Making Services Work for Poor People 10 th Anniversary Conference If all politics is local, is decentralization the solution? Jean-Paul Faguet London School of Economics & IPD Outline 1. Introduction 2. Natural Experiment 1 Bolivia 3. Natural Experiment 2 Colombia 4. A Theory of (Local) Government Responsiveness 5. Dynamic benefits thereof 6. Why did Bolivia & Colombia succeed?
University of Michigan Press, 2012 Faguet, J.P. 2008. Decentralization s Effects on Public Investment: Evidence and Policy Lessons from Bolivia and Colombia. Journal of Development Studies, 44: 1100 1121.
Does decentralization improve service delivery? Two obvious answers: Yes No
Theory provides a strong rationale Bring government closer to the people better public goods, more effective government Supply: Smaller scale facilitates Better information Greater participation Deepen democracy More accountability Demand: Local homogeneity vs. national heterogeneity
Sector Decentralization in Bolivia (Faguet 2012). Across sectors Figure 2: Local v. Central Government Investment Hydrocarbons Industry Communications Multisectoral Water Mgt. Agriculture Energy Health Transport Water & San. Urban Dev't Education Local Central 0% 5% 10% 15% 20% 25% 30% 35% % Total Investment
Total Investment (Bs'000) per capita Total Investment (Bs'000) per capita Total Investment (Bs'000) per capita 90 80 70 60 50 40 30 20 10 0 Across space Central vs. Local Government Investment by Location Central Government Investment, 1987-93 0 50 100 150 200 250 300 Number of Municipalities 5 4 3 2 Local Government Investment by period, 1994-2007 2003-07 4 3.5 3 Central Government Investment, 1987-93 (highest 12 obs. dropped) 1 0 1997-2002 1994-96 0 50 100 150 200 250 300 Number of Municipalities 2.5 2 1.5 1 0.5 0 0 50 100 150 200 250 300 Number of Municipalities
Bs.('000) per capita Bs.('000) per capita Bs.('000) per capita Bs.('000) per capita Central Govt Education Investment (1987-93) Local Govt Education Investment (1994-96) 2 1.5 1 0.5 0.14 0.12 0.1 0.08 0.06 0.04 0 0 20 40 60 80 100 Illiteracy rate (1987) 0.02 0 0 10 20 30 40 50 60 70 Illiteracy rate (1994) 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 Central Govt Education Investment (1987-93) (vertical axis expanded) 0 20 40 60 80 100 Illiteracy rate (1987) According to need? 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 Local Govt Education Investment (1997-2002) 0 10 20 30 40 50 60 Illiteracy rate (1997)
Sector Decentralization in Colombia (Faguet & Sánchez, 2008) Investment Across Sectors Central vs. Local Government Investment (Colombia) Culture Industry and Commerce Central Local Infrastructure Water and Sanitation Health Education 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Percent of Total
Enrollment Index Education School Enrollment 1.5 Index of Public and Private School Enrollment Public Private Total 1.4 1.3 1.2 1.1 1 0.9 0.8 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Year
Health Insurance Coverage Rate by Region 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 19 9 5 19 9 6 19 9 7 19 9 8 19 9 9 2000 2001 2002 2003 2004 Andina Caribe Oriental Pacifica
A Theory of (Local) Government Responsiveness Diverse, heterogeneous Economic Interests' Lobbying and Political Engagement Politics Many active organized groups Civil Society's Organizational Density and Ability Openness and Substantive Competition of Politics Local Governance Responsiveness and Accountability
Percent of total Dynamic Benefits: Municipal Learning Public Investment by Sector and Period, 1987-2007 50% Urban Dev't Agriculture Communications 45% Education Energy 40% Hydrocarbons Industry & Tour. 35% 30% 25% 20% Hydrocarbons Transport Education Education Transport Urban Dev't Education Transport Environment Mining Multisectoral Water Mgt Health & SS Water & San Transport Urban Dev't 15% Water & San Water & San 10% Water & San Water & San Urban Dev't 5% 0% Urban Dev't Transport Education Hydrocarbons Hydrocarbons Hydrocarbons 1987-93 1994-96 1997-2002 2003-07
Why did Bolivia and Colombia both succeed? Real power & authority devolved Real resources devolved to municipalities Both created local democracy Free and fair elections Vigorous local political competition National parties care about local outcomes National commitment to reform Sincere decentralization
Thank you
1. Theoretical Arguments For/Against Decentralization Arguments for Decentralization can i. improve information re: local wants and needs ii. increase citizen voice and participation iii. improve government accountability responsiveness iv. deepen democracy v. strengthen individual liberties vi. improve economic performance vii.increase policy stability viii.reduce bureaucracy ix. decrease public spending x. decrease political tensions and the risk of civil war Closer to the people
Arguments against Decentralization can i. inefficiency in public goods production ii. low quality policy-making iii.high graft and corruption iv.elite capture v. fiscal deficits and macroeconomic instability.
Empirical literature does not Litvack et al. (1998): One can prove, or disprove, almost any proposition about decentralization by throwing together some set of cases or data. Shah, Thompson and Zou (2004): D sometimes improved, other times worsened: service delivery, corruption, macroeconomic stability, and growth across a large range of countries. Treisman (2007): Results are inconclusive, weak and contradictory. To date there are almost no solidly established, general empirical findings about the consequences of decentralization. Bizarre paradox: After 50 years of policy experimentation and hundreds of studies, we still know very little about whether D is good or bad.
2. Decentralization in Bolivia (radical & sincere) The Bolivian Decentralization Programme Resource Allocation. Transfers x2 20% national revenues. Later increased greatly. Allocation: political per capita. Local Public Services. Education, health, irrigation, roads, sports and culture. Ownership of infrastructure and responsibility. Oversight Committees (Comités de Vigilancia) Alternative channel for popular demands. Composed of local, grassroots groups that propose projects and oversee municipal expenditures. Municipalization. Municipalities expanded to include suburbs and rural catchments, and 198 new municipalities (out of 311 in all) were created.
4 Stylized facts of Bolivian D 1. D shifted investment: Production HK formation and primary services. 2. Driven by smaller, poorer, more rural municipalities. 3. More spatial equality: per capita criterion massively benefited smaller, poorer districts. 4. LGs far more responsive to need than CG was before.
Colombia Stylized Facts Decentralization 1. shifted public investment into social services and human capital formation, at the expense of infrastructure. 2. made public investment more dispersed across space. 3. improved enrollment rates in public schools. In districts where educational finance and policy making were most free of central influence, enrollment increased. In districts where educational finance was still based on centrally-controlled criteria, enrollment fell. In both countries this was driven by the smallest, poorest municipalities investing devolved funds in their highest-priority projects. Contradicts common claims that local government is too corrupt, institutionally weak, or prone to interest-group capture to improve upon central government.
3. D in Colombia (Gradual & deliberate) Phase 1 from late 1970s. Fiscal measures aimed at strengthening municipal finances. New laws increased municipal tax collection powers and regulated investments. Phase 2 from mid-1980s. Deepening democracy: Established popular election of mayors and governors, and sought to promote popular participation in local public decision-making via Juntas Administradoras Locales, etc. 1991 constitutional reforms set up citizens initiatives, municipal planning councils, open cabildos, mayoral revocation, referenda, and popular consultations. Phase 3 consisted of laws to regulate the new constitution, and other fiscal and administrative reforms. Greater municipal responsibility for public services & social investment; larger CG transfers to local governments. Transfers to regional governments rose from about 20% to over 40% of total government spending Colombia first in the region amongst unitary states, and third overall behind the two big federal countries, Brazil and Argentina (Alesina et al., 2000).
Decentralization in Bolivia & Colombia
Policy Lessons 1 st lesson: Democracy and decentralisation are deeply complementary. For the latter to work well, the former must be locally free, fair, transparent and competitive. 2 nd lesson: Decentralisation also means scaling back higher levels of government. Lower headcounts & admin costs. Bolivia did this, Colombia did not. The consequences for Colombia were dire.
3 rd lesson: Devolve significant local taxes, like Colombia. Provides resources for local services, increase local ownership over municipal resources more interest in how money is spent more oversight and accountability. 4 th lesson: Decentralization is a dynamic process involving discrete steps fiscal, political, administrative. Sequencing is important. Paying careful attention to sequence improves outcomes. Optimal sequence of reforms, will differ by country, depending on history and initial conditions.
In historical terms this is a huge reversal Continuously increasing centralization over the past 15,000 years. 200,000 years ago: Earliest anatomically modern humans lived in groups of a few dozen hunter-gatherers in Africa. Largely egalitarian and unorganized (Gronn 2010).
10-15,000 years ago: Earliest agricultural communities exploit productivity gains from domestication of 10-100x settled tribes of a few hundred, acquiring primitive organization and clear leaders. Farming improvements villages grew into chiefdoms with populations in the thousands, centralized, hereditary leaderships, and multilevel bureaucracies. 6,000 years ago: In river valleys of modern Egypt, Pakistan, India and Iraq, these societies became the world s first cities.
5,700 years ago: First states born in Mesopotamia, with populations of 50,000 or more, many cities and villages, centralized decision-making and control of information, sophisticated bureaucracies and religious orders, systems of laws and judges, redistributive taxation, and a capital city. (Diamond 1998) Big advantages over smaller polities in the mobilization of resources and projection of power. Then Roman and Persian empires 2000 years ago. Medieval European kingdoms. Nation-states from about 17 th century onwards.
Increasing centralization is the defining characteristic of the past 10,000-15,000 years of human society The rise of decentralization over the past half-century represents a unexpected historical reversal
The Question: Assume politicians are distributed normally by ability/effectiveness L H What are the characteristics of a political system that selects from L vs. H range?