Previous Page Table of Contents Next Page

Chapter 1: What is decentralization?


The objective of this introductory chapter is to explain the importance of agricultural services, the role that governments had assumed in their provision and the perceived need in the 1980s for institutional reform including a reduced role for central government in service provision. Decentralization is defined and the potential links between decentralization, improved governance and increased efficiency of service delivery discussed. The chapter examines the various forms that decentralization can take, namely, deconcentration, delegation, devolution, partnerships and privatization and concludes with a discussion of the potential benefits of decentralization and the challenge and risks of diversity.


1.1 Introduction

1.1.1 The range and importance of agricultural services

The wide range of agricultural services

Although this Sourcebook is concerned with the decentralization of agricultural services, we have to start by admitting that it is difficult to give a precise definition of ‘services’. They are extraordinarily heterogeneous[1] and there is no clear boundary to demarcate ‘goods’ from ‘services’. Instead, it is helpful to think of the ‘pure’ production of goods and the ‘pure’ production of services as two ends of a spectrum. Towards the ‘goods’ end the emphasis is on the provision of a material product (for example, fertilizer distribution). Towards the ‘service’ end the emphasis is on the execution of a process (for example, providing business management advice) with the degree of interaction with the customer increasing and the material product component decreasing as one moves towards the service end of the spectrum[2]. But both fertilizer distribution and business management advice are forms of agricultural services. In this Sourcebook agricultural services will be considered as embracing all of those non-tangible, non-storable items provided to agricultural producers in order to increase, directly or indirectly, the productivity of resources used in on-farm operations.

Many of these services relate to the marketing of (tangible) agricultural inputs and outputs. In this regard, all of the functions related to the transfer of products in time, form and space from farm to consumer affect the productivity of on-farm resource use and hence are agricultural services. Moreover, the provision of legislation, regulatory services, finance, insurance, the development of new technologies, technological and business information advice, and plant and animal disease control measures could all be embraced within the definition. When the indirect effects on agricultural productivity are considered, the concept of agricultural services can be further widened to include:

1.1.2 The growth of public sector provision of agricultural services

Government intervention in the economy

At the time of their independence, many developing countries wanted to consolidate their newly-found political independence with economic independence. Their leaders reasoned that this was best achieved by preserving substantial control over those economic forces that could subvert it, such as foreign investors and foreign-owned trading companies, and domestic economic interests who perceived their standing to be strengthened by close foreign connections[3]. To achieve this, most countries adopted an interventionist, self-reliant and socialist approach to development. This included controlling both macro-economic prices, such as the exchange rate and interest rates, and the prices of individual goods and services. It also involved imposing quantitative restrictions on trade and assuming a considerable role in the provision and production of a wide range of goods and services including those classified as private goods[4].

In the agricultural sector, growth of production was seen as a major government priority. In order to achieve this growth potential it was argued that an integrated package of services, including development and extension of new technologies, distribution of inputs, equipment and credit and the construction of production and transport infrastructure had to be provided. In the case of most agricultural services, the absence of developed local enterprise and the underdeveloped state of many markets meant that state involvement was seen as the only means of rapidly providing adequate services to small farmers[5]. Financial incentives were also often extended to farmers in the form of subsidized prices of modern inputs and equipment, subsidized credit and government financing of the cost of the technology transfer and input distribution networks.

The growth of agricultural research and extension services

During the 1960s and 1970s governments and donors invested heavily in agricultural research programmes, with significant breakthroughs in improved yields of many major food crops. Governments also invested heavily in the development of these breakthroughs into ‘technical packages’ of seeds, fertilizers, chemicals, improved tools and new practices. Public organizations were established, or significantly strengthened, to diffuse these packages through demonstrations and training aimed at persuading farmers to adopt them. This gave birth to large-scale agricultural extension services, employing thousands of people in the agricultural sector, with the task of promoting technology transfer, distributing inputs and improved equipment and, quite often, handling credit as well. The national extension services were to provide the link between agricultural research and farming communities. Agricultural research was concentrated in public sector organizations and the relationship with farmers became an almost exclusive domain of Ministry of Agriculture extension staff.

Farmers’ cooperatives and banks

In addition to very large extension services, governments created two other instruments, namely farmers’ cooperatives and agricultural banks, to perform the tasks of supplying inputs on credit to farmers. In many countries, both the supply of major inputs and the marketing and processing of the main agricultural commodities were also taken over by the state. State intervention and control were usually most pervasive for export crops, which were often the major source of foreign exchange and an important source of fiscal revenue. Other reasons for this overwhelming role in crop marketing were the promotion of new export crops and the desire to smooth price fluctuations, with a view to reducing the negative impact of price instability on producers and consumers.

The creation of monopolies

A common feature of most public agencies dealing with agriculture (extension services, cooperatives, marketing boards, agricultural banks, etc.) was the granting of monopoly rights over factors deemed necessary for their tasks. These included items such as imports of agricultural inputs and the purchase of domestically produced outputs, access to government subsidies, and to zero- or low-interest finance to lend to farmers. Governments paid the capital and recurrent budgets of these agencies, or made good their current deficits whenever sales revenue did not cover costs. Over the years, in many countries subsidies on inputs and equipment and the burden on the government budget of the recurrent and capital costs of the organizations contributed in no small way to central government budget deficits and to increased foreign exchange borrowings to cover the deficit.

A consequence of the policies pursued was the creation of large unchallenged public organizations, often controlled by politically appointed managers only loosely accountable for their performance. In many countries these became a source of patronage by virtue of their capacity to offer direct employment opportunities and to select the clients to whom public financed benefits were distributed. The system soon developed into a series of inward looking, solid constituencies for the politicians who supported the intervention policy in agriculture. The paramount common interest of politicians, managers and staff of government extension services, input supply monopolies, agricultural banks, and cooperative was the growth of the constituency in terms of employment and privileges, closing the vicious circle. As long as external assistance, directly or indirectly, paid for the cost of the system that governments could not meet with fiscal revenue there was little incentive for change. However, eventually the economic and political climate altered and reforms were required.

1.2 Institutional reform in the 1980s

1.2.1 The debt crisis

After relatively strong growth in the 1960s, world economic growth began to slow down in the 1970s and into the 1980s. This is best understood in terms of two critical events, namely the two substantial oil price rises of 1973 and 1979-80 and the consequent debt crisis that erupted in 1982. Briefly, an expansion of aggregate demand in the industrial countries provoked a strong bout of inflation in the industrialized world in 1972-1973, triggering a mini-boom in commodity prices in 1972-1974 and providing OPEC[6] with the pretext to raise the price of oil threefold. This shock reduced the real growth of OECD[7] countries although inflationary conditions persisted until the end of the decade. A further tripling of oil prices in 1979-1980 pushed the OECD economies towards serious recession. These strong recessionary tendencies were reinforced by the arrival of conservatively inclined governments determined to squeeze inflation out of the world system at any cost in terms of unemployment. When the industrialized countries reduced their money supply to squeeze out inflation the accompanying increase in the real interest rate created a huge increase in the price of borrowing. Negative or slow growth then persisted in the industrial countries until the real oil price finally retreated to a more realistic level in 1986.

The huge debt crisis that erupted in 1982 was a direct consequence of the decision by OECD governments in the 1970s to allow the private banking system to recycle the large OPEC balance of payments surpluses, arising from the oil price hikes, as loans to Third World governments. Much of this money was not used productively. Indeed, the agricultural policies pursued by many developing countries were contributory factors to their macroeconomic problems.

The rise in world interest rates coincided with a fall in developing country export prices induced by the recessionary conditions in OECD countries. These combined effects of deteriorating terms of trade and unanticipated higher financial outflows for debt repayment created severe pressure on developing countries’ balance of payments. However, private banks were now unwilling to loan further ‘petrodollars’ to indebted countries and aid flows also fell as a result of OECD countries tightening their fiscal stance. Thus indebted countries had to turn to the IMF for balance of payments support.

1.2.2 IMF stabilization programmes

IMF programmes sought to correct payments imbalances by imposing domestic demand restraint induced by a credit squeeze, using both ‘expenditure-reducing’ and ‘expenditure-switching’ policies.

The effect of expenditure-reducing policies on agriculture

‘Expenditure-reducing’ policies are often targeted at the public sector, which is seen as the major source of excess demand. Lowering the budget deficit can reduce a major inflationary pressure but this frequently results in cutbacks in productive services and welfare activities with adverse effects on output and income distribution. The main policy instruments for expenditure reduction, namely domestic credit restrictions and reductions in government expenditure and subsidies, can all affect agriculture. A severe contraction in domestic credit may limit the seasonal- and long-term finance available both for agricultural production and marketing unless priority is given to the agricultural sector. Reductions in capital expenditure may delay the removal of structural impediments to improved agricultural performance, while reductions in recurrent expenditures may lead to further neglect of the maintenance of rural infrastructure such as feeder roads, or a reduction in the staffing or effectiveness of agricultural extension services, etc. Attempts to pass part of the costs of services previously provided by the government on to farmers through ‘cost recovery’ programmes may lead to a decreased use. Other revenue-raising efforts, for example increases in import duties and sales or export taxes, may also directly affect the agricultural sector by increasing input, or reducing output, prices or by raising the price of consumer incentive goods.

Expenditure-switching policies

‘Expenditure-switching’ policies are intended to reduce the current account imbalance by increasing the national and international demand for domestically produced goods and encouraging the production of tradeable goods at the expense of non-tradeables. The usual instruments are exchange rate devaluation and the liberalization of price controls and trade restrictions that favour foreign over domestic goods. These policies can be beneficial to farmers producing tradeable goods but one consequence is that the price of tradeable inputs is also likely to rise.

Since other sources of finance, such as multi- and bi-lateral donors, increasingly tied their loans to a country’s adherence to an IMF programme, failure to meet IMF conditions had a profound knock-on effect on countries’ ability to adjust and grow.

‘Rolling back the State’

The economic crises of the 1970s also triggered a major reversal of academic perceptions and political attitudes[8] that heralded a more widespread acceptance of a monetarist approach to macroeconomic stabilization. This coincided with, and was enmeshed in, the development and growth of the neo-liberal agenda and policy preferences that were advanced with the emergence of conservatively inclined governments at the start of the 1980s. The main thrust of this new policy agenda was a strong preference for economic liberalization. This implied ‘rolling back the state’ both in terms of its ownership of assets and of its regulatory activities in trade, industry, agriculture, credit and foreign investment. The economic arguments used to support this agenda centred on the failure of the state to create the right system of incentives for an efficiently operating economy. The extent of government intervention in, and poor performance of, the agricultural sector in many countries was often cited as evidence of this state failure[9]. The corrective mechanisms advocated were privatization and extensive deregulation, recommended in the belief that freely operating markets will encourage the more efficient use of scarce resources. It was also argued that economic liberalization would improve equity, as it was the poorest that tended to be most disadvantaged by the interventionist policies then in force.

1.2.3 The World Bank and Structural Adjustment Programmes

Policy-based lending

In the 1970s the World Bank had placed a lot of emphasis on poverty alleviation and had increased project lending substantially in areas such as rural development for small farmers. However, by the end of that decade the Bank was concerned at the long-term outlook for growth for developing countries and the need for them to structurally adjust their economies. It had also accepted the neo-liberal agenda for economic liberalization[10]. One way that this could be achieved was to switch World Bank support from project lending, which had frequently supported agricultural support service provision, to policy-based lending aimed at structural adjustment.

Experience had also demonstrated that the conventional IMF ‘stabilization’ approach per se was wholly inappropriate and unacceptable for solving the problems of many developing countries. In the first place, many countries were facing chronic balance of payments problems, not temporary ones. Second, any attempt at overall expenditure reduction was likely to endanger the already low living standards of large sectors of the population, while import and investment restrictions reduced output and employment and retarded long-term growth without necessarily correcting the external imbalance. Third, economies faced a variety of chronic structural problems, including the agricultural sector and these seriously impeded the effectiveness of expenditure-switching policies in particular.

Structural adjustment with growth

These various factors all combined in a reorientation of approach to ‘structural adjustment with growth’ that attempted an orderly adjustment of both macroeconomic and structural imbalances so as to foster growth while bringing about a balance of payments position that is sustainable in the medium term. During the 1980s the World Bank introduced a Structural Adjustment Loan (SAL) programme that consisted of non-project lending in support of programmes, policies and institutions aimed at structural adjustment and economic liberalization. The IMF also adjusted its approach and introduced a Structural Adjustment Facility (SAF). This required a comprehensive three-year policy framework paper to be drawn up by the national authorities with World Bank and IMF assistance. This set out the macroeconomic and structural adjustment objectives, strategies, instruments and financing requirements associated with an adjustment programme designed to achieve substantial progress towards external viability within this time frame.

Decentralization as part of the reform package

During the 1980s measures also began to be devised to decentralize the economy by privatizing public sector enterprises, deconcentrating the over-centralized government administration, and strengthening local governments through devolution of various functions previously entrusted to central government units. Donors and governments also recognized the important role that non-government organizations (NGOs) were performing in providing services to farmers, and began to devise ways and means to associate them to the rural development efforts in a coordinated manner, within the framework of overall national decentralization policies.

A new policy agenda

By the end of the 1980s, the new course of rural development policies, essentially inspired by liberalization and decentralization principles, had taken a coherent form in most countries. During the 1990s these policies were introduced, in different forms and in different degrees, in practically all developing countries. The new policies changed development strategies in agricultural research, input supply, crop marketing, extension, veterinary services, rural financial services and water resource management. Indeed, the entire range of rural development activities was affected.

1.3 Decentralization defined

Transfer of responsibilities

Towards the end of Section 1.2.3 it was stated that during the 1980s decentralization became part of the policy agenda. But what do we mean by decentralization? Box 1.1 contains a widely accepted definition that refers to a broad-based institutional reform aimed at improving governance through the transfer of responsibilities from central government to other levels of governance. The implications of this definition in terms of organizational responsibilities are illustrated in Figure 1.1

Box 1.1 A definition of decentralization

“the transfer of responsibility for planning, management, and resource raising and allocation from the central government to:

(a) field units of central government ministries or agencies,

(b) subordinate units or levels of government,

(c) semi-autonomous public authorities or corporations,

(d) area-wide regional or functional authorities, or

(e) organizations of the private and voluntary sector”.

Source: Rondinelli, D. (1981). Point (e) has been modified from the original statement to include private enterprise and the entire voluntary sector.

Decentralization reforms focus on:

The levels of governance

In defining decentralization the concept of the ‘level’ of the system of governance is extensively used. With regard to the public administration five different levels are normally recognized[11], namely:

Figure 1.1 Decentralization of responsibilities from central government

Central government defined

Terms such as ‘central government’ and ‘local governments’ are also commonly used in the literature on decentralization. Broadly speaking, the term ‘central government’ refers to all the units of the public administration that are hierarchically dependent on the Cabinet and on the ministers in charge of the different sections of the central administration. These units may be located at the headquarters of the central government or in different parts of the territory and have different responsibilities, depending on whether they are operating at regional, provincial, district or at a lower level. In the case of federal states, the central government is normally the federal government; however, state governments have a large degree of autonomy in many matters, and operate as central governments within their territory in those matters. Normally their initiatives need no clearance from higher level authority.

Local government defined

The term ‘local government’ normally refers to units of the public administration that do not depend hierarchically on the central government administration for those public functions that they have the authority to exercise in an autonomous way. Typical examples are the district, but in some countries important degrees of autonomy are granted at regional, provincial, or municipal levels as well. Municipal governments are often created only in urban areas over a certain size, whereas decentralization of responsibilities for rural areas often stops at the district level. However, some countries, for example Bolivia, Mali and Cape Verde, transfer responsibilities for rural areas also to municipal level. Other countries, for example India, have established rural local governments at village level (panchayat).

The people responsible for a local government can be elected locally or appointed by the central government. However, the term ‘local government’ is increasingly associated with a democratic system of selection. It is important not to confuse the local units of the central administration with the local government administration. Although the two administrations operate within the same territorial boundaries, their functions generally differ. The former is accountable to the politicians responsible for the central government, the latter to the politicians responsible for the local government, and ultimately, to different constituencies of the politicians in power at the two levels.

Civil society organizations (CSO)

In addition to the public administration, CSOs also form part of a country’s system of governance. These comprise sets of persons organized around a common interest, generally with defined objectives. CSOs can operate at a very low, community level and join together into apex organizations. These can operate at sub-district, district, regional or national level and even at international level.

Community organizations

The community level is normally not included in the public administration structures, but is very important in rural areas. The word ‘community’ is used both for a level of the civil society system of governance and a social organization[12]. A self-contained socio-economic residential unit characterizes the community. The community is a separate level below the district and the municipal levels, although in some countries very small public administration bodies with ‘municipal’ characteristics may coincide with a ‘community’. Village associations having a diversity of development or solidarity objectives are community organizations. The difference between community organizations and CSOs, besides the territorial connotation and the multiplicity of objectives, is that the former is supposed to act on behalf of all the members of the community. Different common interest groups, which join together fractions of the members of a community, normally exist within a community[13].

CSOs and agricultural service delivery

In rural areas, non-government systems of governance by the civil society, groups and communities, are very important. Groups of people organized around a common interest are quite common. For example, groups of farmers, men and women, often get together to develop a micro-irrigation project, to manage a common stock of cereals or to procure fertilizers. Similarly, groups of women get together to undertake an income generating activity, to hire somebody to look after children when they go for work, or to organize a rotating savings and credit association (ROSCA). In many rural societies, solidarity groups of people, who help the sick and disabled, or collect funds for funerals of poor people, are part of the traditional structure of society. Groups are formed when people are aware that they cannot achieve an objective on an individual basis. Stable groups pursuing a sustainable objective may develop into formal associations in accordance with the law of different countries. Groups can operate at higher level than villages. Professional farmer organizations, such as local cotton growers associations, or cocoa farmers associations, for example, may form apex organizations at regional or national level. Trade unions are typical groups. Chambers of Agriculture, if established in a spontaneous way, also fall in this category. However, they do not if government establishes them to give jobs to retired or retrenched officers of the Ministry of Agriculture.


To sum up, conceptually we are dealing with four levels in the pyramid of governance within a unitary state: national, regional, district, municipal, and community level. Names and responsibilities may differ from country to country. Federal states complicate matters a bit. Sometimes other levels are introduced, however this is conceptually unimportant. Different units of the public administration and of CSOs operate at different levels with different responsibilities. Figure 1.2 represents in a schematic way the levels of the system of governance in a unitary state.

In general:

Figure 1.2 The levels of governance

N.B. The bold full arrows show top down lines of command, the bold broken arrows bottom up flows of organization initiatives. The dotted arrows show the mixture of arrangements prevailing in the networks of rural financial services institutions.

1.4 Forms of decentralization


The transfer of responsibilities and resources involves different relationships between the central administration and the organizations to which the transfer is made. The nature of these relationships, and the objectives of the transfer, determine the form of decentralization. It is useful to distinguish the following five major forms (Figure 1.3):

Figure 1.3 Five forms of decentralization

Three factors[14] help to explain the differences between various forms of administrative decentralization with respect to the objectives which decentralization policy wishes to achieve:

· Production efficiency, that is the cost and quality of services delivered

· Allocative efficiency, that is, the extent to which the services delivered reflect local demand

· ‘Who delivers’ vs. ‘who pays’ for the services which should be provided

The various forms of decentralization place different emphases on the above three factors.


The primary objective may be improving the production efficiency of the administration with an improvement in the impact of the services delivered as a second priority. This may be achieved by introducing administrative and cultural changes within the existing unitary structures, shifting responsibility, decision-making authority and resources for front-line operations only to the managers of local units. Public delivery and public financing coincide within a single administration. Central government personnel and procurement policies apply. In these cases decentralization takes the form of deconcentration.

Deconcentration assigns specific functions and tasks performed by the staff of the headquarters of central administrations to staff posted in peripheral locations within the national territory. Staff, equipment, vehicles, and budgetary resources are transferred to units such as regional and district offices. The managers of these units are given authority for autonomous decision making regarding the operations, which were previously taken at headquarters, or needed clearance from headquarters.


Similar objectives regarding production and allocative efficiency can also be achieved by separating the production or delivery from the financing of a specific public service, introducing a modification of the existing structure of the public administration. Responsibility and resources for implementing specific tasks and delivering certain services are transferred to a public agency, a state enterprise, a private enterprise, or an NGO under a contract that may provide some autonomy in interpreting the tasks assigned under the contract. In this case, decentralization takes the form of delegation. Examples of delegation include: a national water supply company that may be entrusted with the responsibility to plan, construct, and operate water supply schemes (over a certain size) across the country; a water basin development authority; an agricultural research institute; a strategic grain reserve; a project management unit. Many delegated agencies are not bound to follow the government administration procedures in personnel and procurement matters. Delegation can be used by any level of government, and does not apply exclusively to the delivery of national services.


If the primary objective is to improve allocative efficiency (with the improvement of production efficiency as a second priority), this can be achieved by opening the system to the influence of the beneficiaries of the services delivered. The primary objective requires that beneficiaries participate, normally through representatives elected to the local government, in planning the delivery of services, and in the evaluation of the services provided. In these cases, significant changes in the system of public administration are introduced, and decentralization takes the form of devolution. Local governments are assigned the responsibility of deciding which services should be provided on a priority basis and to whom. Representation of, and accountability to, beneficiaries are provided through the election mechanism. Public production or delivery and public financing coincide, but the lower levels of government normally receive only part of the funding required from the central government, the balance must be raised from local tax revenue and cost recovery.

Devolution implies changes in the political and fiscal dimensions of government. Local governments to which authority and resources are devolved acquire the power of autonomous initiative and decision making with respect to setting their own rules, goals and objectives. They also acquire the power of elaborating and implementing their own policies and strategies, and of allocating resources to different activities within the domain assigned to them. In addition, they often are given authority to raise financial resources, through taxes, and in some cases, to borrow on the capital markets.

Devolution can be implemented to varying degrees depending on the degree of accountability (control) which the central administration retains over the local government. This applies particularly to the use of resources transferred from the centre, but also through other means, such as the functions assigned to the central government representatives posted at regional and district level (Commissioners, Prefects, Commandants de Circle, etc.). If the accountability process, that is the control of the central administration, interferes with the autonomy of decisions of the local government, or the transfer of resources is insufficient to cope with the responsibilities transferred in a reasonable way, there is inadequate devolution. It is useful to look at the three different forms of decentralization of the public administration from the point of view of the combination of the degree of autonomy and of the locus of accountability, which is illustrated by the matrix in Figure 1.4.

Figure 1.4 Autonomy, accountability and forms of decentralization









inadequate devolution

effective devolution

Source: De Muro et al. (1998).


Similar objectives of allocative and production efficiency, and a higher degree of decentralization, can be aimed at by transferring the responsibility for planning and delivery of services to CSOs. Whilst devolution to local governments brings the delivery of public services one significant step nearer people, the distance between a village and the district administration is still considerable, when seen from the point of view of the villagers. District and municipal administrations naturally address, on a priority basis, problems which are common to many communities, such as providing primary education, health care, water supplies, market centres, or feeder roads which serve several villages. This also tends to concentrate service delivery in the urban centres and in larger settlements of rural areas. The limited capacity of local governments is often overburdened in the discharge of these responsibilities; so the needs of people at lower level tend to be neglected. The influence of wealthy and more powerful individuals on district and municipal administrations can be strong and not always in the direction of providing more services to village communities. Furthermore, certain services such as local group training, community organization, promotion of rural financial services, funding self help projects and support to income generating activities are often better planned and delivered by organizations other than local governments.

Devolution measures applied to CSOs go beyond the local government level, reaching that part of the system of governance that is outside the various levels of the public administration and delegated agencies. The role that CSOs may play in decentralization can be considerable, given the size of their contribution to economic, social and human development and this role can be particularly important in rural areas. Partnership arrangements may involve a leading NGO, or an intermediary agent of a more complex nature (an association established under private law), in which local common interest groups and associations, the NGOs operating in the area and representatives of local governments join together as members with equal rights.

Delegation vs partnership

This case differs from delegation to NGOs of responsibility to deliver specific services planned by the government under contract. In the former case the CSOs formulate their own strategies and projects to achieve the objectives within the framework of general government policies; they decide which services or projects they wish to take responsibility for. Public financing contributes to private delivery. The central government transfers only a share of the funds required, the balance consists of voluntary contributions from members of the CSOs and of other private sources mobilized by the CSOs. Government personnel and procurement procedures do not apply. In these cases, which are relevant to rural development, devolution takes the form of a partnership in development.

These intermediaries plan the allocation of available resources, which must be approved by all members. They also channel funds, transferred by the central government and collected from private sources, to the grassroots organizations. These implement their own projects and provide training and other support services. Partnerships provide a useful mechanism for central governments to reach specific target groups who may not be reached by devolution to local governments, without interfering with the priorities of the members of the target groups, and thus with the allocative efficiency of devolution. Government must design special instruments, first, to make resources available to the CSOs, matching the resources mobilized by their members and, second, to empower them to implement the activities that are recognized as leading to the common objectives of the CSO and government.


If the central government is willing to give up a direct hand in policy formulation and control it may attempt to achieve the objectives of both production and allocative efficiency by transferring the ownership and/or control of the public service’s assets to the private sector. In this case, decentralization takes the form of privatization. Typically, privatization also implies that the services are allocated through the market system with the consumer paying for the service being delivered but government may still subsidize or tax certain services to achieve its objectives.

‘Privatization’ in the sense that the term is defined by Adam et al. (1992) can be achieved by:

“(i) the outright, or partial, sale of assets by the state;

(ii) the transfer of assets to the private sector under leasing arrangements; and

(iii) the introduction of management contracting arrangements” (p.6).

1.5 Potential benefits of decentralization

Decentralization and governance

Decentralization is about governance. The word governance has two meanings. One refers to ‘the complex of institutions and organizations which regulate the life of society’[15]. It encompasses rules (formal and customary law, regulations internal to organizations, moral imperatives, contractual obligations, etc.) and social aggregations (the family, church, municipality, professional associations, political parties, banks, commercial enterprises, cooperatives, courts of law, government, parliament). The other meaning refers to ‘the act of governing’, that is to the way institutions are established (for example how laws are proposed and enacted) and to the way organizations behave, manage their affairs and govern people. Both meanings are encompassed in the term ‘good governance’. An increasing awareness of the importance of good governance was a key feature of the 1990s. This refers to the system that is appropriate to achieving such goals of society as stability, growth, equity, justice, efficiency and the practice of those who run the organizations in such a way as to achieve those goals. In this Sourcebook our concern with good governance is more narrowly focused on the effective provision of agricultural support services.

Achieving good governance may require an analysis and reform of the institutions underpinning a country’s political, cultural, and bureaucratic framework. Decentralization, in its broadest sense, thus becomes a central point of the new approach.

Decentralization and improved service delivery

Decentralization also aims at an economic and political system that responds more closely to people’s preferences and requirements. By bridging the gap between suppliers and users of goods and services, decentralization measures are expected to achieve three major objectives:

Decentralization and democratization

Decentralization of the public administration, by changing the assignment of responsibilities and resources among different levels and agents of government may be closely associated with the process of political democratization[16]. When governments are freely elected by the people one may expect that the lower the level of government, the closer the relationship between the people in power and their electorate becomes. As a result, the political debate tends to focus on location-specific problems and is more accessible to the citizen voter. In turn, it is expected that a closer relationship between politicians and citizens and a more concrete political debate will increase the accountability of the politicians to those who support them. This in turn is expected to:

We can summarize these arguments, or the paradigm[17] of decentralization, in the form of the flow chart (Figure 1.5).

Figure 1.5 The paradigm of decentralization

1.6 The challenge and risks of diversity

It will be shown in later chapters that the extent of decentralization of activities to the private sector and CSOs, and to different levels of government or public agencies is very much an empirical matter. It is likely to vary considerably with the competence of governance, the size of the country and the particular type of service being considered. The diversification of the sources of service delivery offers many advantages. It helps the testing of different approaches, increases the amount of resources and multiplies experiences and opportunities. However, it may often be a source of disparity of treatment, duplication of efforts and sometimes even of conflicts. In some cases, different systems of incentives are introduced in the same area. Some of these may handicap sustainable development and efficient allocation of resources. One example would be government banks or NGOs extending credit at subsidized interest rates, whilst mutual credit union networks attempt to introduce financially sustainable savings and loans associations. Another example would be when government constructs and maintains water supply facilities without recovering costs, whereas CSOs require upfront contributions from beneficiaries, who have to maintain the facilities themselves.

Similar goals, different priorities and strategies

Central government, local governments, and CSOs may agree on goals, but disagree on priorities and strategies. This should not be an issue when provision is deconcentrated or delegated because, in theory, the central government is firmly in control. The problem emerges with devolution and partnerships. How should central government administrations deal with a variety of different priority rankings by local governments and CSOs claiming public support for their initiatives? What happens if local priority rankings differ from central government priorities established under a development plan?

For example, under the goal of improving living standards in rural areas, the central government may assign high priority to developing transport infrastructure, the extension of modern agricultural technologies to produce food crops, export crop diversification and marketing and sanitation and water supply in rural towns. Local governments may have a different strategy to improve rural living conditions. They may assign high priorities to education, health centres and medium-size hospitals, the same order of priority as the central government to sanitation and water supply in rural towns, but assign a low priority to agricultural extension. CSOs may have a similar interest in education, but assign higher priorities to technical training, village water supplies, village medical dispensaries, assistance to childbearing women at village level, and micro-irrigation horticulture for own consumption and the local market. Central governments may be interested in pushing certain activities, such as extension, rural road construction, and social services in high potential areas on the ground that there would be more impact on production, less cost involved per person served, and better cost recovery. The majority of local governments and CSOs may want a very different geographical distribution of services across the country.

Central governments can handle these problems in several ways by:

Some decentralization experiments have been designed in such a way as to introduce measures that moderate the independence of local governments, with a view to a gradual introduction of the full features of devolution. In Ghana, for example, a three-part system has been introduced for district assemblies (DAs). One part of the members of DAs are elected. The other two parts consist of the traditional chiefs of the area and the senior officers of deconcentrated units of the line ministries. These latter groups can exercise considerable influence. The DAs are empowered to plan and administer the district development budget, and are accountable to the electorate for performance. This is in itself important: experience shows that participation in decision making generally improves the commitment of stakeholders.

Effective devolution requires central governments to respect diversity of priorities and strategies. A very basic decision must be taken about the amount of resources that the central government is prepared to transfer to local governments and to CSOs for them to decide what to do with, and about the broad basis upon which resources are allocated to individual organizations. A significant change in the pattern and in the geographical distribution of public expenditure may occur as a legitimate outcome of the devolution process.

Different goals

Different strategies may also result from the pursuit of different goals, however, and this may well be a serious problem. How can the central government ensure that resources transferred to local organizations will contribute to achieving major goals of public policy, such as poverty reduction? How can government ensure that certain activities, such as agricultural extension or environment conservation, will be supported by local people? Will gender issues receive adequate attention? Which government priority programmes should be devolved to CSOs and which ones to local governments? Under what circumstances would delegation and deconcentration be better solutions? Naturally, not all government functions in rural development lend themselves to be devolved under all circumstances.

Production vs. social services

Local governments tend to disregard agricultural production services, and to concentrate on improving the delivery of social services (Box 1.2), such as water supplies, education and health, rural roads and electrification. These are the traditional domains of local governments. Improvements in these fields are more visible and obtain more support from the electorate than direct production services. NGOs also seem to attach higher priorities to social services of various kinds, though some engage in providing services that are related to agricultural production. There are several possible reasons for this. One is that items such as access to potable water and rural feeder roads are local collective goods that are often overlooked by central government. Another reason is that many people in the local community appreciate that they are unlikely to benefit from some agricultural production services (Smith, 1997). For example, in many villages only a rich elite, who own the majority of the cattle, would benefit from public cattle dips. From a local government viewpoint, the low priority for agricultural production services may be explained by the feeling that they are risky activities to undertake in term of short term benefits for voters. As a result, they are often retained by the central government, or are provided by specialized agents of the commercial sector.

Box 1.2 Neglect of agricultural production services

“The record of elected authorities in Africa and Asia onto which power has been devolved shows a consistent tendency to direct resources into activities of public benefit, which have little connection with agricultural productivity. This is good news for those who complain that some rural development programmes are too narrowly preoccupied with productivity.”

Source: Manor (1997).

1.7 Conclusions

The public service provision of agricultural services grew markedly in the post-independence period in many developing countries, frequently supported by donor agencies. However, the monopoly agencies established to provide these services often engaged in unproductive activities and generated unsustainable fiscal burdens for governments. With the changed economic and political environment in the 1980s came the need for institutional reform.

Part of this reform process is an emphasis on decentralization that transfers responsibilities from central government to other levels of governance. The main forms this can take are deconcentration, delegation, devolution, partnerships with CSOs and privatization. These each have different implications for production efficiency, allocative efficiency and the financing of services. The potential benefits of decentralization include achieving good governance, improved service delivery and the promotion of political democratization. However, the diversity that accompanies decentralization also introduces challenges and risks that need to be carefully considered.

[1] Huppert, W. and Urban, K (1998).
[2] Ibid. citing work by Lovelock, C.H (ed.) (1984).
[3] Mosley, P., Harrigan, J., and Toye, J. (1991).
[4] See Section 2.1 for a precise definition.
[5] Westlake, M.J. (1994).
[6] Organization of Petroleum Exporting Countries.
[7] Organization for Economic Cooperation and Development.
[8] Mosley et al. (1991) op cit.
[9] See, for example, the so-called 'Berg Report' (World Bank (1981)).
[10] This was clearly seen in the Berg Report (op. cit.).
[11] Terminology may differ according to language and constitutional arrangements in different countries.
[12] Notice that the word 'community' is also used, but not in this Sourcebook, to define groups of people with common ties of ethnic or religious nature, who are not necessarily associated with a specific geographical territory. Sometimes, the word is also used to define a nation as a whole.
[13] In the common practice, the word community (or village) is also often used as a synonymous of a group established at community level, which generates confusion, since it ignores the fact that several groups, often with conflicting interests, may exist within a community.
[14] Litvack et al. (1998).
[15] In common parlance 'institutions' are synonymous with 'organizations'. However, in New Institutional Economics (NIE) terminology 'Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction. In consequence they structure incentives in human exchange, whether political, social, or economic' (North (1990) (p.1). Institutions consist of both formal and informal rules. Examples of formal rules are laws, statutes, international agreements and contracts. Examples of informal rules are social conventions and codes of behaviour. 'Organizations' are defined as groups of individuals bound by some common purpose to achieve specific objectives. There are, however, close interactions between institutions and organizations because the types of organizations that evolve are strongly influenced by the institutions that exist (e.g. the joint stock company, or limited liability company, could not exist without supporting legislation or 'institutions'). But equally, the organizations in existence influence how the institutional framework develops.
[16] This mainly applies where decentralization involves the effective devolution of powers to local government. Deconcentration of responsibilities may have little effect on the democratic process.
[17] A paradigm is a logical model or a framework of assumptions and associations of ideas, which people adopt in interpreting a phenomenon, discussing an issue, or deciding on a course of action.
[18] This concept is explained in Section 3.1.3.

Previous Page Top of Page Next Page