Decentralization and Poverty Reduction: total explanation

Decentralization consists of a transfer of public functions from higher tiers to lower tiers of governance.

• It can be administrative, fiscal, political, or a mixture of these.
• Decentralization should have a positive impact on poverty by,
 – Making the voice of the poor better heard.
– Improving their access to and the quality of public services.
– Reduce their vulnerability.

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The reality of decentralization and poverty reduction:

• Of 19 countries studied by OECD Development Centre, only one-third revealed that decentralization has actually lead to improvements in poverty reduction

• In the majority of cases, decentralization had no impact at all.

Decentralization and Poverty Reduction

• Countries in which decentralization had a positive impact on poverty reduction

• Bolivia

• China

• Ghana

• India, West Bengal

• Mexico

• Philippines

• South Africa

Decentralization and Poverty Reduction:

 • Countries in which there was no impact/negative impact on poverty reduction

• Brazil

• Burkina Faso

• Egypt

• Ethiopia

• Guinea

• India (Andhra Pradesh • Malawi • Mozambique)

• Nepal

• Paraguay

• Sri Lanka

• Uganda

• Vietnam

Decentralization and Poverty Reduction:

• In countries where the state cannot fulfill its basic functions and in environments with high inequalities at the outset;

• There is a definite risk that decentralization will increase poverty rather than reduce it.

• The evidence is that the link between decentralization and poverty reduction is not straightforward and is largely influenced by country specificities, as well as process design Decentralization and Poverty Reduction

• Characteristics of Positive Performers

• Bolivia, Philippines, and India (West Bengal)

• Lower middle-income countries

• Less indebted low-income countries

 • Literacy rate of over 80 percent

• Qualified as free by Freedom House

Decentralization and Poverty Reduction:

• Characteristics of Positive Reformers (can't)

• Decentralization is generally supported by the government's capacity to carry out reforms with transparency, participation, and policy coherence.

• Adopted their decentralization programs by design Decentralization and Poverty Reduction

 • Characteristics of Positive Reformers (can't)

• Authorities visibly believed in the process and the ability to shape it

• Reforms inspired by the desire to improve social, economic, and political conditions

• All adopted a comprehensive approach concurrently undertaking political, fiscal, and administrative decentralization

• There was the real delegation of power to lower tiers of government, rather than just deconcentration

Decentralization and Poverty Reduction: 

• Characteristics of “Somewhat Positive” Performers

• China, South Africa, Mexico, and Ghana

• Process fulfills only some criteria for an efficient, sustainable, transparent, participatory, equitable, and coherent process

Decentralization and Poverty Reduction: 

• Characteristics of “Somewhat Positive” Performers

• The rationale for decentralization has been mostly economic

• Central government functions have only been partially transferred

• Have a high literacy rate (above 70%)

Decentralization and Poverty Reduction:

 • Characteristics of “Somewhat Positive” Performers

• Freedom House Index is very good: “Free” except for China “not free”

• Have higher income than the worse performers, but also substantial inequality as measured by Gini indexes

• Ghana is the exception to the inequality (Highly Indebted Poor Country)

Decentralization and Poverty Reduction: 

• Characteristics of “Somewhat Negative” Performers

• Paraguay, Brazil, Nepal, Vietnam, Egypt, Sri Lanka, Ethiopia, Burkina Faso, Uganda

• A group with both positive and negative elements

Decentralization and Poverty Reduction: 

• Characteristics of “Somewhat Negative” Performers

• Two categories of these Countries – Either low income with low Gini index – (Uganda and Vietnam) – Higher income with higher Gini index – (Brazil and Paraguay)

Decentralization and Poverty Reduction

• Characteristics of “Somewhat Negative” Performers

• Are generally unstable, emerging for civil wars or ethnic conflicts, or other political instability

• The overriding objective of the decentralization program is political stability and maintenance of central control through deconcentration

Decentralization and Poverty Reduction:

• Characteristics of “Somewhat Negative” Performers

• Decentralization Policies aimed at preserving and re-establishing national unity

• Have not pursued a comprehensive approach to decentralization, choosing deconcentration rather than devolution

Decentralization and Poverty Reduction

• Characteristics of “Negative” Performers

• Guinea, Mozambique, Malawi, India (Andhra-Pradesh)

• The reform process has been flawed

• Decentralization pursued by default

• All low-income countries and HIPC

Decentralization and Poverty Reduction:

• Characteristics of “Negative” Performers

• The literacy rate is under 50%

• None qualify as free countries

• Infrastructure if poor

• Score on corruption index is bad (below 2.9)

• Gini index varies, no real trend is discernible

Decentralization and Poverty Reduction:

 • Determinants of Pro-Poor Decentralization

– Country Background

– Design of Process

• Country Background – Country Size – Quality of Infrastructure – Corruption Perception Index – Gini Index

• Difficult to establish common patterns for the four performance areas

• Possible to draw certain lessons social institutions and political structures impact decentralization

Decentralization and Poverty Reduction:

• Positive and somewhat positive performers built the decentralization process on existing and well-functioning local structures

• China with deconcentration of social services built decentralization on the willingness of local governments to assume this responsibility

• West Bengal with the strong communist party with a commitment to the poor

• Pro-Poor Decentralization Programmes in Malawi and Sri Lanka have been compromised by traditional power structures and local patron-client relationships

• The imbalance between new and traditional power structures led to increased elite capture and corruption.

 • Design Process Factors – Financial Resources at the Local Level – Local Human Capacity – Political Commitment at the National Level – Donor Involvement and Support

Decentralization and Poverty Reduction

• Transparent and Participative Process – Information Flows central to local governments, local to central governments, and local and central governments to citizens – Participation beyond just elections, to include budget hearings, etc – Role of Civil Society: exercise pressure on governments and control their actions.

Decentralization and Poverty Reduction:

• Lessons for Donors – Donor policies should be more coherent and their action better co-ordinated – Donors should be more aware of the political economy of decentralization as a change process

 • Donor Lessons (continued) – Donors should emphasize the instrumental character of decentralization to create an enabling environment for poverty reduction at local levels – Donors should encourage transfer systems with incentives for improved effectiveness as well as help building sustainable local revenue-generating powers

• Donor Lessons (continued)

– Monitor that the central state does not intervene directly or indirectly in local politics and policy

– Monitor corruption and fiscal imbalance

– Be flexible (thus impact monitoring and learning by doing)

– Support policies to strengthen local governments

• Donors Should Avoid

– The creation of parallel structures

– Considering decentralization a panacea that can be applied everywhere.

– Considering decentralization as a unique reform; one size does not fit all. 

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