Decentralization: What It Is and Why We Should Care HAROLD WOLMAN DECENTRALIZATION is a topic which arouses interest and occasional excitement among academics but seemingly li ttle concern among the public or practising politicians. In such a ought to be sensitive to the possibility that the public and politicians are actually on to something Thus, it seems appropriate to ask, some simple but direct questions What is decentralization? behind centralization Why should we care, i what are the values the than solely one decentralization debate which serve to make the question more of organizational structure? centralization/decentraliza- How do we know when we see it, i e. how can tion be measured? The best starting-point is the common-sense definition: to centralize is is concentrate by placing power and authority in a centre, while to decentralize to disperse or distribute power from the centre. This definition, however encompasses several quite differing types of structural arrangements. First, refers to the concentration or dis- political the scope of discretion with respect persal of political decision-making, that is, be pursued, the to decisions regarding policy issues, including the policy to amount of revenues to be raised, and the allocation of available revenues. relates to the concentration Administrative decentralized field offices have the or dispersal of administrative decisions?) as opposed to discretion over the authority to make important nature of policy (although we acknowledge the lack of a clear and sharp between policy and Economic decision decentralization is concerned with the location of economic decentralized if widely dispersed through the market mechanism to consumers and centralized if concentrated in the hands of government. In some cases, previously politically made decisions may be translated into economic decisions through decentralization to consumers, bypassing local govern ments altogether. Vouchers for education or housing are possible examples.
Harold Wolman (Another tradition of the economic centralization-decentralization debate i relates to the concentration or market power of preponderance whether the industry controlled by one or a few firms with a These of market share or is characterized by many, none of which dominates.) need to be kept conceptually various forms of the effect of or desirability of decentralization distinct in any effort to evaluate with political centralization/ be In this chapter, the focus of concern wi upon decentralization. We further limit the scope of our concern by imposing r definition an intergovernmental or territorial dimension. Thus, central- ized refers to political decision-making authority concentrated in the central or national) government relative to subnational units, while decentralized refers to dispersion of authority to subnational units. Political decentraliz ation thus implies that subnational units of government have the discretion available to them to engage in effective (as opposed to illusory) decision- making regarding policies affecting their area, for example which policies to pursue, how much to spend on them concentrated By this definition political power is centralized if decisions are is widely at the central government level, even if decision-making authority dispersed among various institutions w the central government (as is the case in the USA, for example). Note that the between federal and distinction is not synonymous with the distinction while federal states. Unitary states may be characterized by decentralization states may be characterized by centralized decision-making. Finally, our definition implies there may be different degrees of decentralization (or is a continuum rather than a centralization); dichotomy assess the desirability of But why should any effort be made to a structure is centralized or decentralization? What difference does it make if decentralized? Presumably structure is important because there a as sets) of important values that are enhanced or impeded by decentralized opposed to centralized structures. These values might be categorized as economic efficiency values, governance values, and political or distributive What are these and how, if at all, might they be related to the centralization-decentralization debate? Efficiency Values This is the public-choicejustification for decentralization. Efficiency is defined as the maximization of social welfare. In order for social welfare to be maximized, individual preferences must be expressed accurately. Within the private economy individual preferences are expressed through the market mechanism. When public goods are provided, tax and service packages should
Decentralization at It Is reflect as accurately as possible t aggregated preferences of community dual preferences for public goods members, However, because in be some divergence between the preferences of individual ty tax and package the there w Comma average divergence of aggregated community preferences. It is likely that the adopted by the ndividual preferences from the tax and service package of community through its government will be less in small communities relatively like-minded individuals than it will be in larger, more heterogeneous areas. As a the greater the of political decision making authority at the level of national government, the greater goods average divergence of the preferences of individual residents for public sub- from the tax service package adopted. among By contrast, if political decision-making is decentralized national units (and assuming preferences public goods differ among these areas), each unit can tailor its tax and service package to the preferences of its citizenry. As a result, the average divergence of the public-goods preferences of individual residents from the actual tax and service packages will be reduced Indeed, this logic suggests that the greater the number of political units to which political authority is decentralized, the lower will be the average divergence of individual preference from actual tax and service packages. This is because large of political units are likely to imply many small units individuals. and social welfare are thus likely to be under highly decentralized political structures. imply substantial It might be argued that centralization will inevitably disparities among communities with respect to tax base and need and that some communities might have to tax themselves much more heavily than others in order to attain equivalent levels of service. Such a situation makes comparison of tax and service packages clearly biased. However, encumbered general grants from higher-level governments can, in principle, be made to equalize inter-community resource and need disparit of small units may On the other hand, decentralization to large numbers economies inhibit achievement of optimal levels of efficiency by not permitting of scale in some service provision (in principle this can be taken into account through special districts covering different geographic areas for services with different economies of scale). More serious for the public-choice argument for decentralization is the problem of externalities. Externalities (uncompensated costs or benefits imposed by one unit on others) reduce efficiency for the society as a whole and generally require imposition of authority by more centralized units of government The public-choice efficiency argument for decentralization begs some other questions as well. First, it operates entirely within the paradigm of the of individual preferences. It thus ignores the possibility of the legitimacy of overriding 'national interests' even if these interests run clearly
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