How do different forms of decentralisation affect poverty? Can decentralisation promote participation from the poorest sectors of society? Does decentralisation improve the poverty reducing public services such as health and education? There are strong calls for decentralisation in the name of poverty reduction, however the effects of decentralisation on poverty has only recently been considered.
This paper, presented to the November 2000 IMF Conference on Fiscal Decentralisation in Washington D.C., considers the direct and indirect affects of decentralisation on poverty issues. Types of decentralisation – political, administrative and fiscal – are defined, and their rationale briefly explained, with specific reference to linkages with poverty reduction. The paper continues to provide cross-country comparisons and examples from country studies that illustrate the various effects decentralisation can have on the poor.
Decentralisation is a tool used to enable civil society to participate in the policy process. Such participation has preconditions related to levels of education and empowerment. This paper contends that these may not be met by the poorest in society. If the poor cannot participate in the governance of public goods and services, the ability of improved services to have a positive impact on low-income groups becomes unclear. Other key findings include:
- While information and transaction costs may be lower in a centralised system as it has a greater ability to gather, process and disseminate information, decentralisation gives control rights to people who hold information and provides incentives to create solutions best suited to their needs.
- Proximity between the government and the governed may reduce corruption due to improved accountability and transparency. However, in some cases there is empirical evidence to the contrary as it is easier to enforce the rule of law among strangers than among neighbours and friends.
- Decentralisation can reduce conflict, but it can also exacerbate tensions between regions if they have significantly different resource bases or incomes.
A review of experiences in six developing and transforming economies concludes that there is little evidence so far that democratic local government can do much to directly reduce poverty, at least in the short term. Of the three forms of decentralisation, political decentralisation offers the most benefits to the poor because involving civil society in planning, monitoring and evaluating public programmes and policies is crucial to ensure steady improvement. This is facilitated in a decentralised system. For appropriate forms of decentralisation to be applied to help the poor, the following points need to be taken into account:
- The different purposes and effects of different types of decentralisation.
- Country conditions such as size, natural resources, cultural and political composition and institutional and managerial capabilities.
- The causes and patterns of poverty. Different types of decentralisation impact differently on poverty resulting from different causes. For example, the rural poor will not benefit if decentralisation de-links them from the country’s growth regions, and children in poverty will not benefit if decentralisation disrupts large-scale child nutrition programmes.
