Decentralizing Governance: Global Practices

July 22, 2015

Talks & Interviews

Dr. Shabbir Cheema

Dr. Shabbir Cheema, Director Asia-Pacific Governance and Democracy Initiative (AGDI) and Senior Fellow – East West Center, Honolulu, Hawaii was invited to deliver a talk on Decentralizing Governance: Global Practices at the Centre for Public Policy & Governance on 22nd October, 2014.

Dr. Cheema opened his remarks by discussing the major contemporary global transformations which were interlinked with decentralization practices. First was the process of democratization, which has had an upsurge in popularity. According to him most of the world at least had electoral democracy with the exception of a few suppressive regimes. Asian countries were progressing towards mature and some rapidly consolidating democracies. This was reflected in elections, parliaments, freedom of the media, civil society engagement, and independence of judiciary. Cheema argued that decentralization and democracy were inherently linked and one couldn’t have effective meaningful democracy without decentralization.

The second primary global trend was urbanization as more than half of the world’s population now lived in urban areas. Megacities in Asia were emerging as centers of power, innovation and technology. Thirdly, globalization had led to a greater and faster exchange of goods, services and capital, and greater mobility of individuals. Also, supra-national institutions and global networks had emerged. Fourth transformation was the rise of Information and Communication Technologies (ICT), which had led to an increased access to knowledge, and shrinking time and space. Information societies were demanding new patterns of government organization and processes.

Cheema then proceeded to analyze the design of decentralization policies of three specific countries: Indonesia, Brazil, and China, who were all significant players in the global economy.

Indonesia – The Big Bang Approach: Indonesia, the largest Muslim majority country, had introduced a comprehensive new decentralization law following months of political protest in 1998. The decentralization policy was aimed at improving public service delivery, increasing community participation and ensuring the accountability of local governments (LG). The country was now divided into provincial, district and municipal regions, all of which were autonomous. Under this law, all central government administrative authorities were transferred to provinces, districts and municipalities except for foreign affairs, defense and security, judiciary, monetary and fiscal policy, and religious affairs. This was referred to as the Big Bang approach to decentralization. Unlike India and Pakistan, Indonesia was a unitary form of government, though it was much more decentralized than many federal governments including that of Pakistan.

Cheema further explained that decentralization had three main processes: de-concentration, the dispersal of government offices; delegation, delegation of selected powers; and mostly importantly devolution, transfer of political and economic power. In Indonesia, a greater emphasis was laid on devolution rather than on de-concentration. A shift from vertical to horizontal responsibility, and clear provisions for the allocation of funds from central to local governments were made. In the last decade, Indonesia had downsized its central government and strengthened local administration. During the first three years of implementation, 2.2 million central government employees were reassigned to regional governments, along with the control of 16,000 service facilities. Majority of public servants were under local government’s management and supervision. Indonesia had also increased regional budgets. In the past, development budget had been controlled by the central government. But In 2002, the development budget controlled by central ministries was only 14%. In terms of political participation and democratization, provinces had regularly elected governors while districts and cities had elected mayors.

He pointed out that Indonesia had been an autocratic government through the 60s up until the 90s, and the military controlled not only the polity but also the economy. The military control was much more deeply entrenched and stronger than that experienced in Pakistan historically. However, through the process of effective decentralization, polity had extricated itself from military rule and deepened democratization practices. Empirical evidence showed that fiscal and political decentralization in local public investment had significantly increased public infrastructure (education, health and physical) investment at the district level and increased responsiveness of LGs to local public infrastructure coverage.

“… reforming civil service to the new reality of decentralized governance and citizen-based accountability for service delivery was critical.”

Brazil – Collaborative Governance: Brazil’s example showed that social service delivery could be improved through decentralization, provided the country came up with a practicable paradigm of shared or collaborative governance, meaning that the roles of the central, state and local governments were clearly delineated.

Brazil was a federal system, one of the most decentralized in the world where states had constitutionally guaranteed powers and resources. Brazil’s decentralization of health and education services was exemplary as each of the three levels of government were involved. For example in health policy, the federal government formulated national health policy, designed health standards, and provided general guidelines. The states designed policies and controlled health service delivery while the municipalities were responsible for formulating, administering and executing programs of local health services. Each of the three levels of government participated in financing with specific responsibilities assigned to state and local governments along with significant autonomy to use their generated resources. Thus, the determinants of success in Brazil were the coming together of shared (collaborative) governance, fiscal and administrative decentralization, and ideological commitment to equity in health policy. The case of education policy followed a similar pattern.

China – Robust Local Governments: Throughout the 1980s and the early 1990s, China implemented a series of reforms to decentralize its fiscal system so as to provide more incentives for local governments to promote economic growth. In 1994, the government introduced tax sharing reforms in order to boost central revenues and enhance intergovernmental transfers. The provincial role was restricted while local governments were empowered such that they accounted for 51.4 percent of the national expenditures. Table 1 depicted the comparatively high subnational share of government revenue and expenditure in China as compared to other countries. Compared to the decentralized fiscal system, China’s political system was still centralized and could be described as a multidivisional- form hierarchy structure.

Cheema stated that many scholars had attributed China’s remarkable economic performance since 1978 in part to the country’s fiscal decentralization. Decentralization had restrained predatory central interventions while stimulating local policy experiments. The locally diversified structure of the pre-reform economy was said to have facilitated liberalization of the economy, and motivated local officials to promote development. In other words, local governments were catalysts for development.

Fiscal Decentralization Indicators: China vs. Other Countries

Note: Data for China are for 2005. Data for other countries are for various years and adapted from Shah (2004).

Concluding the discussion on case studies, Cheema argued that extensive research on the relationship between decentralization and service delivery had showed a strong positive correlation between the two. Decentralizing governance had many dimensions – political, economic and administrative. While Indonesia and Brazil had made significant progress in political decentralization, China’s progress had focused on local economic development and entrepreneurship. Decentralization was part of the ideology of democracy, but also a means to an end, the end being service delivery. However, while it was possible to learn from the paradigms of other countries, what worked in China or Brazil, may not work in Pakistan due to differing cultural and political environments. Policy makers needed to delineate the policy and implementation for their own context.

“Punjab alone was bigger than 40 countries, so there was unarguably a need for more provinces.”

Cheema then shared a recent research on decentralization conducted by the Harvard University Study Group on Decentralized Governance. It constituted 25 leading decentralization experts from around the world and carried out an assessment of recent experience in Africa, Latin America and Asia, specifically looking at a diverse set of ways in which countries designed and implemented decentralization programs, and how decentralized governance contributed to development objectives and challenges. The study found that there was no one-model-fitsall and each country needed a different combination of reforms. However, it was essential to determine the scope of decentralization ranging from administrative, political and fiscal, while a gradual pace of reform should be part of a comprehensive strategy to restructure the state.

He explained that though there was mixed evidence on the impact of decentralization on economic growth, still decentralization did make a significant difference in service delivery and public participation. Thus, the case for decentralization needed to be made same as democratic governance i.e. as a means to an end (improve service delivery) and as an end in itself (promote democracy). Another global lesson learnt was the need for provincial and local capacity building to effectively implement decentralization programs: one, the ability of local governments to mobilize resources; two, introduction of new methods and skills for public administration; three, demands and participation of civil society; four, training and re-orientation of officials at national and local levels to promote intergovernmental coordination and collaborative governance.

The study also found the following evidences: one, political devolution could have positive impact on the accountability of government and sustainability of democratic process, provided it was undertaken in the context of an agreed constitutional framework; two, evolution must be accompanied by mechanisms and instruments to promote accountability such as transparent procedures for public procurement, participatory budgeting and auditing, promotion of ethics and civil society engagement; three, there was a need to mobilize political support and ownership at the national level because national governments often announced major decentralized governance programs through their policy statements but were reluctant to devolve resources to local governments. A downside to decentralization was a rise in disparities among different regions of a country thereby further increasing the gap between rich and poor provinces. Thus a need for intergovernmental sharing of revenues, and mechanism of central transfer to poor provinces to ensure that both growth and equity objectives were achieved.

“Empirical evidence showed that fiscal and political decentralization in local public investment had significantly increased public infrastructure (education, health and physical) investment at the district level.”

Cheema then focused on decentralization in Pakistan stating that the 1973 Constitution, 2009 National Finance Commission Award and 18th amendment to the Constitution were landmark events in strengthening the Pakistani federation. The 18th amendment had refurbished and revitalized two federal institutions: the Council of Common Interests (CCI) and the National Economic Council (NEC). The list of federal-provincial concurrent responsibilities was deleted, selective functions were reassigned to the federation under CCI guidance while others devolved to the provinces (17 ministries & provincially owned entities). This had given the provinces control over all local government institutions and residual functions not enumerated in the constitution. The provinces now had a free hand regarding all public services delivered within their territory. Fiscal consequences of the amendment were as drastic, as the federal-provincial share of expenditure had changed from 65-35% (2010) to 45-55% (2015). Federal government had ceded the responsibility of taxes on immovable property, estate and inheritance, value-added tax (VAT) on services, and zakat and usher (religious taxes) to the provinces. Further, provincial privileges to borrow through domestic and foreign loans were expanded, subject to conditions imposed by the NEC.

In conclusion, he argued that it was important to recognize the impact of these changes and the need for reform for multi-order governance, and this required mobilization for continued political support. One aspect of the challenges was inter-provincial such as the issue of natural resource ownership, inter-provincial water and gas distribution, and new hydroelectric projects for which the federal government required prior consulting with the provinces. The second aspect was intra-provincial governance: revenue generation through taxation of agriculture income, capital gains and services; and building effective local governments as the third tier. Further, reforming civil service to the new reality of decentralized governance and citizen-based accountability for service delivery was critical. Summing up, he stated that at the end of the day, a difference would be made only through collaborative or shared governance between federate state and local governments.

“… many scholars had attributed China’s remarkable economic performance since 1978 in part to the country’s fiscal decentralization.”

The talk evoked a number of questions from among the participants. Regarding a question on additional provinces in Pakistan, he cited recent studies to state that federations that had eight or more provinces were more likely to be successful as federations. Punjab alone was bigger than 40 countries, so there was unarguably a need for more provinces. However in comparison to Punjab, provincial division was a more politically sensitive issue in Sindh, which made the process more challenging.

Regarding a question on governance in militancy prone areas where devolution may result in more power to the warlords, he referenced case studies to suggest that building on indigenous institutions was a successful governance model in insurgency prone areas. However, indigenous institutions may be suppressive and cruel. Nevertheless, working with locals and power sharing was better than imposing centralized control in a traditionally ruled society.

Replying to a question on the reasons for the failure of local government systems, he cited a recent study conducted in Asian countries’ which found that the Members of National or Provincial Assembly instead of performing their primary role, practically became local counsellors. It was thus pivotal that provincial and national governments recognized the importance and centrality of the local governments.

In response to a question regarding the impact of civil military relations on decentralization, he stated that greater military control had resulted in political alienation and breakup of federations. Military dominated governments almost always pushed for a higher level of centralization with destabilizing effects on a federation. Thus, military domination was inherently incompatible with decentralization.

“… the federal-provincial share of expenditure had changed from 65-35% (2010) to 45-55% (2015).”