Decentralisation has recently become a very debated issue both in the developed and developing world. It is often advocated as the solution to corrupt and undemocratic systems; however, does it always go hand in hand with democracy? Why does it work in some places and not in others? This paper from the Development Research Centre at the London School of Economics investigates these questions in relation to Bolivia.
The Law of Popular Participation, adopted in 1994, totally changed the Bolivian system from a very centralised structure into a decentralised one where local authorities have powers over resource allocation and management of public services, and where mechanisms of accountability are in place.
Decentralisation in Bolivia produced many changes. For the first time local governments were elected throughout the country, and were held accountable by local voters through the creation of Oversight Committees. These were composed of representatives of local grass-roots groups, and had a power of veto over financial decisions of the municipal councils. Other effects of decentralisation included:
- Composition of investments. While central government had always favoured investments in transports, hydrocarbons and energy, local governments invested heavily in education, water and sanitation.
- Geographical distribution of investments. Central government had chosen a very unequal distribution of resources across space, while local governments distributed investments evenly throughout the country.
- Responsiveness to local needs. After decentralisation, investment in education, water and sanitation was higher in those districts where the need for those services was greatest.
- A more progressive allocation of resources. While central government had favoured investment in richer municipalities and ignored poorer ones, local governments concentrated resources in poorer districts.
However, empirical research shows that decentralisation works in some places and not in others. The reason for this is that local government is the intersection of two political markets and one organisational dynamic. For it to be effective, four conditions must be present in society:
- The first market relationship is between parties and voters. Effective local governance requires a competitive political environment and an open and transparent electoral system.
- The second market relationship is between parties and economic interest groups. Effective local governance requires an open and competitive local economy that in turn promotes political competition.
- The organisational dynamic happens between local government institutions and civil society, which provides oversight and substantive feedback.
- The two market relationships and the logic of social representation need to counterbalance each other and none dominate the rest. The stable tension that derives from it ensures that the impulses of interest groups are contained.
