From Centralized to Decentralized Governance

• Author: William Dillinger and Marianne Fay
• Position: Was a member of the team that produced the World Bank's World Development Report 1999/2000/Was a member of the team that produced the World Bank's World Development Report 1999/2000

Decentralization can foster political stability and economic development-if transfers of resources and responsibilities are carefully coordinated and intergovernmental relationships are clearly defined.

As the twentieth century draws to a close, people around the world are clamoring for a greater voice in the way they are governed. Groups that have historically been denied power now demand it, and central governments are increasingly unable to resist their demands.

This trend has many causes. It has been attributed to the economic failure of the centralized, authoritarian state (with the consequent alienation of important support groups); the decline in the threat of war and external aggression in most of the world (with the consequent rejection of strong authoritarian government); and the emergence of educated, urban middle classes (with the consequent decline in traditional patron-client relationships between the government and the governed).

National governments have responded in several ways. Some have become more democratic. Twenty-five years ago, only one-third of the world's countries held competitive elections. Today, 60 percent do. Governments are also decentralizing-shifting responsibilities and resources to subnational units of government. Both measures provide a means of maintaining political stability and conceding political power within a formal, rule-bound decision-making system.

Although the overriding objective of decentralization may be political stability, the devolution of authority and certain functions to local governments also has implications for more traditional developmental goals. On the positive side, decentralization can improve the efficiency and responsiveness of the public sector by bringing decision making closer to citizens. On the negative side, decentralization raises the risk of macroeconomic instability. The issue is not whether governments should decentralize or not-this is dictated by political circumstances-but rather how to accommodate underlying political pressures so that the developmental potential of decentralization can be realized and the risks minimized.

Strategies for decentralization vary according to the circumstances of individual countries. Nevertheless, the experience of the past 15 years provides some lessons that are applicable everywhere. Perhaps the most important is that a system that is based on a coherent, explicit, and stable set of rules works better than one that is not. These rules need to encompass three aspects of the intergovernmental relationship: the division of national political power between national and subnational interests; the functions and resources assigned to subnational governments; and the electoral rules and other political institutions that bind local politicians to their constituents.

Balancing regional and national interests

The national...