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Posts Tagged ‘decentralization’

As part of a new paper, I’ve been doing research on decentralization in Aceh, Indonesia. Bringing to a conclusion an approximately 20-year insurgency, the Free Aceh Movement (GAM) and Indonesian government came together in a spirit of comity following the devastating Indian Ocean Tsunami and signed a peace deal giving the region ample new autonomy. Or so the usual story goes.

Here’s the reality. GAM came to terms with the Indonesian government because a brutal military offensive, paired with the imposition of martial law, had reduced their numbers significantly. Still, giving up their dream of independence for Aceh was a bitter pill. In the end, they agreed to the Helsinki Memorandum of Understanding, which provided for the laying down of rebel weapons and new autonomy for Aceh.

That Memorandum of Understanding was never implemented in full. In particular, two provisions – the ability of Aceh to enact primary legislation without central government veto and the ability of Aceh to veto Indonesian treaties and other laws under certain circumstances, were not included in the final bill passed by the Indonesian legislature. In addition:

The Free Aceh Movement (GAM) and dozens of NGOs complain that the new law falls short of the autonomy provisions in the 2005 accord and allows considerable interference by the central government:

Central government powers: Article 11 stipulates that the central government sets the norms, standards and procedures and also monitors all affairs of the Aceh regional administration.

Control over natural resources: Aceh is to retain 70 percent of revenues from its natural resources. But Article 160 stipulates that the management of oil and gas resources in Aceh will be done jointly by the provincial administration and the central government. This is a departure from earlier pledges by Indonesian lawmakers that the Acehnese administration could manage its own resources.

Role of the Indonesian military: The peace accord stipulated that the Indonesian military would be stationed in Aceh only for national defense and would not participate in provincial affairs. But Article 193 of the law gives the army powers within the province.

Human rights: Perpetrators of human rights violations will likely escape justice. An ad-hoc tribunal (Article 215) will only hear cases that occur after its establishment, rather than having retroactive powers.

Aceh even lacks the ability to levy its own taxes, apart from a trivial “alms” tax for poor relief. Thus, Aceh’s autonomy is far less than that enjoyed by, say, Rhode Island. The only new autonomy Aceh received in the peace deal was the right to form local political parties. Otherwise, the main provision was to transfer significant hydrocarbon revenues to the province. With one hand, the Indonesian government double-crossed the former rebels and took away their ability to go their own way on economic policy, and with the other, they bought them off — but of course, that bribe comes with an implicit threat: behave or else we take it back.

How did the Indonesian government get away with the double-cross? Simple: (more…)

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Having finally turned the corner on a brutal, 11-day (and counting) cold, I feel up to getting back to my blogging routine. First up: a followup to last month’s post, “Why So Little Decentralization?”

To review, that post posed a puzzle (a problem for political scientists to ponder, you might say). The puzzle is this: developing countries are far more centralized than developed countries. That is so despite the fact that some developing countries are much larger and more diverse than developed countries, and many of them have now been democratic for quite some time. Furthermore, if decentralization were simply a relict of post-medieval state-building (some might venture that sort of claim about Switzerland, for instance), then the fact that developing countries have lower state capacity and a more recent independence than almost all developed countries deepens the puzzle.

I went through two explanations that do not actually explain the puzzle very well: shallow local talent pools and illiberalism. In particular, they cannot explain why developing countries are often very decentralized along some dimensions (allowing discrimination against goods and workers from other regions, linguistic and cultural rights, etc.), but not others (chiefly tax policy).

I think there are two explanations that actually work: secession prevention (in ethnic federations) and excessively personalist electoral systems (in nonethnic federations). In this post I’ll talk about secession prevention.

Some developing democracies are ethnoregionally diverse, that is, they contain minority ethnic homelands that could form the basis of independent states. Examples include (more…)

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Many scholars (for instance) have noted a trend around the world of greater decentralization, at least on certain dimensions. Many non-federal, unitary states have tried to devolve some spending and decision-making authority on local or regional governments. Virtually every democratic government nowadays at least feigns some interest in decentralization.

Yet what strikes me is how little decentralization there has been, especially in the developing world. Some developing democracies that are sometimes described (or describe themselves) as “federal” or “semi-federal” include Mexico, India, Indonesia, Brazil, Argentina, Venezuela (before it went authoritarian some time in the 2000s), South Africa, Malaysia, Pakistan, Iraq, Nepal, and Nigeria. Yet none of these countries, other than Mexico, affords its constituent state or regional governments autonomy commensurate with that found in federal and semi-federal “Western liberal democracies” like Spain, Canada, the U.S., Switzerland, Belgium, Germany, Austria, Australia, and Italy. For instance, in Brazil, states do not have exclusive powers, and the federal government may overrule any state law with its own legislation. In India, the federal government may suspend state governments from operating at all and impose “President’s Rule.” Of all developing democracies, only India, Mexico, and Brazil routinely allow subcentral governments to raise significant revenue through autonomous taxation policies. (I count 9 Western democracies with such fiscal autonomy.)

Some of these developing countries are both huge and ethnically and regionally diverse, India and Indonesia most notably. One might think that these governments would have even more reason to decentralize than would the governments of comparatively homogeneous Western democracies. Therefore, the relative lack of decentralization in developing countries remains a puzzle.

One explanation might be the smaller talent pool in developing countries. Decentralization might not be feasible because uneducated or politically unsophisticated local officials require close supervision from a small cadre of Western-educated central administrators. While this explanation might have some weight in very poor democracies like Mali (before the recent coup), it likely does not apply to the majority of the cases just mentioned. If the talent pool in developing democracies were desperately shallow, then small developing democracies should have little state capacity plus all the adverse sequelae political scientists typically attribute to state weakness. Yet many small democracies in the developing world have performed fairly well: Costa Rica, Jamaica, Trinidad, Botswana, Mauritius, and Namibia, not to mention Slovenia and the Baltic republics in central and eastern Europe. There is no obvious positive relationship between country size and economic or political performance in the developing world.

Furthermore, many of the cases just mentioned do boast significant decentralization along some dimensions. For instance, India and Indonesia lack a unified internal market, allowing local and state or provincial governments to impose trade barriers on products from other regions. This is an economically perverse form of decentralization and one that has been nearly stamped out in the West, apart from certain discriminatory government procurement regulations. In addition, many developing democracies feature significant decentralization of expenditures: local and regional governments control significant budgets, but those budgets are funded by central grants, and most policy authority lies with the center. This set of policy choices is also likely economically perverse, as “vertical fiscal imbalance,” whereby subcentral governments depend heavily on grants or mandatory revenues from the center, tends to encourage fiscal irresponsibility. In Argentina in the 1980s and 1990s, provincial governments established their own banks, which were forced to lend money to those governments, leading to repeated fiscal crisis.

Another explanation might be that there is something about the Western liberal tradition of political philosophy that encourages decentralization. Many developing democracies fit within the category of “illiberal democracies,” where majorities use their political power to trample the rights of minorities. Sri Lanka might be just such a country, where the Sinhalese majority has repeatedly refused to countenance significant autonomy for the Tamil minority, and the central government fought a brutal civil war against Tamil rebels, complete with vast numbers of civilian killings and other human rights violations.

There may well be something to this explanation, but there are also hazards. As Vito Tanzi noted (PDF), demand for decentralization rises with size of government. A nightwatchman state can afford to be centralized because no one really cares about who controls it. Developing countries have bigger governments than Western democracies, not in the government spending as a share of GDP sense, but in the sense that the distribution of resources in such societies is more elastic with respect to the distribution of political power. So demand for decentralization should be higher there. True, the constraint might instead be supply: the views of political leadership in such societies. But then why the “perverse” decentralization in some countries?

To examine the extent and form of decentralization in developing democracies, I have, with the help of University at Buffalo Ph.D. student Govinda Bhattarai, developed a new dataset of regional self-rule in consolidated democracies worldwide. The coding scheme extends that introduced by Liesbet Hooghe, Gary Marks, and Arjan Schakel for Western democracies and various postsocialist European countries. Without going into details here, I will simply note that we coded the scope of policy powers of subcentral governments, the scope of taxation powers of subcentral governments, the local electoral accountability of subcentral officials, and the ability of the central government to veto subcentral laws.

Using those indicators, I then construct two higher-level, multiplicative indices of economic self-rule and political self-rule. Economic self-rule takes into account political self-rule as well as the tax autonomy of subcentral governments. Economic self-rule ranges from 0 (none) to 48 (maximum). Political self-rule ranges from 0 (none) to 16 (maximum).

The scatter plot below shows regional self-rule on the economic (Y axis) and political (X axis) dimensions in 2006, the latest year for which data on regional self-rule in the Hooghe, Marks, and Schakel dataset are available (our data go to 2010, however). Each observation in this plot is a type of region: either a particular region with its own autonomy statute (like Aaland in Finland or Scotland in the UK), or a type of regional government with the same autonomy arrangement (like states in the U.S. or in India).

economic & political self-rule(You can click the image to get a better view.)

Look at how few (more…)

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I recently read Daniel Treisman’s brilliant book, The Architecture of Government: Rethinking Political Decentralization. This book is particularly important for classical liberals who defend decentralization as an important institutional reform for promoting and protecting individual freedom. Treisman’s thesis is essentially that decentralization is overrated. He doesn’t argue that decentralization generally has bad consequences, even under readily identifiable circumstances, but that the consequences of decentralization are so unpredictable and case-specific that few generalizations, even highly conditional ones, can be made about them. The book is largely architecture of governmenttheoretical, and Treisman takes on standard justifications of decentralization like Tiebout sorting, the role of mobile capital in keeping government small, and keeping government “close to the people.” While Treisman’s counterarguments to decentralization’s defenders are well thought out and in many cases persuasive, I remain more optimistic about our ability to make valid generalizations about decentralization. Still, any defender of “competitive federalism” or more local governance will need to grapple with Treisman’s challenges. I’ll take some of the most important of these challenges in turn.

One common argument for decentralization comes from Charles Tiebout: competition among local governments providing public goods allows residents to reveal their true preferences for these goods and incentivizes local governments to act on those preferences. Treisman argues that key assumptions of the model are so thoroughly violated in reality that the predictions of the model are not likely to hold true in the real world.

First, he argues that if “public service differentials are capitalized into property prices, then pressure on governments may disappear completely” (79). Residents then won’t leave districts that provide poor public services, and local officials will not be disciplined. (more…)

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There are many angles to the ongoing protests in Istanbul and throughout Turkey, as there are to Turkish politics in general, but the one thing that struck me about this story when it first broke was: In what other country in the world would a national government have the power to decide whether a park in any city would be turned into a shopping mall?

Maybe France. In the 1970s.

(And yes, I’m aware of all the ironies here. Kemal Ataturk admired Jacobin centralization and brought it to Turkey; the AK Party hates the Kemalists, and vice versa; the AK Party nevertheless has adapted Kemalist institutions to their own purposes; etc.)

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In my last post on this topic, I described an ideal system of federalism and its advantages and disadvantages. One of the concerns that progressives often have about this kind of federalism, which I wish to take seriously, is that it will lead to a growing gap between the incomes of rich and poor regions (such as states in the U.S.). In this post, I’m going to summarize my findings on the empirical evidence on the relationship between federalism and inequality.

What I want to explain here is the extent to which different countries feature regional convergence or divergence in per capita incomes. That is, in some countries rich regions grow faster than poor ones, and in others poor regions grow faster than rich ones. The way to measure that is with the “annual rate of convergence,” which represents the average rate at which the differences in per capita income between a poor economy and a rich economy disappear, all else equal. A figure of 2% would mean that 2% of the average income difference between a rich and poor economy disappears each year. Even when convergence is happening, that does not mean that measured inequality between regions necessarily goes down, because random shocks can intervene (such as oil discoveries or real estate busts). But it’s a key question whether federalism can cause regional economies to convergence faster or more slowly (or even diverge).

Here is how some countries differ in their measured rate of regional convergence over the 1995-2005 period, the longest and most recent period for which consistent data are available (regions are defined as the subnational tier of government enjoying the greatest economic self-rule, which is in turn defined below: states in the U.S., autonomous communities in Spain, provinces in Canada, Laender in Germany, counties in Denmark, etc.):

Some countries actually experience regional divergence, in which richer regions grow faster than poorer ones: Slovakia, Poland, Ireland, Hungary, the Netherlands, and Japan, most notably. The fastest converger in the sample is the European Union (the 15-member EU prior to the entry of the postcommunist states and Cyprus). In other words, the gap between poorer EU states and richer EU states was erased at a 5% annual clip between 1995 and 2005. Much of this remarkable performance had to do with the steep rise of Ireland, but even when Ireland is excluded, the EU is a star performer among these “countries.”

In the chart above, there is no clear relationship between how (more…)

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Once upon a time, local governments accounted for the lion’s share of economic policy-making in the United States. Before World War I, not only was the federal government’s economic policy-making activity strictly limited to areas such as international trade, management of federal lands, trust-busting, and food and drug regulation, but state governments themselves were also internally decentralized. In 1913, local government own-source revenues (revenues raised autonomously by local governments, thus excluding grants) as a percentage of total state and local revenues (including federal grants to state and local governments) stood at a whopping 82%, according to my calculations based on historical Census Bureau data. If we assume that revenues track economic policy activity closely, this figure implies that four-fifths of all state and local economic policy activity occurred at the local level.

Today, of course, local governments are quite limited in their economic policy autonomy, with the most important remaining policy role left largely to local governments being K-12 education. Local revenue decentralization (the variable described in the last paragraph) was just 38% in 2008. This chart shows the evolution of local revenue decentralization over time for the U.S. as a whole:

So who killed local autonomy in the U.S.? The answer is: (more…)

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