Are You Ready for Decentralization?

The world is moving towards decentralization. At least tries. The word “decentralization” itself became popular after the rise of a blockchain and cryptocurrencies phenomenon but in fact, this process takes place for decades on a governmental level already.

What is decentralization?

We understand decentralization by different means. The world is moving towards decentralization. At least tries. The word “decentralization” itself became popular after the rise of a blockchain and cryptocurrencies phenomenons but in fact this process takes place for decades on a governmental levels already.

“Decentralization is the process by which the activities of an organization, particularly those regarding planning and decision-making, are distributed or delegated away from a central, authoritative location or group”, Merriam-Webster dictionary.

Despite the reformation power of decentralization the process sometimes leads to recentralization and turns back on decentralized path. This happens not only today but took place back to the French Revolution.

“In the mid-1800s Tocqueville would write that the French Revolution began with “a push towards decentralization…[but became,] in the end, an extension of centralization”, Wikipedia.

In other words, decentralization became deconcentration. If decentralization is seizing decision-making from central government, deconcentration is decentralized only in operations. Tocqueville was a strong advocate of decentralization in a civic dimension as it gives more opportunities to use freedom on a personal and collective will levels.

Decentralization is a live process. It is not something well formed you can put on rails to be sure it drives the right route to success. Taking into account the heterogeneity of countries decentralization should increase effectiveness of governance due to the focus on local diversity, richness and needs rather than statists’ “one-size-fits-all”. Financial decentralization can’t be the only piece of a decentralized cake for effectiveness. If subnational governments can be different in a financial sense it implies ability to be different in administrative and political senses too.

Decentralization is a necessity

Sustainable development, risk management, climate change and disasters prevention are in a global, urban agenda as goals for the next 30 years. This agenda affects not only formation of subnational governments but financial systems as well. Financial decentralization implies local financial systems to be coherent, viable and efficient without the constant, normative governments’ observation.

One reason of decentralization necessity is the wide range of countries' history, culture, mentality, geopolitics, regional specifics. They all influence administrative principles and require different approaches on the deeper, local levels inside central governments. In the end any central or subnational government can’t exist without financial system. With decentralization the number of local financial systems will increase but the world in general still doesn’t have a clear, unified picture of their current state. Developed countries have close to perfect national accounting systems comparing to the third worlds'. There finances even on a central government level lack transparency and heterogeneity.

The last two qualities are the fundamentals for carrying out responsibilities towards decentralization.

Understanding subnational governments

There are more than 522 000 subnational governments in 101 countries. When we talk about decentralization we don’t imagine subnational governments to be the trumpets of central points. Also, we don’t imagine them to be delegated by central points in organizational structures and decisions or agendas. Despite possible full-sufficiency subnational governments deal with limited areas of major control.

They are education and public services and take up to 50% of subnational governments’ expenditures. Areas such as security, environment, recreation and housing take the least in the split of economic function. These areas usually used by central governments for propagation back to different historical events. Subnational governments are one of the biggest employers especially in high income countries. Staff expenditure usually takes up to 35% of budget in average. The revenue comes mostly from grants or subsidies and taxes depending on particular country. Loans and debt securities and forms up to 68% of total debt.

In third world countries subnational governments often exist in a deconcentrated manner to cover up corruption, absence of strategy and insufficient management or simply signaling resistance to decentralization despite economic necessity. Such resistance is understandable. Together with opportunities decentralization brings risks to political governance and may cause separatism in specific circumstances.

The effects of decentralization

The same as globalization we can’t say decentralization is good or bad itself but recent reports and studies are extremely positive about its effects. The list is excessive (not limited to) and self-explanatory as provided by Asian Development Bank’s publication “The Impact of Fiscal Decentralization”:

• Public investment in education and other services became more responsive to local needs in Bolivia (Faguet, 2004).
• Test scores much improved due to decentralized education program in Nicaragua (King and Özler, 1998).
• The proportion of successful students of secondary education improved in Spain (Peña, 2007; Solé-Ollé and Esteller-Moré, 2005).
• Infant mortality decreased due to revenue decentralization in Argentina (Habibi et al., 2003).
• Lower mortality rates achieved due to higher share of public expenditures management by subnational governments (Robalino, Picazo, Voetberg, 2001).
• Access to water and sewage services increased due to decentralized participatory budgeting by citizens in Brazil (Santos, 2005).
• Local budgets better matched citizens’ priorities due to decentralization in Philippines and Uganda (Azfar, Kähkönen, and Meagher, 2001; Azfar and Livingston, 2002).
• Faster economic growth achieved due to greater subnational fiscal autonomy in Switzerland (Feld et al., 2004) and in Peoples' Republic of China (Qiao et al., 2008).
• Poverty reduced in selected developing countries due to political and administrative decentralization (Crook and Manor, 1998; Crook and Sverrisson, 2001), positive impact on poverty captured by the Human Development Index (Von Braun and Grote, 2002; Lindaman and Thurmaier, 2002).
• The overall level of corruption decreased (Fiszbein, 1997; Kuncoro, Arikan, 2000; Fisman and Gatti, 2002; Gurgur and Shah, 2005).

On the contrary, IMF have warned about macroeconomic dangers of decentralized governments but in fact where macroeconomic instability took place (e.g. Argentina, Brazil) decentralization didn't make it worse.

Are we ready for it?

Today we hear many people discussing decentralization, opinion leaders stand for it and call for it. But do we understand what does it mean for us together and each one personally? Do we understand that decentralization does not happen by itself? That no one will do it for us? That it implies involvement? This in turn requires consciousness of planet inhabitants and their will to build lives with own hands.

Studies show that decentralization encourages more interaction, involvement and collective action (Tarrow 1994, Hooghe and Marks 2003). It means that people will have a room to participate, create and do. People will become responsible for decisions made if there is no central authority to tell them what to do. People will define priorities, goals, targets and the route to achieve them.

If we are afraid of centralized technocracy and high-tech solutions to replace human labor, we should be serious about decentralization. It may be the right answer to keep us needed and prosperous. It may change the way of life. Perhaps we will find ourselves where we would like to be, to do what we would like to do and not to serve the time from 9 to 5 for the sake of paying taxes and maintaining our own such life.

Every single sphere of life potentially will be influenced by collective desires and finding consensus on the questions like local economic activity development, public services efficiency, labor-intensive production technologies growth and more. It may lead to further fragmentation towards decentralized society clusters and increase the quantity of local micro-governments united by absolutely different principles. If to assume that officials may lack knowledge and experience it opens more potential to redirect management and legal functional responsibility to individuals, collectives, experts in specific spheres and entrepreneurs (whatever fits best for the purpose) for better results.

Thus, the question arises: if this is what we talk about and want, are we ready to build it? Because no one will give us this in a gift wrapping.

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