Technical Consultation on Decentralization

FAO, ROME, 16-18 DECEMBER 1997

Decentralization and Local Capacity: Some Thoughts on a Controversial Relationship

Ariel Fiszbein
Economic Development Institute
The World Bank

Institutional Capacity

Table of Contents

This note seeks to present some basic premises and hypotheses for discussion regarding the relationship between policies of state decentralization and the development --or existence-- of the local capacity required to implement such policies. It is largely based on three research projects, two of which involved an analysis of the decentralization process in Colombia (Fiszbein [1997] and Bird and Fiszbein [1997]) and the third one an ongoing project on public-private partnerships in several countries in Latin America (Fiszbein and Lowden [in preparation]). It was prepared as a contribution to the discussions to be held during the Technical Consultation on Decentralization on the issue of local capacity and, in that sense, it is more an attempt to organize my thoughts than a research paper.

It is not unusual to start a paper dealing with the issue of state decentralization with a remark on the many different uses of the term (Rondinelli [1981]). For the purpose of this paper, it suffices to say that the points I will be arguing here are to a great extent valid both for cases of devolution and/or democratic decentralization as well as for cases of delegation. They are, I believe, less relevant for experiences that do not go beyond the deconcentration of state functions to local and regional offices of the center.

Countries initiate decentralization reforms for a variety of --many times overlapping-- reasons. In most cases these reforms have been a response to political challenges emerging from democratization and/or regional conflicts. In other cases efficiency and financial considerations played a role in the design of reforms (Bird and Vaillancourt [1997]).

While the specific form taken by these reforms (e.g. the design of inter-governmental transfers, the specific assignment of expenditure responsibilities or revenue authorities) is likely to be strongly associated with the nature of the underlying factors motivating decentralization, the question of whether local capacity exists or can be developed is likely to be an important one in any case. After all, decentralization means that certain functions previously performed by national bureaucracies will be performed by a given combination of public and private agents at the local level.

From the point of view of policy-makers at the center --and, one should add, international development agencies-- the expected benefits of decentralization are clearly dependent on whether local governments --and more broadly speaking local institutions (North [1990])-- are “up to the (new) job”. The “new job” in question might be the delivery of a specific service, collecting a specific tax or a wider combination of typical state functions. But whether the local level has, or can develop quickly enough, the necessary capabilities will remain a critical question in the minds of most policy-makers.

An interesting illustration of the controversies associated with these questions is the parliamentary debate that took place in Colombia as a new law that would create untied fiscal transfers to local governments was being discussed in the early 1980s. The mainstream opinion in Congress was that no real benefit would be derived from transferring funds and responsibilities to local governments if their lack of capacity would not allow them to manage them effectively in order to improve the quantity and quality of services offered to the population. Interestingly enough, the proponents of the law --that would eventually be passed by Congress-- did not try to argue that such capacities indeed existed. Rather, their argument was that only if fiscal resources and responsibilities for service delivery were transferred to local governments would those capabilities develop, as it is only if and when faced with concrete challenges that local institutions would acquire them (Galan [1990]).

In fact, at least for some of the Colombian reformers, the creation of local capacity --understood as the consolidation of democratic state and civic institutions particularly in more than 800 rural municipios-- was an objective rather than a condition for decentralization. Almost a decade later, Bolivia would follow a similar path, and similar discussions can be found in post civil war debates in several countries in Central America.

Is lack of capacity a binding constraint for a successful process of decentralization? Does decentralization lead to stronger --more capable-- local institutions (as, for example, some of the Colombian reformers speculated)? What types of external interventions are most effective in promoting the development of local capacity? These are some of the controversial questions underlying the debates on decentralization reforms and, not surprisingly, the ones being presented to us today.

The literature on institutional development (for example, Brinkerhoff and Goldsmith [1992], Cohen [1995], Goldsmith [1993], Uphoff [1986]) fortunately provides us with very useful analytical and empirical references to approach these questions within the context of the international evidence that is being presented and discussed during this Technical Consultation. But, relative to other sub-topics within the decentralization literature (particularly dealing with fiscal issues), my humble interpretation is that this is an area in which conclusions that can be generalized are difficult to come by. I have thus organized the rest of my presentation in the form of “generalizations”, with references to some of the empirical evidence coming from a few research projects I have been involved with over the last three years. Whether they will survive the scrutiny of this group remains to be seen but, I hope, they will at a minimum provide material for discussion and criticism.

Table of Contents

Capacity and conflicting objectives.

Scale as a barrier to capacity.

Partnerships as a strategy for capacity enhancement.

Political competition and capacity development.