The Political Economy of Decentralization Reforms

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1 The Political Economy of Decentralization Reforms Informal Development Partners Working Group on Decentralisation and Local Governance (DPWG-DLG) 5th Annual Meetings Washington, DC, 9 June 2010 Kent Eaton, University of California-Santa Cruz Kai Kaiser, World Bank Paul Smoke, New York University

2 Starting Premise Decentralization is a diverse and complex phenomenon that is often treated too much as a technical exercise by development partners. Decentralization reforms could likely be designed and implemented more effectively if more attention were paid to political and institutional dynamics More political economy (PE) analysis Better decisions by DP staff Better outcomes

3 Goals of the Effort To demonstrate how PE analysis can help to illuminate the political and institutional factors that have been most conducive to (and most obstructive of) decentralization adoption and implementation To advocate for greater pragmatism and flexibility in decentralization reforms, which is particularly critical in changing (and often quite volatile) political circumstances of countries in which development partners operate

4 Organization of the Presentation Part I: Politicians Incentives Part II: Bureaucrats Incentives Part III: Dynamism of Context and Incentives Part IV: Challenges, Opportunities, Questions

5 Part I: Politicians Incentives What drives politicians to decentralize? Politicians cite lofty goals for decentralization (i.e. democracy, development, public security). But other, more immediate, narrowly political factors are usually at play Need to move beyond political will to decentralize: assessing the political incentives facing politicians Politicians decentralize when it serves their political interests, career paths, support coalitions and/or security of tenure.

6 The Puzzle of Decentralization National politicians tend to lose power, resources and authority when they agree to decentralize. But national politicians also formally control the very decision to decentralize (national laws, constitutional reforms, and/or government decrees) So why do they endorse decentralization? They are motivated by electoral, partisan, institutional and coalitional incentives

7 Electoral/Partisan Incentives Electoral dynamics can lead national politicians to support D (if they believe their parties electoral chances are stronger at the subnational level) In countries where political parties matter, bargaining over D reflects: Intra-party dynamics: If subnational politicians are powerful within their parties, they can force national party leaders to adopt D Inter-party dynamics: Parties can use D in their competition with one another, as in presidential systems when different parties control different (legislative and executive) branches.

8 Institutional Incentives Representatives of the national government face institutional incentives to defend the center, e.g.: Their support for certain sequences of D, like administrative before fiscal or political D Their decisions to privilege one subnational level over another (intermediate vs. local governments) Different regime types produce different incentives (e.g. in democratic regimes, the D process is shaped by formal legislative and judicial institutions) D is also shaped by informal institutions Clientelism, for example, is an informal institution according to which politicians deliver material benefits in exchange for political subordination. D may provoke opposition from politicians who depend on existing clientelistic networks.

9 Coalitional Incentives Coalitional incentives involve societal actors (rather than the state) Generally more significant for implementation (than adoption) of D Often generated by underlying social relationships and cleavages Class: Labor unions may find D threatening Business associations may believe they can benefit from D Ethnic: National politicians use D to stitch together new governing coalitions, particularly in post-conflict settings National politicians view D through the prism of their relationships with customary authorities, who may be threatened by D.

10 Part II: Bureaucrats Incentives Bureaucrats do not just implement decisions of politicians they are political actors in their own right who pursue institutional and individual career interests Central governments are not monolithic entities substantially independent ministries with a stake in decentralization and varying levels of power may have different interests and few incentives to give up power and control over resources Some ministries have consequential internal divisions as well

11 Key Bureaucratic Actors Local government/administration ministries: Local Government, Interior, Home Affairs, etc. Cross-cutting function ministries: Finance, Planning, Civil Service, etc. Sectoral ministries: education, health, infrastructure, social services, transport, water, etc. Some common patterns of cross-agency relationships and tensions

12 The Challenge of Coordination Influential central agencies commonly battle for control over the decentralization agenda or particular aspects of it and coordination is often elusive A ministry or agency with specific interests can be formally placed in charge of detailed design and implementation but may not have sufficient credibility, mandate or authority Lack of appropriate coordination and accountability often results in muddled decentralization and problematic outcomes

13 Role of Development Partners Influential/leading ministries can develop links with and secure resources from particular development partners that heavily influence design and implementation These alliances not uncommonly empower government agencies to take inconsistent steps in the development of the intergovernmental system Power relationships and coordination or lack thereof among government agencies can be strongly reinforced by donor behavior

14 Part III: The Dynamism of Context and Incentives After decentralization is adopted reality sets in for once complacent central agencies that did not protest decentralization adoption Unintended or unexpectedly severe consequences may arise from the implementation of decentralization Changes in power may motivate reassessment of positions on decentralization Other major shifts in underlying conditions may reinforce or undermine decentralization

15 Post Adoption Reactions Central government ministries that initially supporting politically driven decentralization may reconsider when they later understand the potential implications for their own power, resources and influence Central agencies that did not see themselves as having a stake in decentralization may decide to enter the field when they see opportunities to benefit from being involved in or influencing the process

16 Unintended Consequences Decentralization can unleash forces that create challenges to the regime, empower new actors (e.g. municipal associations), or lead to fiscal/institutional problems (interjurisdictional resource conflicts, creation of too many new local governments, etc.) Emerging evidence on the performance of decentralization can also create (productive or problematic) efforts to strengthen or weaken decentralization

17 Changes in Power Once a political party succeeds in taking power, it can renege on its commitment to decentralize (overtly or tacitly) if such a policy no longer serves their interests and they think they can get away with it Emergence of a multi-party environment or changes in the balance of power among existing parties can lead to repositioning of stands/policies on decentralization (either pre- or post-election) and a reconfiguration of the relevant institutional landscape

18 Shifts in Underlying Conditions/Crisis Response If a political or economic crisis initially stimulated decentralization, the reduction of the urgency of the crisis can lead to a stalling or outright undermining of the decentralization agenda The emergence of a new political or economic crisis can create an impetus to invigorate weak attempts at decentralization or to recentralize

19 Part IV: Some Challenges, Opportunities, and Questions It is difficult for outsiders to understand, (much less to seriously influence) political/institutional realities surrounding decentralization reform But this is no excuse for failing to try since these realities are often so central in shaping the possibilities for adopting & sustaining reform If political/institutional dynamics can be better understood, better decisions can likely be made about which actors to work with and how (dominant/traditional players or others)

20 Challenges (continued) There may be difficult decisions if there is a political window of opportunity to support reform, but what seems possible or desired is not likely to support sustainable change consistent with DP values Piloting innovative approaches, well explained/disseminated analytical work, educational/capacity building efforts, and behind the scenes advocacy can be productive where DPs are not comfortable with the political direction of decentralization

21 Some Questions Key Diagnostic Questions What is the fundamental nature of the official decentralization policy and framework? What motivates policy and does it seem genuine? Who are the key actors involved and how? Are certain actors more powerful than others and what are the (likely) consequences? What seems to be the main agenda of the key actors (are they acting consistently or at cross purposes)? How have DPs been involved and to what effect? What progress has been made with implementation? How has this been possible? What are the realistic prospects for further reform?

22 Some Questions Key Questions on Approach: How does/can decentralization relate to broader underlying trends and policy trajectories? In which specific areas of reform might valueadded activities be supported (and how do they related to what others are doing)? What is the right timing (early on to help define policy or after there is more clarity on direction)? Which actor(s) might the most productively work with (traditional ministries, local governments, local government associations)? Discussion?

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