy L L L M L L LRevenue Adequacy L M L H L H MSelf financing M L L M L H MMunc Services control H H H H M H HHealth, Education & W L H H L L L MLocal planningLocal procurement

LL

LL

HL

ML

LL

LL

LL

Formula transfers M H H H L H H

Scorecard on Fiscal Decentralization -2

Region --Component

AFR

EAP

ECA

LA

MNA

SA

ALL

Results based finance L L L L L L LDomestic borrowing L M M H H H MDomestic Bonds L L M M L L LForeign bank borrowing L L L M L L LForeign bonds L L L L L L Lcapital finance assistanceRange of functions

LL

LM

LM

LM

LL

LL

LL

Overall L M M H L L M

“Taking stock” of reforms in DTEs: Administrative decentralization

• Ability to hire, fire and set terms of employment of local staff

• Ability to contract own taxing and spending responsibilities

• Authority to pass bye-laws in their spheres of responsibility

• Local governments have regulatory authority for municipal services in most countries.

• Significant progress in transition countries (but not in developing countries)

Greater freedom to hire and fire

Scorecard on Administrative Decentralization

Region --Component

AFR

EAP

ECA

LA

MNA

SA

ALL

Human Resource Management

L L H H L L L

Contracting out/ partnerships

L M H H L M M

Bye-laws M M H H L H MOverall L L H H L L M

Decentralization reforms in South Asia have been celebrated with great fanfare but did they bring about F.A.I.R. Local Govern.

Will decentralization be sustained?

More likely if • broad societal consensus • grassroots support• Big bang Less likely if• Gradual and incomplete e.g back-tracking with

opposition by central bureaucrats (Bangladesh, India, Kenya, Pakistan, Sri Lanka); by national politicians – Argentina, Pakistan and Philippines

Local Capture?• Greater risk when civic participation low,

especially since ability to “vote with one’s feet” low in DTEs.

• Particular problem where high inequality of land ownership as I Pakistan

• Endogeneity of civic participation?• Non-party elections

THE IMPACT: The zone of our ignorance

Fiscal Dec and fiscal management – empirical evidence

Fiscal performance Impact of Fiscal DecQuality of debt manag. Positive but insignificantQuality of FP and Inst. Positive significantEff. Revenue Collection Mixed but insignificantPrudent use of taxes Positive significantGrowth of public exp. Negative but insig.Control of deficit Negative but insig.Growth of public debt Positive but insig.PSM Positive but significantGDP growth Positive but insig.

Impact of Decentralization on Service Delivery (empirical evidence)

Positive Negative

Municipal services Pakistan, Bolivia, Colombia, Brazil, Indonesia

Education and Health

Argentina, Bolivia, Nicaragua

Social protection Albania

Access to the poor Bangladesh, India, Brazil

Argentina, Uganda

Impact on corruption India, China, Bangladesh, Colombia, Cote d’Ivoire, Indonesia

Russia

LESSONS

Lessons• Decentralization to intermediate levels (states or

provinces) in large countries could pose a potential threat to internal peace and political stability. True decentralization means localization.

• Localization - a key to local economic development.• Decentralization as a means to an end and not an end

itself.• Decentralization is a long and difficult process. Requires

a long term holistic vision, patience and persistence. All pieces must fit together.

• “Big bang” vs small steps: Long period of consensus building but big bang in implementation

• Top down approaches likely to fail.

……..Lessons (2)• Localization is not a gamble but a “no-regrets”

approach • No unique model. Custom tailoring a must.• A more nuanced approach to cost recovery

desirable.• Capacity constraints less binding than commonly

believed and are excessively used to stall reforms.

• Reforming government organization and culture is the key to the success of decentralization policies.

Epilogue

REFORM IS ETERNAL, WE DO NOT ALWAYS SUCCEED BUT WE MUST KEEP TRYING.