Decentralization:some issues to talk about

The question on whether decentralization in the mid 1980s has contributed to China’s economic success opens many windows for debate.  There are articles that mention some arguments that fiscal decentralization has been fundamental to China’s economic success as it has been asserted that this has provided material incentives that encouraged and rewarded sub-national governments to promote local economies.  There is also an argument that says that Fiscal decentralization hardened the budget constraints of sub-national governments’ SOEs and thus made these SOEs more efficient. But the general thought that I am trying to espouse here is to present the other side of the coin asserting that China’s authoritarian centralization helped speed the geographical spread of policies found to work well.   Simply put, the key reforms that reshaped China’s economy began in the late 1970s and early 1980s, before any significant decentralization had occurred.  Hence, decentralization as a means for China’s economic miracle is a myth. 

But allow me to explore the possibilities that this side of the coin is not a myth based from the assumption that fiscal decentralization may be conducive to economic growth. My experience as a bureaucrat in a local government unit has lead me to understand that if few public goods entail nationwide externalities, sub-national governments are likely to be more efficient in the production and delivery of public goods. With this, we can also argue that decision-making on disbursements at lower levels of government is more open to diversified local inclinations and needs and, for that reason, more favorable to distributive competence and effectiveness.  Hence, I can claim that decentralizing revenue responsibility for example to sub-national governments to complement the expenditure tasks may also augment accountability. It is held, therefore, that returns means should go with expenditure needs as faithfully as possible, in that way stimulating revenue mobilization from local sources, and improving a country’s overall fiscal position.

With these thoughts in mind, maybe I can assume that decentralization, say on fiscal matters, allows sub-national governments to conceal information about their financial position and enables them to avoid revenue predation from the center ,thus allowing them to retain the financial resources they would need for investments that will help promote economic development. In addition, such ownership structure of SOEs will somehow enable sub-national governments increasingly to mandate these firms to provide public goods.  Hence, we can conclude that at least, such decentralization undertaking has negatively affected economic growth as it encourages sub-national governments to engage in protectionist behavior.  With enterprise ownership by local governments, it can provide incentives to local governments to duplicate enterprises under their respective jurisdictions so as to capture the revenues that would have otherwise consumed to the central assets.