2. Efficiency
2. Efficiency
This section attempts to set out and appraise the impact of decentralisation upon efficiency. Efficiency is a multi-faceted concept which can be used in at least three senses. Allocative efficiency involves the consideration of what is produced, preferences and how it is allocated between agents. From a neo-classical economic point of view, the basic proposition is that local governments are better able, given differing local circumstances and preferences, to satisfy varying local demands for public goods and services. X- or technical efficiency refers to cost-minimisation. In practice attention tends to focus upon the relationships between decentralisation and unit costs, the use of local resources, technical adequacy or quality, and the comparative extent of malfeasance. It is also important to view efficiency over time, or the intertemporal allocation of resources, which brings the issues of implementation and maintenance to the fore.
We proceed to examine the various dimensions of efficiency in turn, adducing specific evidence wherever possible. It is demonstrated that, as in many other aspects of decentralisation, efficiency raises countervailing factors. The design of public goods and services may be more in accordance with local preferences under a decentralised system (allocative efficiency), but weighing against this are central standards which can ensure a minimum degree of quality and quantity of provision. The utilisation of local resources, information and technology may lower costs (technical efficiency); but the existence of economies of scale points in favour of more centralised provision (provided that dis-economies do not thereby appear). The presence of externalities - i.e. absence of a market - also tends to justify provision and control by higher levels of government. Finally regarding implementation and maintenance (especially in the long term), the literature and evidence favour decentralisation, provided that this approach obtains a higher degree of user-participation than would have been the case in a centralised system.
It follows that simple generalisations are not likely to emerge as to whether and how the structure of government affects efficiency. Nonetheless on balance it appears that theoretical and empirical considerations tend to favour local, rather than central responsibility. This is especially the case for public goods and services that have primarily local effects and where local adaptation is important.
Overview of the Theoretical Arguments
"The State should offer those services that correspond
to its citizens' preferences... decentralisation is better apt to take
into account the different preferences of the community's members than
are extremely unitary states with their systematically uniform approach."
(Frey 1977)
The underlying economic theory falls into the realm of welfare economics and public choice (see Helm and Smith, 1987). It builds upon the propositions that individual preferences may vary by locality, and that information constraints inhibit the effective operation of central authorities. Thus the basic economic rationale for decentralisation rests largely on a negative observation, the inability of central government to deliver many public services efficiently. It has been suggested that the most efficient allocation of public resources is attained if such services are provided (and paid for) by governments responsible to those most directly affected (Tiebout, 1956).
This is based on following assumptions. First, that the demand for local public services varies from place to place, because tastes and willingness to pay differ, for geographic, cultural and historical reasons (and that preferences within each locality are reasonably homogeneous). If this is the case, the central provision of local public goods, (if it tends to be uniform across the country), is unlikely to please anybody. The second assumption is that decentralisation would result in every local government providing a different bundle of local public services, which reflects local preferences.
Tiebout (1956) suggested that rather than attempt to provide a voting mechanism to allow individuals to express their preferences, such preferences might be reflected in where people choose to live - i.e. where the bundle of local public goods provided coincided with their preferred choices. This thesis obviously requires several strong assumptions about freedom of mobility and the nature of the migration decision, and its applicability is limited. "Voting with one's feet" is impeded considerably both by costs of migration which are higher than the advantages expected elsewhere, and by the "very fuzzy ideas" that individuals tend to have about the cost/benefit effects of their choice of residence (Buchanan 1974, cited in Frenkel 1986). Unfortunately, there is very little empirical research on the relationship between consumer satisfaction with public services and organisational arrangements. (The only evidence uncovered related to the U.S. context, where it was found that urban areas with small scale police organisations tended to satisfy residents more than did larger forces: Frenkel 1986).
The argument about preferences is nonetheless useful in highlighting
the possibility that local governments act more in accordance with the
needs and priorities of local communities than would higher authorities.
It gains empirical support from such areas as implementation and maintenance,
where local involvement has been found to result in more appropriate and
better utilised local public services. Levels of utilisation have a significant
impact upon the cost per unit of service, particularly in the long term.
In the water sector it has been found that in the absence of some thoroughgoing
devolution of decision making power to users, the gap between local preferences
and product design generally results in poor long term prospects for the
services (see below). In the health sector, levels of utilisation are often
low, partly due to difficulties associated with access (distance, time,
expense etc.), and partly due to the lack of local receptivity to government
provided services. Local conceptions of actions appropriate to promote
good health and combat illness may well differ from those offered by public
health officials. It is important that the design of health services takes
this into account, so that the organisational form evokes "active and appropriate
use and co-operation based upon comprehending acceptance by the patient
and community" (Wilson-Pepper 1982). Decentralisation of decisions about
the provision of health care may result in approaches more consistent with
local preferences, and in turn higher levels of utilisation and lower unit
costs.
Box 1: Education and Preferences
It has been predicted that greater efficiency will flow from a better match between individual preferences and educational services in a decentralised system (Winkler 1989). This, in turn, requires that people are able to exercise a degree of choice in the type of local school that their children attend by, for example, selecting local school administrators, or by relocating to districts which offer the educational services they prefer. Although there are no studies which determine the extent to which decentralisation alters the nature of educational services offered and the degree to which that meets local preferences (Winkler 1989), the following examples highlight several possibilities.
(i) Schools may be organised in a way which is most appropriate for local needs - more intensive in the non-harvest, and breaks over the busy harvest season in rural areas. In the BRAC system, decisions about school hours and breaks are made in village meetings, which is said to contribute to the unusually high attendance rates in BRAC schools.
(ii) Given regional variations in labour demand, it may be more efficient to provide different curricula, to better prepare people for the skills needed in the locality. Training in seeds improvement will obviously be more relevant to those in rural areas, than those in the capital city.
(iii) The debate on the language of instruction is also relevant here. Decentralisation may lead to teaching in the first local language, to meet local demand. This is controversial however, because it may put those children at a disadvantage for future education and employment opportunities (Lockheed 1990). (So could curricula which focus solely on agricultural skills - this raises the same kind of issues.)
"...one of the critical properties of all large-scale systems
(is that) the authorities must act in an atmosphere of partial ignorance,
considerable misinformation, and consequently of great uncertainty."
(Easton 1979)
Information is an important factor bearing upon the question of efficiency. When there is insufficient or asymmetrical information, it is difficult for government decision makers to predict the consequences of their decisions, and serious efficiency losses can follow. The probability of disparities between a decision maker's ideas about the effects of some policy and the actual local impact of the decision may be much greater in a centralised context. For example, political scientists have found that when information is transmitted through a hierachially-oriented structure, a selective distortion of information is likely given the desire of subordinates to advance their careers through forwarding favourable, and repressing adverse, reports.
Such information constraints may be alleviated to some extent by virtue of having decision makers closer to "where the action is", through the creation of (at least partially) autonomous centres of decision making which function independently of the central authority. Schaffer (1982) saw local participation in planning and decision making in terms of the information needed for development programs, posing the question: " how can decentralisation be organised so that information, local women and men, and program planners can be effectively brought together?".
More generally, it is noted that decentralisation has been interpreted by some economists as an example of the general principal-agent problem: how to provide necessarily decentralised (to maximise information) agents (local government) with incentives to pursue the principal's (central government's) objectives. Substantive principal agent problems arise when there exist, as between different levels of government, conflicting goals and asymmetric information about local costs and needs.
Whilst this perspective provides some useful insights into the economic rationale, advantages and disadvantages of decentralisation, it is not a complete basis for the present analysis. Principal-agent theory addresses the question: Given a hierarchial power structure (i.e. a relationship in which one party has the right to write contracts - which the other party can accept or not), what is the best contract that can be written, in terms of the principal's objectives? In the present case, it is recognised that the agents (local governments) have legitimate goals and objectives which may well diverge from those of the principal (centre).
Decentralization is addressed here in the light of the task of this survey: what is the appropriate power structure - 'appropriateness' being defined in terms of the objectives of human development. There are two extreme alternatives - on the one hand the complete centralisation of all decision making authority, and on the other the general devolution of such powers - plus all the possibilities in between. It is difficult to evaluate each of these situations in standard principal-agent terms. It might be useful to extend the theoretical analysis to a more complex multi-principal model - i.e. to account for the principal-type roles of both local constituencies and higher authorities. Alternatively, the complexity of the issue of decentralising tasks and policy decisions suggests that a model of inter-governmental bargaining might be more useful.
"...government costs increase in direct and geometric connection
with centralisation."
(Proudhon 1959)
Whilst the foregoing section outlined the issues raised by economists who explore issues of efficiency and decentralisation in neo-classical theoretical terms, a survey of the literature and country experience reveals that such concerns are not always regarded as relevant. In practice attention tends to be focused upon the more tangible cost dimension of decentralisation - i.e. does decentralisation reduce the unit cost of providing public goods and services? This often involves countervailing factors, specifically the lower costs of local resources versus economies of scale and the risk of wasteful duplication and overlap.
Decentralization may lead to lower unit costs, through simpler procedures and building upon existing local resources, knowledge, technology and institutional capacities. Time could be saved, delays due to conflicts between project staff and beneficiaries reduced or avoided, and local responsibility and oversight exercised, so that costs could be lower relative to those when the same services are provided by the central government. Statements which support this proposition can be found throughout the literature (see, for example, Lisk (1985) p.20; Allen (1987); Uphoff (1988) p. 50). Cost reductions are an important motivation for World Bank projects which seek to enhance community participation (Paul 1988).
The processing of information involves costs which depend to some extent upon the distance between the origin of the data and their final use. In the process of transmission, each step entails costs, both the direct costs of the intermediary agencies (salaries, administrative infrastructure etc.), as well as those arising from the distortion of information which may lead to expensive misjudgment (Frenkel 1986).
In rural localities which are characterised by low population density and relative isolation, it has been observed that public service delivery is "generally more difficult and expensive" (OECD 1986). However local governments may still be relatively more effective in these circumstances than their central counterparts, depending on the significance of such factors as economies of scale (discussed below).
Water programs have traditionally employed the relatively expensive services of professional engineers and other specialised technicians. A greater degree of reliance upon local personnel and resources under a decentralised system may be more cost effective. In Agua del Pueblo, multi-skilled field personnel, similar in concept to primary health workers, have been employed. High school graduates from rural backgrounds receive six months instruction in surveying, basic hydraulic engineering, system design and construction, health education, community organisation and project administration. Working under the minimal supervision of a civil engineer, they provide technical advice and support as the communities work through the steps of installing their water systems themselves (Cox and Annis 1982).
Many national governments provide centralised "hugely expensive in-service training" for teachers (Garret 1989 p.309). Yet there is little, if any, evidence available that such formal training is an effective way of producing better teachers (id.). The BRAC teachers, for example, are not fully trained professionals but better educated, younger villagers who take part in an intensive 12-day training course and receive regular guidance and supervision (UNICEF 1990).
There are some considerations which point the other way however - and indicate that decentralisation, through increased duplication and overlap, can increase costs. In Papua New Guinea, the provincial governments "created new public services that have very high per capita costs" (Rondinelli 1983 p.46). In Indonesia, overlap and duplication of responsibilities between the agencies of the various levels of government has been held to have resulted in considerable inefficiencies. This was also reported to be a concern in Nigeria.
Economies of scale point in favour of centralisation. A certain minimal area and, therefore, a certain degree of centralisation are necessary prerequisites for the provision of some public services, or at least for their cost-efficient provision. This tends to flow from the better utilisation of fixed facilities. It should also be noted that local decisions which rely solely upon local information may ignore the potential for externalities and economies of scale, which in turn creates wider costs for the society.
Yet dis-economies of scale may also exist, where costs rise disproportionately with size. This is attributed to the increasing costs of information processing, professionalisation of the public service, and raised expectations in a centralised system. (Diseconomies have been found to be empirically significant in industrial countries: Hawkins 1976, cited in Frenkel 1986).
Studies have found that economies of scale exist primarily in connection with those goods and services that are capital, rather than labour, intensive (Frenkel 1986). However it is not possible to determine whether scale produces economies or diseconomies in an abstract way and without relation to the actual public services provided in a given polity.
The proliferation of education agencies under decentralisation can increase overhead and administrative costs. In Latin American countries where the exercise of educational authority is said to bear a "marked political dimension", the pressure to reward supporters has resulted in the creation of multiple structures. The Ministry of Education in Venezuela had 34 central directorates, and the Mexican SEP 7 under-secretariats, 44 general directorates, 304 directorates and 6 councils (Cassusus, 1990, p.12). Decentralised administration may inhibit the realisation of economies of scale in such functions as curriculum development, examinations, textbook production, staff monitoring and teacher training (Lockheed 1990).
On the other hand, school-based curriculum development could have a number of advantages. Teachers' skills and professionalism may be enhanced. Changes can be tailored to fit available resources. And teachers have a particular ability to judge the classroom value of ideas; teacher produced materials tend to have, for example, less start-up problems (Garret 1990). However research findings that local curriculum development results in greater job satisfaction and higher productivity are largely reported from countries where the teaching profession is comparatively well-paid and highly motivated (Garret 1990). One cannot assume that such conditions exist in developing countries, nor that the attitudes of teachers toward additional workload would not be adverse.
Externalities
"Decisions made by constituent units are invariably minority decisions
that impose high external costs on the national majority"
(Riker 1964)
An important aspect of the efficiency question lies in the presence of externalities. Basic education and health care, for example, exhibit significant positive externalities in the form of benefits to the society and economy from having a healthy, literate and skilled population. The benefits will spillover beyond the local community, both directly (if people are mobile) and indirectly, through a more productive workforce. Education has been found to have negative effects on fertility and child mortality, and a positive impact on political awareness and participation (Armitage and Sabot 1988). In a decentralised system, there will be an undersupply of public services when localities only produce a public good until its marginal costs coincide with the marginal benefits for the locality's own inhabitants. The same issue arises in labour economics, from the reluctance of firms to invest in training of employees who may subsequently leave the firm. The possibility that such spillovers might tend to reduce the amount of services provided by the local community (firm) is a concern in the context of many basic social services - although it appears to be less relevant to water supplies. Externalities may be important for economic infrastructure - spending on road construction and maintenance, for example, will tend to benefit road users living outside the local jurisdiction as well as local residents.
In order to counteract the tendency to underinvest in a decentralised system it might therefore be necessary to introduce measures to increase local spending on basic social services and economic infrastructure. These might include fiscal equalisation grants, incentives such as matching grants for revenues collected, and regulations which specify minimum expenditure levels, user fees or tax rates. The purpose of central grants which reflect externalities is to ensure economic efficiency in local spending decisions (Helm and Smith 1987 p.xii).
National "product" standards, defining minimum requirements in such areas as education and health, also have an important role to play here. This represents a measure of centralisation which undermines local autonomy in decision making about the quality and quantity of provision. It is nonetheless necessary in order to promote levels of investment in services where excludability is not possible, but the positive externalities are significant. This is also related to the discussion of quality in the following section.
One of the many difficulties faced in investigating the comparative efficiency of centralised versus decentralised provision of public goods and services lies in the possibility that quality may vary under the different alternatives. This has direct repercussions for efficiency. If in education, for example, local provision leads to rising rates of failure, repetition or drop-out, any apparent cost savings might be illusory. Centralised control will at least guarantee certain national minimum standards in such areas as literacy and immunisation. This appears to be especially important where decentralisation exacerbates disparities in resource availability between different localities, so that the poorer areas are forced to resort to services which are lower in quality, whilst the better-off enjoy improved provision. Thus the issue of quality may have significant implications for inter-district equity (discussed below).
Under a decentralised system, professional staff may be relatively more isolated and lack the frequency of contact with colleagues, than would have occurred under centralisation. This has been said to lead to a lower quality of service and provision than would otherwise have been the case (OECD 1986).
Box 4: Quality and Decentralised Education
It has been said that decentralisation is "the key that unlocks the potential of schools to improve the quality of education" (Lockheed et al. 1989, p.81). This claim is based on the improved performance of teachers, greater relevance of curricula, and so on. Yet there is evidence that decentralised education can be of lower quality, perhaps because local efforts are more likely to be necessary in poor, rural areas where the central government has failed to provide adequate educational opportunities (Winkler 1989). In a locality in which many parents of school children are themselves uneducated and thus unable to reach informed judgements about the relative costs and benefits of relatively high quality schooling, there is a concern that the quality will be less than socially optimal (Armitage and Sabot 1988).
Overall, the evidence about the impact of locally provided schooling on the quality of education is mixed. The Harambee schools of Kenya are of low quality, in terms of inputs (teachers) and outputs; very few (13%) of harambee schools exceed minimum standards (grade 4 attainment levels) compared to almost 80% of central government schools. Mwira (1990) argues that a major effect of the harambee movement in education has been the "polarisation of the secondary school system, differentiating school type by quality"(p.360) (See table 2). But this is not the case in Bangladesh, where 95% of pupils from BRAC primary schools have passed examinations for entry into the fourth class of the official school system, and most of these children make the transition to government schools.
Implementation and Maintenance
An important advantage of decentralisation, relative to centralised provision, may lie in the better ability to facilitate the implementation of projects and programs in a wide variety of local circumstances. And in the long term, such investments may be more likely to be maintained and effectively utilised where the responsibility lies with local authorities. This is especially held to be the case where decentralisation enhances local community participation.
This stands in contrast (and may be partly a reaction) to the evidence that institutional centralisation creates serious inefficiencies in the maintenance of development projects and programs (Wunsch 1991). This appears to be particularly relevant for rural infrastructure projects. A centrally directed and hierarchial bureaucracy has been found ineffective in undertaking various tasks of rural development, particularly under conditions of uncertainty and severely limited resources. It has failed to secure beneficiary participation, responsiveness to local needs, adequate maintenance and utilisation of infrastructure, and administrative flexibility. It is argued that this leads to serious inefficiencies in public expenditure. Thus decentralisation may be advantageous in its better and more timely decision making by those who have a more direct interest in sensible decisions, given that they are both their authors and the bearers of the consequences (see section 1.5.1).
Information problem associated with multi-level hierarchies was noted above. There may also be a loss of selectivity through increased distance. The farther away a centre of decision and the more encompassing its responsibilities, the more difficult it may be for the decision maker to deal with small problems or issues of a predominantly local character which arise in the course of implementation and maintenance.
Similar conclusions emerged from donor project evaluation studies at the beginning of the 1980s (USAID 1982; 1983). Maintenance problems were attributed to the competition for funds at the centre - the relatively less glamorous task of maintenance together with the tendency of officials to be distracted by more nationally visible concerns. Further, it was found that highly centralised project selection, design and management led to the construction of economic infrastructure that did not fit local conditions - use patterns, social realities and economic needs. This in turn resulted in underutilisation and local unwillingness to finance maintenance. And where maintenance was the responsibility of centrally based teams which serve many dispersed communities, there were often be long delays in responding to system failures. It is therefore, at least partly, a technical problem - as to how technical information is obtained, and how technical services are provided in an efficient manner.
Local Participation in Decision Making
"The colonists...at least have a greater interest in coming to a right judgement and will take greater pains to do so, than those whose welfare is very remotely and slightly affected ... If the colonists make bad laws, and select improper persons to conduct their affairs they will generally be the only, always the greatest sufferers....and must bear the ills which they bring on themselves, until they choose to apply the remedy". (Earl of Durham in his 1839 report on Canada, quoted in Frenkel 1986).
Decentralization may alleviate technical problems in design and implementation given the greater relevance to local needs, conditions and available resources. If local authorities are willing and able to engage community support and participation their decisions and activities are likely to be based, to some extent, on the knowledge and desires of the local population. This, in turn, is likely to enhance the appropriateness and continued maintenance of local services and therefore the cost-effectiveness of the initial investment.
If decentralisation promotes community participation, the management of operations can improve. Irrigation, for example, requires decisions about on-farm use of water and allocations from the distribution point to the farms. Interaction and consensus among water users at the distribution level is crucial for efficient day-to-day operations (Paul 1989).
Thus the degree to which decentralisation alleviates problems in the design and maintenance of development projects appears to be largely linked to the issue of community participation. Whilst there exists an extensive literature on the latter, its relationship with the practical and technical aspects of the decentralisation of government does not tend to be an important express concern. In order to bring the two together, it is necessary to bear in mind the discussion of participation in decision-making in Section 3 below. Where decentralisation does facilitate and encourage local participation, then the benefits of community involvement - improved project design and implementation due to better match with beneficiary needs and better appreciation of local constraints etc. - can follow, and result in greater efficiency in government activities, especially in the long term.
For example, the use of participatory methods to build reliable water systems and to motivate the complex behavioural changes needed for health improvements requires effective communication with the village clientele. This involves both technical decisions (what size of pipe) and also the resolution of social conflict (where to put the pipe) (Cox and Annis 1982).
Wunsch (1990) argued that centralisation and decentralisation (as conventionally practised) are both flawed, and that the vast majority of decentralisation efforts have failed to resolve the inefficiencies which have hitherto plagued development projects. He noted the following deficiencies:
(i) The agendas and priorities of central ministries, which continue to control most program and project resources, have seldom been seriously affected (see Obstacles below);
(ii) There has rarely been a notable improvement in local broad-based participation - local representatives have been field personnel of central ministries, local members of the dominant party, or from the most powerful caste or class factions (see Participation below); and
(iii) Local plans are largely illusory, since localities were never allowed to raise and spend significant amounts of their own money (see Financial Autonomy below).
The main point which emerges from this critique is that if "decentralisation" follows the mode of deconcentration, improvements in efficiency through better implementation and maintenance are unlikely to follow. It reiterates the point made elsewhere that only where there is a thoroughgoing devolution of decision making power are the presumed efficiency gains likely to be realised.
Box 5: Water and Sanitation
The issues of maintenance and community participation are particularly relevant to water and sanitation infrastructure projects. Recent writings from the World Bank (1987; 1988; 1990) have emphasised the finding that centrally-provided improved water supply systems often do not function. It has been estimated that "one in four water systems is not working at any one time, and that the number of systems being abandoned is approximately equal to the number being commissioned. Where breakdowns force people to use contaminated water for even 2% of the time, this risks undoing the health benefits of drinking clean water through the rest of the year (Cox and Annis 1982). Even if they do function they are apparently often not being used. In Cote d'Ivoire and Kenya, for instance, surveys have shown that only one third of the population reported to have access to improved facilities actually used them" (Briscoe et al 1990 p.116).
In North-eastern Thailand, evaluations of a USAID project to provide handpumps found that, after five years, most of the handpumps were not working. The problem was that the villagers "did not want handpumps, which were not considered to be any significant improvement over the commonly used rope and bucket. Standpipes were no closer than their traditional sources and so offered no obvious benefits" (Briscoe 1988 p.10). (The IBRD studies tend to emphasise that sustaining and extending services depends upon mobilising "willingness to pay" - which has been the subject of contingent valuation studies. The main recommendation is for increased user charges).
Local Institutional Capacity
A growing body of literature underlines the vital importance of local institutional capacity in the operation and maintenance of development projects and programs. Fifty impact studies commissioned by USAID since 1979 have testified, almost invariably, to the proposition that local organisations must be able to shape development projects to their specific circumstances if such endeavours are to be both successful and sustainable (Harbeson 1990).
The institutional capacity of local government depends largely upon such factors as the quality and quantity of staff engaged by local government (this is discussed further in Section 6.2.1 below). There must be a sufficient degree of skills, training and management at the local level to carry out the relevant tasks, and enough funds to finance local priorities. There must be a significant degree of autonomy in decision making processes. And so on.
The Comparative Extent of Malfeasance
If, under decentralisation and the closer scrutiny of the people local government does become more accountable for its actions, the relative incidence of malfeasance may be reduced. The justification for favouring local government, rather than either deconcentrated or centralised administration, lies partly in "the greater capacity of local voters, compared to central decision makers, to evaluate performance" (Helm and Smith 1987). "Goldfish bowl" effects can set limits on nonfeasance and malfeasance by local authorities, as observed in the education context, regarding teachers (see below).
Malfeasance would be less likely under a decentralised system where at least some of the following conditions are met:
(i) active participation in, and discussion of, local government decision making by the local population;
(ii) open, clear and simple routine accounting procedures and reports;
(iii) at least a basic degree of numeracy and literacy in the community; and
(iv) some means by which malfeasance can be sanctioned - through, for example, the electoral process and the access of local people to cheap and effective adjudicatory systems to ensure due process and public accountability.
Yet problems of accountability do arise at the local level - corruption has been described as "rampant" (Manglesdorf, 1988). This ranges from doctors pilfering medical supplies at the local level and selling them in their private practices (as reported in Ecquador) to reports that local councillors and officials have behaved "irresponsibly" with public resources, being concerned primarily with personal emoluments, jobs and status (Stren 1989). In Africa, local government institutions had a "poor reputation...as the hot-bed of corruption, ineffectiveness and inefficiencies" (Olowu 1990). Hughes (1985) states that "all too frequently abysmal standards of morality and responsibility prevail, and local authorities have at various times been suspended on the ground of maladministration (including Banjul, Freetown, Calcutta and Delhi)".
Malfeasance (at any level of government) is a waste of resources. The question to be addressed here is its relative significance at local, as opposed to central, levels of government. Corruption has been found to be a serious problem pervading national administration in a number of developing countries (see HDR 1991). In principle, decentralisation which brings decision making closer to the people, accompanied by established mechanisms of local accountability, can improve the operations of government in this sense. Unfortunately there is little direct evidence on this point, nor any reliable estimates of the comparative quantitative significance of malfeasance at different levels of government. Box 6 presents the only available evidence, which relates to the education sector. Overall it tends to support the proposition that accountability is improved, and malfeasance correspondingly less likely, when decisions are made at the local level.
Box 6: The Comparative Extent of Malfeasance in Education
The limited evidence available suggests that accountability in education can be enhanced under a decentralised system. In developing countries where inspection and supervision are the responsibility of higher authorities, these functions are often poorly executed due to inadequate resources (Lockheed 1990). In Senegal, school visits were limited by lack of transportation: only 28 vehicles to be used by over 600 staff in 41 regional directorates. The scope for malfeasance appears to be higher in such situations, than where the local community (particularly parents and principals) are able to supervise, and have the authority necessary to manage and improve instruction.
In the Indian state of Karnataka, the Panchayata Act (1985) has involved people in planning and implementing local activities, through the gram sabha (meeting of all voters in the village). There has been a notable improvement in the attendance of teachers who are now accountable to the local community (Sanwal 1987). In Bangladesh, by way of contrast, where government teachers are centrally recruited, supervised and promoted, there is reported to be a high degree of absenteeism and malfeasance (by teachers). Their union strongly opposed attempts to delegate responsibility for teaching to the local level, allegedly because it feared the greater accountability that would result from such a shift (personal communication from a former secretary of the Ministry of Education, 1991).
The evidence on this point is not all one way, however. It is reported from Kenya that the Harambee schools, which are not subject to regular auditing, suffer from continued misappropriations of school funds to corrupt head teachers and their school committees (Mwira 1990 p.354). It is also noted that teacher opposition to local autonomy may be justified. One comparative study of the professional freedoms of teachers in 12 countries concluded that "the fact that the school cannot decide on promotions, appointments, dismissal and the recruitment of staff is a guarantee of professional freedoms" (cited in Davies 1988).
Efficiency - Sectoral Considerations
Ultimately the question of relative efficiency is largely empirical - unfortunately there exists little quantitative evidence which directly supports, or refutes, the various competing claims. An extensive search of the literature found only a handful of sectoral studies which rigorously evaluated the comparative cost of centralised versus decentralised provision. The distinguishing characteristics and concerns of each of the relevant sectors are summarised in the following subsections.
Reduced costs are often put forward as an important rationale for decentralisation of education (Winkler 1989). Highly centralised systems of purchase and distribution of school inputs may be manifestly inefficient (as in Brazil, where pilfering and spoilage of central stores is reportedly rife). The structure of centralised bureaucracies may also be relatively costly. Yet the support for greater decentralisation on the ground of cost savings appears to be more theoretical than empirical. McGinn and Street (1986, cited in Cassusus, 1990) concluded that in the field of education there is only slight evidence that these policies work, and on the contrary, that there are many experiences which demonstrate that decentralising policies do not increase administrative efficiency.
Case Studies
The construction costs of locally-built schools tend to be lower, due to cheaper materials and lower costs associated with contract administration (Winkler 1989, p19). BRAC schools hold classes in buildings made of bamboo or mud-brick, and children sit on mats on an dirt floor. However, there is evidence that children in schools with electricity and water learn more than pupils in schools without these facilities, although other improvements in construction have shown little impact on educational achievement (Lockheed 1990).
There is only scattered direct empirical evidence on the issues of local financing and cost effectiveness. Jimenez et al (1988) claimed to be the first empirical work exploring the impact of local financing. The study, conducted in the Philippines, found that for given levels of enrolment and quality, schools which rely more heavily on local funding are more efficient (i.e lower cost). Regarding quality, it was found that students at schools which relied more heavily upon local funding attained better 'achievement scores' (see table 3) - although it should be noted that these schools also tended to be located in more affluent and urbanised communities. Local funding, collected via a surcharge on taxes on real property and certain cigarettes, is administered by the local school board. The school administration, local government and parents are represented on these boards. Locally generated funds, while small compared to total expenditures, made an important contribution to non-salary recurrent costs. It was suggested that increased efficiency flowed through the following channels:
(i) A more appropriate input mix - Whilst teachers were assigned and paid centrally, local funding allowed schools to achieve a more appropriate balance between personnel and non-personnel costs (when central government spending on the latter had been falling).
(ii) Lower personnel costs - through lower salaries and/or fewer non-teaching personnel.
(iii) An improved incentive structure for local school administrators, accountable to local parents who are better able to monitor performance than central authorities.
On the question of cost reductions in education it is noted that teacher salaries and benefits account for as much as 95% of recurrent government expenditures on primary schools in developing countries (Lockheed 1990). Given that teachers' salaries have been eroded significantly in many of these countries over the past two decades, it is doubtful whether further cost-cutting is appropriate.
It is important to note that where cost reductions are achieved locally, this may well be due to a shift in the burden of resource provision - from governments to households through extensive in-kind contributions of the local community. Whilst cutting the overt costs of social services is an attractive proposition for central governments facing serious fiscal constraints, this may also impose severe additional burdens on poor families in times of economic distress.
It is generally held that locally-provided primary health care (PHC) is a more cost effective approach than the provision of large central hospitals (see e.g. HDR 1990; 1991). This follows from cost savings on personnel, more appropriate technology, cheaper and effective treatments, and lower overheads. On the other hand, decentralisation may enlarge the scope for delays, supply problems and malfeasance. The literature reflects that there are factors working both ways - enhancing and diminishing efficiency. On balance, the available evidence appears to favour decentralisation - which is largely due to the association between decentralisation and the pursuit of PHC alternatives.
Case Studies
Water and sanitation
Decentralization in the water and sanitation sector can lead to cost savings in a variety of ways. It may encourage voluntary contributions of materials and labour services. Community involvement in operation and maintenance can save money by reducing the number of expensive post-construction visits by outside maintenance personnel. Yet extensive local consultations and involvement may be more time-consuming and lead to delays. It is noted that much of the available evidence relates to the transfer of responsibilities to local communities and public utilities, and the use of private contractors, rather than to local governments per se.
Case studies
On the other hand, there is evidence that decentralised provision of water can be inefficient, in terms of high installation costs, inadequate maintenance and so on. It is also noted that water systems built with extensive community participation can take longer to complete - the organisation and training of village water committees, health education and the instruction of local maintenance personnel all require the time and effort of program personnel.
Box 7: The Impact of "Demunicipalisation" Upon Efficiency - A Controversial Example.
Colombia provides an interesting example of decentralised responsibility for water and sanitation, through semi-autonomous "decentralised agencies", rather than local government. The underlying rationale was that the municipios were inefficient, providing services on the basis of political/ personal criteria which were too charitable to consumers. The agencies, by way of contrast, were seen as technocratic with the virtues of flexibility and expertise. From the 1960s the agencies expanded in both size and number, and local governments became increasingly marginalised and functionally insignificant.
There exist quite different assessments of the Colombian approach. The World Bank regards the program, which attained rural coverage of 80%, as the "best in Latin America", and states that local beneficiaries played a major role in all stages, from initiation to operation and maintenance. An administrative committee includes members of local authorities and village development committees, as well as locally elected leaders. In contrast, Collins (1989) is far more critical. He argues that the "demunicipalisation" of service provision in Colombia was selective. Local government continued to provide services in many of the larger urban centres (see Table 5), so that the pattern which emerged was of "a confusing mass of interwoven institutions and lines of authority with shared finances and responsibilities".
In practice, according to Collins (1989) the record of the agencies was disappointing. Decision making was highly centralised, delays frequent, corruption rife, and the agencies remained highly dependent upon central funding. Field research in 1983-4 found that the growing social protest movements in the country held the decentralised agencies responsible for deficient public service provision - and that some 63% of the movement was directed against the agencies (Collins 1989). Since that time there have been significant changes in the structure of state organisation in Colombia - local government has been entrusted with the task of improving basic services, and the decentralised agencies reformed or abolished.
Housing
Decentralization can promote efficiency in meeting priority housing needs. It is widely held that greater efficiency requires a shift in the focus of public policies, away from direct central provision, towards the creation of an 'enabling environment' together with a larger role for local government, self-help and community groups. It has been observed that tapping local entrepreneurship, building materials and other underutilised local resources, will lower costs (UN 1989). Rather than replacing national with local direct provision, decentralisation may facilitate the satisfaction of basic housing needs via the creation of an environment which better facilitates private activity in the housing sector. Zoning and land use regulations, as well as basic infrastructure, may be more appropriately decided upon at the local level.
When the public sector does undertake upgrading projects, the role of local authorities can be important in promoting community participation. Unclear expectations of what the authorities would do can cause apprehension among beneficiaries leading to local opposition to housing projects (Paul 1989). Community consultation and participation can help to overcome expensive delays and hurdles to implementation, and result in significant efficiency gains. According to Paul (1989) the potential contribution of community participation, in terms of the savings in time and money arising from the smooth implementation of tasks which are normally prone to delays, is especially relevant to housing projects.
On the other hand, the evidence does indicate that local government involvement is not a panacea for the housing sector. It has been argued that even with "genuine innovation in technology, materials, financing and institutional support... self help, mutual help, sites and services, progressive slum upgrading, institution building and wholesaling rather than upgrading ... honesty, bureaucratic efficiency and community participation", government provided housing is still "too expensive" (Annis 1987). Indeed, it appears to be generally accepted that public institutions, at any level, cannot directly meet the need and demand for decent housing in a fiscally sustainable manner.
Case Studies
Decentralisation can lead to more efficient provision of economic infrastructure in terms of both product design and unit costs, and maintenance. The latter point was explored above (sections 1.3, 1.6). As to construction, the relevant possibilities lie in the use of local construction materials and labour, and the more appropriate selection of the type and location of facilities.
Where infrastructure policies are applied generally across-the-board, rather than directed specifically toward particular localities, the resulting provision may be more costly and inefficient than what would have been the case where local conditions were taken directly into account. Infrastructure programs which fail to develop or apply technologies for small scale applications typical of rural areas, and require rural areas to use facility designs that were developed for large-scale urban operations, have imposed higher operating costs onto local residents than they can afford to pay (OECD 1986).
Sanwal (1987) stated that "it is only now being recognised that (government) programs for human development require spatial decentralisation and co-ordination... The electricity board can lay transmission lines very efficiently but rural electrification requires the planning of these lines according to village concentrations, and an economic return on the investment is dependent upon power connections taken for village industries."
Case studies