Decentralization

Decentralization or Decentralisation (see spelling differences) is the process of dispersing decision-making governance closer to the people or citizen. It includes the dispersal of administration or governance in sectors or areas like management science, political science, education, sociology and health care. Decentralization is also possible in the dispersal of population and employment. Law, science and technological advancements lead to highly decentralized human endeavours.

A central theme in decentralization is the difference between a hierarchy, based on: The more decentralized a system is, the more it relies on lateral relationships, and the less it can rely on command or force. In most branches of engineering and economics, decentralization is narrowly defined as the study of markets and interfaces between parts of a system. This is most highly developed as general systems theory and neoclassical political economy.
 * authority: two players in an unequal-power relationship; and
 * an interface: a lateral relationship between two players of roughly equal power.

Organizational Theory
Decentralization also called departmentalization is the policy of delegating decision-making authority down to the lower levels in an organization, relatively away from and lower in a central authority. A decentralized organization shows fewer tiers in the organizational structure, wider span of control, and a bottom-to-top flow of decision-making and flow of ideas.

In a centralized organization, the decisions are made by top executives or on the basis of pre-set policies. These decisions or policies are then enforced through several tiers of the organization after gradually broadening the  span of control until it reaches the bottom tier.

In a more decentralized organization, the top executives delegate much of their decision-making authority to lower tiers of the organizational structure. As a correlation, the organization is likely to run on less rigid policies and wider spans of control among each officer of the organization. The wider spans of control also reduces the number of tiers within the organization, giving its structure a flat appearance. One advantage of this structure, if the correct controls are in place, will be the bottom-to-top flow of information, allowing all decisions among any official of the organization to be well informed about lower tier operations. For example, an experienced technician at the lowest tier of an organization might know how to increase the efficiency of the production, the bottom-to-top flow of information can allow for this knowledge to pass up to the executive officers.

Political theory
Some political theorists believe that there are limits to decentralization as a strategy. They assert that any relaxation of direct control or authority introduces the possibility of dissent or division at critical moments, especially if what is being decentralized is decision-making among human beings. Friedrich Engels famously responded to Bakunin, refuting the argument of total decentralization, or anarchism, by scoffing "how these people propose to run a factory, operate a railway or steer a ship without having in the last resort one deciding will, without single management, they of course do not tell us".

However, some anarchists have, in turn, responded to his argument, by explaining that they do support a (very limited) amount of centralization, in the form of freely elected and recallable delegates. More to the point from the majority of anarchist perspectives are the real-world successes of anarchist communities, which for the majority only ended when they were defeated by the overwhelming military might of the State or neighboring States. All in all, we do not know what a truly decentralized society would look like over a long period of time since it has never been permitted to exist, however the Zapatistas of Mexico are proving to be quite resilient.

In "On Authority", Engels also wrote of democratic workplaces that "particular questions arise in each room and at every moment concerning the mode of production, distribution of material, etc., which must be settled by decision of a delegate placed at the head of each branch of labour or, if possible, by a majority vote."

Modern trade unions and management scientists tend to side strongly with Engels in this debate, and generally agree that decentralization is very closely related to standardisation and subordination, e.g. the standard commodity contracts traded on the commodity markets, in which disputes are resolved all according to a jurisdiction and common regulatory system, within the frame of a larger democratic electoral system which can restore any imbalances of power, and which generally retains the support of the population for its authority.

Notable exceptions among trade unions are the Wobblies, and the strong anarcho-syndicalist movement of Spain. However, a strategy of decentralization is not always so obviously political, even if it relies implicitly on authority delegated via a political system. For example, engineering standards are a means by which decentralization of supply inspection and testing can be achieved—a manufacturer adhering to the standard can participate in decentralised systems of bidding, e.g. in a parts market. A building standard, for instance, permits the building trades to train labour and building supply corporations to provide parts, which enables rapid construction of buildings at remote sites. Decentralization of training and inspection, through the standards themselves, and related schedules of standardized testing and random spot inspection, achieves a very high statistical reliability of service, i.e. automobiles which rarely stall, cars which rarely leak, and the like.

In most cases, an effective decentralization strategy and correspondingly robust systems of professional education, vocational education, and trade certification are critical to creating a modern industrial base. Such robust systems, and commodity markets to accompany them, are a necessary but not sufficient feature of any developed nation. A major goal of the industrial strategy of any developing nation is to safely decentralise decision-making so that central controls are unnecessary to achieving standards and safety. It seems that a very high degree of social capital is required to achieve trust in such standards and systems, and that ethical codes play some significant roles in building up trust in the professions and in the trades.

The consumer product markets, industrial product markets, and service markets that emerge in a mature industrial economy, however, still ultimately rely, like the simpler commodity markets, on complex systems of standardization, regulation, jurisdiction, transport, materials and energy supply. The specification and comparison of these is a major focus of the study of political economy. Political or other decision-making units typically must be large and leveraged enough for economy of scale, but also small enough that centralised authority does not become unaccountable to those performing trades or transactions at its perimeter. Large states, as Benjamin Franklin observed, were prone to becoming tyrannies, while small states, correspondingly, tended to become corrupt.

Finding the appropriate size of political states or other decision-making units, determining their optimal relationship to social capital and to infrastructural capital, is a major focus of political science. In management science there are studies of the ideal size of corporations, and some in anthropology and sociology study the ideal size of villages. Dennis Fox, a retired professor of legal studies and psychology, proposed an ideal village size of approximately 150 people in his 1985 paper about the relationship of anarchism to the tragedy of the commons.

All these fields recognize some factors that encourage centralised authority and other factors that encourage decentralised "democracy"—balances between which are the major focus of group dynamics. However, decentralization is not only a feature of human society. It is also a feature of ecology.

Another objection or limit to political decentralization, similar in structure to that of Engels, is that terrestrial ecoregions impose a certain fiat by their natural water-circulation, soil, and plant and animal biodiversity which constitutes a form of (what the United Nations calls) "natural capital". Since these natural living systems can be neither changed nor replaced by man, some argue that an ecoregional democracy which follows their borders strictly is the only form of decentralization of larger political units that will not lead to endless conflict, e.g. gerrymandering, in struggle between social groups.

Decentralised Governance
Decentralization—the transfer of authority and responsibility for public functions from the central government to subordinate or quasi-independent government organizations and/or the private sector —is a complex and multifaceted concept. It embraces a variety of concepts. Different types of decentralization shows different characteristics, policy implications, and conditions for success.

Political, administrative, fiscal, and market decentralization are the types of decentralization. Drawing distinctions between these various concepts is useful for highlighting the many dimensions of successful decentralization and the need for coordination among them. Nevertheless, there is clearly overlap in defining these terms and the precise definitions are not as important as the need for a comprehensive approach (see Sharma, 2006). Political, administrative, fiscal and market decentralization can also appear in different forms and combinations across countries, within countries and even within sectors.

Political Decentralization
Political decentralization aims to give citizens or their elected representatives more power in public decision-making. It is often associated with pluralistic politics and representative government, but it can also support democratization by giving citizens, or their representatives, more influence in the formulation and implementation of policies. 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. The concept implies that the selection of representatives from local electoral constituency allows citizens to know better their political representatives and allows elected officials to know better the needs and desires of their constituents. Political decentralization often requires constitutional or statutory reforms, creation of local political units, and the encouragement of effective public interest groups.

Administrative Decentralization
Administrative decentralization seeks to redistribute authority, responsibility and financial resources for providing public services among different levels of governance. It is the transfer of responsibility for the planning, financing and management of public functions from the central government or regional governments  and its agencies to local governments, semi-autonomous public authorities or corporations, or area-wide, regional or functional authorities. The three major forms of administrative decentralization -- deconcentration, delegation, and devolution -- each have different characteristics.

Deconcentration is the weakest form of decentralization and is used most frequently in unitary states-- redistributes decision making authority and financial and management responsibilities among different levels of the national government. It can merely shift responsibilities from central government officials in the capital city to those working in regions, provinces or districts, or it can create strong field administration or local administrative capacity under the supervision of central government ministries.
 * Deconcentration

Delegation is a more extensive form of decentralization. Through delegation central governments transfer responsibility for decision-making and administration of public functions to semi-autonomous organizations not wholly controlled by the central government, but ultimately accountable to it. Governments delegate responsibilities when they create public enterprises or corporations, housing authorities, transportation authorities, special service districts, semi-autonomous school districts, regional development corporations, or special project implementation units. Usually these organizations have a great deal of discretion in decision-making. They may be exempted from constraints on regular civil service personnel and may be able to charge users directly for services.
 * Delegation

Devolution is an administrative type of decentralisation. When governments devolve functions, they transfer authority for decision-making, finance, and management to quasi-autonomous units of local government with corporate status. Devolution usually transfers responsibilities for services to local governments that elect their own elected functionaries and councils, raise their own revenues, and have independent authority to make investment decisions. In a devolved system, local governments have clear and legally recognized geographical boundaries over which they exercise authority and within which they perform public functions. Administrative decentralization always underlies most cases of political decentralization.
 * Devolution

Fiscal Decentralization
Dispersal of financial responsibility is a core component of decentralisation. If local governments and private organizations 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. Fiscal decentralization can take many forms, including In many developing countries local governments or administrative units possess the legal authority to impose taxes, but the tax base is so weak and the dependence on central government subsidies so ingrained that no attempt is made to exercise that authority.
 * self-financing or cost recovery through user charges,
 * co-financing or co-production arrangements through which the users participate in providing services and infrastructure through monetary or labor contributions;
 * expansion of local revenues through property or sales taxes, or indirect charges;
 * intergovernmental transfers that shift general revenues from taxes collected by the central government to local governments for general or specific uses; and
 * authorization of municipal borrowing and the mobilization of either national or local government resources through loan guarantees.

Fiscal Decentralization and Fiscal Federalism

The concept of fiscal federalism is not to be associated with fiscal decentralization in officially declared federations only; it is applicable even to non-federal states ( having no formal federal constitutional arrangement) in the sense that they encompass different levels of government which have defacto decision making authority ( Sharma, 2005a: 44). This however does not mean that all forms of governments are 'fiscally' federal; it only means that 'fiscal federalism' is a set of principles, that can be applied to all countries attempting 'fiscal decentralization'. In fact, fiscal federalism is a general normative framework for assignment of functions to the different levels of government and appropriate fiscal instruments for carrying out these functions (Oates, 1999: 1120-1). The questions arise: (a) How federal and non-federal countries are different with respect to 'fiscal federalism' or 'fiscal decentralization' and (b): How fiscal federalism and fiscal decentralization are related ( similar or different)? Chanchal Kumar Sharma (2005a, 2005b) clarifies: While fiscal federalism constitutes a set of guiding principles, a guiding concept, that helps in designing financial relations between the national and subnational levels of the government, fiscal decentralization on the other hand is a process of applying such principles ( Sharma,2005b: 178). Federal and non-federal countries differ in the manner in which such principles are applied. Application differs because unitary and federal governments differ in their political & legislative context and thus provide different opportunities for fiscal decentralization (Sharma, 2005a:44).

Fiscal Federalism: The Federal Approach to Governance

In common parlance political and constitutional aspects (eg giving citizens or their elected representatives more power in political decision-making, establishment of subnational political entities for decision making and making them politically accountable to local electorate which often entails constitutional or statutory reforms like providing for representation of the member states, the strengthening of legislatures, creation of local political units along with the encouragement of effective public interest groups and pluralistic political parties) are considered crucial for federalism. Chanchal Kumar Sharma (2005b) however argues that it is the fiscal side of the federalism (fiscal federalism) that is crucial for federal dynamism. This is because Federalism is not a fixed allocation of spheres of central and provincial autonomy (as assumed in federal finance models) or a particular set of distribution of authority between governments, it is a process, structured by a set of institutions, through which authority is distributed and redistributed.

A Federalised System is a “balanced approach between the contrasting forces of centralisation and decentralisation for combining the political and economic advantages of unity while preserving the valued identity of the sub national units" ( Sharma, 2005). Fiscal federal principles guide how boundaries, assignments, the level and nature of transfers should be revised from time to time to ensure efficiency and perhaps equity. Thus fiscal federalism provides the tools for "application of the federal approach to governance which lies in its ability to balance the contrasting forces of centralization and decentralization" (Sharma, 2005b: 177). In the age of Globalization, when fiscal decentralization is in vogue, all countries (federal or not) are applying what may be called, in Sharma's (2005b) words "the federal approach to governance”. The only difference is that in federal countries the subnational governments may be involved in decision making process through some appropriate political or constitutional forum while Central government may dominate quite heavily in a unitary country. Its no surprise then argues Sharma (2005b:177; 2008) that fiscal federalism literature is far away from Centralization Vs Decentralization focus. Final aim is not to decentralize just for sake of it but to ensure good governance. Thus, in fiscal federalism -states Sharma (2008)"decentralization is not seen as an alternative to centralization. Both are needed. The complementary roles of national and subnational actors are determined by analyzing the most effective ways and means of achieving a desired objective"

Economic and Market Decentralization
The privatization and deregulation shift responsibility for functions from the public to the private sector and is another type of decentralization. Privatization and 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, private voluntary associations, and other non-government organizations. Privatization can range in scope from leaving the provision of goods and services entirely to the free operation of the market to "public-private partnerships" in which government and the private sector cooperate to provide services or infrastructure. Privatization can include: # allowing private enterprises to perform functions that had previously been monopolized by government; # contracting out the provision or management of public services or facilities to commercial enterprises indeed, there is a wide range of possible ways in which function can be organized and many examples of within public sector and public-private institutional forms, particularly in infrastructure; # financing public sector programs through the capital market (with adequate regulation or measures to prevent situations where the central government bears the risk for this borrowing) and allowing private organizations to participate; and # transferring responsibility for providing services from the public to the private sector through the divestiture of state-owned enterprises. Privatization cannot in the real sense be considered equivalent to decentralisation. Deregulation reduces the legal constraints on private participation in service provision or allows competition among private suppliers for services that in the past had been provided by the government or by regulated monopolies. In recent years privatization and deregulation have become more attractive alternatives to governments in developing countries. Local governments are also privatizing by contracting out service provision or administration.
 * Privatization.
 * Deregulation.

Measuring Decentralization
While diversity in degree of decentralization across the world is a fact yet there is no consensus in the empirical literature over the questions like ‘which country is more decentralized?’ This is because decentralization is defined and measured differently in different studies (Sharma, 2006).

Chanchal Kumar Sharma (2006: 54) finds in his literature survey:

"On the basis of ‘decentralization instrument’ there are two strands in the literature that argue for two different approaches to measure fiscal autonomy. One gives more weightage to devolution of tax authority as an instrument of decentralization and hold it crucial for subnational autonomy, the other gives more weight to the nature of intergovernmental transfers (discretionary or not) as an instrument impacting upon the subnational behaviour and effecting their autonomy and accountability. Thus former choose to focus on fiscal policy i.e., the relationship between expenditures and allocated revenues (vertical imbalance) while latter pay attention to regulatory or financial mechanisms i.e. the nature of intergovernmental transfers".

Out of these two approaches, observes Sharma (2006), "when it comes to the measurement of fiscal decentralization ‘the share of subnational expenditures and revenues’ is considered the best indicator. This is because fiscal instruments are easier to measure while regulatory and financial instruments are extremely complex and difficult to measure statistically because nowhere transfers remain strictly confined to the technical objectives. Transfers pursue a mix of objectives and politically motivated transfers remain key part of the intergovernmental relations across the globe" (Sharma, 2006: 54).

Arjan H. Schakel (2008) notes that various experts such as Akai and Sakata 2002; Breuss and Eller 2004; Ebel and Yilmaz 2002; Fisman and Gatti 2002; Panizza 1999; Sharma 2006, have found the fiscal indicators on the expenditure side to be quite problematic for capturing decision-making decentralization. This is because argues Schakel (2008) "it is difficult to tell whether the expenditure is coming from conditional or unconditional grants, whether the central government is determining how the money should be spent, whether it is setting the framework legislation within which subnational governments implement, or whether −indeed− subnational governments are spending the money autonomously". Chanchal Kumar Sharma (2006:49) states, "...a true assessment of the degree of decentralization in a country can be made only if a comprehensive approach is adopted and rather than trying to simplify the syndrome of characteristics into the single dimension of autonomy, interrelationships of various dimensions of decentralization are taken into account."

Links

 * Decentralization in the Philippines


 * The determinants of Fiscal Decentralization


 * Online Sourcebook on Decentralisation


 * FAO document on decentralisation