THEORY OF DECENTRALIZATION

Yuwanto, Ph.D.
Course outline:
1) Conceptual Evolution of Decentralization
2) Types of Decentralization

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 (1) Conceptual Evolution

 Concepts of decentralization have changed

rapidly in tandem with the evolution in thinking
about governance

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 The “new public management” (NPM)
movement of the 1990s shaped the way about
what governments should do & how they
should perform

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 In the book Reinventing Government, Osborne &
Gaebler argue that national, state & local
government should be innovative, market
oriented, decentralized & focused on offering
their “customers” the highest quality services

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 The first wave of decentralization

 Government & the State were generally

perceived of interchangeably. Government
was seen as the institutional embodiment of
state sovereignty and as the dominant
source of political & legal decision-making

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 The second wave of decentralization

 Government came to be seen as not only one

governance institution. The concept of
governance expanded to include other
societal institutions, including the private
sector & civil associations

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 The third wave of decentralization
 Demands for political & economic
participation grew enormously. Good
governance came to be seen as
transparent, representative, accountable &
participatory systems of institutions &
procedures for public decision-making

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 Conceptual Evolution

• Focused on deconcentrating hierarchical

The 1st wave of
decentralization
government structures & bureaucracies
(1970s -1980s)

• Broadened the concept to include political power

The 2ndwave of
decentralization
sharing, democratization & market liberalization
(mid-1980s)

• Decentralization was seen as a way of opening

The 3rd wave of
governance to wider public participation through
decentralization
(the 1990s onward)
organizations of civil society

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 From this broader perspective on governance,
new concepts of decentralization emerged as
well. As the concept of governance became
more inclusive, decentralization took on new
meanings & new forms

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 (2) Types of Decentralization

 Different types of decentralization should be

distinguished because they have different
characteristics, policy implications & conditions
for success

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 The type of decentralization selected within a
country will depend on its design, which will
depend on the political structure &
administrative issues of that country

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 The impact of decentralization will differ
depending on what type of decentralization is
taking place, and what the objectives & conditions
of decentralization are (Fleuke, 1997).

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Types of Decentralization:

A. Political Decentralization
B. Administrative Decentralization
C. Fiscal Decentralization
D. Economic or Market Decentralization

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 A. Political Decentralization

– Aiming to give citizens or their elected

representatives more power in public decision-
making, esp. more influence in the formulation
and implementation of policies

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– From the perspective of democratic principles,
it means the distribution of powers between
elected authorities. This can simply mean that
detailed decisions are made by local
representatives of local powers, though
always within policy guidelines, and probably
funding arrangements, directed by the center
(Robertson 1993, p.125).

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– Advocates of political decentralization
assume that decisions made with greater
participation will be better informed and
more relevant to diverse interests in society
than those made only by national political
authorities.

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– The concept implies that the selection of
representatives from local electoral
jurisdictions allows citizens to know better
their political representatives & allows
elected officials to know better the needs and
desires of their constituents.

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– Participation & decentralization have a symbiotic
relationship

• On the one hand, successful decentralization

requires some degree of local participation.

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• On the other hand, the process of
decentralization can itself enhance the
opportunities for participation by placing
more power & resources at a closer, more
familiar, more easily influenced level of
government.

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– Participation can be viewed as a means to
successful decentralization and as a goal of
decentralization
• As a means, it concentrates on the broad
mechanisms for citizen input that are best
seen as parameters of decentralization
policy.

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• As a goal, it refers to the incremental
changes which can eventually evolve toward
broader opportunities for democratic
governance

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– Political decentralization often requires
constitutional or statutory reforms, the
development of pluralistic political parties,
the strengthening of legislatures, creation
of local political units & the encouragement
of effective interest groups.

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 B. Administrative Decentralization

– It is the transfer of responsibility for the

planning, financing & management of
certain public functions from the central
government to local government (Holtmann
2000, p.131)

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– There are three major forms of administrative
decentralization: (1) deconcentration, (2)
delegation, and (3) devolution. Each form has a
different characteristics.

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(1)Deconcentration
Often considered to be the weakest form of
decentralization and is used most frequently
in unitary states. It can merely shift
responsibilities from central government
officials to those working in provinces or
districts; or it can create strong local
administrative capacity under the supervision
of central government ministries.

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2) Delegation

– It’s a more extensive form of

decentralization, i.e. central government
transfer responsibility for decision-making &
administration of public functions to local
government not wholly controlled by the
central government, but ultimately
accountable to it.

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3) Devolution
- It usually transfers responsibilities for
services to local governments that elect their
own leaders & councils, raise their own
revenues, and have independent authority to
make investment decisions

- It’s type of administrative decentralization

that underlies most political decentralization

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 C. Fiscal Decentralization
– Financial responsibility is a core component
of decentralization. If local governments
are to carry out decentralized functions
effectively, they must have an adequate level
of revenues –either raised locally or
transferred from the central government –
as well as the authority to make decisions
about expenditures.

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– Fiscal decentralization can take many
forms:
(1) Self-financing arrangement

(2) Co-financing arrangements through

“public-private partnerships”

(3) Expansion of local revenues through

property or sales taxes, or indirect
charges

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(4) Intergovernmental transfers that shift
general revenues from taxes collected by
the central government to local
governments for general or specific uses

(5) Authorization of borrowing & the

mobilization of either national or local
government resources through loan
guarantees.

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D. Economic or Market Decentralization

– The most complete forms of decentralization

from a government's perspective are
privatization and deregulation because they
shift responsibility for functions from the
public to the private sector.

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– Privatization & deregulation are usually, but
not always, accompanied by economic
liberalization and market development policies.
They allow functions that had been primarily
or exclusively the responsibility of
government to be carried out by businesses,
community groups, cooperatives, and other
non-government organizations.

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– Privatization can include:
1) Allowing private enterprises to perform
functions that had previously been
monopolized by government

2) Contracting out the management of

public services or facilities to commercial
enterprises

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3) Financing public sector programs through
the capital market & allowing private
organizations to participate; and

4) Transferring responsibility for providing

services from the public to the private sector
through the divestiture of state-owned
enterprises.

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– Deregulation reduces the legal constraints on
private participation in service provision
among private suppliers for services that in
the past had been provided by the
government or by regulated monopolies.

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