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Regional Variations in Local Governance Draft Final Report Contract Number: DFD-I-00-05-00125-00 Order No.: 2 September 7, 2006

This report was produced for review by the United States Agency for International Development, Office of Democracy and Governance. It was prepared by PADCO.

Regional Variations in Local Governance

Regional Variations in Local Governance 1

Louis A. Picard2 Jerry Silverman Elinor Ostrom

Draft Final Report September 7, 2006

Prepared by PADCO 1025 Thomas Jefferson Street, NW Suite 170 Washington, DC 20007-5204 Phone: 202.337.2326 Fax: 202.944.2351 Email: [email protected]

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Regional Variations in Local Governance

Abstract The original Scope of Work, “Regional Variations in Local Governance Traditions,” was expanded to look at aspects of public choice in regional contexts. This paper opens a discussion about the effect of regional differences on decentralization and local governance from the perspective of public choice theory and parallel governance. Public choice theory posits that social and political universals override culture in determining the success of decentralized democratic governance.3 Parallel governance explains that communities, often culturally-defined, which do not receive the public goods they seek from formal government, turn to parallel governance structures. Following an introductory overview, Section One presents key insights derived from public choice theory and notions of parallel governance, focusing on the universality of conflicts about the specification, allocation, operations, and use of public goods and services and the need to resolve those conflicts within any sustainable societies. Section Two presents regional variations in local governance traditions and decentralization structures and practices within and between the four main regions of the world (as classified by USAID). Various reasons for those variations are identified: (i) external influences (colonial experience/historic imperialism, and the effect of contemporary foreign assistance); (ii) internal influences (notably political culture and values); and (iii) the organization and behavior of parallel governance systems. The paper concludes with a summary of initial findings and ideas for future work.

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Regional Variations in Local Governance

Introduction This paper addresses regional variations in local governance. Insights about the effect of regional differences on decentralization and local governance are drawn from two complementary analytical frameworks: (i) “public choice” theory and (ii) “parallel governance.” The thesis presented here is that regional variations in local governance traditions reflect regional and subregional histories and cultures. Local governance systems reflect choices about public needs within a given culture. For the purposes of this paper, the key aspect of governance is “the manner in which power is exercised by state or non-state actors for the allocation and management of a society's public resources.”4 Two concepts developed from the discussion about parallel governance systems in the regional section of this paper are: the importance of intermediation between informal and formal governance systems at the local level; and the viability of multiple governance systems co-existing among the same people residing in the same territorial space. Public choice adherents might call the viability of multiple governance systems, “polycentricity.” Parallel governance discussants call some informal and nonformal organizations, parallel governance. This paper will address regional variations among generic theoretical precepts within the four regions into which USAID organizationally divides itself: (i) Asia and the Middle East; (ii) Latin America and the Caribbean;(iii) Africa; and (iv) Europe and Eurasia. The argument presented here is that people define public goods and decisions about how they are produced and provided differently within those various regions. These regional differences are the result of many factors. The factors briefly discussed in this paper to illustrate that broader thesis include: (1) external influences (colonial experience/historic imperialism, and the effect of contemporary foreign assistance); (2) internal influences (notably political culture, social and religious values); and (3) the existence and structure of parallel governance systems and how these relate to decentralization experience. The purpose of this paper is to contribute to the academic literature on regional differences in the realization of decentralization and local governance worldwide. Public choice theory posits that social and political universals override culture in determining the success of decentralized democratic governance.5 According to Oluwu and Wunsch, over time, “collective learning will tend to converge on personally rational strategies, given local conditions.”6 To what extent are variations in local governance explained as part of a rational set of calculations and processes inherent in individual human behavior rather than by regional, cultural, or historical influences? To what extent do cultural ties define the response when individuals in a community find their needs are not met?

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Regional Variations in Local Governance

The paper is presented in two sections and a conclusion. Following this introductory overview, Section One presents key insights derived from those analytical frameworks; focusing on the universality of conflicts about the specification, allocation, operations, and use of public goods and services and the need to resolve those conflicts within any sustainable societies. Section Two presents differences in local governance and decentralization structures and practices within and between the four main regions of the world (as classified by USAID). The paper concludes with initial findings which will benefit from conference discussion. Definitions of administrative, fiscal, and political decentralization are provided in Annex A. Annex B discusses governance definitions and Annex C looks at forms of parallel governance. An extensive Bibliography is also attached.

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Section One: Public Choice and Parallel Governance This section summarizes key concepts drawn from the theoretical frameworks of public choice and parallel governance. The concepts reviewed inform the discussion of decentralization experience and local government traditions between and within USAID’s four regions.

A. Public Choice The primary insight provided by public choice theory is that publics have choices. Public choice theory uses demand-driven processes to explain how communities participate in or exit from governance systems designed to provide public good. More than three decades ago, Albert Hirschman presented a compelling image of people “exiting” from participation in government programs when their “voice” is ignored.7 Passive exits can negatively affect the best plans of development experts as much as pro-active opposition; an infrastructure example uses a water and sanitation design that produced underutilized and financially disastrous main and secondary systems because insufficient households hooked-up and/or refused to maintain the tertiary channels. In the governance context, passive exits include not just communities joining insurgent groups, but also citizens who choose a health provider who is religiously based over the secular government provider. A key role of policy makers, planners, operational decision makers, and technical specialists is to listen to demands while also influencing the formulation of demands toward decision options that are technically feasible, organizationally effective, and financially efficient and sustainable. A major finding from a 15-year research program that examined the impact of the structure of public economies with multiple centers providing police services in metropolitan areas of the United States found that there is no “one best system” even for the core service of providing police services to maintain public law and order and reduce crime. In addition to the research on police, scholars have conducted rigorous empirical research that has challenged the presumptions that larger public school districts achieve higher performance,8 that fragmentation of governments leads to higher costs,9 and have provided further insights to the way local governments are constituted.10 With those important operational considerations in mind, there are three key functions derived from public choice theory that USAID officers and contractors should identify and for which design specifications should be provided during program design and location-specific decisionmaking stages:   

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Assessment of intended consumers’ demand and establishment of agreed priorities; Efficient and effective provision and production of selected public goods and services on a sustainable basis; and Resolution of conflicts that will inevitably arise with respect to each of the above.

Regional Variations in Local Governance

1. Some Forms of Decentralization May Allow Individuals to Accept or Reject Public Goods and Services Milton Friedman is often credited with launching the school that argues market-oriented economic systems require politically democratic environments to function effectively. But seven years before Friedman’s seminal work,11 Charles Tiebout presented the argument that governance efficiencies can be enhanced through competition among competing jurisdictions within a decentralized public sector. 12 The “Tiebout Hypothesis” argued that where local governments offer different combinations of public goods and services, citizen consumers and local businesses can and will choose among them by “vot[ing] with their feet”13 in favor of those governments that best meet public preferences. In effect, Tiebout argued that competition among public sector entities will enhance efficiencies in essentially the same way that it does among private sector firms.14 That hypothesis is a principal tenet of public choice theory15—often presented in the development literature as the market surrogate approach.16 Originally limited to considerations of efficiency gains from competition among local jurisdictions in the United States, the Tiebout Hypothesis has since been extended to decentralization efforts worldwide.17 While public choice theory provides useful insights into decentralization issues, critics argue that theoretical assumptions underlying the Tiebout hypothesis do not fit the complexities of real life; especially in rural areas and urban slums. First, it is criticized for being based on "overly rationalistic assumptions and narrow prescriptions."18 Second, the required financial mobility is severely limited in much of the world.19 Many people do not want to leave their own communities (broadly defined) or the non-formal social safety nets associated with them. Third, there is strong evidence that even in the United States poor people generally do not seek enhanced socioeconomic benefits by moving from one domestic state (U.S.) to another.20 Migration from and within developing countries is driven primarily by the search for employment rather than the desire for enhanced services that do not exist within the slums of destination mega-cities worldwide.21 Fourth, although the Tiebout Hypothesis might be theoretically correct in systems of one central government and only one other level of local governments, the reality is that almost all democratic regimes have at least three jurisdictional levels. Reality presents a vast array of choices that, in turn, require the complex calculation of net benefits from the variable performance of multiple functions across different sectors by different governments at different levels.22 That scenario is too complex for most people to use it as their decision-making framework for decisions about whether or not to move from one jurisdiction to another. However, a middle way has been offered by Arturo Israel: …it is clear from experience that economic competition [creates]… pressures [that] act as incentives to increase…operational performance (or reduce…, organizational slack) and…force[s] the redefinition of objectives or goals.… [However], what is less clear is the role of…competition surrogates…. Whether competition surrogates act as incentives to improve performance and to modify goals in the same way as economic competi-

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tion will depend on the kind of pressures to which an institution is subjected and the nature and complexity of the institution itself. It will also depend on the intensity of those pressures. A reasonable hypothesis is that the more homogeneous the institution and the pressures, and the greater the intensity of those pressures, the more competition surrogates will resemble economic competition in their effects on efficiency and goal definition. As intensity diminishes and heterogeneity increases, the effects of the surrogates become less predictable and probably act more to improve efficiency than to modify goals."23 Israel’s hypothesis can usefully be linked to an argument that efficiency gains do not depend on physical mobility. Rather, the presence of competitive electoral systems and open public hearings allow people to “exit in place” rather than moving from one location to another. Dissatisfied citizens may tell their officials in face-to-face meetings that they know about other governments that are doing much better, that they are dissatisfied, and that they will express their dissatisfaction in the polling booth. Competitive elections provide opportunities for voters to assess the performance of incumbent governments and the credibility of the opposition’s promises by benchmarking the comparable performance of other governments.24 If dissatisfied, citizens can stay where they are and expel the incumbent political leadership instead. But where that option is not available—or citizens do not choose to provide for governance transitions in that way—other less well understood options are available for “mobility in place.” It can be appropriate to start a program design effort with premises derived from the Tiebout Hypothesis because it is consistent with USAID’s broad democracy and local governance objectives. The hypothesis about people’s willingness to choose public goods providers must be tested against the subjective perceptions of local people, and against studies that attempt to empirically establish actual behaviors in response to pre-existing proxy incentives in the relevant locality. Whether or not the assumptions of the Tiebout Hypothesis, or Arturo Israel’s prescription, or any other broad generalization are applicable in any actual operational setting will vary with the setting. Culture matters.

2. Effective and Efficient Provision and Production of Public Goods and Services It is important to differentiate between the provision and production of public goods and services. “Provision” is the decision to give and actual allocation of resources to a particular good or service; “production” is the delivery of those goods or resources.25 Governments are responsible for the provision of public goods; although it is not necessary that they be directly involved in producing them. Such distinctions help to focus assessments of alternative decentralization schemes. In the analysis of economic systems, a key distinction is made between the demand for a particular good or service and the supply of that good or service. Any economy depends on activities organized on the demand side as well as the supply side. In a key article written by Vincent Ostrom, Charles Tiebout, and Robert Warren in 1961,26 a similar dis-

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tinction is made between provision (the organization of the demand side) and production (the organization of the supply side) with regard to governance systems. This distinction has influenced the study of local governance and decentralization dramatically since it was introduced. In addition to recognizing that the processes of provision differ from the processes of production, contemporary analyses of governance systems usually also examine the attributes of goods and services as a foundation for analyzing the most appropriate scale for provision and production. Two basic attributes are widely used to distinguish among goods and services in regard to their provision and production: difficulty of exclusion of jointly consumed goods and subtractability of use (see Table 1). Goods that are generally considered to be public goods yield benefits that are jointly and simultaneously enjoyed by many people who are difficult to exclude from these benefits. Public goods exist in a variety of forms including knowledge, peace, and public safety. The benefits to one individual from public safety do not subtract from its availability to others. Public goods also include the institutions or rules that are used to organize any activity. Common-pool resources, such as water, grazing areas, and forests, yield benefits that are hard to exclude from users, but each person’s use does subtract from what is available to others. Private goods are subtractable but it is easy to exclude users. The classic example is bread—a merchant can exclude a potential buyer of bread from simply taking a loaf and not paying for it—but once it is paid for, the bread is no longer available to others. Toll goods—like private clubs—can exclude beneficiaries but all who are included jointly benefit without subtracting from availability to others. The term ‘collective goods’ encompasses both public goods and common-pool resources. In both cases beneficiaries are difficult to exclude. Scholars have most frequently assumed that markets will fail in providing such goods and that the state must provide both types of collective goods. Table 1. Four Basic Types of Goods Subtractability of Use

Difficulty of Excluding Low Potential Beneficiaries High SOURCE: Adapted from V. Ostrom and E. Ostrom [1977, 12].

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Low

High

Toll Goods

Private Goods

Public Goods

Common-Pool sources

Re-

Regional Variations in Local Governance

a. Scale of Production and Scale of Consumption Distinguishing between the units in which the good is produced and the units in which the good is subject to use is frequently helpful in identifying joint consumption. When the unit produced is substantially larger than the unit consumed, joint consumption will occur. Using a bridge as an example, the unit produced is a bridge of a particular length and width.27 The unit of use is a “bridge crossing” by a person, persons, and potentially a vehicle. Depending upon the size of the bridge, how lanes are divided, and laws regulating speed, a bridge can be thought of as yielding a continuous flow of bridge crossing units. When only few cars are crossing the bridge at the same time, little apparent “subtraction” occurs. As more and more cars simultaneously use the same bridge, the quality of any particular bridge crossing is adversely affected by the number of other users. Congestion begins to occur and everyone begins to slow down. If the maximal capacity of a bridge is exceeded, a level of congestion occurs that drastically affects the quality of each individual's unit of use. Another example of a jointly used facility is a diversion dam at the head of an irrigation system. Most agricultural uses of water are fully subtractive, whereas many other uses of water—such as for power generation or navigation—are not. Most of the water that passes through a turbine to generate power, for instance, can be used again downstream. When the use of a resource unit by one individual subtracts from what is available to others and is available without charge, there is a strong incentive to overuse the resource. Unproductive races to obtain resource units can lead to the destruction of highly valued natural resources such as fisheries, wildlife, and forests. Joint consumption frequently makes it difficult to achieve exclusion, but is not a problem for all such goods. For jointly-consumed goods or services, exclusion may be accomplished when access to an entire production unit is controlled by an owner or a set of users. By enclosing a theater in a building, an entrepreneur is able to control access to a performance and enforce the condition that someone must buy a ticket before gaining entry to the theater. Some analysts also argue that a good or service should be public—if its provision is considered politically important or sensitive—“such as those from which a politically important group such as the poor or an [indigenous] minority would be excluded if they were provided privately”28—or if the intervention of government is necessary to maintain at least minimally acceptable levels of public health, safety or welfare. Differentiating specific functions according to their public or private characteristics within subsectors is important. As only one example, microeconomists in the water and sanitation subsector distinguish between the public character of main, secondary, and tertiary channels and the private infrastructure that connects those channels directly to specific households. Whatever other policy differences exist among countries, protecting populations from serious communicable public health threats is clearly a public good, even though the provision of other health sector goods and services are often considered to be private goods. Even where a health-related good or service is generally believed to be a private good, some governments or people might consider assistance to the poor to be a good that should be provided by government.

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3. Public Choice, Decentralization, and Local Governance a. Considerations of Scale Whatever the level of agreement or disagreement about theoretical issues, local decisionmaking and participation in sustainable operations and maintenance within an effectively decentralized system responsive to local knowledge, priorities, and governance systems enhances their respective efficiencies. The classification of goods or services as public or private is a matter of human judgment, rather than scientific truth affected by ethnic, historical, and cultural factors discussed in Section Two. The larger the decision-making unit within countries that are substantially heterogeneous culturally, the less likely is any common view of public goods.. Citizens and their officials have organized a diverse set of enterprises in local, regional, and international systems because of the diverse attributes of collective goods, in addition to those of exclusion and jointness—such as scale, capital or labor intensity, and co-production—which affect the costs and benefits of provision and production activities. Analyzing a major highway system connecting two economic centers located at far ends of the same country shows that local road systems fail to satisfy the objectives. Goods of that scale require some kind of a national provision unit even though contracts could be written with many smaller scale producers. Alternatively, a small-scale, cul-de-sac road connecting five to ten households does not need a provision unit larger than the small set of households being served. It may not even need to be provided through a government. Many homeowners’ associations successfully hire private associations to produce and maintain roads for small housing divisions. Understanding the economies and diseconomies of producing goods as well as the processes involved in providing collective goods is important in selecting providers. Goods that are capital-intensive, for example, are assumed to achieve economies-of-scale in larger production units while labor-intensive services can be produced at lower average costs in smaller production units. There are, in addition to economies of scale in production, other attributes of goods that may affect how provision and production activities are accomplished. Whether a good needs to be co-produced or not is also quite an important factor leading to different outcomes depending on the way public economies are organized.29 Education and many other public services cannot be fully produced by a production unit all by itself. The teacher in the classroom is an essential aspect of the production of education but so is the effort made by students and their parents, siblings, and friends. Co-production of services is more difficult to maintain when provision units are extremely large and heterogeneous and production units are isolated from the input of those for whom the service is intended.30 Thus, to move to testable propositions about the effects of institutional arrangements, one needs to examine the attributes of particular goods and how these affect provision or production activities rather than assume simply that private goods will be provided by a market and collective goods by the government.

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The primary reason for using a form of collective organization is to solve problems of provision. But once a collective consumption unit is established, how production is organized is an entirely separate question. A collective consumption unit is faced with at least six different institutional arrangements for arranging for the supply of public goods. These include: 1) establishing and operating its ‘own’ production unit, 2) contracting with a private firm, 3) contracting with another governmental unit, 4) obtaining some services from its own production unit and other services from other governmental or private producers, 5) establishing standards of service that must be met by authorized producers and allowing each consumer to select a private vendor and to procure services from an authorized supplier, and 6) issuing vouchers to families and permitting them to purchase service from any authorized supplier. All of these arrangements are used by collective consumption units at a local, regional, national, or international level to arrange for the production of particular collective goods. Given both the diversity of collective consumption units and the diversity of mechanisms each can use to arrange for production, institutions for the governance of public economies and other regions could be expected to derive significant advantage through the complex patterns of organization that are facilitated by decentralization. Thus, scholars drawing on traditional conceptions of the market and the state have not recognized them as potentially viable forms of organizing the provision and production of collective goods and have either called for their consolidation into a centralized government (as the metropolitan reformers did for 50 years) or ignored their existence (as many resource economists did for common-property institutions for almost as long). Many vibrant self-governed institutions have been misclassified or ignored in an era that many observers consider one of ever greater democratization.31 b. Identifying Consumer Preferences In a private market, provision activities take place as individual buyers engage in quid pro quo relationships with sellers of goods and services. When exclusion is low-cost to the supplier, preferences for the amount and quantity of a good are revealed as a result of many quid pro quo transactions. Producers learn about preferences through the consumers’ willingness to pay for various goods offered for sale. Where exclusion is difficult (e.g., for public goods and common-pool resources), designing mechanisms that honestly reflect beneficiaries' preferences and their willingness to pay is difficult and complex, regardless of whether the providing unit is organized in the public or the private sphere. In very small groups, those affected are usually able to discuss their preferences and constraints on a face-to-face basis and then reach a rough consensus. Thus, for goods that can be provided by smaller-scale governments, organizing them at a small scale and enabling these governments to collect taxes from those who benefit helps to enhance the voice of citizens and the efficiency of governance. Relying entirely on funds provided by a largescale government or international aid agencies actually leads eventually to a reduction in the voice of local people. The small-scale government undertaking provision can then determine if production can best be organized locally or by contracting with a public or private producer who can meet the articulated needs of the local population efficiently. In

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larger groups, decisions about provision are apt to be made through mechanisms such as voting at the polls or the delegation of authority to public officials. The extensive literature on voting systems demonstrates how difficult it is to translate individual preferences into collective choices that adequately reflect individual views.32 The challenge of getting citizens voices well articulated increases as the size of the unit grows. Recognizing that provision could be separated from production enabled theorists, as well as empirical researchers, to examine the benefits of organizing provision units at multiple levels all the way from relatively small neighborhoods up through national governments. Since individuals who have the freedom to choose where they will live frequently do choose places near to other individuals with somewhat similar tastes, aggregating the demands of diverse individuals for local public goods and services is an easier task when there are provision units at a reasonably small scale that contain citizens with relatively similar needs. These units then have the choice of how to arrange for production. They may contract with smaller or larger units or engage the same size unit including establishing their production agency, such as their own police department. How they go about arranging for production of public goods depends very much on the array of producers in a locality. In a highly varied urban region, a small to medium-size city has considerable choice in whether the production of a particular service—say police services– is undertaken by their own production agency or by a countywide jurisdiction or even by a private vendor such as security service or a hospital that provides criminal laboratory facilities. Given that the size of the group jointly consuming a good may vary from a small neighborhood to an entire nation or larger, one should expect to find citizens, who are given a choice, creating small, medium, and large collective consumption units and not relying on a single scale of organization. Unless appropriate boundaries can be established, effective means for gaining information about citizen preferences can be devised, and appropriate means for generating revenue can be designed, instruments of coercion can be used to create more harm than good. This is particularly a problem when individuals have little choice about whether they consume particular local collective goods or not. Electoral mechanisms are relatively imperfect mechanisms for enabling citizens to have a voice in determining the type of goods to be provided in their community. Factors such as the size of the unit, frequency of opportunities for citizens to meet with their officials, the mode used for elections, and the patterns of representation, all affect the way that collective consumption units articulate demands. Other questions of internal organization within a collective consumption unit relate to the choice of methods for obtaining revenue and ways to regulate the use of common facilities. c. The Free Rider Problem in Both Public and Private Goods and Services Provision When citizens establish an organization with the authority to use sanctions against those who do not contribute resources toward the provision of a collective good, they constitute a “provision or collective consumption unit”. Many provision units have the formal status of a government established at a local, regional, or national scale. Governmental units

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may be general purpose or organized as a special district or regime for the purpose of providing one or a limited range of collective goods. Private associations who sanction, or even expel those who do not contribute their share of resources to provide for a collective good, may also serve as collective consumption units. Sports leagues and housing condominiums are two types of private associations that provide collective goods for their members. Other forms of collective consumption units include farmers who organize themselves to manage an irrigation system or a common pasture; a national agency who monitors the investment or production processes of private firms to protect consumers against fraud or ecological damage; a local, national, or international government that provides police services of diverse types; or even an illegal cartel of private corporations that decide on the amount of output they will jointly produce. Thus, provision units exist at all levels and in both public and private spheres. Participants can and do constitute a diversity of rules that help them overcome the freerider problem by deciding who is included and must contribute some resources, and who is excluded and how to exclude them. Further, if the provision system continues to develop, participants (or their representatives) are likely to devise rules that specify not only allowable forms of access and use, but also some methods for monitoring behavior and sanctioning violators of rules, and some ways of resolving conflict. When it is difficult or costly to exclude beneficiaries from obtaining a good once it is produced (such as peace in a community), provision by a private market system is unlikely to lead to efficient outcomes. When the benefits of a good are available to all members of a group, whether or not they contribute to providing the good, that good is characterized by problems with excludability. The group may be small, such as all those who live in a particular neighborhood, or may be national or international in scale. When excluding beneficiaries from a group is costly, those wishing to provide a good or service face potential free-rider or collective-action problems.33 Individuals who gain from the safety of a community or the protection of the atmosphere, for example, may not wish to contribute resources to provision activities, hoping that others will bear the burden. All individuals will not take a free-ride whenever they can. A strong incentive exists, however, to be a free-rider in all situations where potential beneficiaries cannot easily be excluded from benefits for their failure to contribute to the provision of a good or service. If only a few people free-ride, others tend to recognize their lack of contribution and free-riding tends to become more and more prevalent unless free-riding is monitored and sanctioned. The feasibility of excluding users is affected by technology and property rights. Technology affects the capacity to control physical access to the consumption of goods and the costs of gaining exclusion. Reducing the costs of fencing land, for example, may make it economically feasible to fence a common grazing land and exclude potential beneficiaries who do not meet legal requirements for access. Property rights doctrines differentially affect the capability of individuals to exclude others from consuming or enjoying benefits that have been produced.

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When it is technically or institutionally difficult to exclude individuals from enjoying the benefits of a good or service, private, profit-seeking entrepreneurs who must recoup their investments through quid pro quo exchanges have few incentives to provide such services on their own initiative. Excludability problems thus lead to the problem of freeriding, which in turn leads to under-supply unless institutions are designed to overcome this disincentive. These institutions may be crafted by those affected in a self-governing process or be imposed by external authorities.

d. The Right Size: Boundaries and other Rules for Public Service Catchment Areas One of the key findings of empirical field research is the multiplicity of specific rules-inuse found in operational settings related to the provision and production of collective goods.34 One of the most important types of rules is “boundary” rules, which determine who and what is in and out of a provision organization. Many different boundary rules are in use by provision organizations around the world35 but the important aspect of these rules is the match between the provision organization and the local situation rather than the specific rule used. Some provision units face considerable biophysical constraints when the good is a natural common-pool resource such as a groundwater basin, a river, or an air shed. Such resources do have their own geographic boundary, and creating a match between the boundary of those authorized to benefit and contribute with the boundary of the resource is a challenge and may be impossible in a highly centralized regime. Further, commonpool resources may themselves be nested in an ever larger sequence of resource units such as a micro watershed, which is nested in a system of ever larger watersheds that eventuates into a major river system such as the Rhine or the Mekong River. On the other hand, the biophysical world does not have a strong impact on the efficacy of using diverse boundaries for the provision of public education or police response services. The transaction costs of monitoring the performance of other participants and of those who are hired to produce the services reduce the variance in citizen preferences, and encourages co-production. Once basic boundary rules define who is a legitimate beneficiary and who must contribute to the provision of a collective good, provision units tend also to create rules related to the information that must be made public or may be kept secret, to the actions that must or may be taken or are forbidden, and the outcomes (and resulting benefits and costs) to be achieved and distributed. An essential attribute of rules is that, to be effective, rules must be generally known and understood, considered relatively legitimate, and thus to be generally followed, and enforced. Written legislation or contract provisions that are not common knowledge do not affect the structure of a particular situation unless someone involved in the situation invokes the rule and finds someone to enforce it. Thus, one of the problems in doing empirical research on the effect of diverse institutional arrangements is trying to sort out the rules that exist on paper and that are not used by participants in contrast to the many rules that are

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common knowledge among the participants and enforced locally but are not part of the formal legal structure. When scholars refer to a system as having a “rule of law” they mean that many of the rules used in practice are consistent with the rules-in-form detailed in legislation, court decisions, and administrative procedures.36 The unwritten nature of rules in some parallel organizations complicates their study.

B. Parallel Governance In citing Albert Hirschman (page 5), the importance of his insight that people can “exit” from participation in government programs when their “voice” is ignored was acknowledged. But “exit” to where? The answer to that question considers the difference between “governments” as form and “governance” as function. According to USAID, “just and responsive judicial processes and the accountability of the executive are two key characteristics of lawful governance. 37For the purposes of this paper, governance is “the process through which authority, whether codified in law or simply recognized de facto, is authoritatively exercised in the management of a society’s resources.” Some form of governance is necessary for the survival of any society. Although formal government is one type of organization for performing the governance function, it is not the only one. Governance, whether performed by governments or informal or non-formal groups, is not always performed in a way voluntarily supported by all the people affected by it and does not always achieve the objectives that people loyal to a group would like. What makes governments different from other organizations is the recognition by other governments of their exclusive legal authority to use officiallysanctioned coercion to enforce their decisions. When governments are not performing some or most governance functions in a particular place or among one or many population groups over an extended period of time, other non-formal institutions must be performing them. Under such circumstances, economic behavior is often observed in the form of “black markets.” But even those informal markets require some form of nonformal regulation and mechanisms to resolve disputes. Thus, the existence of institutionalized “parallel economies” can be viewed as prima facie evidence of parallel governance. Both informal and non-formal institutions have been identified in countries around the world for the provision of credit, voluntary security teams in large housing areas, and financing of flood relief, orphanages, medical services, secondary schools, water and power grids, and so forth. The dynamic adaptation by informal and non-formal groups to changing domestic and international conditions has substantially aided the economic and political survival of large numbers of people in many countries; especially in Africa. Nevertheless, providing services alone does not by itself constitute parallel governance. Parallel governance exists only if informal or non-formal groups provide public goods and services to people who are primarily loyal to them, are able to levy “taxes” and ensure other forms of required participation, and can apply sanctions to those who do not comply.

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Countries are made up of a changing cultural mix along a continuum from rural dwellers to urban unskilled laborers to middle class professionals who have been trained at international professional, public affairs, engineering and business schools.38 The latter group increasingly operates within an international secular world culture rooted in the social and political values of Western Europe, North America, Australia, New Zealand, and to an increasing extent, free market values taking root in East and South Asia. Heterogeneous norms and values complicate the institutional environment within which political and economic assistance programs must be designed and implemented. Nevertheless, recognition that cultural values vary by time and place is not the same as justification for authoritarian or theocratic regimes. Indeed, one of the main arguments in this paper is that legitimate governance requires effective intermediation among diverse communities and nations within sovereign state borders that, in turn, requires transparency and accountability to those communities. That perspective is illustrated further through references to: (i) the 1990s debate about whether or not the “Asian Tiger’s” centralized and authoritarian regimes—as justified by “Asian Values”—were responsible for the “Asian Economic Miracle” prior to the 1997 financial crisis 39 and (ii) the current debate about whether or not democratic governance is possible in the Middle East and Islamic states in general. Sovereign government institutions based on constitutional law is one type of organization for performing the governance function, but there are other forms. As will be noted in Section Two, people lived and worked in a legally unregulated fashion prior to the establishment of sovereign states before the legally defined authority of the state was introduced. As James Scott has argued,40 sovereign states are inherently driven to codify rules and make societies legible (from a legal perspective) because tax collection, military conscription, and prevention of rebellion require the ability to count its citizens. But codification may not be a universal principle to which all people everywhere adhere. Indeed, among the many gaps existing between socio-political groups worldwide, an important overlooked gap is that between people whose primary social and political identifications and loyalties are to governance systems to varying degrees separate from and operating in parallel with sovereign-state governance systems. Annex C defines “persistent” parallel governance groups as traditional ethnic groups; “adaptive” ones are those adapting to the need to rely primarily on self-help; and “reactive” groups are those who seek formal Government leadership through methods ranging from participation in elections (Hamas and Hezbollah) to active insurgencies (the Congo, Liberia and Sierra Leone until recently). Decentralization provides an arena for intermediating with persistent and reactive forms of parallel governance, which is more effective than remote or centralized government political centers. Decentralization can contribute to positive synergies between formal state governments and nonformal parallel governments, especially persistent parallel governance organizations, over time.

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Section Two: Regional Variations Section One explores regional variations in local governance traditions in the four main regions of the world as classified by USAID: Latin America and the Caribbean, Asia/Near East, Europe/Eurasia and Africa, using country examples to characterize broad regional distinctions. The paper seeks variations at the regional level even though the heterogeneity of each region complicates regional generalizations. Because of space limitations, the history of local traditions is provided in greater depth for Asia and Latin America than for NIS and Africa. Similar work could be done for NIS and Africa in the future. Regional cultural traditions grew from both indigenous culture and external influences. External influences, including imperial legacies and colonial ones, affected large areas and regions, and are therefore discussed initially at the national level. For each region, external influences including imperial and colonial legacies are discussed, followed by a discussion of internal political and cultural divisions. Within the regions, cultural and institutional subregions will be identified since devolved or decentralized “units or activities cannot be studied in isolation from their environmental context….”41 In examining regional variations, this paper provides examples of broadly differentiating characteristics among significant political cultures as they relate to decentralization.42 Political cultures are discussed as primarily secular of either a rationalist or ideological kind or, alternatively, rooted in global or regionally significant religions. At least 6,867 different ethno-linguistic groups have been identified among the world’s total population of about 6.5 billion people. How many of those groups might combine broadly defined ethno-cultural affiliations with primary political loyalties—the criteria for classification as a “nation”—is not known. But whatever the number, assuming that legally recognized “sovereign” states are also inherently “nation”-states reflects confusion between legal authority, disparate socio-political realities, and the ability to effectively exercise power. Bolivia, Iraq, Indonesia, Papua New Guinea, and Yemen are only a few examples of countries where nationalities lack common political identities or loyalties. The term “spillover nation” refers to tribes or ethnic groups that live across sovereign state borders. Discussion of cultural subregions leads to a final subsection on parallel governance issues. Parallel governance is viewed as a largely decentralizing influence, sometimes destructive to the sovereign state itself. That notion of a “sovereign” with sole national legal authority within clearly defined borders of a state emerged naturally in Europe and conforms reasonably well with nationhood in OECD countries plus a few others in Asia and Latin America—but in most non-European countries, the introduction of legal sovereign authority and associated territorial borders was foreign, arbitrary and abrupt. Indeed, the legal basis for sovereign authority is dramatically different than the more fluid and associational basis of national authority among political groups in many countries. The paper uses the term “state” to refer to sovereign governments. The contemporary sovereign state system is distinguished by three legal requirements. First, de jure authori-

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ty, especially but not only in terms of the legitimate use of force, resides completely within the state; second national authority is structured hierarchically within clearly defined borders of the state; and third, national authority is applied uniformly throughout the territory of the state.43 The term “nation” refers to cultural and ethnic groups whether they live within states or across national and regional borders. The power of many locally successful national leaders is the result of relatively open decision-making processes that seek effective consensus through a variety of means, which may or may not include electoral competition or the rule of law. However, popular legitimacy and effectiveness of non-formal governance organizations may be criminalized and punished by sovereign state governments. An unfortunate result—especially for the poor—is government structures and policies similar to those of the colonial period. One of the arguments for political decentralization is that it provides an arena for intermediation between secular “modernizing” elites within formal governments and locally successful non-formal “national” leaders. NGOs and other less formal civic groups can play a similar intermediation role. Indeed, the need to identify and support such intermediation was an important reason that official development assistance agencies began to reach out to local NGOs during the late 1980’s and early 1990’s. However, only a limited number of NGOs perform such intermediation functions or are committed to that specific objective.

A. Asia and the Near East Local Governance Traditions 1. East Asia44Local Governance Traditions In dramatic contrast to most parts of Latin America where the pre-existing indigenous population largely disappeared, pre-colonial societies and patterns of authority persist in many parts of East and Southeast Asia. First, two currently important countries—Japan45 and Thailand—were never colonized, while only a few imperial entrepots were established in scattered coastal areas of China. Further, many Southeast Asian societies were dynamic and mobile rather than settled and static. The Burmese, Thai, and Vietnamese people in particular constituted competing frontier populations affected by the great and dynamic civilizations of China and India.46 Precolonial patterns of authority led to the last formal agreement between a Cambodian Prince and the Vietnamese Emperor acknowledging the latter’s preeminence in the southern Vietnamese delta signed in 1775. China, Japan, Mongolia, and Vietnam shared some form of sinicized governance systems while the other kingdoms of mainland Southeast Asia shared an Indianized political culture. The structures, values, and symbols of those two political cultures defined and maintained formal relationships at the elite level in Asia. Although sinicized and Indianized systems were different in many important respects, both were characterized by largely symbolic relationships between emperors and “subordinate” vassals that seldom required obedience to any substantive decisions by the latter to the former. According to Arthur Basham: The great vassal was always very powerful, and had his own administration and army. Among the many threats to the security of a king the revolting vassal was one of the most dangerous…. In fact the suzerain’s hand

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weighed very lightly on the more powerful and remoter vassals, and many claims to homage and tribute amounted to very little.47 As with many histories, the recorded history of Asia consists almost entirely of interactions among palace elites. Notwithstanding agreements among rival kingdoms, the significant changes in the political history of the region resulted from people moving, settling and either eliminating, displacing, or cohabiting with people of other cultures without regard for any territorial boundaries or esoteric claims by rival courts. a. External Influences: Imperial Legacy and Foreign Assistance Imperial Legacy European concepts of governance structures and process made an important impact during the colonial period. The first official concession by the Vietnamese to the French took place in 1874. During the 20th century, colonial authority in Asia—whether French, American, British, Dutch, German, Japanese or Portuguese—was patterned on the way states were organized in Europe and among European derivative countries. These patterns originated with the Treaty of Westphalia in 1648. A “sovereign” recognized by other reciprocally recognized “sovereigns”, was understood to have ultimate legal authority among all peoples residing or temporarily visiting within—or transiting through— territorially defined boundaries as marked by clearly demarcated borders. That is a highly centralized vision of political organization within often vast territories. However, it is also a legal definition that might or might not reflect how actual political influence is exercised and impacts on behaviors. Governance within much of China –remained outside the colonial system, shifting among different rulers (or “warlords” from a European or American perspective). The realities of centralization and decentralization in various parts of Asia revolve around this belief in ‘divine right” of a king or ruler whose ‘right to rule’ grew from might as much as right. Colonial rule in South and Southeast Asia resulted in an overlay of strong, perhaps authoritarian, “prefectoral” administration in the form of colonial officers governing at district levels, superimposed on pre-existing forms of governance and behaviors. Indeed, in almost all cases, colonial “prefects” governed through local leaders of one kind or another within their limited areas of concern—i.e., maintaining law and order, collecting a “head” tax, or through recurrent corvee labor for infrastructure investment and maintenance. Colonial systems used and built upon existing rural systems of revenue collection. Foreign Assistance The United States began providing financial and development assistance throughout Asia—especially in Taiwan, South Korea, and Japan—soon after the end of World War II and was subsequently joined by the World Bank, Asian Development Bank, Australia, Japan among other bilateral assistance agencies. Western assumptions about progress and the linear path to “development” combined with lessons learned about planning and management from the Marshall Plan approach to the reconstruction of Europe and Japan to reinforce centralizing tendencies inherent in the notion of the sovereign state itself. A linear view of inevitable progress was further reinforced by the fact that the economies of

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several East and Southeast Asian countries—China, South Korea, Indonesia, Malaysia, Singapore, and Thailand—appeared to be “taking-off” by the 1970s. Indeed, among those “Asian Tigers,” GDP grew between 7.6 percent (Indonesia) and 9.4 percent (China) between 1970 and 1996. Even as many international development agencies were advocating one or another aspect of decentralization—and associated local government capacity-building projects—as part of macro-governance reform programs in other regions (particularly in sub-Saharan Africa), concern for such issues in most of Asia remained largely limited to community-based participation and “bottom-up” process approaches to project design and implementation at the micro-level. Economic success and the argument—most clearly articulated by Singapore’s then Prime Minister Lee Kwan Yew—that China, Japan, South Korea, and Singapore’s success was due to their shared and essentially paternalistic “Asian Values.”, militated against radical new programs of decentralization. Given the realities of the 1997 financial crisis in East and Southeast Asia, it is interesting to note the World Bank’s judgment about the effectiveness of the state in East and Southeast Asia in its World Development Report published just a few months earlier: In the newly industrializing countries of East Asia, the state is generally viewed as effective, engaged in a productive partnership with the private sector. With few exceptions, it has matched its role to its capability very well and thereby enhanced its effectiveness. Whereas ineffective authoritarian states have been directly responsible for economic decline in Africa, many East Asian countries have experienced remarkable growth (with some improvement in equity) under authoritarian regimes…. The link between authoritarianism and economic decline, so evident in Africa, has been inoperative in Asian countries, largely because of their powerful commitment to rapid economic development, strong administrative capability, and institutionalized links with stakeholders such as private firms, as well as their ability to deliver on the economic and social fundamentals: sound economic management, basic education and health care, and infrastructure.48 But such views were not always uniform; even among political leaders in Asian countries themselves. For example, by the late 1980s debate was underway between “centralizers” (mostly macro-economists) and “decentralizers” (primarily micro-economists and institutional development specialists) whether public sector reform programs in Asia should support decentralization efforts. Centralizer’s fears were raised by the announced intentions of China to dramatically accelerate the transfer of substantial financial, investment, and implementation responsibilities to provincial governments. Would unrestrained local decision-making make effective management of demand within the public sector impossible? The fear was that, sooner rather than later, China’s central Government would be faced with the moral hazard of bankrupt local governments relying on Beijing to bail them out by paying-off the local governments’ bad debts.

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During the 1970’s and 1980’s, in Africa and Latin America, local governments turned to central governments to relieve their indebtedness. “Decentralizers” within such organizations as the World Bank argued that decentralization could substantially increase efficiency through participation and beneficiary ownership. Decentralization would succeed if emphasis within public sector reform programs was placed on how best to enforce discipline on the relationship between central and local governments. Authority should not be centralized wholly among governmental elites in the capital cities throughout the region.49 Centralizers were faced with several exceptions to the more common centralizing tendencies during the decades prior to the 1997 East Asian Economic Crisis:. These included  The launch during 1978 of Indonesia’s “Provincial Development Program” with USAID’s financing of “PDP I” in Central Java and Aceh and its sequential expansion to all of Indonesia’s provinces and districts with financing by USAID, the World Bank, Asian Development Bank, and other international development agencies;  The attempted regionalization of planning in the Philippines during the 1980s;50 and  The continuation of “by-pass” strategies51 employing NGOs for the implementation of “social fund” projects in Cambodia, Indonesia, the Philippines and, to the extent practicable, in Vietnam. Indonesia’s PDP is a good example of how a sufficiently long-term perspective provides a more accurate view of the success or failures of decentralization programs. When first introduced in 1978, it was the first project in Indonesia designed specifically to support decentralization to provincial governments. PDP was the very first foreign aid project channeled through the Government of Indonesia’s equivalent of a Ministry of Local Government (Departemen Dalam Negeri) and the provincial planning offices (Bappeda Tingkat I). In addition, it was one of the earliest projects anywhere to specify the “poorest of the poor” as the target “beneficiaries” and to foster a village level participatory process through which beneficiaries themselves could select the kind of benefits they would receive (although from a limited list of pre-determined choices). Finally, it was explicitly designed as a pilot project that—based on lessons learned from implementation experience—could be adapted and expanded to other parts of Indonesia.52 Within about a decade, PDP had been expanded through successive projects financed by USAID, joined by the World Bank and other international development agencies to all of the many country’s provinces. By 1995 the primary emphasis within successor decentralization projects was the transfer of responsibilities from provincial to district level planning offices (Bappeda Tingkat II). In the meantime, Indonesia’s official system of parallel provincial and central government offices in provincial capitals had been abolished and all ministerial representatives had been integrated into the provincial administrations. When President Suharto’s authoritarian regime was overthrown during May 1998, the long-term institutional development effort required for an effective transition to an increasingly decentralized governmental and political system had already occurred and the required capacities were largely in place. Within the arena of official Government organization and behavior, Indonesia, an overwhelmingly centralized country in 1978 is now

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substantially more decentralized and continues to implement programs directed toward further expansion of decentralization.53 At the same time, the durability of these reforms is still being tested. Since the 1997 crisis, increasing attention has been given to decentralization issues in other East and Southeast Asian countries that receive significant amounts of public foreign finance within the context of macro-adjustment54 and poverty alleviation programs; e.g., Indonesia, Lao PDR, The Philippines, and Papua New Guinea. Nevertheless, multilateral development banks working in local government limit their attention primarily to instrumental aspects of administrative and fiscal decentralization55 within the broader context of public sector management.56 b. Internal: Political Culture, Values & Institutional Processes and Decentralization Experience Only three Asian countries are organized as federal systems—India, Malaysia, and Pakistan. All other countries in Asia are unitary. Countries with both unitary and federal systems are attempting to decentralize, or are characterized by analysts as establishing systems of “fiscal federalism.” Eight Asian countries classify themselves as decentralized—Bangladesh, China, India, Malaysia, Maldives, Nepal, Pakistan, and The Philippines. Five other countries have decentralization policies or are engaged in some type of decentralization efforts over the long-term—Indonesia, Lao PDR, Sri Lanka, Thailand, and Vietnam. 57 There are a number of established democratic multi-party systems in Asia . These include India, Korea, Taiwan and Japan. The region also has significant authoritarian or oneparty regimes including China, Singapore, Vietnam, Saudi Arabia and Burma (Myanmar), Emerging democracies include Indonesia, Malaysia and the Philippines. States with the potential to move towards parliamentarian rule include Thailand and possibly Nepal. Existing kingdoms in Asia include Nepal, Thailand and Bhutan. Throughout Asia and the Middle East the primary distinctions in values is between secular views and religious values. Secular views can be broadly divided between socialism and mercantilism with China, for example, wavering between both. The major religious and philosophical distinctions are Buddhism, Islam, Hinduism with its caste legacy, and Confucianism (and some would argue Mandarinism). There are pockets of Christianity throughout the region. Christianity is the majority religion in the Philippines and East Timor. Asia and the Near East have also been influenced, and divided, by the legacy of non-violence and passive resistance (Gandhi) and revolutionary traditions in China, Indonesia, Vietnam and much of the Middle East. Decentralization Experience Nations vs. States As in sub-Saharan Africa and the Middle East, the borders of many sovereign states in Asia include diverse ethnic “nations” when “nation” describes tribes and ethnic groups. Eleven Asian countries—Japan, the two Koreas, Bhutan, Bangladesh, Brunei, Cambodia,

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China, Mongolia, Timor-Leste, and Vietnam—substantially meet the criteria of sovereign states. Six of these countries (Bangladesh, Brunei, Cambodia, China, Mongolia, TimorLeste and Vietnam) have significant numbers of their core ethnic group residing in other neighboring countries. Another six Asian countries have substantial minority populations—Lao PDR, Malaysia, Myanmar, Nepal, Sri Lanka, and Thailand—while five other countries—India, Indonesia, Papua New Guinea, The Philippines, and Singapore—are substantially multi-“national.” Finally, ethnic minorities in the highlands of Lao PDR, Myanmar, Thailand, and Vietnam and, perhaps, the Tamils of Sri Lanka—constitute “nations” without attachment to any currently existing state. Several of these countries are experiencing levels of domestic conflict;58 e.g., the Philippines, Nepal, Sri Lanka, Kashmir, Afghanistan, Indonesia, Cambodia, Nepal, Sri Lanka, and East Timor. The argument that appropriate forms of decentralization could result in reducing separatist pressures is voiced in favor of decentralization. By extending sufficient autonomy to local jurisdictions that more accurately represent social and political communities, pressures to assert absolute legal sovereignty by such communities might be substantially reduced. Decentralized systems may provide multiple channels for the expression of different norms and values arising from different cultures within a country. Where the overall scope of the public sector has also been substantially reduced, many of the social constraints on individual or community action are left to mechanisms of the private sector market, possibly further reducing separatist pressure. Yet, such mechanisms can complicate attempts to forge a new “national” identity within many countries. Different outcomes of decentralization could easily threaten “modernizing” elites. Ethnic loyalties might transcend and be more important than the commitment to legally-defined secular citizenship in the Philippines, Indonesia and Sri Lanka. At its most extreme, decentralization might lead to secessionist movements within local jurisdictions within which ethnic majorities are concentrated. For local governments and minority populations, decentralization poses risks that the transfer of responsibilities to local governments might not be accompanied by appropriate or sufficient authority or systematic access to existing resources. Local decision-making authority about public resources for poor citizens might be captured by formal sector elites—such as in Indonesia—or be accompanied by the expansion of formal sector government intervention in local affairs—such as in Lao PDR—with the possible further alienation of local non-formal governance systems. Nevertheless, formal sector decentralization—based on the principle of subsidiarity59— appears to be a necessary, even if not sufficient, condition for the integration of formal and non-formal governance systems. It has been argued elsewhere60 that, with respect to the integration of economic functions, governments—whether central or local—should not be viewed as the primary intermediary between formal and non-formal systems (i.e., that role should be reserved to the private sector). Nevertheless, local governments can facilitate the mutual leveraging of resources and reduce transaction costs by just such intermediation between formal and non-formal governance systems.

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Examples of how local political cultures or the reality of physical environments impact on decentralization objectives and public choice are illustrated here by the transitional political situation in Indonesia; decentralization behaviors and disparities in China, and, the impact of topographical realities in Papua New Guinea. Indonesia. Although the Indonesian government is increasingly decentralized, the transition from authoritarian to broadly democratic forms of political relations, especially at provincial and district (Kabupaten) levels, has not yet been fully realized. First, while provincial and district planning offices (Bappeda Tingkat I and II) have dramatically increased responsibilities and power relative to the 1980s—as exemplified by their own impressive office buildings in provinces and districts throughout the country—the originally intended “bottom-up” planning process has been largely lost as local governments have adopted “top-down” behaviors modeled on those of the central government. As governmental and administrative authority has been dispersed, it remains largely directive rather than responsive to initiatives originating in rural villages and urban neighborhoods. The World Bank financed Kecamatan Development Program (KDP) has fostered the establishment of “councils” at the Sub-District (Kecamatan) level consisting of representatives from participating communities who are vested with the authority to decide—within established limits—how to use program resources. That process is assisted by technical assistance teams provided by local NGOs or consultant contractors. Within the formal organizational structure of the Indonesian Government, the kecamatan is a deconcentrated administrative arm of district (kabupaten) governments and—outside of KDP—with no devolved authority. Therefore, it is not yet clear whether the participatory organizations and processes established by “KDP” will be sustained after external financing ends, or whether public goods will be sought elsewhere. Second, some analysts argue that another result of decentralized political and governmental power since the overthrow of Suharto has been an increase in levels of corruption—even though it is now much more dispersed, “anarchical,” or “chaotic” than during the previous authoritarian regime.61 China. The People’s Republic of China appears to be among the most decentralized in the world. China’s system of decentralized governance differs from most other systems in that public sector revenues are largely collected by provincial governments or urban equivalents. The central government’s share is transferred to it by those local governments rather than the reverse. As with many revenue sharing systems worldwide, a formula has been established according to which the relative shares of government revenues among different levels of government are specified. However, as is too often the case with revenue sharing formulas,62 actual amounts transferred are negotiated annually by central government officials and their counterparts in each of the provinces and major cities. Diminished transfers account, at least in part, for differences in public sector capacities and performance among China’s disparate regions. Thus, while China has experienced substantial increases in aggregate rates of economic growth, improvements in health and education rates have not kept pace throughout the country as a whole. UNDP’s Human Development Report 2005 argues that “poorer counties and districts have been unable to raise sufficient revenue through taxation, intensifying the pressure on

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health service providers to demand payment for services…. Include[ing] basic immunization and other preventive health services.63 Thus, eight of China’s provinces lag far behind the others with respect to under-5 mortality rates, ten provinces have dramatically higher maternal mortality rates; and nine provinces have substantially lower rates of access to improved water sources.”64 Insufficient coordination between central and regional, provincial, and/or local governments along several important dimensions in China contributes to inequality;65 despite the intention of the Communist Party to ensure conformity in the implementation of policies through its own organizational units that parallel the government structure. Mobility among provinces due to differences in health and education opportunities would require further study, but appears to be dwarfed by mobility due to labor opportunities. Papua New Guinea. Although PNG is officially organized as a unitary state, it operates under an extreme form of de facto decentralization due to topography, cultural differences among the population, diverse colonial experiences, poor communications infrastructure, and ineffective central government administration. Although the population is only about 3.5 million people, more than 800 distinct language groups exist among its population—approximately, a different language for each 4,275 people. Individual communities are separated by high mountains and deep valleys on the main island or among thousands of small islands. Physical isolation has resulted in both different cultural norms and practices among communities and infrequent interaction with formal government organizations. The continuing importance of such non-formal parallel governance systems was reinforced further by the fact that its entire territory had been administered as a single integrated Australian Trust Territory for only thirty years (1949). Despite a prolonged program to reform and formally decentralize the official structure of PNG’s Government de jure, PNG’s Central government remains a fragile instrument for the performance of the governance function. In the Pacific, Papua New Guinea, with an Australian and British legacy has been undergoing legal decentralization for a long time—there is “no choice process” because of history, topography and cultural isolation. Topography and the absence of infrastructure make the country a de facto decentralized system in the sense it is not internally, a functionally integrated state. c. Parallel Governance Structures A relatively recent World Bank study66 reveals various forms of parallel governance systems in Asia, including informal and non-formal institutional arrangements for the provision of credit; (ii) voluntary security teams in large housing areas; and (iii) financing of flood relief, orphanages, medical services, secondary schools, water and power grids, and so forth. Annex C defines that “persistent” parallel governance groups refer to traditional ethnic groups; “adaptive” ones to those adapting to the need for additional self-help; “reactive” references insurgent groups seeking a channel to political leadership and “intermediators,” to groups negotiating between traditional groups and formal state actors.

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Clear examples of parallel governance surface most dramatically in countries or provinces in conflict or just emerging from conflict. In Asia, current examples include Afghanistan and Pakistan, where the exercise of effective central government authority within many provinces is problematic because governance functions continue to be exercised by regional—often non-formal—tribal or religious leaders67 while yet other non-formal authority structures transcend the border between Afghanistan and Pakistan. Afghan groups range from persistent to adaptive. The Taliban are reactive but linked to both persistent and adaptive characteristics. In Indonesia, central government authority is clearly shared with unofficial governance systems among the wide variety of ethnic groups living throughout this island country. Indonesia provides examples of reactive parallel institutions such as the Partai Keadilan and Nahdatul Ulama. Rural villages and urban neighborhoods are institutionally complex. Indonesia is an example with particular resonance. In response to participatory evaluation methods, the urban “poor” identified a total of 44 different institutions operating in one or more of neighborhoods, while 53 separate institutions were identified as operating in one or more rural villages.68 This intense institutional environment encompasses a much broader range of actors than those provided and/or supported by Indonesia’s formal sector Government. Twenty (45.5 percent) of the institutions identified by the urban “poor” are nonformal, while sixteen institutions (30.2 percent) identified by the rural “poor” are nonformal.69 Non-formal institutions are persistent in China, where a widespread substitution of social institutions for formal governance mechanisms delivers services in many parts of that country. In rural China, village level officials may rely on lineage or religious organizations to fund and manage public services70 even as some established local governments devote resources to village level social and community enhancements.71 Currently, elected village leaders from the business community may be expected to provide village improvements from their personal resources.72 In Vietnam, Lao PDR, Myanmar, & Thailand, parallel governance links indigenous tribal minorities living in cross-border highland regions despite predominantly homogeneous populations in the lowlands. In Turkmenistan, governance is influenced by combinations of political loyalties among which citizenship and professional affiliations are subordinate to regional and tribal loyalties.73 In the Pacific, persistent groups exist in Papua New Guinea, Solomon Islands. Among the Tuvalu there are traditional community structures of authority. In the Solomon Islands, many people adhere to traditional structures of authority rooted in rural villages that emphasize both equity and acquired rather than inherited status and among whom “local and clan loyalties far outweigh regional or national affiliations.”74 Among the Tuvalu, legislation has devolved significant governance responsibilities to “island communities” closely linked to traditional decision-making structures so as to make official and unofficial decision-making systems more congruent with each other.75 Finally, there are several examples of NGOs that have links with civil society. These include BRAC in Bangladesh, in Malaysia—Teras Pengupayaan Melayu and Jemaah Islah,

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in Singapore—Darul Aram and Majlis Ugama Islam and in South Asia, the Aga Khan Foundation. Awareness, or discovery, of parallel systems often results in attempts to eliminate them, turning adaptive structures into reactive ones. Development practitioners would be well-served to support efforts that have been made to improve and integrate parallel providers into formal systems. [Information about one such effort describes a program to improve services provided by drug vendors in Lao PDR.76]

2. Middle East Local Governance Traditions In the Middle East, highly centralized unitary states predominate with strong central government control over local administration. Countries such as Egypt are frequently described as having local administration, through appointed central government representatives, rather than local government. Centralization characterizes governance systems in Jordan, Egypt, Syria and Iraq prior to 2002 Countries in the Middle East have a significant gap in the quality of governance compared to other regions77, especially given ineffective or restricted local governance capacity. A combination of external and internal influences, including parallel governance systems, contribute to the relative successes and failures of local governance to provide public services. The discussion below characterizes the forces and structures affecting local governance in the Middle East. a. External Influences: Imperial Legacies and Contemporary Foreign Assistance Although the Middle East is more accurately characterized by culture than by geography, this paper refers to the area from Egypt to Iran (West-East) and Turkey to Yemen (NorthSouth), predominantly, the Arab world. In addition, North African and Asian countries neighboring the Middle East often share similar religious, ethnic, language, and other cultural values. While internal cultural similarities define and influence the Middle East, external influences—in this region in particular—have had a profound affect on local governance. Most notably, the Ottoman and European Empires have shaped the structure of governance by introducing—and often imposing—strict central control. In the Middle East and North Africa, the most important inherited imperial history is of a governorate organization of local prefects from the Ottoman Empire period (the Turkish legacy). Though the Ottoman Empire was decentralized, the Governorates themselves were authoritarian in nature. The Ottoman Empire, through the Governorates, ensured that land and resources were employed under central administration in order to promote the common good. This tradition continues today, where public policy in the modern Republic of Turkey advocates a state role in local affairs. The manner in which predominantly Arab and Kurdish villages of southeastern Turkey have been governed illustrates the broader impact the Ottoman Empire had on the Middle East. Tribal organization in the largely rural southeast along patrilineal lines has exercised authority, but is most practically associated with ownership of large tracts of land. Villagers from families without land work as laborers or herders for landowners, creating a system of economic and political dependency. The few tribal leaders in command of local resources increased their as local elites. Incongruent cultural values between the Arab and Kurdish villagers and Turkish administration, desire for greater authority and political challenges from local

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leaders, led the government of Turkey to impose greater control. The result has been violent conflict and displacement of many villagers, analogous to regional tensions under Ottoman rule. Contemporary local governance in the Middle East reflects the central planning systems introduced by European colonialism. Most countries in the Middle East employ five year development plans for public service delivery. Five-year plans follow the legacy of central administration and are directed from the state down to the local level. Despite a few notable efforts to liberalize local decision-making authority, ministerial oversight largely dominates the governance structure in many Middle Eastern countries. In Turkey, local administrations depend heavily on funds transferred from the central government, which are often insufficient to provide required public services, especially in urban areas. Efforts to implement pooled financing and revenue-sharing schemes to improve service delivery, are not designed to empower local authorities. For broad policy reasons, as well as to improve capacity, transparency, and accountability at the local level, bilateral and multilateral donors sponsor democracy and governance programs. The success of these initiatives depends on internal influences. b. Internal Influences: Political Culture, Values, Institutional Processes and Decentralization Experience For over 2000 years, religion has been central, if not definitive in determining governance structure in the Middle East. Although there are notable local governance models from Jewish, Christian, and other Middle Eastern communities, the influence of Islam is the overriding force determining present day local governance. Islamic caliphates ruled the Middle East from the death of Muhammed (around 600 AD) until the early 20th century when the Ottoman caliphate was recast as the Republic of Turkey (and coloniallyinspired creation of nation-states emerged). During the reign of various caliphs, significant ideological differences in the appropriateness of governance authority divided Islamic society in the Middle East. Sunni Muslims generally argue that the caliph ought to be selected by community consensus or selection. Shia Muslims counter that caliphs should follow religious authority of qualified imams. The rift in Islamic society between these two major sects transcend governance into philosophical and religious interpretation of Islam, but these beliefs impacted the utilization of resources within caliphates, especially as Islamic society conquered territory and expanded its reach. Within the two Islamic sects, Shia and Sunni have fundamentalist and moderate wings, and reflect both secular and theocratic political values. Among Sunni Moslems, the Baathist movement has historically represented secular socialist principles while various Muslim brotherhoods have represented more theocratic elements. There is no history of devolved self government in the Middle East. Highly centralized unitary states predominate throughout the region with strong central government control over local governments, and distinctions between secular views and religious values largely shape the scope of local governance today. These differences have spurred conflicts and insurgencies that complicate the ability to deliver local services. In the name of security, many countries in the Middle East have expanded central controls. One-party

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states predominate in the Gulf. Israel is a notable outlier with the only established democratic multiparty system in the region. Existing kingdoms in the Middle East include Jordan, and Morocco. In the region, federal and quasi-federal states, at least on paper, include Iraq (since 2005), the United Arab Emirates, and Afghanistan (weakly quasi-federal). Morocco, Jordan, Iraq and Egypt have parliamentary systems with varying degrees of legislative authority. Tunisia is cited as an emerging democracy. Syria, Egypt, Jordan, and Saudi Arabia share the model of centralized government through governorate or provincial appointees. All of Syria’s thirteen provinces are governed by an official appointed by the central government who is responsible for all public services. The governor is supported by a provincial council comprised of locally elected and centrally appointed representatives that are all subject to the supervision of the Ministry of Local Administration. The Governor has the authority to appoint district and subdistrict officials who work with elected district councils to manage local needs and liaise between the central government authority and traditional leaders such as village chiefs or clan leaders. However, appointments of all officials are subject to the approval on the Ministry of the Interior. Local municipal councils in urban areas have greater decision making authority to collect revenues and administer public services but the accountability of such bodies does not rest with the people but rather with the Governor or other central government official. The bedouin and other tribal cultures practice self-government according to traditional customs in some areas such as the Fatouh border area between Pakistan and Afghanistan. Egypt. Egypt’s local governance system of villages and districts comprise the twenty six governorates (muhafazah), which are all ultimately accountable to a powerful central administration. Rural village and Muslim Brotherhood political activism, at times, challenges the authority of Egypt’s central governance, but the current administration has worked diligently to control the influence of such movements by limiting (sanctioning) civil society activity. However, despite the supreme oversight of the central government, efforts to decentralize local authority over public services have had more positive results in Egypt than in many Middle Eastern countries. Governors have some degree of administrative and budgetary authority and although the local councils are heavily dependent on central fiscal transfers, they do have some ability to raise local revenues, and determine local budgets. Unfortunately, a highly centralized public sector, coupled with a tremendous administrative bureaucracy minimizes the practical effectiveness of local governance. External donor-assistance programs have worked to liberalize both administrative functions (decentralization) and public service delivery through privatization.78 Jordan. Jordan’s governorates (alwiyah) and their districts and sub-districts, like other Middle Eastern countries, represent an extension of the central government in the administration of municipal or village affairs by an appointed official who is directly accountable to the king. Depending on the scale, local governance is administered by popularly elected councils in larger municipal areas; smaller, mostly rural areas used to be governed by traditional headmen (mukhtars) who had limited responsibility to administer public

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services, but an increasing reach of central authority to tribal areas has stripped this traditional element of local governance from the formal structure. Saudi Arabia. Saudi Arabia’s fourteen provinces or amirates are governed by an amir or governors appointed by—and largely accountable to—the king. Governors hold public meetings (majlis), where local disputes are arbitrated or referred to an appropriate court. Larger provinces are subdivided into districts, with appointed councils and appointed lower level officials subordinate to the governors. These appointees assume restricted local authority to exercise central government functions. Spurred either by religious doctrine or tradition, internal cultural values and external influences in the Middle East have shaped highly centralized governance systems in the region. When regulatory application of laws at a local level is incongruent with public demand (i.e. secular vs. religious, or competing religious philosophies)—particularly when the opposition has developed capacity and the central authority proves incapable of providing services, parallel tracks of local governance give rise to alternative means to service delivery. c. Parallel Governance Structures Parallel governance groups tend to be dominated by religious fundamentalists particularly in the Moslem areas of the Middle East. Parallel structures in the Arab Middle East include both Arab Socialist groups (Baathaist), and Islamic organizations (Sunni, Shiite, Wahabbi, or Taliban in Afghanistan), and since religious fundamentalist organizations and grassroots religious associations have historically delivered social services, there is no tradition of civil society participation outside of religious institutions. Reactive groups in the Middle East include several political movements but specifically the Islamist based AK Party in Turkey, which has combined Islamic nationalism with grassroots welfare and service delivery promotion.79 They also include Almabarrat/Hezbollah in Lebanon, Hamas, in Palestine, the FIS (Islamic Salvation Front in Algeria), and the Muslim Brotherhood in Egypt. Hybrid groups include Hezbollah, Hamas and the Muslim Brotherhood (Egypt) which range from adaptive to reactive. Reactive groups are linked to both persistent and adaptive types of organizations such as Hamas and Muqtada al-Sadr in Iraq. Non-governmental and civil society organizations include the Iman Dadr Foundation and Makassed in Lebanon. These include Islamic religious trusts (awaqafs), non-governmental groups, and foundations. Religious-based welfare groups combine their welfare roles with political activism and in some cases, terrorist activities. Thus, for example, when an individual in Lebanon voluntarily chooses to participate in Hezbollah (a parallel governance movement that challenges the authority of the state), then that individual is in effect applying the public theory in selecting a service provider who more efficiently meets his/her needs. Social pressure by the majority community will limit its member’s ability to choose service providers outside the formal structure. However, as formal governance structures weaken, each group (Christians, for example) will move to a secondary or nonformal provider. This example illustrates a common

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thread about public choice in the Middle East: where cultural values are largely shared, there are limited opportunities to freely choose public services—due to highly centralized governance systems; where there are competing cultural values, parallel governance institutions have become the de facto alternative for service delivery. The formal governance sector in the Middle East, broadly, does not provide the framework for public choice to effectively operate at the local governance level.

B. Latin America80 and the Caribbean (LAC) Local Governance Traditions In dramatic contrast to most parts of Africa, Asia, and the Middle East, the pre-existing indigenous populations of Latin America and the Caribbean were largely absorbed by colonizing European peoples. In only five countries—Bolivia, Ecuador, Guatemala, Mexico, and Peru—do indigenous groups constitute at least 25 percent of the population while no indigenous people survived in 11 mainland Latin American states nor in any Caribbean country.81 Therefore, little of the pre-existing core Aztec, Incan, or Mayan civilizations have persisted into Latin America’s contemporary systems of governance; whether formal or non-formal. Although the institution of slavery is appropriately associated primarily with the importation of Africans, the first to be enslaved were the indigenous populations forced into the gold and silver mines by the Spaniards and the Portuguese in Mexico, Puerto Rico, and Bolivia. That earliest colonial economy was based on the extraction of mineral wealth supported by indigenous slave labor with a relatively small European settler landowner population producing food. While the male population shrank because of the dangers of mining, native females were paired with Spanish settlers; shifting the balance from an indigenous to a mestizo population. By the time that native slave labor was outlawed by Spain in 1600,82, the primary foundation of the colonial economy was shifting from mining to the export of agricultural crops (especially sugar) from islands throughout the Caribbean, Brazil, and Central America—a shift accompanied by the accelerated importation of African slaves to replace the effective disappearance of native labor.83 In parts of Argentina and, to a lesser extent, Mexico, large cattle ranches predominated, so the settlement pattern in those two countries more closely paralleled that of the western rangelands of the United States. Nevertheless, the consequences for the “Indians” was relocation at best or decimation by illness and hardship.

1. External: Imperial Legacy and Contemporary Foreign Assistance From the 16th through the 18th centuries, Spain had the most extensive colonial empire, centered primarily in the Western Hemisphere. By the time Sir Walter Raleigh established the first English American colony off the coast of North Carolina in 1585, Spanish colonial cities were well-established in what are now Bolivia, Chile, Colombia, Cuba, the Dominican Republic, Guatemala, Jamaica, Mexico, Panama, Paraguay, Puerto Rico, Peru, Venezuela, and St. Augustine, Florida. Spanish expeditions had already reached areas

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now known as New Mexico, Arizona and Kansas as well as the Colorado, Mississippi and Tennessee River Valleys (1540–42). The first Portuguese colony at Sao Paulo in what was to become Brazil was established in 1532. In 1592, only 19 of today’s 193 sovereign states had any real independent identity. Local administration was functionally deconcentrated but with few exceptions not devolved. Local government in the English-speaking Caribbean is based on characteristics developed in the First Empire (prior to the American Revolution) with British council systems in place. Historically there were no formal prefects but there were powerful magistrates. Local councils, both town and country level, functioned in the form, if not the substance, of the English council system. As late as 1800, the Gross National Income (GNI) of Spain’s Latin American colonies was essentially the same as those of Britain’s North American colonies.84 In the nineteen century Iberian traditions (Spain and Portugal) predominated in Latin America while British influences (and to a lesser extent Dutch and French) dominated in the Caribbean. Most of today’s mainland Latin American countries gained independence during the 1800’s. By the beginning of the 20th century, the Latin American region accounted for a third of all sovereign states globally. Political elites expressed a European political culture. Most Caribbean countries, however, have been self-governing only since 1962. Latin America’s governments have been both highly centralized and authoritarian throughout most of their post-independence history. In the twentieth century, of the twenty independent Latin American and Caribbean sovereign states in 1945, seven were governed by unelected dictatorships and the governments of several other countries were “democratic” in name only, despite any use of Western governmental forms. Fulgencia Batista served as President of Cuba for 26 years until overthrown by Fidel Castro in 1959. Mexico was governed by the Partido Revolucionario Institucional (PRI) for a full 66 years before losing to an opposition candidate for the first time in 2000.85 By the end of 2003, however, LAC still had the highest percentage of “democracies” than any other developing region.86 a. International development Agencies The establishment of the World Bank, International Monetary Fund, and the United States’ Economic Cooperation Agency following World War II marked the dawn of the modern development assistance era. By contrast with Asia and Africa, 19 of the 44 delegations—a full 43 percent—at the organizing conference of the World Bank and IMF at Bretton Woods, New Hampshire during July 1944 represented Latin American countries. The size of their respective economies however, limits the current voting strength of all Latin American countries combined, to only 7.9 percent of the total votes in IBRD (Caribbean countries constitute only 0.98 percent of total votes in that organization).87 Between 1961 and the end of 2003, Latin America’s collective economy grew by an average 3.7 percent per year and included the World’s 10th and 13th largest economies

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(Mexico and Brazil) while exports increased by 303.4 percent between 1980 and the end of 2002. In 2000, poverty was increasing in two-thirds of 18 Latin American countries despite the Latin American and Caribbean countries having received more official development assistance over a longer period of time than any other region.88 Primary sources of assistance to the region include the World Bank (IBRD and IDA), the Inter-American Development Bank and the United States. The US contributes significant chunks of assistance to the Dominican Republic (35% of recipient aid), to Guatemala (40%); to El Salvador (46%); to Panama (57%); and to Haiti (59%). Latin American and Caribbean countries’ total external debt was US$762 billion in 2003; indeed seven countries paid more than 10 percent of their total gross national income (GNI)89 to repay ongoing foreign debt. For the region as a whole, debt repayments equaled 30.7 percent of total exports during 2002.90 Chile was the first Latin American country to receive a development loan from the World Bank (March 25, 1948). Between that loan and the mid-1980s, external assistance to Latin America and the Caribbean focused on discrete project financing without regard to the specific structure of governance in individual countries. Throughout that period economic planning in Latin America conformed closely with the bias toward central planning among most professional development specialists at that time. In August 1961, the United States further reinforced that approach with its requirement that Latin America’s central governments prepare comprehensive and detailed long-term development plans to be eligible for assistance from the Alliance for Progress.91 As was also the case in Sub-Saharan Africa, the focus shifted to “structural adjustment” following the sequential economic crises of 1973 and 1982.92 Latin American and Caribbean countries together have received more World Bank “adjustment” finance than any other region world-wide.93 And within the region, the big four recipients of policy-based lending have been Argentina, Brazil, Peru and Mexico. The first World Bank Structural Adjustment Loan (SAL) to a Caribbean country was $9 million to Jamaica on April 4, 1985—followed 6 months later by a SAL to Chile for $250 million.94 Those amounts escalated to $770 million for Argentina in 1987 and an IMF $15 billion “Stand-by Loan” to Brazil in 2001. Given the magnitude of budgetary shortfalls, the amount of policy-based loans and credits sometimes substantially exceeded— over relatively short periods of time—the amount of finance historically provided for individual investment projects. Early adjustment loans overlooked poverty and social issues in favor of market and monetary adjustment. Many development economists believed that “getting the prices right” through the operation of free markets alone would ultimately reduce global poverty95 while yet other development professionals believed that social development objectives would best be addressed through investment, rather than policy-based, lending. However, by the late 1980s, the overall impact of austerity conditions had—in many cases— resulted in smaller budgets for government education and health programs than for other sectors.96 That led, in turn, to a concern for improved “governance,” including reduction in the scope of governments on the one hand and a search for increased public sector rev-

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enue on the other hand. It was in that context that many Latin American governments were encouraged to increase the responsibilities of local governments.

2. Internal: Political Culture, Values, Institutional Processes and Decentralization Experience Only four Latin American countries are organized as federal systems—Argentina, Brazil, Mexico, and Venezuela. All other countries in Latin America and the Caribbean are unitary. Seven countries including Argentina, Bolivia, Brazil, Chile, Colombia, Honduras, and Mexico classify themselves as “decentralized” –while Ecuador and Guatemala claim to be decentralizing over the long-term. a. Nations vs. States Formal governmental authority in Latin America is often based on strong, corporatist and authoritarian local leadership. “Jefes politicos” or local political bosses appointed by the President often rule through use of force. 97 Indeed, military dictatorships were on the rise again during the 1960s through 1980s when sixteen Latin American countries were governed for eight or more years by the military. Military dominance in much of Latin America has meant that the post-colonial legacy is class-based, driven by ideological military coups and corporatist military rule. Local administrators were often controlled by the military. The predisposition toward military authoritarianism by Latin American elites was reinforced by an expansive international literature produce by a wide range of development academics during the 1960s. This literature argued that strong military governments ensured internal political stability during the inherently stressful transition required by the development process. However, military crackdowns on dissent likely reinforced home-grown radicalism that had no where else to turn. Both non–violent (passive resistance) and revolutionary traditions in Latin America are still being expressed. Several of these countries are experiencing, or have recently experienced, significant levels of domestic conflict; e.g., Latin America & Caribbean Military Dictators/Governments Argentina. Bolivia, Colombia, Haiti, Peru, and VeneAmerica Years zuela. Indeed, Colombia ranked seventh after only South Paraguay 1940-1948; 1949-1989 1943-1958; 1966-1973; 1976-1983 Iraq, West Bank/Gaza, Thailand, Afghanistan, India Argentina Chile 1973-1990 Colombia 1953-1957 and Pakistan98 and ahead of Nepal and Kashmir in Brazil 1964-1985 1948-1956; 1968-1980 the number of terrorist incidences within its borders Peru Bolivia 1964 -1982 Uruguay 1972-1985 during 2005—even as it also ranked first among all Ecuador 1947; 1963-1966; 1972–1979; 2000 Venezuela 1952-1958 countries in the entire world for its homicide rate. Suriname 1980-1988 Despite levels of violence within the hemisphere, ethnicity has only recently been a contributing factor historically in Latin America. Only four Latin American countries—Argentina, Brazil, Chile, and Uruguay substantially meet the criteria of “nation”-states where nations and states are coterminous. Brazil has substantial minorities among its population (especially in the Amazonian and Northeastern regions), while Bolivia, Ecuador, Guatemala, Mexico, and Peru have

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Central America Nicaragua Honduras El Salvador Guatemala Panama

1936 -1979 1963-1971; 1972-1982 1931-1992 1931-1944; 1954-1986 1968-1989

The Caribbean Haiti Dominican Republic Cuba

1957-1990; 1991-1994 1844-1978 with a few exceptions 1934–1940, 1952 - 1959

Source: Jerry Silverman, An International Economic History of Latin America and Caribbean, in Jose de Arimateia da Cruz and Eduardo R Gomez (ed.), Latin American in the New International System: Challenges and Opportunity (Boston: Pearson Custom Publishers, 2006).

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significant numbers of identifiably indigenous people. In almost all other Latin American countries, socio-political disparities appear to be rooted in economic class or rural/urban splits. This is changing however as indigenous groups seek political power in the northern parts of Central and South America. There are a number of indigenous spillover situations throughout Latin America. Spillover nations in Central and South America include the Quechua and the Inca (in Bolivia, Ecuador and Peru); the Aymara (Bolivia and Peru); Amazonian small groups ( in Brazil); the Mayan (South Mexico and Guatemala) and the Mesquito (Nicaragua and Honduras). The tradition of “municipalism” in Latin America in the form of powerful land-owning descendents of early Spanish or Portuguese settlers in local areas, has eroded as Latin American economies have transitioned from rural agricultural to urban industrial or commercially-based countries. Increasing urban unemployment and migration both within and beyond individual countries also eroded local control.99 That historical tradition should not be confused with the nature and role of “municipaldes” that function throughout Latin America more like rural counties in the U.S. today. and are comparable to communes as the term is used in a number of European countries. Municipaldes are entities that provide the venue for much of Mexico’s rural decentralized community project activity. b. Decentralization Experience Decentralization is a rational response to significant disparities among geographical subdivisions within the same country; disparities between urban and rural populations in regions of Latin American countries. Rural populations have substantially higher shares of poor people among them than do people living in urban areas—although the absolute numbers of poor people in urban areas are in some cases larger due to the size of those populations. The urban poor are also faced directly with the contrast between themselves and a larger number of rich people on a daily basis than are rural people. Beyond urban and rural comparisons, the distribution of poverty within Argentina and Brazil suggest significant regional disparities within the larger South American countries—i.e., the percentage of indigents among the population of Argentina’s northeastern region is more than double that in Patagonia100 while only 5.2 percent of the population living in Brazil’s southeastern region was extremely poor or indigent as compared to a full 25.2 percent in the northeast.101 Decentralization efforts in Bolivia, Brazil, and Honduras are not very encouraging.102 Bolivia. Bolivia’s decentralization credentials can be traced back to the establishment of local community “sindicatos” in 1953. The Agrarian Reform Law provided for the distribution and titling of land to officially established sindicatos rather than individuals or families. Sindicato leaders performed at least five governance functions to a greater or lesser degree depending on location and, in colonization zones, on the age of settlement. These included: (i) determining the original allocation of land to families and reallocate abandoned or seized land; (ii) managing the use of communal land and the construction, use, and maintaining public facilities built on that land; (iii) collecting and allocating compulsory dues; (iv) scheduling and managing communal labor; and (v) settling various

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types of disputes not resolved within or between families. In all Quechua and Aymara communities, leadership rotates among all adult males or husbands and wives jointly according to traditional schedules. Sindicatos did not reach critical mass in the eastern tropical lowlands because the presence of large private landowners preceded the arrival of migrants from the highlands. In the Aymara highlands and semi-tropical Yungas region, most sindicatos absorbed preexisting traditional community organizations. In the coca-growing Chapare, sindicatos encompassed newly established communities settled by migrating Quechua and Aymara families in the 1970s and 1980s—including the family of the current President, Evo Morales. By 1985, Morales was general secretary of a local sindicato—only three years later he was elected Executive Secretary of a subregional federation followed by election as President of his Regional Federation in 1996. Morales, who is identified as the first indigenous President, was elected President of Bolivia in 2005. The strength of the Chapare sindicatos rests on three related pillars: (i) leadership and organizational systems similar to those within the older Quechua or Aymara communities from which they came; (ii) use of funds from unofficial taxation of coca-leaf sales for maintenance of footpaths, basic roads, irrigation, sanitation, and drinking water systems, schools, and sport facilities; and (iii) defense against coca eradication efforts. Official legal recognition—as “Territorial Base Organizations” (OTBs)—was extended to pre-existing community-level governance institutions in 1994. Although the “Law of Popular Participation” included many reforms within Bolivia’s government structure, the result in many rural communities was the continuation of sindicato leadership, organization, objectives, behaviors and boundaries. The academic literature presents those relatively recent initiatives as an example of democratic empowerment within formal sovereign state structures. But in a country where about 64 percent of the population live below the poverty line, the continuation of intermittent mass protests and “bloqueos” signaled then and continues to define substantial deficiencies in that legal framework. Brazil. Decentralization efforts in Brazil are implemented within the context of a constitutionally federal system. Each of Brazil’s 26 states were legally-autonomous with respect to a wide range of government functions. For most of Brazilian history, including periods of military rule, the devolution of substantive responsibilities from the central government to the states did not occur until Brazil began to experience the consequences of escalating international debt and local currency devaluations following the economic crises of the 1970s and 1980s. Central government was more eager to transfer responsibilities to state governments than it was to share its revenues with them. The result was a rapid escalation in state government debt, the State Government of Paranaque (Recife) was by 2003 effectively bankrupt and the central government had designated it as uncreditworthy. Neither the World Bank nor Inter-American Development Bank was able to lend development finance for public expenditures through that state even though they expressed a willingness to do so. Limited resources compounded the problem that most state governments modeled their own behaviors toward local community groups along the relatively authoritarian lines exhibited by earlier central governments.

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Honduras. Government has not yet established a comprehensive nor integrated policy framework for public sector decentralization that is likely to be implemented. A viable policy framework is lacking despite the initiation of policy discussions about broad decentralization issues by the Comision Presidencial de Modernization in 1991, requirements associated with the HIPC Initiative during 2000, and initiatives undertaken by a new Government during 2002. While local governments (municipalidades) have been legally established and a professional association of municipalidades exists, with a few partial capacity-strengthening programs, local governments remain weak. Honduras is administratively divided among 298 municipalidades differentially classified according to population size. Both municipal administrators (Alcaldes) and Deputy Alcaldes are directly elected. Of the municipal consejos (Corporacion Municipales), the size of which are variable according to population size,103 are elected indirectly104 and are supposed to be consulted regarding the establishment of planning priorities and municipal budgets.105 Local level management and administrative staff are distributed among “mini-departmentos” organized according to a uniform structure mandated for all municipalidades. Although municipalidades have the authority to levy local taxes, in practice they rely primarily on grant transfers from central government. Uncertainties associated with such transfers create problems. During 2000, the Association of Municipalidades had a legal suit pending against the central government in an attempt to force it to provide the full 5 percent of domestic revenues required by law. The Government of Honduras has successfully maneuvered through the requirements associated with the HIPC Initiative, but it remains unclear which entity is—or should be—responsible for making critical decisions about or implementing the country’s Poverty Reduction Strategy or other local obligations under HIPC.

3. Parallel Governance Structures Parallel governance in much of Asia, Africa, and the Middle East is largely of the persistent kind; even as it is mixed with reactive forms in some areas in the Middle East or with adaptive organizations in many urban slums in Asia. Latin America is different. Given that pre-existing indigenous cultures throughout much Latin America did not survive on a large-scale, and that sovereign-independence of most countries was relatively early, parallel governance is largely adaptive with occasional reactive forms. Adaptive groups include informal settlements in Lima, Peru. Narco-traffickers in Colombia, Bolivia, and Brazil exhibit a combination of adaptative and reactive forms of parallel governance. Evo Morales, elected to the Presidency of Bolivia based on socialist views and maintenance of areas of coca production, led movements that can be characterized as persistent to adaptive to reactive over three decades. Parallel governance among many indigenous communities in and across Bolivia, Ecuador, and Peru plus cross-border areas of Guatemala and Mexico (particularly in Chiapas, Oaxaca, and Yucatan) is largely persistent with a smattering of reactive behaviors occurring from time-to-time.

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Examples of parallel governance surface most dramatically in countries in conflict or just emerging from conflict. However, in many regions parallel governance results from the continuing failure of sovereign states to effectively establish themselves in regions or among certain ethnic groups. From a formal sovereign state perspective, governance in Colombia is often described as being “highly centralized” until the adoption of recent decentralization policies, as illustrated in a quote from a World Bank publication below:106 Except for a military intervention in the early 1950s and a 16-year period of joint administration by the two major parties (1958-74), Colombia [emphasis in original] has functioned as a multi-party democracy since 1886. The country has, nevertheless, been politically centralized. Prior to the recent reforms, the president appointed the provincial governors, who in turn appointed the municipal mayors. In functional terms, Colombia was also highly centralized. Education and health were either directly provided by the central government or deconcentrated to the provincial level. Except in large cities, the water supply, sanitation, and roads were also responsibilities of the central government…. Colombia’s decentralization began in 1983 with the decision to strengthen subnational sources of revenue and to grant subnational governments more discretionary authority on tax rates and overall tax administration. This path was reinforced in 1986 with the decision to permit the direct election of mayors and the transfer of significant revenues and responsibilities to municipalities…. The Constitution of 1991 authorized the direct election of provincial governors [and] the [1993] Constitution also raised the 1986 level of transfers to subnational governments to almost 50 percent of current revenues and made them predominantly formula based. However, the de facto context of governance in Colombia is a conflict between the formal sector Government and two large guerrilla factions plus organized groups of narcotraffickers. Colombia has one of the highest homicide and kidnapping rates in the world. Colombia encompasses a stressed society made up of several competing societies. A society engaged in multi-party conflict cannot be “centralized.” While the formal sector Government has been centralized and is now decentralizing, actual governance in Columbia has for some time been overwhelmingly decentralized among a significant number of competing formal and informal groups. Finally, the power and influence of parallel financial governance systems, with respect to development decisions, is reinforced by the rising volume of remittances transferred to some Latin American countries from North America and Europe. The value of international remittances, monies sent home by migrant workers in other countries exceeds official aid and foreign direct investment combined.107 Remittances to Latin America and the Caribbean were valued at more than $40 billion during 2004; a larger amount than any other region. As reported by the Inter-American Development Bank (IADB), remittances “substantially exceed tourism income to each country, account for at least 10% of GDP in six countries, and almost always exceed the largest export.”

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Remittances are particularly important for three Central American countries (Costa Rica, El Salvador, Guatemala), three Caribbean countries (Dominican Republic, Haiti, Jamaica) and Mexico. Mexico receives 8 percent of all reported remittances world-wide while 34 percent of the total go to Latin American and the Caribbean. And remittances to Mexico are rising exponentially, increasing by more than 500 percent during the past 13 years. It has been estimated by the IADB that about 10 percent of all Mexican households depend at least partially on remittances; and in some areas up to 45 percent of households rely on remittances from the United States “as their main source of income.” On the other hand, remittances have only marginal impact in Honduras and Nicaragua and another seven South American countries (Argentina, Colombia, Brazil, Ecuador, Paraguay, Peru, and Venezuela)—no data is available for the other LAC countries. A significant percentage of remittances are not transferred through formal banking systems monitored or regulated by sovereign state governments. Rather, many immigrant workers use alternative non-formal channels—e.g., they turn money over to a person in Los Angeles (or any other place in the USA) who issues a receipt and informs a relative back home to pay that amount, minus a small fee, to the designated recipient. At their best, such systems effectively represent parallel governance systems in which transfers are “regulated” informally. Indeed, surveys among Hispanic immigrants contradict the official estimates of 88 percent of remittances to Mexico sent through electronic transfers during 2001—the amount of remittances is likely much larger than the official data reported here. 108 Hernando de Soto’s contention that the rise of the informal sector in Latin America and the Caribbean has been a consequence primarily of ill-conceived government regulation is useful; i.e., the informal sector has been “reactive.”109 One can argue that in seeking informal structures for employment, funds transfer and political voice, the rural and urban poor in Latin America have developed parallel governance structures and exited in place.

C. Europe and Eurasia Local Governance Traditions 1. External Influences: Imperial Legacies and Contemporary Foreign Assistance The former socialist and communist states in Eastern Europe and Eurasia were governed by overlapping and competitive imperial systems and influenced by colonial and tributary systems. Historically, five land-based empires (the Ottoman Empire, the AustroHungarian Empire, the German Empire, the Russian Empire and the Soviet Union) dominated Eastern Europe and Eurasia. As a first step in any analysis of the region, disaggregating the imperial legacy of Eastern Europe and Eurasia from the Communist period and in some areas the Fascist period that preceded it still shows a system of strong centralized control. Decentralization can be seen as a reaction to both the former communist system and, a utilitarian response to meet the requirements of the Council of Europe and membership in the European Union. De39

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centralization initiatives are still based on both historical and contemporary external factors. Prefectoral control, a legacy of Imperial Rule, continues in many parts of Eastern and Central Europe, especially in Romania. In a number of countries the party prefect system was a legacy of former Soviet Bloc countries:110 Powerful state and party structures represented by the prefect tend to dominate local governance structures in many parts of the region. In areas of ethnic diversity, there are often centrally dominated or controlled “autonomous” regions in Russia, (Azerbaijan), and in Uzbekistan. In Europe and Eurasia, economic and financial assistance has included public sector investment loans, credits, and grants, private equity investments, public policy loans, credits, and grants as well as private lending and private migrant remittances and technical assistance. Technical cooperation was directed at the rapid introduction of market and policy reforms, policy development and organizational restructuring. In some cases, new regions were created for the distribution of EU grants in aid and principles of decentralization were established to meet Council of Europe requirements for entry into the European Union. Official bi-lateral assistance to most Eastern European and Eurasian countries rose to significant levels only after the collapse of the Soviet Union in 1989. In the past fifteen years, primary sources of assistance to Eastern Europe included Germany, the European Union, the European Bank for Reconstruction and Development, the World Bank (IBRD), and the Asian Development Bank (in Central Asia). U.S. and Western European donors played a significant role in stimulating democratic governance and civil society. Donor assistance to the Russian Federation after the fall of the Soviet Union came so rapidly, and without adequate analysis that it contributed to the evolution of crony capitalism and new forms of corruption.

2. Internal Influences: Political Culture, Values, Institutional Processes and Decentralization Experience A particular issue in Europe and Eurasia is the extent to which local democratic governance has had more success in the Baltic States111 and Poland, Hungary and the Czech Republic than in the Balkans and Central Asia and to what extent this is related to political culture, social values and historical events. A number of Eastern European countries, particularly in Northeastern Europe have developed competitive multi-party systems based upon pre-communist social and religious divisions. This question feeds into the Huntington thesis of cultural variance112 since he distinguishes between countries that are dominated by Roman Catholics (with ties to Western Europe), and Orthodox and Moslem countries less influenced by traditions of democracy, local governance and civil society engagement. Ethnic conflicts include both cross-border and internal regional and ethnic division. The nations of northeast Europe have long cultural histories even though they have been broken up among different states with shifting borders. Poland, Hungary, Czech and

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Slovak Republics evidence Catholic/Protestant debates impacting political culture. Religious divisions remain important throughout the region but are particularly important in the South and in the East where Eastern Christian Orthodoxy and Islam respectively dominate. In Southern Europe Russian/Greek Orthodox has been in conflict with and had to contend with significant Muslim minorities with primary loyalties to nations outside the sovereign states where they are citizens. In Eurasia (Russia, the Caucasus and Central Asia) religion as an issue (Orthodoxy and Islam) is joined by elements of clan and ethnic loyalties. The contemporary role of Islam (both Shiite and Sunni) is an important and evolving discriminator. Azerbaiján, Russia’s Caucasus, and especially Chechnya, are ethnic and religiously defined conflict-ridden areas.113 Religious and ethnic forces either directly influence or support macro-governance structures that influence local governance. The extent to which collective or market forces are internalized has also had an impact on the shape of local governance. Collectivism, (both of monarchist, socialist and fascist varieties) predominated in the region with mercantilism and pockets of entrepreneurialism evident only with the collapse of communism. Private production, like vegetable gardens, enabled in-kind trading arrangements which remained highly informal, if not illicit. In Eastern Europe and especially in Eurasia the debate around political culture contrasts democratic values and authoritarianism, on a religious, aristocratic or an ideological (or even a personalist) basis. In Central Europe (Russia, the Caucasus, and Central Asia), there are few competitive systems. Rather, these areas continue to function with centralized powers under authoritarian leadership and values inherited from the communist period. The political systems are either single party or dominant party systems as is the case in Russia. After the fall of the Soviet Union, Belarus initially worked to empower local authorities. The local government was comprised of voblastsi, rayony, cities, towns, villages and settlements where locally-elected councils exercise exclusive jurisdiction over most public service delivery, but the past decade has demonstrated a digression to soviet-style central authority—a trend common in the NIS. The Central Asian republics further reinforce this phenomenon. Uzbekistan, for example, is divided into provinces (wiloyat), regions, and cities. The hakim, or provincial executive, must be confirmed by local legislative bodies that are popularly elected, but ultimately is appointed by the president. Kazakhstan, however, is divided into regions and settlement points, each with their own elective councils, who have the authority to determine their own budget and generate revenue through local taxation. Local authority is exercised only under central oversight. The local executive is appointed directly by the president and is responsible for ensuring that local authorities operate under national guidance.. Throughout Northeastern Europe (Poland, Hungary, the Czech Republic and the Baltic States), a variety of unitary devolved political systems have developed, many based on pre-communist systems of government that evolved during the inter-war years. In Poland and Hungary the units of local government have some fiscal and decision-making au-

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thority particularly in urban authorities,114 while local government covers large territory and many villages in Bulgaria. Each district in Poland is managed by a wojewoda— professional appointee—and a popularly elected council or gmina that work together to determine priorities and administer public services. Central authorities intervene in local affairs only to the extent that an activity may violate national law; otherwise, local authorities and the intergovernmental framework for regional cooperation address most local needs. Influenced by the Soviet system, Bulgaria’s local government structure mirrors the Soviet oblasti. Although the initial intent of oblast governance was to manage and support workers’ collectives, the scope of responsibilities expanded to assume some central authority for public services while devolving them to sub-oblast levels in cities and villages. Local councils that address local issues are accountable to higher level councils, which reinforce control by the larger central bureaucracy (and minimize local accountability). In Romania a distinction is made between municipalities, communes and villages. Judete, or people’s councils, govern local issues at the lowest administrative level; municipal and local administrative councils function according to population scales and determine local priorities and needs. However, the executive committee at the central level determined the local budget, implemented public services, and ensured compliance with local decisions.

3. Parallel Governance A number of public-private partnerships for service delivery have developed in the wake of the transition to a market economy and decentralization Civil society’s role in grassroots democratization and the impact of “Quangos” (Quasi-non-governmental organizations) including former government or party-sponsored foundations now constitute, at least on paper, parallel structures as they evolved after the end of communist systems. Parallel organizations, based on clan and ethnicity, prevail in Turkmenistan, and in other parts of central Asia, where citizenship and professional affiliations are subordinate to regional and tribal loyalties.115 In Southeastern Europe and Eurasia developmental civil society groups are in their infancy.

D. Sub-Saharan Africa Local Governance Traditions 1. External Influences: Colonial legacy, foreign assistance and decentralization experience Overall there were very limited efforts at decentralization by colonial administrations or their successor African regimes. Many African states remain legally and formally decentralized but have mainly deconcentrated administration, a legacy of the colonial period defining functional differences between administrative structures at state and local level.116 Ethnic differences, sometimes played out in political parties (such as in Zimbabwe),

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ensure that most African political leaders are deeply suspicious of sub-national government, a suspicion inherited from both the colonial and pre-colonial periods. Local government in Africa evolved out of the legacy of colonialism both through French and Portuguese assimilation and British (and in South Africa, Dutch) patterns of indirect rule.117 In practice differences between direct (assimilation) and indirect rule on traditional systems of governance have limited significance.118 Decentralization policies often were introduced near the end of the colonial period as part of gradual decentralization process based on the mother country model.119 State failure in Africa, according to Olowu and Wunsch has been strongly linked to the failures of local governance and civil society.120 A legacy of the colonial period has been a control mechanism through the use of a prefectoral model, including a powerful District Commissioner, Landdrost, and Commandant. This was true in British, French and Lusophone Africa and during the Dutch, German and Afrikaans periods in South Africa and Namibia. Notably, the British colonial system trained native administrators and left a legacy of trained civil servants and an institutional structure. The French centralized system offered central control and little local role. It was considered both more brutal and more autocratic than British models. Local governance processes in Anglophone Africa are largely defined through the centralized but soft “local state” with influences reflecting the patriarchal authority of the central government within such instrumental contexts that decentralization—especially administrative and fiscal decentralization—is most often considered.121 A veneer of colonial/western administration accompanied state-centric approaches to development. Much of Africa experienced a form of indirect rule which was both meant to revive and preserve pre-colonial governance mechanisms and to ensure colonial incorporation and control of indigenous society.122 In many cases however those formally recognized by the colonial powers were not necessarily those actually performing the governance function. That issue remains important in such places as Ghana where official councils of chiefs may be as alienated from actual functional local governance as the central government institutions are. In sub-Saharan Africa historically there has been little external pressure to establish, enhance, or strengthen local government structures.123 What little decentralization exists is administrative since decentralization is almost always deconcentrated from the center.124 Local governments historically were seen by local elites as a measure through which colonial administrators and settlers sought to thwart independence movements. Historical educational characteristics have been important in Africa. Many African countries have suffered particularly from educational neglect and from a severe shortage of professionally qualified people especially at local government level.125 Elites have been particularly limited by what some scholars have called bounded or limited knowledge. Sources of foreign aid in Africa include the African Development Bank, World Bank, and most bilateral donors. The U.S. provides Liberia with 60% of its aid though with

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some exceptions, namely South Africa, American contributions to African countries have been modest. Colonial ties dictate strong aid relationships among the primary bilateral donors. (UK, France, Belgium, Portugal). Canada, Netherlands and Scandinavia are major sources of aid to Africa. The major foundations (Carnegie, Ford, Rockefeller, and increasingly Gates) have become involved in sub-Saharan African health and education. Private migrant remittances have become increasingly important in sub-Saharan Africa. Donors such as USAID use the term “fragile states” to refer to a broad range of failing, failed, and recovering states. Most but not all are in Africa. The distinction among failed, failing and recovering states is not always clear in practice, as fragile states rarely travel a predictable path of failure and recovery, and the labels may mask sub-state and regional conditions (insurgencies, factions, etc.) that may be important factors in conflict and fragility. It is more important to understand how far and quickly a country is moving from or toward stability than it is to categorize a state as failed or not. Therefore, the strategy distinguishes between fragile states that are vulnerable from those that are already in crisis. USAID uses the term “vulnerable” for states where the legitimacy of the government is in question whose government is unable or unwilling to adequately assure the provision of security and basic services to significant portions of their populations. This includes states that are failing or recovering from crisis. USAID uses the term “crisis” to move beyond vulnerable states and include those states which are most vulnerable, where government effectively does not exist, but also where violent conflict is a reality or a great risk.126 Nonetheless, many decentralization programs in sub-Saharan Africa have been promoted by donors. Many were attempts to re-establish such mechanisms created during the late colonial period (such as district councils) but later abandoned by hegemonic leadership as part of the “dismantling of state dominance.” Decentralized political structures were a part of many structural adjustment schemes during the latter 1980s and 1990s. Until the late 1970s, decentralization in Africa was almost often been dominated by administrative elites.127 Since the beginning of structural adjustment, for its part, donor pressures for decentralized governance have remained largely instrumental, focused on technical or administrative reforms.

2. Internal Influences: Political Culture and Values Sovereignty in the 21st century contrasts sharply with pre-colonial patterns of social and community authority where clear boundaries between domestic and international systems were not well established. In most cases, the exercise of effective authority was in the hands of elders or warriors, using associational loyalties, and traditional procedures among relatively small groups of people speaking the same language and living in relatively close proximity with each other. Quasi-federal systems were created in the 1940s and 1950s in Nigeria, Cameroon, Comoros, and (on a racial basis) in South Africa. Nominally- independent Ethiopia has claimed

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a policy of federalism but in fact various regimes, regardless of structures, have been highly centralized. Outside of these exceptions many African countries are legally unitary states with weak political and administrative structures at the local level. Close to a third of the countries in the sub-continent are close to or have collapsed. Evolving literature on Southern Africa suggests that (with the exception of Zimbabwe) the sub-region is more successful, more capable and less weak in governance structure than the rest of the continent in terms of state capacity. Institutions of local government are somewhat stronger in a number of Southern African countries, including South Africa, Namibia, Zambia, Botswana, Lesotho, and historically, Zimbabwe. The poor record of local government in Africa has lead to the search for alternative parallel structures of governance at the local level. Such institutions have been labeled traditional, tribal, indigenous, alternative, informal, communal, primordial, quasi-religious and endogenous. Alternatively, non-traditional, social or entrepreneurial local organizations emerge.128 Despite the presence of such indigenous movements, regime leaders often see them as threatening and try to control them. These parallel structures range from violent insurgencies (Lord’s Resistance Army in Uganda) to complementary social services programs.

3. Parallel Governance and Institutional Processes Civil society organizations exist all over Africa. Parallel structures as represented by civil society organizations have emerged as a result of Africans all over the continent exercising the “exit” option, opting out of formal governance structures to the extent possible.129 Because of institutional failure at the national and local level there is increasing skepticism of state-centric approaches to development.130 In some cases NGOs play a role in service delivery activities and in the enforcement of government accountability.131 In many African countries, indigenous NGOs have been almost completely taken over or controlled by the central government while at the same time traditional authorities have been weakened as a counterforce132 and community structures, whether traditional or modern, are often weak in relationship to formal local government structures.133 The absence of a stronger civil society culture at the local level in many African countries suggests that local social and political NGOs and other civil society groups should be an increased focal point for institutional strengthening.134 Local governance and civil society from this perspective should be seen as two streams of a common approach to supporting decentralization efforts. Parallel structures in Nigeria and Ghana are at least partly adaptive (a hybrid). Substantial numbers of urban residents feel dual attachments to both the neighborhoods in which they live and their native villages. Urban residents in Nigeria and in a number of Southern African countries continue to have links with rural village life while at the same time interacting with adaptive urban governance structures. Harnessing village loyalties of urban residents could result in additional political and popular support for decentralization programming. The Brigades movement in Botswana, which focused on rural skills development and entrepreneurialism at the village level (supported by traditional leadership), along with other rural development associations in Botswana hold some potential

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for replication in other parts of Africa as models for the development of strategies of development based on parallel governance patterns.

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Conclusion There are a number of points where the regional data on variation is the realization of decentralization intersects with what can be predicted though public choice theory, as follows:   

Decentralization as a competition surrogate, and the extent of beneficiaries’ mobility to vote with their feet or otherwise exercise clout over service or goods providers (e.g. through remittances). Matching the boundaries of beneficiary groups and common use resources or public resources and the implications of the extent of match or mismatch. Failed states and the role within them of parallel governance structures in producing and providing public goods and services.

A. Decentralization as a competition surrogate As stated in Section Two of this paper, according to the public choice theory, reality presents a vast array of choices that, in turn, require the complex calculation of net benefits from the variable performance of multiple functions across different sectors by different governments at different levels.135 That scenario is too complex for most people to use it as their decision-making framework for decisions about whether or not to move from one jurisdiction to another. However, a middle way has been offered by Arturo Israel, summarized as the degree to which competition surrogates act as incentives to [governments] to improve performance. As stated in the discussion of the Asia regional material, decentralizers within such organizations as the World Bank argued that decentralization could substantially increase efficiency through participation and beneficiary ownership. According to the public choice theory, decentralization could also increase efficiency through creating competition surrogates that citizens can vote for with their feet in cases where they have social, political and/or economic mobility, and through mobilizing popular pressure on public service providers in other cases where mobility is limited or constrained in some way. For example, in 1978 in Indonesia, the PDP project was one of the earliest projects anywhere in the world to target the poorest of the poor. Though the poor are traditionally constrained in their mobility through lack of resources, it fostered a village-level participatory process through which beneficiaries themselves could select the kind of benefits they would receive (although from a limited set of pre-determined choices). Re identifying consumer preferences in the public choice model, the challenge of getting citizens’ voices well articulated increases as the size of the unit grows. The regional data collected so far indicates that decentralized systems in Asia may provide multiple channels for the expression of different norms and values arising from different cultures within a country.

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In Central Europe (Russia, the Caucasus, and Central Asia), there are few competitive systems. Rather, these areas continue to function with centralized powers under authoritarian leadership and values inherited from the communist period. In public choice theory terms, citizens cannot realistically vote with their feet. Private migrant remittances have become increasingly important in sub-Saharan Africa. The remittance capital allows citizens to vote with their feet and relocate or exercise other types of influence within the country, according to the public choice theory. The poor record of local government in Africa has lead to the search for alternative parallel structures of governance at the local level. Such institutions have been labeled traditional, tribal, indigenous, alternative, informal, communal, primordial, quasi-religious and endogenous. Alternatively, non-traditional, social or entrepreneurial local organizations emerge.136 Despite the presence of such indigenous movements, regime leaders often see them as threatening and try to control them. These parallel structures range from violent insurgencies (Lord’s Resistance Army in Uganda) to complementary social services programs. Civil society organizations exist all over Africa. Parallel structures as represented by civil society organizations have emerged as a result of Africans all over the continent exercising the “exit” option, opting out of formal governance structures to the extent possible.137 Urban residents in Nigeria and in a number of Southern African countries continue to have links with rural village life while at the same time interacting with adaptive urban governance structures. Harnessing village loyalties of urban residents could result in additional political and popular support for decentralization programming.

B. Matching the boundaries of beneficiary groups and common use or public resources Also as stated in public choice theory, creating a match between the boundary of those authorized to benefit and contribute with the boundary of the common use resource is a challenge and may be impossible in a highly centralized regime. This has implications in the Middle East, where regimes are highly centralized, as a result of many factors including the Ottoman imperialist historical external influence. Another point of intersection between public choice theory and the Asian regional materials is that the reality of physical environments impacts on both decentralization objectives and public choice. This is illustrated in the transitional political situation in Indonesia, and topographical realities that affect decentralization in Papua New Guinea. In Papua New Guinea, de facto decentralization due to topography, among other factors, speaks to the limited reach of formal governance over common use resources. Indiviudal communities are separated by high mountains and deep valleys on the main island or among thousands of small islands. On the other hand, the Asia regional data indicates that where the overall scope of the public sector has been substantially reduced, many of the social constraints on individual or community action are left to mechanisms of the private sector market, possibly further reducing separatist pressures.

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Therefore, in Indonesia, it is not yet clear whether the participatory organizations and processes established by “KDP” will be sustained after external financing ends, or whether public goods will be sought elsewhere. In China, mobility among provinces due to differences in health and education opportunities would require further study but labor opportunities seem to govern mobility. Poorer countries and districts worldwide, according to UNDP in 2005, have been unable to raise sufficient revenue through taxation, and usually the poor have less mobility. This situation may set limits to the applicability of public choice theory to communities of the poorest of the poor.

C. Failed states and the role within them of parallel governance structures When regulatory application of laws at a local level is incongruent with public demand (i.e. secular vs. religious, or competing religious philosophies)—particularly when the opposition has developed capacity and the central authority proved incapable of providing services, parallel tracks of local governance give rise to alternative means of service delivery. Parallel governance groups tend to be dominated by religious fundamentalists, particularly in the Moslem areas of the Middle east. Parallel structures in the Arab Middle East include both Arab Socialist groups (Baathists) and Islamic organizations (Sunni, Shiite, Wahabbi, or Taliban in Afghanistan), and since religious fundamentalist organizations and grassroots religious associations have historically delivered social services , there is no tradition of civil society participation outside of religious institutions. Thus, for example, when an individual in Lebanon voluntarily chooses to participate in Hezbollah (a parallel governance movement that challenges the authority of the state), then that individual is in effect applying the public theory in selecting a service provider who more efficiently meets his/her needs. This example illustrates a common thread about public choice in the Middle East: where cultural values are largely shared, there are limited opportunities to freely choose public services—due to highly centralized governance systems; where there are competing cultural values, parallel governance institutions have become the de facto alternative for service delivery. Ergo, the formal governance sector in the Middle East, broadly, does not provide the framework for public choice to effectively operate at the local governance level. In many regions parallel governance results from the continuing failure of sovereign states to effectively establish themselves in regions or among certain ethnic groups. However, the de facto context of governance in Colombia is a conflict between the formal sector Government and two large guerrilla factions plus organized groups of narcotraffickers. Colombia is made up of several competing societies. A society engaged in multi-party conflict cannot be “centralized.“ While the formal sector Government has been centralized and is now decentralizing, actual governance in Columbia has for some

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considerable time been overwhelmingly decentralized among a significant number of competing formal and informal groups. Finally, the power and influence of parallel governance systems, with respect to development decisions, is reinforced by the rising volume of remittances transferred to some Latin American countries from North America and Europe. The value of international remittances , monies sent home by migrant workers in other countries exceeds official aid and foreign direct investment combined. At their best, such systems effectively represent parallel governance systems in which transfers are “regulated” informally. One can argue that in seeking informal structures for employment, funds transfer and political voice, the rural and urban poor in Latin America have developed parallel governance structures and exited in place.

D. Next Steps: Six areas for investigation Based on these preliminary findings, the three concluding topics above, and other aspects of the public choice theory and its intersection with data on regional differences in decentralization deserve further study and analysis, if resources can be made available for this research and conceptualization. Two additional concepts developed from the discussion about culture and universal needs discussed in this paper can inform the decentralization debate. These are: the importance of intermediation between informal and formal governance systems at the local level; and, the viability of polycentric systems, where multiple local governments or nongovernmental providers, each with different authorities, coexist. Finally, this paper identifies characteristics of parallel structures of service to local populations, but would require expansion to identify how some systems spawn service organizations and others generate parallel resistance forces, should resources be made available.

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Annex A: Types of Decentralization Decentralization has been called the missing element between poverty reduction and antipoverty efforts and democratic governance in LDCs.138 From an international development perspective, the core question addressed here is whether cultural differences and strategies for cultural change should be integrated into concepts and strategies for decentralized governance programs in order to ensure the institutionalization of democratic local governance.139 Decentralization is a structural element of almost every government world-wide.140 But the term covers a wide range of alternative structural arrangements. Distinctions can be between three broad types of decentralization: 1) political decentralization (including devolution and bottom-up principal agency functions); 2) fiscal decentralization (including the extent of local level own source revenue, the authority to incur debt, and shares of total public sector revenue and expenditure); and 3) administrative decentralization (including deconcentration, delegation, and top-down principal agency).141 These three types of decentralization all refer to alternative administrative structures of government that cannot, by themselves, fully determine actual performance outcomes. Top down deconcentrated administration can be either functional or prefectoral (territorial) in nature. Administrative decentralization (deconcentration or subsidiarity) is a necessary but not sufficient condition for effective service delivery. Issues of fiscal decentralization efficiencies have required particular attention because much of the statistical data available for the comparative analysis of decentralization focuses on local revenue and expenditure patterns and because it provides much of the theoretical foundation for market approaches to democracy and public sector. The hypothesized affects most recently discussed in the literature fall under such labels as “market preserving”142 and “competitive federalism.”143 It should also be noted that fiscal decentralization” is similar to the term fiscal federalism; a term also used in the literature on public sector finance. The former term is employed here because it is conceptually important to distinguish between two different, although related, concepts: (i) the legal definition of federal as normally employed by political scientists—especially in the United States and other countries with constitutionally “federal” government structures and structural mechanisms for financing local governments—i.e., fiscal decentralization. Our primary concern here is political decentralization and democratic governance which at a minimum requires devolution of authority to popularly elected political leaders, deconcentration of fiscal and personnel structures to local institutions, delegation of responsibility for services to local authorities and a viable local level political process.144 Decentralization however can also create contradictory instruments of authority that both

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promote local autonomy and centralized control over revenue collection and service delivery. Actual decentralization arrangements within specific countries combine different elements of universal, cultural, and historical factors in unique and messy ways. Indeed, the broad conceptual categories summarized here must be disaggregated further by sector, sub-sector, and specific functions if they are to be operationally useful in a specific place at a specific time. Most system-wide institutional arrangements combine various pure forms of decentralization with other highly centralized government functions. Within such “hybrid” systems, some functions are decentralized in one way and other functions are decentralized in other ways. For example, one common form of hybrid system results when governments assign responsibility for financing and supervising investment projects to local governments, while retaining responsibility for planning investments, technical staff employment and career advancement in central sector ministries. That, in turn, requires the recognition that different societies—and different groups and individuals within societies—will value different objectives and procedural norms differently. As soon as different regions value the same objective differently, they can challenge the notion of universal principles. An agricultural region may value sewerage projects differently from an urban one, in contrast to agricultural supply services, but the difference may derive as much from economic as from cultural parameters.

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Annex B. Governance Principles There are core functions of “governance” that may be undertaken by all local, regional, national, or international entities. Thomas Hobbes argued more than three hundred years ago that effective agreement about, and effective performance of, the governance function is the only alternative to lives of “continual fear and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short.” 145 In the last half of the 20th century, many scholars recognized that governance, to be effective, needed to be undertaken at different geographic scales from a small neighborhood all the way up through international regimes.146 The term “governance” was finally included among key “development”147 concepts during the early 1990s. According to USAID, “just and responsive judicial processes and the accountability of the executive are two key characteristics of lawful governance. 148For the purposes of the analysis in this paper, a key function of the economy, including “governance” is the provision of goods and services desired by citizens. Some of these goods and services are most appropriately provided by government, and of those, there is a subset that are most efficiently and effectively provided by decentralized government structures. Measuring the degree of democracy through citizen involvement in choices about those goods and services, is critical to USAID’s definition of democracy but hard to measure. Public goods relate to the definition of politics given seventy years ago by Harold Lasswell, who defined politics in terms of “who gets what, when, and how.”149 That insight provides the basis for an important distinction between two derivative aspects of politics: governance as function and government as structure. One important aspect of governance is the management of two related processes: 1) the manner in which disagreements about the allocation of public resources are resolved (conflict resolution and policy-making) and 2) the process through which public resources are actually allocated for achieving priority societal objectives (planning and implementation).150 Understanding governance requires that we focus on at least three key structural elements: 1) the legal authorities assigned to national governments (which affects what is and is not defined as public goods and services in that country); 2) the expected roles and responsibilities of governments within unitary and federal states; and 3) different objectives and types of decentralization.

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Annex C: Parallel Governance and the Importance of Non-Formal Governance Systems Our examination of the nation-state system assumes that there are four possible ways in which sovereign entities have been established. These include:    

Nation-State: A state that consists of a single nation with a single language, culture, religion and social structures. Iceland and the other Scandinavian countries illustrate this pattern Dominant Nation with Significant Minority States: A country that is dominated by a single national group, eg. Russia or Turkey, but which contains other linguistic, cultural or religious minorities. Multiple Nation States: A country that contains three or more nationalities, cultural, or religious where no single nationality dominates. India, Nigeria and the United States exhibit these characteristics. Spillover Nation States: A nation which dominates no state or which spills over into several states. Kurdish speaking people, Somalis and Sotho Speakers, in Southern Africa, are all examples of this.

Samuel Huntington, Crawford Young and Lawrence E. Harrison have suggested that societal cultural values influence and perhaps dominate political characteristics.151 However, the view adopted in these pages is that the degree of cultural homogeneity is not the only (and in many cases not even the primary) factor determining political cohesion or behaviors within states. The transformation of norms and values into actual behaviors is also affected by other parochial interests and must be understood in both relative and dynamic terms. Any sense of broad “national” culture must, for operational purposes, be disaggregated by issue, interest group, by social and educational variations and perception of circumstance. The mix of values that make up any political culture is also strongly influenced by that society’s elite leadership—although that functional leadership is not always provided by those persons who occupy formal positions within internationally connected political and economic organizations. Where new sovereign states were established without reference to the distribution of nations and cultures among them, modernizing elites may be fundamentally alienated from many of their fellow citizens. Elites may be committed to the best interests of their citizens as they understand them. However, relationships are characterized by the absence of shared values concerning priority public choices and the absence of norms about appropriate procedures for resolving disagreements among them. James Scott, referenced in the paper, points out that codification often ignores the essential features in a functioning social order. When internationally recognized sovereign governments are not effectively performing governance functions, other institutions—

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both formal and non-formal—are certainly providing them. More than three decades ago, Albert Hirschman argued152 that people “exit” from participation in government programs if their “voice” is ignored. While they sometimes, although rarely, exit into anarchy when they withdraw from state control; at other times citizens exit to other local government jurisdictions or into parallel systems of non-formal governance. Citizens have no choice but to exit formal government systems when these have collapsed due to conflict, but they may also exit ineffective governance structures and those which exert no claim on their allegiance. Clear examples of parallel governance surface most dramatically in countries in conflict or just emerging from conflict. However, they are not limited to such situations. While in some cases non-state actors emerge in response to state failure and that such failures are inevitably counter-productive, that is clearly the case (for example in the kind of informal economies found in the urban slums of Lima, Peru), the wider problem is that too many “states” have never really been established in the first place. That occurs, at least in part, where parallel governance systems were already in place. Understanding the sequence is important. Effective adaptations to parallel governance must necessarily be different where state-failure is a consequence of pre-existing authority rather than where it arises only because a pre-existing state has failed—or is failing. When and where significant numbers or groups of people have never entered the formal governance system and/or others “exit” from formal to non-formal governance systems, parallel governance exists. “Parallel governance”153 is defined as non-formal groups making decisions about the allocation of public goods and services; able to mobilize resources to implement those decisions, ensure necessary participation, and apply sanctions to those who do not comply. In some places, parallel governance systems pre-date the colonial era. The ability of non-formal governance systems to adapt to changing realities has contributed to the economic and political survival of large numbers of people in many countries. Like any political system, parallel governance reflects actual distributions of power. The basis of support for parallel governance systems is not uniform. Parallel governance systems are not necessarily legitimate and may exercise power through coercion as much as through voluntary compliance. Some non-state actors provide more scope for individual freedom and stability than the governments they displace; others are dogmatic and repressive. Types of parallel governance systems include the following: 1. Persistent. In many parts of the world, primary affiliations are defined less in terms of place than groups; “tribes,” clans, religions, and so forth. Persistent systems have evolved naturally from patterns of governance existing prior to the introduction of a sovereign state veneer. For people who live according to the well understood rules of their national societies, these systems are simply ordinary. According to a relatively recent global study, many people—especially the poor, residing in rural and urban slums, consider non-formal institutions created and managed by themselves as more accountable, trustworthy, and participatory than

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formal sector government institutions and, even, NGOs.154 For example, people will often pay “untrained” or officially unregistered traditional “medical” practitioners for diagnoses and prescriptions, using traditional medicine rather than using officially sponsored health programs—even when those government services are provided free of charge. In such cases, non-formal, but culturally accepted, parallel governance systems serve to “certify” the qualifications of those “traditional medical practitioners.”155 These parallel systems—however invisible to formal sector experts—negatively affect the effectiveness of official government medical programs. The power of persistent governance systems is most often rooted in rural or nomadic clan, community, or tribal affiliations in Africa, the Andes and highlands of Central, South, and Southeast Asia, the Middle East, and the Sahara. 2. Adaptive. Meeting the need for defensive security or organized self-help— especially among poor people in urban slum areas—is the essence of “adaptive” parallel governance. The informal settlements of Lima, Peru described by Hernando de Soto are well known examples. But another variant includes broader criminal syndicates that displace formal government entities by providing basic security and minimal social services in exchange for acquiescence of local residents. Whereas persistent systems survive largely separate from the state, adaptive systems involve symbiotic interactions between those within and outside the formal state system. The key to “adaptive” systems of parallel governance in the need to rely primarily on self-help. 3. Reactive. Non-state actors also include those who want to achieve sovereign state power. Until recently, such groups have relied on active insurgencies (e.g., “national wars of liberation” followed by “civil wars”) because official channels for political competition were not available or such groups believed that participation in formal electoral systems would not serve their purposes. Some groups governed openly in some areas within a state. At the other extreme, sanctuary is sought within domestic havens beyond the effective political reach of formal governments. Examples of such protected arenas include mosques or other religious networks within which people can operate more effectively than they can in public spaces as they use force, or terror, to achieve state power. More recently, some such groups have begun to participate – successfully – in the electoral process (e.g., (Hamas and Hezbollah).

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Notes 1

2

3 4

5 6

7 8

9

10

11

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This is one of seven papers commissioned by USAID as a first step towards the eventual revision of its Decentralization and Democratic Local Governance Programming Handbook. See United States, Agency for International Development, Decentralization and Democratic Local Governance Programming Handbook (Washington, DC: Center for Democracy and Governance, Bureau for Global Programs, Field Support, and Research, 2000). The proposed topics to be addressed by the other six studies and associated papers are: (1) “A Conceptual Framework for Democratic Local Governance;” (2) “Electoral Systems and Democratic Local Governance;” (3) “Information and Communications Technologies and Empowerment of Communities;” (4) “Alternative Structures and Processes of Local Governance;” (5) “Decentralization: Conflict, Fragility and Transformational Development;” and (6) Local Government Decentralization: Indicators of Success.” See United States, Agency for International Development, “Supporting Studies for Revision of the DCHA/DG Decentralization and Democratic Local Governance Programming Handbook” (December 2, 2005). Each of the USAID papers will include consideration of Conflict, Fragility and Transformational Development. In some instances these subjects may be cross-cutting issues reflected in various places throughout the document, in other instances these subjects may be treated as an appendix to the larger paper, or as later supplementary research efforts but in all cases, views of the relevant literature on these subjects will be discussed as they relate to the principal subject of the paper. In practical terms, the studies envisioned here will provide guidance to DCHA/DG on the extent to which field programs supported by DCHA/DG differ from (or ought to differ from) decentralization and local governance programs supported through the Office of Urban Programs, the Office of Transition Initiatives and the Office of Conflict Mitigation and Management. Team Leader. Editorial support as well as content was provided by Susan Vogelsang, Morey Kogul and Deborah Prindle of PADCO. Harrison, “Why Culture Matters,” in Harrison and Huntington, Culture Matters, p. xxxi. At least seven governance sub-functions must be performed in any society: 1) defense against “foreign” threats; 2) security from domestic crime; 3) resolution of domestic disagreements; 4) provision of public goods and services; 5) aggregation of preferences; 6) provision of mechanisms for effective representation; and 7) provision of mechanisms for communication and the exchange of information. Compare to the definition provided by the World Bank in the May 2005 update of Governance Indicators: 1996-2004 – i.e., “Governance can be broadly defined as the set of traditions and institutions by which authority in a country is exercised. This includes (1) the process by which governments are selected, monitored and replaced, (2) the capacity of the government to effectively formulate and implement sound policies, and (3) the respect of citizens and the state for the institutions that govern economic and social interactions among them;” available at www.worldbank.org/wbi/governance/govdata/index.html. Harrison, “Why Culture Matters,” in Harrison and Huntington, Culture Matters, p. xxxi. Olowu and Wunsch, Local Governance in Africa, p. 8. See also Vincent Ostrom, “Artisanship and Artifact,” in Public Administration Review, vol. 40, no. 4 (1980), pp. 309-317. Albert Hirschman, Exit, Voice, and Loyalty (Cambridge, MA” Harvard University Press, 1970). See (i) H. Kiesling, “Measuring a Local Government Service: A Study of School Districts in New York State,” Review of Economics and Statistics 49 (August 1967), pp. 356-367; (ii) William Niskanen and M. Levy, Cities and Schools: A Case for Community Government in California (Berkeley: University of California, Graduate School of Public Policy, 1974); (iii) E. A. Hanushek, “The Economics of Schooling: Production and Efficiency in Public Schools,” Journal of Economic Literature 24 (1986), pp. 1141-1177; and (iv) Paul Teske, et al., “Establishing the Micro Foundations of a Macro theory: Information, Movers, and the Competitive Local Market for Public Goods,” American Political Science Review 87 (September 1993): pp. 702-713. See (i) Richard E. Wagner and Warren E. Weber, “Competition, Monopoly, and the Organization of Government in Metropolitan Areas,” Journal of Law and Economics 18 (December 1975), pp. 661-684; (ii) Thomas Dilorenzo, “Economic Competition and Political Competition: An Empirical Note,” Public Choice 40 (1983), pp. 203-209; and (iii) Mark Schneider, “Fragmentation and the Growth of Government,” Public Choice 48 (1986), pp. 255-263. See Ronald J. Oakerson and Roger B. Parks, “Local Government Constitutions: A Different View of Metropolitan Governance,” American Review of Public Administration 19 (December 1989), pp. 279-294 and G. Ross Stephens and Nelson Wikstrom, Metropolitan Government and Governance: Theoretical Perspectives, Empirical Analysis, and the Future (New York: Oxford University, 2000).; Michael McGinnis, Polycentricity and Local Public Economies, Ann Arbor: University of Michigan Press, 1999. Milton Friedman in Capitalism and Freedom (Chicago: University of Chicago Press, 1963) and Politics and Tyranny: Lessons in Pursuit of Freedom (Princeton, New Jersey: Princeton University Press, 1985). See also World

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Bank, Sustainable Growth with Equity. A Long-Term Perspective for Sub-Saharan Africa, Africa Region Technical Department, Report No. 8014 (Washington, D.C.: The World Bank, 1989). Charles Tiebout, “A Pure Theory of Local Expenditures," Journal of Political Economy, 64 (1956), p. 416-424; see also Wallace Oates and Robert Schwab, “Tiebout Model” in Joseph Cordes, Robert Ebel, and Jane Gravelle (eds.), Encyclopedia of Taxation and Tax Policy (Washington, DC: The Urban Institute 1999), Robert Ebel and Serdar Yilmaz, Concept of Fiscal Decentralization and Worldwide Overview (Washington, DC: World Bank Institute 2002); and Julia Darby, Anton Muscatelli and Graeme Roy, Fiscal Decentralisation In Europe: A Review of Recent Experience (Glasgow, Scotland: Department of Economics, University of Glasgow, April 2003): homepages.strath.ac.uk/~hbs03117/ ERSA_DMR.pdf. Geoffrey Brennan and James Buchanan, The Power To Tax: The Analytical Foundations of a Fiscal Constitution (Cambridge: Cambridge University Press, 1980. United States, Agency for International Development, “Supporting Studies for Revision of the DCHA/DG Decentralization and Democratic Local Governance Programming Handbook” (December 2, 2005). Vincent Ostrom, Charles Tiebout, and Robert Warren, “The Organization of Government in Metropolitan Areas: A Theoretical Inquiry," American Political Science Review 55 (1961), pp. 831-842; James Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor, Michigan: University of Michigan Press, 1962); Mancur Olson, Jr., The Logic of Collective Action: Public Goods and The Theory of Games (Cambridge, Massachusetts: Harvard University Press,1965); and Vincent Ostrom and Elinor Ostrom, "Public Goods and Public Choices," in E.S. Savas (ed.), Alternatives for Delivering Public Services: Toward Improved Performance (Boulder, Colorado: Westview Press, 1977). For an overview of the relevant literature, see Wallace Oates, “An Essay on Fiscal Federalism,” Journal of Economic Literature 37 (September 1999), pp. 1120-1149. Geoffrey Lamb, "Market Surrogate Approaches to Institutional Development," Working Paper, mimeo (Washington, D.C.: The World Bank, 1982). The essence of a market surrogate approach is that improvement of performance in the non-market public sector arena can be assisted by the selective introduction of competition, choice, and accountability mechanisms into the institutional structures of government. Gabriel Roth identifies two principal components of market surrogate strategies: (1) alteration of the external environment in ways which place pressures on the public sector to improve its delivery of services in order to compete (which, in turn, requires that public sector agencies be subject to the consequences of failure) and (2) restructuring of internal institutional arrangements within public sector organizations so as to reinforce external competitive pressures. 16 To the extent that some significant level of decentralization can be expected to reinforce effective functioning of a market-based economy, it is in some sense inevitable; see Gabriel Roth, The Private Provision of Public Services in Developing Countries (New York: Oxford University Press, 1987). Arturo Israel, Institutional Development: Incentives to Performance (Baltimore, Maryland: The Johns Hopkins University Press, 1987); Jerry Silverman, Public Sector Decentralization: Economic Policy and Sector Investment Programs, Technical Paper 188 (Washington, D.C.: World Bank, 1992); and Elinor Ostrom, Larry Schroeder, and Susan Wynne, Institutional Incentives and Sustainable Development (Boulder, Colorado: Westview Press, 1993), p. 183-187. It should also be noted that hypothesized benefits are equally applicable to movements within countries wherein central governmentcentral governments that do not uniformly provide services in an equitable manner. Dennis Rondinelli, James McCullough, and Ronald Johnson, "Analysing Decentralization Policies in Developing Countries: A Political-Economy Framework," Development and Change 20 (1989), pp. 57-87. Dieter Bös, "Commentary on Roger Gordon's 'An Optimal Taxation Approach to Fiscal Federalism' " in Charles McLure, Jr. (ed.), Tax Assignment in Federal Countries (Canberra: Centre for Research on Federal Financial Relations, Australian National University, 1983), pp. 43 - 47. Russell Hanson and John Hartman, “Do Welfare Magnets Attract?,” Discussion Paper 1028-94 (Madison: Institute for Research on Poverty, University of Wisconsin, February 1994); available at www.irp.wisc.edu/ publications/dps/pdfs/ dp102894.pdf. For a review of the relevant literature on employment seeking migrations in Sub-Saharan Africa, see Jerry Silverman, “Dual Economy Theory Revisited: Governance and the Role of the Informal Sector,” paper presented at the Fourth Annual International Conference of The Society for the Advancement of Socio-Economics (SASE), Irvine, California (March 27–29, 1992) and “Governance & Poverty: An Alternative Paradigm,” paper presented at the Second Asia Development Forum, Singapore (June 6-8, 2000); both available from author at [email protected]. Albert Breton, “An Introduction to Decentralization Failure” (Department of Economics, University of Toronto and International Centre for Economic Research, Turin, Italy); available at www.imf.org/external/pubs/ft/seminar/2000/fiscal/breton.pdf. Arturo Israel, Institutional Development: Incentives to Performance (Baltimore, Maryland: The Johns Hopkins University Press, 1987), p. 95

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Albert Breton, “An Introduction to Decentralization Failure” (Department of Economics, University of Toronto and International Centre for Economic Research, Turin, Italy); available at www.imf.org/external/pubs/ft/seminar/ 2000/fiscal/breton.pdf. 25 Jerry Silverman, Public Sector Decentralization: Economic Policy and Sector Investment Programs, Technical Paper 188 (Washington, D.C.: World Bank, 1992), p. 9. 26 “The Organization of Government in Metropolitan Areas: A Theoretical Inquiry” American Political Science Review 55: 831-842. 27 Jora R. Minasian, “Indivisibility, Decreasing Cost, and Excess Capacity: The Bridge,” Journal of Law and Economics 22 (1979), pp. 385-397. 28 John Montgomery, “The Informal Sector as an Administration Resource” in Dennis Rondinelli and G. Shabbir Cheema (eds.), Urban Services in Developing Countries: Public and Private Roles in Urban Development (London: Macmillan, 1988), p. 89-111. 29 See Roger B. Parks, et al., “Consumers as Coproducers of Public Services: Some Economic and Institutional Considerations” in Michael McGinnis (ed.), Polycentricity and Local Public Economies: Readings from the Workshop in Political Theory and Policy Analysis (Ann Arbor: University of Michigan Press, 1999), pp. 381-391; and Elinor Ostrom, “Crossing the Great Divide: Coproduction, Synergy, and Development,” World Development 24 (June 1996), pp. 1073-1087. 30 Heterogeneity is a challenge at all levels of organization (see Robert O. Keohane and Elinor Ostrom, Local Commons and Global Interdependence: Heterogeneity and Cooperation in Two Domains [London: Sage, 1995]). 31 See the “Synoposium on Reinventing Public Governance in Developing Countries,” by M. S. Haqaue and G. M. Mudacumura, in International Journal of Organization Theory and Behavior. 9 (2006), pp. 174-254. 32 See (i) Kenneth Arrow, Social Choice and Individual Values, 2d ed. (New York: Wiley, 1951); (ii) Kenneth A. Shepsle, “Institutional Arrangements and Equilibrium in Multidimensional Voting Models,” American Journal of Political Science 23 (1979), pp. 27-60; and (iii) James M. Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor: University of Michigan Press, 1962). 33 Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge, MA: Harvard University Press, 1965). Elinor Ostron, Understanding Institutional Diversity. Princeton: Princeton University Press, 2005. 34 Elinor Ostrom. Understanding Institutional Diversity. (Princeton, NJ: Princeton University Press, 2005). See in particular Chapter 7. 35 Elinor Ostrom, “Institutional Rational Choice: An Assessment of the Institutional Analysis and Development Framework” in Paul A. Sabatier (ed.), Theories of the Policy Process (Boulder, CO: Westview Press, 1999), pp. 35-71. 36 See Mark Sproule-Jones, Governments at Work: Canadian Parliamentary Federalism and Its Public Policy Effects (Toronto: University of Toronto Press, 1993) for a discussion of rules-in-form and rules-in-use. 24

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“USAID Policy: Democracy and Governance”, Directorate for USAID: November, 1991, page 8, August 30,

2006.url: www.usaid.gov/policy/ads/200/demgov/demogov.pdf Michael E. Porter, “Attitudes, Values, Beliefs, and the Microeconomics of Prosperity,” in Lawrence E. Harrison and Samuel P. Huntington, (eds.), Culture Matters: How Values Shape Human Progress (New York: Basic Books, 2000), p. 24-27; and William Tordoff, “The Role of Local Administration in Development” (Gaborone: Institute of Development Management Lecture Series, 1978). 39 Given the realities of the 1997 financial crisis in East and Southeast Asia, it is interesting to note the World Bank’s judgment about the effectiveness of the State in East and Southeast Asia just a few months before: “In the newly industrializing countries of East Asia, the state is generally viewed as effective, engaged in a productive partnership with the private sector. With few exceptions, it has matched its role to its capability very well and thereby enhanced its effectiveness. Whereas ineffective authoritarian states have been directly responsible for economic decline in Africa, many East Asian countries have experienced remarkable growth (with some improvement in equity) under authoritarian regimes…. The link between authoritarianism and economic decline, so evident in Africa, has been inoperative in Asian countries, largely because of their powerful commitment to rapid economic development, strong administrative capability, and institutionalized links with stakeholders such as private firms, as well as their ability to deliver on the economic and social fundamentals: sound economic management, basic education and health care, and infrastructure;” see World Bank, World Development Report 1997: The State in a Changing World (New York: Published for the World Bank by Oxford University Press, 1997), p. 163. 40 James Scott, Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (New Haven, Conn.: Yale University Press, 1998). 38

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Stein Sundstol Eriksen, Jan Naustdalslid, and Arild Schou, Decentralisation from Above: A Study of Local Government in Botswans, Ghana, Tanzania and Zimbabwe (Oslo: Norwegian Institute of Urban and Regional Research, 1999), p. 41. Given limitations of time, resources, and space, no attempt is made here to comprehensively identify or discuss the thousands of different political cultures around the world. Rather, examples of broadly differentiating characteristics among significant political cultures will be identified and briefly summarized, including the extent that indicators of freedom appropriately described countries in each region42 and the extent to which they are primarily secular of either a rationalist or ideological kind or, alternatively, rooted in global or regionally significant religions Freedom House, Freedom in the World Country Ratings; available at http://www.freedomhouse.org/ ratings/index.htm. John Brierly, The Law of Nations (New York: Oxford University Press, 1963). Unless noted otherwise, the introductory summary of pre-colonial patterns of governance provided here is drawn from Jerry Silverman, Historic National Rivalries and Contemporary Inter-State Conflict in Mainland Southeast Asia in Mark W. Zacher and R. Stephen Milne (eds.), Conflict and Stability in Southeast Asia (Garden City: Anchor Books, 1974), p. 45-78. It might be argued that the United States’ Occupation of Japan following World War II (1945 – 1951) represented a de facto colonial experience. Despite the impact of American views on the drafting of the Japanese Constitution and the current constitutionally mandated structure and procedures of Japanese Government, Japan retained its status as a sovereign state throughout the occupation and the official “Occupation” status of United States’ administration also placed substantial legal limitations on what could or could not be imposed. As recently as 500 AD, only three of the five population groups currently dominant in Southeast Asia today would have been found there: (i) the Vietnamese in the northern Red River delta (but not what is now central or southern Vietnam); (ii) the Khmers in the plateaus of present-day Laos (but not in today’s “Cambodia”); and (iii) the “Malays” of the peninsula and “Indonesian” islands. Arthur Basham, The Wonder That Was India (New York: The Macmillan Co., 1955), p. 94-95. World Bank, World Development Report 1997: The State in a Changing World (New York: Published for the World Bank by Oxford University Press, 1997), p. 163. For example, see Jerry Silverman, Public Sector Decentralization: Economic Policy and Sector Investment Programs (Washington, D.C.: World Bank, 1992), p. 33-35. For example, see Jerry Silverman, BICOL Integrated Area Development III (Riconada/Buhi-Lalo) Summary Assessment Report (Philippines), Jerry Silverman (Washington, D.C.: Development Alternatives Inc, 1981) and Jerry Silverman, Gregorio Beluang, Oscar Bermillo, Herminiano Echiverre, Nedra Huggins-Williams, Paul Novick, and Cesar Umali, BICOL Integrated Area Development II (Bula-Minalabac Land Consolidation) Project Evaluation Report (Philippines), (Washington, D.C.: Development Alternatives Inc, 1981). George Honadle, David Gow, and Jerry Silverman, Technical Assistance Alternatives for Rural Development: Beyond the By-Pass Model, Canadian Journal of Development Studies (4), p. 222-240. Jerry Silverman, Governance & Poverty: An Alternative Paradigm, paper presented at Asian Development Bank and World Bank Second Asia Development Forum (Singapore, June 6 - 8, 2000). Jerry Silverman was Chief of Party (1978 – 1980) of the USAID-financed Technical Assistance Team fielded by Development Alternatives Inc (DAI) to implement PDP I in Central Java (Semarang) and Aceh (Banda Aceh) and returned to Indonesia as Manager of a Regional World Bank Unit for East Asia and Pacific resident in Jakarta from 1995 to 1999. The total amount of official aid commitments increased dramatically during the period 1998/2000, especially by the IMF to South Korea and, in substantially lesser amounts, to Thailand and Indonesia – although assistance to Indonesia was delayed due to prolonged negotiations. Thus, on December 4, 1997 – only 14 days after the devaluation of the Won – the IMF approved the largest “Stand-By Arrangement” in its entire history to South Korea (i.e., more than $15½ billion denominated in terms of “Special Drawing Rights” [SDRs]). That, in turn, necessitated the establishment of a “Supplemental Reserve Facility” (SRF) on December 17th to support countries facing “sudden and disruptive loss of market confidence.” Other sources of official “development” aid to South Korea paled by comparison – amounting to $433 million during the period 1998/2000 and only $276 million 2001/2003. That irony was that South Korea was believed to be on the cusp of transitioning from a “developing” to a “developed” country – as indicated by its recently earned status as only the 2 nd Asian member of the OECD less than a fully year before the full force of the crisis hit; see Organisation for Economic Co-operation and Development, OECD Member Countries; available at www.oecd.org/document/58/0,2340,en_2649_201185_ 1889402_1_1_1_1,00.html (last accessed July 15, 2005) and Jerry Silverman, An International Economic History of Latin America & The Caribbean in Jose de Arimateia da Cruz and Eduardo R Gomez (ed.), Latin American in the New International System: Challenges and Opportunity (Boston: Pearson Custom Publishers, 2006), p. 91.

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As noted above, local autonomy is generally not advocated as an end in itself nor is it most often the primary motivation for proponents of decentralization reforms (e.g., Louis A. Picard, The State of the State: Institutional Capacity, Transformation and Political Change in South Africa (Johannesburg: Witwatersrand University Press, 2005), p. 178-181. See (i) Asian Development Bank, Governance: Sound Development Management (Manila: Asian Development Bank, 1995); (ii) Asian Development Bank, Governance in Asia: From Crisis to Opportunity (Manila: Asian Development Bank, 1999); (iii) Asian Development Bank, Moving the Poverty Reduction Agenda Forward in Asia and the Pacific: The Long-Term Strategic Framework of the Asian Development Bank (2001-2015) (Manila: Asian Development Bank, 2001); (iii) Jeff Huther and Anwar Shah, Applying a Simple Measure of Good Governance to the Debate on Fiscal Decentralization (Washington, DC: World Bank, nd); (iv) Daniel Kaufmann, Transparency, Incentives and Prevention (TIP) for Corruption Control and Good Governance: Empirical Findings, Practical Lessons, and Strategies for Action based on International Experience, presentation at QinghuaCarnegie Conference on Fighting Corruption, (Beijing, April 11-12th, 2002); (v) Daniel Kaufmann, Governance Redux: The Empirical Challenge to Orthodoxy and new global strategies to control corruption and good governance, presented at 12th Annual Burkenroad Symposium on Business and Society. ”Public Corruption and Private Enterprise,” (A. B. Freeman School of Business, Tulane University, October 24th, 2003); and (vi) Daniel Kaufmann, Aart Kraay, and Massimo Mastruzzi, Governance Indicators: 1996-2004 (Washington, DC: World Bank, May 2005). Asian countries with significantly expanding economies are experiencing pulls in two directions at the same time – towards “regionalizing-up” through such organizations as ASEAN and ASPAC and, with respect to financial flows and private investment, toward even more global associations while at the same time moving toward greater decentralizing of administrative authority. For central Asia, see Troy Thomas and Steve Kiser, Lords Of The Silk Route: Violent Non-State Actors In Central Asia, Occasional Paper #43, United States Air Force Institute for National Security Studies (Boulder, CO: United States Air Force Institute for National Security Studies, 2002). The Principle of Subsidiarity is – most simply stated – that decision-making authority should be placed at the lowest appropriate level given efficiency and effectiveness criteria. Jerry Silverman, Public Sector Decentralization: Economic Policy and Sector Investment Programs, loc. cit. For example, see Douglas Webber, A Consolidated Patrimonial Democracy? Democratization In Post-Suharto Indonesia, paper presented at the European Consortium of Political Research’s workshop, “Post-Cold War Democratization in the Muslim World: Domestic, Regional and Global Trends,” (Granada, April 14-19, 2005), p. 1718, 21. Jerry Silverman, Public Sector Decentralization: Economic Policy and Sector Investment Programs, op. cit., p. 29, 56 (note 6). United Nations Development Programme, Human Development Report 2005: International Cooperation at a Crossroads -- Aid, Trade, and Security in an Unequal World (New York: Published for the United Nations Development Programme [UNDP], 2005). Office of the United Nations Resident Coordinator, Millennium Development Goals: China’s Progress 2003 (Beijing: United Nations Resident Coordinator in China, 2004) available at www.undg.org/content.cfm?id=79; United Nations, Department of Economic and Social Affairs, Statistics Division, Millennium Development Goal Indicators Database (New York: United Nations, 2005); available at unstats.un.org/unsd/mi/mi_goals.asp; and Jerry Silverman, Cross-Sectoral Governance & Achievement of Health MDGs in Asia (Manila: Asian Development Bank, 2005). Office of the United Nations Resident Coordinator, loc. cit.; United Nations Development Programme, loc. cit.; and Jerry Silverman, Jerry Silverman, Cross-Sectoral Governance & Achievement of Health MDGs in Asia, loc. cit.. Narayan, Deepa, with Raj Patel, Kai Schafft, Anne Rademacher, and Sarah Koch-Schulte, Can Anyone Hear Us? (New York: Oxford University Press, for the World Bank, 2000) and Narayan, Deepa, Robert Chambers, Meera Shah, and Patti Patesch, Crying Out for Change (New York: Oxford University Press, for the World Bank, 2000); the first two volumes of the series “Voices of The Poor.” Library of Congress, Federal Research Division, Country Profile: Afghanistan (February 2005); available at lcweb2.loc.gov/frd/ cs/profiles/Afghanistan.pdf. The number of institutions identified by the “poor” across the six different urban neighborhoods varied from a low of 12 through a high of 27; the range of institutions identified in the six rural villages was from a low of 10 through a high of 22; Narayan, Deepa, with Raj Patel, Kai Schafft, Anne Rademacher, and Sarah Koch-Schulte, op. cit., p. 22. The data presented on Indonesia is drawn primarily from Nilanjana Mukherjee, Consultations With The Poor in Indonesia: Country Synthesis Report, draft (Washington, DC: The World Bank, 1999), mimeo.

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Lily Lei Tsai, “Cadres, Temple and Lineage Associations, and Governance in Rural China,” The China Journal, no 48 (July 2002), p. 1-27. Ibid. NPR Report, “All things Considered” 8/29/06. Glenn Curtis (ed.), Kazakstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan : Country Studies (Washington, DC: Federal Research Division, Library of Congress, 1997), available at lcweb2.loc.gov/cgibin/query/r?frd/cstdy:@field (DOCID+tm0056). United States Department of State, Bureau of East Asian and Pacific Affairs, Background Note: Solomon Islands (October 2005); available at www.state.gov/r/pa/ei/bgn/2799.htm. United National Development Programme, Resident Representative & Resident Coordinator's Office for Fiji, Federated States of Micronesia, Kiribati, Marshall Islands Nauru, Palau, Solomon Islands, Tonga, Tuvalu and Vanuatu, Tuvalu Fonokaupule Act -- Devolving Governance to Island Communities; available at www.tuvaluislands.com/news/archives/1998/ fonokaupule.htm.

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Adam Wagstaff and Mariam Claeson, The Millenium Development Goals for Health: Rising to The Challenges (Washington, DC: The World Bank, 2004).

77http://lnweb18.worldbank.org/mna/mena.nsf/Sectors/MNSED/BA0E3C87A8ECD59D85256DEF0076A0A2?OpenD 78

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ocument Definitive work on Egyptian local government has been done by Dr. James Mayfield, Local Government in Egypt, American University in Cairo Press, 1996. The AKP rejects the Islamic Nationalist label and claims that it is a pro-Western mainstream party with a "conservative" faith based social agenda but the party also has a firm commitment to a liberal market economy and European Union membership. It see parallels between its faith based approach to Islam and conservative, fundamentalist Christians in the United States.

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Unless noted otherwise, the introductory summary of pre-colonial and colonial patterns of governance provided here is drawn from Jerry Silverman, An International Economic History of Latin America & The Caribbean in Jose de Arimateia da Cruz and Eduardo R Gomez (ed.), Latin American in the New International System: Challenges and Opportunity (Boston: Pearson Custom Publishers, 2006), p. 58-102. United States, Central Intelligence Agency, World Factbook 2005 (updated May 17, 2005); available at www.cia.gov/cia/publications/factbook. See also Jerry Silverman, op.cit., p. 58-59. Although in 1538 Pope Paul III outlawed the enslavement of “Indians,” the practice was re-instituted by Spain in 1547 and then outlawed again 53 years later. By the time the trans-Atlantic slave trade was finally outlawed in the Western Hemisphere in 1830 -- even though slavery itself was not completely outlawed until 1888 – a full ten to fifteen million people had survived the voyages from Africa. Of that number, approximately 6 percent landed in North America while a full 60 to 70 percent landed in Brazil and the Caribbean. Nevertheless, because of substantially higher birth rates among slaves in the USA and higher death rates in Latin America, the latter accounted for only about a third of all slaves living in the Western Hemisphere by 1860. See Steven Mintz, American Slavery in Comparative Perspective (2003) in Digital History; retrieved June 15, 2005 from http://www.digitalhistory.uh.edu. Francisco Rodriguez, “The Political Economy of Latin American Economic Growth” in Eduardo Fernández-Arias, Rodolfo Manuelli, and Juan S. Blyde, Sources of Growth in Latin America: What is Missing? (Washington: Inter-American Development Bank, forthcoming, 2005) and John Coatsworth and Alan Taylor (eds.), Latin America and the World Economy since 1800 (Cambridge, MA: Harvard University, David Rockefeller Center for Latin American Studies, 1998) cited by José Moya, book review in Estudios Interdisciplinarios De America Latina Y El Caribe, 11/1 (Enero - Junio 2000), www.tau.ac.il/eial/XI_1/moya.html (last accessed on March 26, 2005). Jerry Silverman, op.cit., p. 68-70. Jerry Silverman, Economic Policies, Poverty & Political Accountability in Latin America in Jose de Arimateia da Cruz and Eduardo R Gomez (ed.), Latin American in the New International System: Challenges and Opportunity (Boston: Pearson Custom Publishers, 2006), p. 174. All statistics in this paragraph calculated by Jerry Silverman from data in: (i) International Monetary Fund, Annual Report of The Executive Board For The Financial Year Ended April 30, 2003, Appendix VII, available at www.imf.org/external/pubs/ft/ar/2003/eng/pdf/file4.pdf; (ii) World Bank, International Bank For Reconstruction and Development: Subscriptions and Voting Power of Member Countries, available at web.worldbank.org/wbsite/external/extaboutus/0,,contentmdk:20124831~menupk:271153~pagepk:34542~pipk:36

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600~theSitepk:29708,00.html; and/or (iii) Angus Maddison, The World Economy: Historical Statistics (Paris: The Organization for Economic Cooperation and Development, 2003). Ibid, p. 174-232. Note that “GNI” is exactly equivalent to the term “GDP” (gross national product). Gross national product (GNP) is the measure of the total domestic and foreign output claimed by residents of an economy, less the domestic output claimed by non-residents. GNP does not include deductions for depreciation. Yearly average exchange rates are used to convert GNP from local currency into U.S. dollars. Data on GNP are from the Macroeconomic Indicators Team of the Development Data Group of the World Bank’s Development Economics Vice Presidency; see World Bank, Global Development Finance 1999 (on CD-ROM). The change in terminology was recently adopted by the World Bank; “following current statistical practice, the World Bank has recently adopted the new terminology in line with the 1993 System of National Accounts (SNA). The changes in terms are listed below. In general, the definitions under the 1993 SNA guidelines for these indicators remain as before, and only the terminology has changed. Exceptions are: GNI in constant prices, which differs from GNP in that it also includes a terms of trade adjustment;” see World Bank; explanations available at www.worldbank.org/data/ countrydata/countrydata.html. Jerry Silverman, Economic Policies, Poverty & Political Accountability in Latin America, op.cit, p. 174. Jerry Silverman, An International Economic History of Latin America & The Caribbean, op.cit, p. 70-75. Jerry Silverman, An International Economic History of Latin America & The Caribbean, op.cit, p. 80-87. World Bank, World Bank Conditionality Review: Conditionality and Policy Based Lending –Trends, presentation in Paris, February 4, 2005; available at siteresources.worldbank.org/projects/resources/conditionalitytrendspresentation12705.pdf (last accessed July 10, 2005). Organisation for Economic Co-operation and Development (OECD), Development Assistance Committee (DAC), International Development Statistics [IDS] online: Databases on aid and other resource flows; available at www.oecd.org/dac/stats/idsonline [last accessed July 11, 2005]). As argued in World Bank, World Bank Conditionality Review: Conditionality and Policy Based Lending – Trends, loc. cit., “economic crises can be devastating to the poor.” In support of that argument, see Nora Lustig, Crises and the Poor: Socially Responsible Macroeconomics, Sustainable Development Department, Technical Paper Series (Washington, DC: Inter-American Development Bank); Francisco Ferreira, Giovanna Prennushi, and Martin Ravallion, Protecting the Poor from Macroeconomic Shocks: An Agenda for Action in a Crisis and Beyond, Policy Research Working Paper 2160 (Washington, DC: World Bank, 1999). On the other hand, the fact that relatively higher prices for agricultural goods did not directly translate into higher incomes for poor farmers and wages for landless laborers following some adjustment programs in sub-Saharan Africa is established in Esbern Friis-Hansen, Agricultural Policy in Africa after Adjustment, Centre for Development Research, Copenhagen, September 2000; Giovanna Cornia, Liberalization, Globalization and Income Distribution, Working Paper 157, World Institute for Development Economics, Helsinki; and Kevin Watkins. The Oxfam Poverty Report, all cited in World Bank, World Bank Conditionality Review: Conditionality and Policy Based Lending –Trends, loc. cit. World Bank, The Social Dimensions of Adjustment Integrated Survey: A Survey to Measure Poverty and Understand the Effects of Policy Change on Households, Working Paper 14 (Washington, D.C.: World Bank, 1992). Sharon Van Pelt, Decentralization in Central America: A Policy Overview (Washington, D.C.: Regional Information Clearing House, U.S. Agency for International Development, 1994). National Memorial Institute for the Prevention of Terrorism (MIPT), Terrorism Knowledge Base; available at www.tkb.org/AnalyticalTools.jsp. See Andrew Nickson, Local Government in Latin America (Boulder: Lynne Rienner, 1995). Government of Argentina, Office of The President. Objetivos de Dessarrollo del Milenio Argentina: La Oportunidad Para Su reencuentro (Buenas Aires: Government of Argentina, 2003). Federal Government of Brazil, Office of The President. Brazilian Monitoring Report on the Millennium Development Goals (Brasilia: Institute for Applied Economic Research–IPEA, 2004). During 2000, municipalidades with 5,000 inhabitants or less were limited to 4 elected members of the Consejo; those with 5,001 to 10,000 inhabitants had 6 elected members; with 10,001 to 80,000 inhabitants 8 elected members; and those with 80,001 or more inhabitants 10 elected members (Articulo 26 of the Year 2000 Amendment). During 2000, municipalidades with 5,000 inhabitants or less were limited to 4 elected members of the Consejo; those with 5,001 to 10,000 inhabitants had 6 elected members; with 10,001 to 80,000 inhabitants 8 elected members; and those with 80,001 or more inhabitants 10 elected members (Articulo 26 of the Year 2000 Amendment). Candidates for Consejo de Municipalidade are included – essentially anonymously – on the electoral list of Presidential candidates. Election to the Consejo de Municipalidade is a function of the presidential elections. Thus, the

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election does not reflect voters’ preferences for specific candidates for the Consejo de Municipalidade, but rather their preferences for Presidential candidates. According to recent amendments to the Ley de Municipalidades y su Reglamento, “El Alcalde sometera a la consideracion y aprobacion de la Corporacion Municipal, los asuntos siguientes: [i] presupuesto pro programas del plan operativo anual; [ii] plan de arbitrios; [iii] ordenanzas muncipales; [iv] reconocimientos que se otorguen a personas e instituciones por relevantes servicios prestado a la comunidad; [v] manual de clasificación de puestos y salaries; [vi] reglamentos speciales; [and vii] los demás que de conformidad con esta Ley sean de competencia de la Coporacion” (Articulo 47). Shahid Burki, Guillermo Perry, and William Dillenger (with Charles Griffin, Jeffrey Gutman, Fernando Rojas, Steven Webb, & Donald Winkler), Beyond the Center: Decentralizing the State, World Bank Latin American and Caribbean Studies: Viewpoints (Washington, D.C.: World Bank, 1999), p. 12. The data about remittances here are from various sources: (i) Cerstin Sander, Migrant Remittances to Developing Countries, a “Scoping Study” -- overview and introduction to issues for pro-poor financial services -- prepared for the UK Department of International Development (DFID) (London: Bannock Consulting, 2003), available at www.bannock.co.uk/PDF/Remittances.pdf; (ii) Inter-American Development Bank, The Multilateral Investment Fund, Project Clusters, Remittances as a Development Tool; available at www.iadb.org/mif/v2/remittances.html (last accessed July 6, 2005); (iii) World Bank, World Development Indicators 2005; downloadable version (last accessed July 6, 2005); (iv) Inter-American Development Bank, Multilateral Investment Fund, Sending Money Home: An International Comparison Of Remittance Markets www.Iadb.org/mif/V2/files/mifpagerfeb2003eng.pdf for 2002 and Inter-American Development Bank, Multilateral Investment Fund, Project Clusters, Remittances Regional Map 2004, Remittances an a Development Tool: www.Iadb.org/mif/V2/files/ map2004eng.pdf; and (v) Pew Charitable Trust, Inter-American Development Bank, Multilateral Investment Fund, and Bendixon & Associates, Remittance Senders and Receivers: Tracking The Transnational Channels (Washington, DC: The Inter-American Development Bank, 2003) available at www.iadb.org/mif/v2/files/StudyBendixen2003Nov.pdf (all last accessed on July 6, 2005). Jerry Silverman, Economic Policies, Poverty & Political Accountability in Latin America, op.cit, p. 214 . Hernando de Soto, The Other Path: The Invisible Revolution in the Third World (New York: Harper and Row, 1989. Jerry F. Hough, The Soviet Prefects: The Local Party Organs in Industrial Decision-Making (Cambridge: Harvard University Press, 1969). Leif Jensen (ed.), Political and Fiscal Decentralization Reforms in the Baltic Sea States: Proceedings of the FDI Regional Conference, November 24-25, 2997, Copenhagen, Denmark (Strasbourg, Paris/Washington: Fiscak Decentralization Initiative for Central and Eastern Europe/OECD/ World Bank, 1998). Huntington, Clash of Civilization See Government of Azerbaijan, Secretariat of the State Programme on Poverty Reduction and Economic Development, State Programme on Poverty Reduction and Economic Development 2003-2005: Azerbaijan Progresses Toward The Achievement Of The Millennium Development Goals Progress Report – 2003/2004 (Baku: State Programme on Poverty Reduction and Economic Development, 2005). For a discussion of these trends see Kenneth Davey and Gabor Peteri, Local Government Finances: Options for Reform (Nagykovacsi, Hungary: Pontes, Ltd, 1998). Glenn E. Curtis (ed.), Kazakstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan : Country Studies (Washington, DC: Federal Research Division, Library of Congress, 1997), available at lcweb2.loc.gov/cgibin/query/r?frd/cstdy:@field (DOCID+tm0056). Stein Sundstol Eriksen, Jan Naustdalslid, and Arild Schou, Decentralisation from Above: A Study of Local Government in Botswans, Ghana, Tanzania and Zimbabwe (Oslo: Norwegian Institute of Urban and Regional Research, 1999), p. 165. A recent source of this discussion is Mahmood Mamdani, Citizen and Subject: Contemporary Africa and the Legacy of Late Colonialism (Princeton, N.J.: Princeton University Press, 1996). See Michael Crowder, “Indirect Rule: French and British Style,” in Irving Leonard Markovitz, (ed.), African Politics and Society: Basic Issues in Problems of Government and Development (New York: Free Press, 1970), pp. 26-36. Eriksen, Naustdalslid, and Schou, Decentralisation from Above, p. 13. Olowu and Wunsch, Local Governance in Africa, passim. Local autonomy is generally not advocated as an end in itself nor is it most often the primary motivation for proponents of decentralization reforms (e.g., Louis A. Picard, The State of the State: Institutional Capacity, Transformation and Political Change in South Africa [Johannesburg: Witwatersrand University Press, 2005], p. 178181).

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Eriksen, Naustdalslid, and Schou, Decentralisation from Above, p. 161. See Eriksen, et. al., p. 175 and Mahmood, Citizen and Subject. 124 Joel Samoff, “The Bureaucracy and the Bourgeoisie: Decentralization and Class Structure in Tanzania,” Comparative Studies in Society and History, vol. 21, no. 1 (January, 1979), pp. 30-62. See especially p. 31. 125 Eriksen, Naustdalslid, and Schou, Decentralisation from Above, p. 44. 126 “Fragility” is defined here according to the discussion in United States, Agency for International Development, Fragile States Strategy (Washington, DC: USAID, January 2005), p. 1. Fragility is further disaggregated into “vulnerable” and “crisis” conditions. 127 Joel Samoff, “The Bureaucracy and the Bourgeoisie: Decentralization and Class Structure in Tanzania,” Comparative Studies in Society and History, vol. 21, no. 1 (January, 1979), pp. 30-62. See especially p. 31. 128 Dele Olowu, and James S. Wunsch, Local Governance in Africa: The Challenges of Democratic Decentralization (Boulder, CO: Lynne Reinner Publishers, 2004), pp. 19-24. 129 Goran Hyden, No Shortcuts to Progress: African Development Management in Perspective (Berkeley: University of California Press, 1983). 130 See Dele Olowu, and James S. Wunsch, Local Governance in Africa: The Challenges of Democratic Decentralization (Boulder, CO: Lynne Reinner Publishers, 2004) and their earlier James S. Wunsch, and Dele Olowu, (eds.) The Failure of the Centralized State (Boulder: Westview Press, 1990). 131 Ibid., p. 9. 132 Eriksen, et. al., p. 176. 133 Olowu and Wunsch, Local Governance in Africa, p. 40. 134 Ibid., p. 183. 135 Albert Breton, “An Introduction to Decentralization Failure” (Department of Economics, University of Toronto and International Centre for Economic Research, Turin, Italy); available at www.imf.org/external/pubs/ft/seminar/2000/fiscal/breton.pdf. 136 Dele Olowu, and James S. Wunsch, Local Governance in Africa: The Challenges of Democratic Decentralization (Boulder, CO: Lynne Reinner Publishers, 2004), pp. 19-24. 137 Goran Hyden, No Shortcuts to Progress: African Development Management in Perspective (Berkeley: University of California Press, 1983). 138 See Vikas Nath, “Political Decentralisation- A Complementary rather Than a Substitution Approach,” (London: Unpublished Paper, London School of Economics, n.d.). 139 See Dele Olowu and James S. Wunsch, Local Governance in Africa: The Challenges of Democratic Decentralization (Boulder, Co.: Lynne Rienner Publishers, 2004), pp. 8- 9. 140 Jerry Silverman, Public Sector Decentralization: Economic Policy and Sector Investment Programs, Technical Paper 188 (Washington, D.C.: World Bank, 1992). 141 See Jerry Silverman, Public Sector Decentralization: Economic Policy and Sector Investment Programs (Washington, D.C.: World Bank, 1992). Compare to Dennis Rondinelli, John Nellis, and G. Shabbir Cheema, Decentralization in Developing Countries: A Review of Recent Experience, Staff Working Paper No. 581 (Washington, D.C.: The World Bank, 1984) and Dennis A. Rondinelli and G. Shabbir Cheema, “Implementing Decentralization Policies: An introduction,” in Decentraliztion and Development: Policy Implementation in Developing Countries, G. Shabbir Cheema and Dennis A. Rondinelli, eds. (Beverly Hills, CA: Sage Publications, 1983), pp. 9-34. 142 Barry Weingast, Gabriella Montinola, and Yingyi Qian, “Federalism, Chinese Style: The Political Basis of Economic Success in China” World Politics 48 (October 1995), pp. 50-81; Barry Weingast, “The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development,” The Journal of Law, Economics, and Organization, 11 (1995), pp. 1-33; Yingyi Qian and Barry Weingast, “Federalism as a Commitment to Preserving Market Incentives,” Journal of Economic Perspectives 11 (Fall 1997), pp. 83-92, and Sunita Parikh and Barry Weingast “A Comparative Theory of Federalism: India,” Virginia Law Review, 83 (October 1997). For a criticism of Weingast et al’s argument, see: (i) Ashley Esarey, “Reconsidering Weingast Market-preserving Federalism in Contemporary China;” available at www.columbia.edu/~as48/ Comparative%20Federalism_files/MPF%2002-02-04.pdf and (ii) Geoffrey Garrett and Jonathan Rodden, “Globalization and Decentralization,” paper presented at the Annual Meeting of the Midwest Political Science Association, April 27-30, 2000, Chicago, Illinois; available at www.yale.edu/leitner/pdf/2000-03.pdf. 143 James Buchanan, “Federalism and Individual Sovereignty,” the Cato Journal 15 (Fall/Winter 1996), pp. 259-68 and Richard Wagner, "Competitive Federalism in Institutional Perspective,” Federalist Government in Principle and Practice in Donald Racheter and Richard Wagner (eds.) ( Norwell, Mass.: Kluwer Academic Publishers, 2001), pp. 19 - 37 123

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James S. Wunsch, “Decentralization, Local Governance and the Democratic Transition in Southern Africa: A Comparative Analysis,” in African Studies Quarterly, vol. 2, no. 1 (1998), pp. 1-37, on line journal, http://web.africa.ufl.edu/asq/prev.htm. See also Olowu and Wunsch, Local Governance in Africa, pp. 1-27. 145 Thomas Hobbes, Leviathan (1651), edited by Edwin Curley including introduction, annotated notes, and comparison of variations between the English and later Latin 1668 edition (Indianapolis: Hackett Publishing Company, 1994). 146 See Vincent Ostrom, 1987; 1989 for a discussion of the over-reliance on centralized governance and the importance of compound, multi-level governance units. 147 Today “development” is most often viewed as the reduction of both “income” and “non-income” poverty – the process through which fewer and fewer people live on less than $1 or $2 a day and/or do not have affordable access to formal education and effective health services. But that has not always been the case. Britain’s Colonial Development and Welfare Act of 1939 viewed ‘development’ as improvement of infrastructure required for efficient extraction of raw materials. By contrast, the term “welfare” applied to the provision of improved health, education, housing, and urban wages in the ‘colonies,’ ‘protectorates’ or ‘mandated’ or ‘trust territories’ (hereinafter synonymously as “colonies” or “dependencies”). While “development” was directed toward enhancing the economies of the colonial powers, “welfare”’ was directed toward elimination or reduction of labor strikes, protests, and rebellions; see Devesh Kapur, John Lewis, and Richard Webb, The World Bank: Its First Half Century, Volume 1. (Washington, DC: Brookings Institution Press, 1997) and Ronald Chilcote (ed.), The Political Economy of Imperialism (Lanham, Maryland: Rowman and Littlefield Publishing, 2000). 144

“USAID Policy: Democracy and Governance”, Directorate for USAID: November, 1991, page 8, August 30, 2006.url: www.usaid.gov/policy/ads/200/demgov/demogov.pdf 148

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Harold Lasswell, Politics: Who Gets What, When, How (New York: McGraw-Hill, 1936). See also Daniel Kaufmann, Transparency, Incentives and Prevention (TIP) for Corruption Control and Good Governance: Empirical Findings, Practical Lessons, and Strategies for Action based on International Experience, presentation at Qinghua-Carnegie Conference on Fighting Corruption, (Beijing, April 11-12th, 2002) and Daniel Kaufmann, Governance Redux: The Empirical Challenge to Orthodoxy and new global strategies to control corruption and good governance, presented at 12th Annual Burkenroad Symposium on Business and Society: “Public Corruption and Private Enterprise”, (New Orleans: A. B. Freeman School of Business, Tulane University, October 24th, 2003). 151 See Lawrence E. Harrison and Samuel P. Huntington (eds.), Culture Matters: How Values Shape Human Progress (New York: Basic Books, 2000); Samuel P. Huntington, The Clash of Civilizations and the Remaking of World Order (New York: Simon and Schuster, 1996). M. Crawford Young (ed.), The Rising Tide of Cultural Pluralism: The Nation-State at Bay (Madison: University of Wisconsin Press, 1993), Harrison, “Why Culture Matters,” in William Tordoff, “The Role of Local Administration in Development” (Gaborone: Institute of Development Management Lecture Series, 1978), p. xxix. 152 Albert Hirschman, Exit, Voice, and Loyalty (Cambridge, Mass.: Harvard University Press, 1970). 150

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The concept of “Parallel Government” was introduced in a 1992 World Bank publication (i.e., Jerry Silverman, Public Sector Decentralization: Economic Policy and Sector Investment Programs, Technical Paper 188 [Washington, D.C.: World Bank, 1992]). The term was changed by the Author to “parallel governance” in Analyzing The Role of The Public Sector in Africa: Implications for Civil Service Reform Policies in Derick W. Brinkerhoff (ed.), Policy Analysis Concepts and Methods: An Institutional and Implementation Focus (Greenwich, Connecticut: JAI Press Inc., 1997), p 159-185 and has been employed in several publications and other papers since. Although the term is similar to two others, it is not exactly the same. The terms “de facto states” (vs. “de jure states”) was introduced by Robert Jackson Quasi-States: Sovereignty, International Relations, and the Third World (Cambridge, UK: Cambridge University Press, 1990]). The terms “the deep politics of society” (vs. “the high politics of the state)” were coined by Robert Luckham, Anne Marie Goetz, and Mary Kaldor (“Democratic Institutions and Democratic Politics” in Sunil Bastian and Robin Luckham [eds.], Can Democracy Be Designed?: The Politics of Institutional Choice in Conflict-torn Societies (London: Zed Books, 2003).

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Deepa Narayan with Raj Patel, Kai Schafft, Anne Rademacher, Sarah Koch-Schulte, Can Anyone Hear Us? (New York: Oxford University Press, published for The World Bank, 2000).

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Jerry Silverman, Cross-Sectoral Governance & Achievement of Health MDGs in Asia (Manila: Asian Development Bank, 2005).

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