Globalization and Decentralization
Little doubt remains that globalization has shaped and will continue to shape
economic, political, and social conditions throughout the world. Not surpris-
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ingly, globalization has shaped not only concepts of economic growth but also
perceptions of governance and the roles and functions of government. In the
twenty-first century the driving forces of globalization—increasing international
trade and investment, rapid progress in information, communications and
transportation technology, the increasing mobility of factors of production, the
rapid transmission of financial capital across national borders, the emergence of
knowledge economies and electronic commerce, the spread of innovation capability,
and the worldwide expansion of markets for goods and services—are
creating new pressures on governments to decentralize. Globalization is deconcentrating
economic activity among and within countries. It increases pressures
on governments to enhance the administrative and fiscal capacity of subnational
regions, cities, towns, and rural areas in order to facilitate the participation of
individuals and enterprises in a global marketplace and to benefit from it.
Increasingly, foreign direct investment flows to those countries where the
government not only creates a strong national business climate but where “location
assets” in towns, cities, and regions are well developed and where local governments
can provide the services, infrastructure, quality of life, and other forms
of support for foreign-owned and domestic firms. Strengthening these location
assets usually requires strong local governments and civil society organizations
that can raise the revenues and provide the supporting services that both foreign
investors and domestic entrepreneurs need to participate effectively in a global
marketplace.14
The emergence of globally dispersed industrial clusters and worldwide supply
chains, the global outsourcing of manufacturing and services, and the expansion
of electronic commerce have simultaneously, and seemingly paradoxically, made
the spread of international economic activity less dependent on specific geographical
locations and made the location assets of subnational geographical
areas more important in attracting international firms or incubating domestic
enterprises. Successful economic zones, science and industrial parks, geographically
focused industrial clusters, and emerging urban hubs of globally oriented
commercial activity all have rich networks of interaction among central and
local governments, the private sector, and civil society organizations.15 Globalization
and technological change not only have pressured governments in some
countries to decentralize administrative and fiscal authority but also have created
conditions under which regional, state, provincial, and local administrative or
government units are moving toward de facto decentralization through local
leadership and initiative.16
The global deconcentration of economic activity has not only given localities
new resources but has also brought new pressures on local governments to perform
their administrative tasks more effectively. National government officials
sometimes use the weak performance of local governments as a reason to keep
decisionmaking centralized. One of the most critical issues in implementing
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decentralization, therefore, is identifying those factors that facilitate strong local
government performance. As they create new local structures, organizations, and
procedures, governments are training employees to perform increasingly more
complex tasks and introducing reforms that increase local capacity to manage
fiscal resources and public services