DECENTRALISATION:
A SURVEY OF LITERATURE FROM A HUMAN DEVELOPMENT PERSPECTIVE

Jeni Klugman, 1994

Overview and Conclusions

PART II

1. Introduction
2. Efficiency
3. Resource Availability
4. Participation
5. The Impact Upon Economic Activity
6. Equity
7. Obstacles

1. Education
2. Health
3. Water and sanitation
4. Housing
5. Economic infrastructure

1. Introduction and summary
2. Local community priorities
3. Local government priorities
4. Some Empirical Evidence

Bibliography

OVERVIEW AND CONCLUSIONS

Decentralization has been a popular theme in development thinking and practice for at least two decades. The interest here lies in the impact of decentralisation of government expenditures and revenues upon human development. This survey explores the extensive literature on decentralisation, revealing the lack of quantitative and rigorous studies. It emerges that this is an area where few, if any, general propositions will hold. Nonetheless detailed analysis of the various dimensions of decentralisation - participation, financing and comparative priorities - and of the relevant effects upon efficiency, resource availability and equity, enables us to draw some interesting lessons from its theory and practice. These can be summarised as follows.

Regarding efficiency, the main problems associated with centralisation include the irrelevance of projects and policies to local needs and conditions, lack of adaptability, delays, under-utilisation of local resources and inadequate maintenance. It is observed that decentralisation has demonstrated potential to lead to more appropriate and better utilised facilities, lower costs per unit of service and improved operations and maintenance. However, greater efficiency need not necessarily accompany decentralisation, given the risk of loss of economies of scale, duplication and overlap. In any case, there must be a fairly thoroughgoing devolution of authority in order that the presumed advantages might follow.

We distinguish two lines of thought with respect to political participation in public decision making, which focus upon the developmental and instrumental aspects, i.e. as an end in itself, and as a means to better outcomes, respectively. Whilst acknowledging the value of the former, our ultimate interest here lies in the impact of decentralisation and participation upon the nature of expenditure and revenue decisions affecting human development. Even where national officials and local elites dominate local decision making structures, the outcomes may be more positive in terms of human development than that which would have resulted under a centralised system. More extensive evidence bearing upon these issues is discussed under the headings of comparative priorities and equity.

The discussion and quantitative analysis of the comparative priorities of different levels of government suggests that local governments, where some thoroughgoing devolution of decision making power takes place, are likely to make expenditure decisions which accord to the basic priorities of human development. Not only do local governments tend to focus on more basic (and cheaper) levels of provision, the evidence suggests that their expenditure patterns as a whole are more oriented towards education, community amenities and health care. This is contrasted to a picture of central priorities, wherein the social allocation ratio averages 28%, and the social priority ratio 38% (HDR 1991, p.41).

With respect to effects on equity, a distinction is drawn between its inter- and intra-district aspects. It is found that intra-district equity is likely to improve, following increased expenditure on basic social services which increases access and utilisation on the part of poorer members of the community. At the same time however, the pivotal role of central grants in affecting inter-district equity is identified and explored, in both theoretical and practical terms. It is found that the prevailing fiscal arrangements under decentralisation - by design or otherwise - typically fail to enhance inter-district equity. The incidence of taxation is also investigated. Due to data limitations, no conclusive determination can be made as to the relative progressiveness of decentralised, versus centralised taxation systems; the most which could be said that neither appears to be very regressive.

Beyond the expansion of basic social services, increasing income earning opportunities is a crucial aspect of human development. In principle, decentralisation may promote economic activity via several routes including an increased infusion of capital and other resources, the more extensive provision of infrastructure, and a more effective enabling environment than would have been the case under a centralised system. A number of examples are found to illustrate these possibilities.

Resource availability under a decentralised system is an important aspect of the present survey. It is shown that the nature of the assignment problem means that vertical fiscal imbalances are almost inherently likely to occur, and that in practice local taxation is limited by the fragmented nature of the system, centrally imposed restrictions and administrative constraints. At the same time it is clear that taxation at all levels is subject to evasion and practical administrative problems. It is argued that cost recovery raises significant efficiency and equity considerations, which lead to the conclusion - contrary to World Bank opinion - that the nature of local government responsibilities (e.g. primary education and primary health care) renders user charges inappropriate at the local level. Given the likelihood of fiscal gaps emerging, inter governmental financial arrangements will play an important role. These are explored, with particular interest being accorded to the principle of financial autonomy. Whilst considerations of equity point to the need for central grants, the risk of national government dominance and corresponding local vulnerability is very real, as illustrated by a number of case studies.

The need for increased public expenditure on human development leads us to explore the possibility that decentralisation may increase total public resource mobilisation. It is found that voluntarism is fairly widespread at the local level (as predicted by the visible benefits principle) although it rarely accounts for substantial amounts of revenue. Borrowing is another route by which additional resources can be mobilised for local government, although this can be problematic given, for example, the potentially adverse implications for the efficacy of national macroeconomic policy. It is likely to remain a relatively marginal form of finance in developing countries, limited to the largest and most financially viable municipalities. It is shown that inter governmental transfers often tend to provide disincentives to, and/or substitute for, local revenue raising especially in the absence of such mechanisms as matching requirements. However the empirical evidence available suggests that, in general, the degree of decentralisation and total public resource mobilisation have little to do with each other.

Finally the significant underlying theme relating to the obstacles confronted in decentralisation efforts is explored. There is ample evidence of political resistance to decentralisation by those who perceive their vested interests to be threatened, and of the bureaucratic problems, especially relating to staffing.

Overall the picture of decentralisation in developing countries which emerges reflects - both in theory and practice - significant potential for human development. Provided that the devolution of decision making power is thoroughgoing, the provision and utilisation of basic social services and levels of economic activity can be expected to expand. This does not deny a significant role for national authorities - whose actions have a crucial bearing in ensuring a minimum degree of provision (in both qualitative and quantitative terms), acting to take advantage of economies of scale, and avoiding unnecessary overlap and duplication, and in mobilising public revenue, as well as promoting inter district equity.

It may therefore be appropriate that the focus of central governments shift, from direct decision making about the details of provision of basic social and economic infrastructure to providing a supportive role where local institutions can more effectively provide such services, especially in previously neglected regions, and to poorer sections of the community. This is not to suggest that the contemporary experiences of decentralisation in developing countries typically present such a rosy picture. It is seen that under existing arrangements the functions and finances of local government institutions are often quite limited, and so more appropriately described as deconcentration; that local administrative and revenue raising capacity is inadequate; and that inter-district equity may well worsen. Thus the message portrayed here is that decentralisation, under certain significant conditions, can have substantial positive implications for human development in developing countries.

1. Introduction

Human development, defined in terms of the expansion of peoples' capabilities, has several aspects. Foremost among these are to lead a long and healthy life, to acquire knowledge and to enjoy a decent standard of living. These, in turn, raise such dimensions as access to basic social services, expansion of income-earning opportunities; and participation - both political and economic.

The task here is to evaluate the literature on decentralisation in the above terms. Decentralisation can be seen in the light of various objectives which, in turn, contribute to human development. The comparative priorities of different levels of government, together with issues of equity, efficiency and financing are all crucial. There are also important questions, very relevant to human development, about participation in decision making. In Part II this survey reviews the evidence on these dimensions, in order to appraise the extent to which decentralisation can contribute to human development, in terms of the above-mentioned dimensions. Part III investigates the characteristics of, and the issues raised by decentralisation in specific sectors. Finally Part IV tackles the issue of comparative priorities at different levels of government.

It becomes clear that few definitive propositions hold in this area - in the sense that the question is not simply whether decentralisation per se is 'good' or 'bad' for human development. Rather there should be an appreciation of the various possibilities which can emerge under the rubric of decentralisation - the questions are therefore how to decentralise and what to decentralise and to whom, in order to maximise the benefits for human development. It is also important to bear the comparative aspect in mind - it is of fundamental interest to learn how local governments perform, relative to central government.

Defining decentralisation

There are many kinds of reforms which fall under the banner of decentralisation. It is therefore useful to follow Hicks (1961) and Rondinelli (1984) and distinguish between different modes of decentralisation along the following lines:

 
• deconcentration - spatial relocation of decision making - i.e. the transfer of some administrative responsibility or authority to lower levels within central government ministries or agencies;
• delegation - assignment of specific decision making authority - i.e. the transfer of managerial responsibility for specifically defined functions to public organisations (e.g. local governments or parastatals) outside the normal bureaucratic structure of central government; and
• devolution - transfer of responsibility for governing, understood more broadly - i.e. the creation or strengthening, financially or legally, of sub-national units of governments, whose activities are substantially outside the direct control of central government.

The Extent of Decentralisation

The impact of decentralisation upon human development will obviously depend upon the relative importance of local government. In the present context, this is best indicated by the share of local government in total government expenditure, which varies widely among developing countries. This measure is only a rough guide, however, in the sense that local spending decisions may not be autonomous, as discussed below. One survey, for a sample of sixteen developing countries for which comparable data was available, found that the share ranged from 55% in India, down to 2.5% in The Gambia (WDR 1988). For seven of those countries, less that 10% of total government spending was conducted through local government.

The size of the sub-national units is a related dimension. The main focus of the present survey is upon what is typically the lowest level of government - often known as the district or area. This can vary quite widely in size, even within countries. In Botswana, the range in population is from 22 000 to 364 000. In Africa generally, the size (both in terms of area and population) of the basic units of government is relatively larger than that of industrial countries (Olowu 1989) (see Table 1). Obviously the demographic and geographic circumstances of the particular country are, amongst other factors, relevant - as extreme alternatives compare Indonesia or India to, say, Costa Rica or The Gambia. There may also be some relationship between, for example, the relative efficiency of local government performance and its size, due to such factors as economies of scale.

Throughout this survey there are also references to what is often the second tier of government - state or provincial. This is due to (i) the need for evidence on particular aspects of decentralisation (e.g. the assignment problem); and (ii) the implications of such arrangements often appear to be relevant to decentralisation to lower levels of government.