views updated



Decentralization is the transfer or sharing of decision-making power from a central authority toward lower-level units or the end users. Decentralization signifies the disbursement of power from the top down within any type of organizational hierarchy, such as political, educational, or economic systems. The literature on political economy suggests that a greater degree of decentralization leads to higher levels of efficiency in the distribution of public resources and is associated with the use of locals own resources to address local needs and issues.

There are various types of governmental decentralization, depending on the constitutionality granted to lower-level units of government. Federalism is an arrangement in which different levels of the government enjoy constitutionally designated power and functions. The central authority in a federal system exists when lower-level units decide to enable the national government to have overseeing powers. In the United States, authority at the national government does not preclude the political rights that reside at the state level. The fifty states exercise their own taxing and spending authority and maintain primary control over their own affairs (such as public education). The national government does play an important role in federalism. It can allocate its centrally collected resources to address regional disparity and to provide services that benefit several subnational units, such as environmental protection.

Unitary governments, whose lower-level units may not enjoy constitutional guarantees of autonomy, can reallocate their power within the administrative and territorial system. In Great Britain, for example, regional autonomy exists in Northern Ireland, Wales, and Scotland, and the national government grants municipal autonomy to London. Although it can be repealed by the British Parliament and the monarchy, the complex system of elected local governments constitutes an integral part of the British political system. In other unitary systems, territorial decentralization is constitutionally provided for, and the powers of locally chosen officials are prescribed. The Japanese constitution, for example, specifies certain autonomous functions to be carried out by local administrative authorities.

Another governance arrangement may involve a hybrid of central supervision and local control. A good example is France. Until March 1982, when a law on decentralization was enacted, the French administrative system was constructed around departments, each directed by a prefect, and subdivided departments, each directed by an underprefect. The prefects and the under-prefects were appointed by the national government in Paris to act as agents of the central government and also as the directors of the regional governments, which included locally elected officials. That system combined central supervision of local affairs through appointed officials with territorial representation through locally elected governmental bodies.

The degree of decentralization, to be sure, involves trade-offs in governmental functions and political power. A decentralized system of governance is likely to implement fiscal policy based on the benefits-received principle, where local taxpayers receive locally funded services. This practice may lead to intercommunity competition for private capital and productive workers, as they form the basis of a sound local economy.

A race to the bottom can occur as power is decentralized to municipalities. To enhance their competitiveness, local governmental units tend to reduce locally funded social welfare services and to relax labor and environmental regulations as much as possible to lure economic investment. In developing economies, for example, communities that offer the least costly workforce tend to attract foreign capital. In putting into practice the notion of cost-reducing scale economies, companies prefer lower overhead costs with lower local taxes and greater discretion over wages.

At the same time, a centralized system may make allocative decisions that do not necessarily reflect local and regional needs to the extent that the system functions at a suboptimal level. In other words, a mix of decentralized decision-making and centralized coordination is necessary to promote efficiency and fairness.

SEE ALSO Authority; Autonomy; Bureaucracy; Constitutions; Decision-making; Federalism; Government; Government, Federal; Government, Unitary; Organizations; Policy, Fiscal


Abromeit, H. 1998. Democracy in Europe: Legitimising Politics in a Non-State Polity. New York: Berghahn Books.

Besley, T., and S. Coate. 1999. Centralized Versus Decentralized Provision of Local Public Goods: A Political Economy Analysis. NBER Working Paper no. 7084.

Fabbrini, S. 1999. American Democracy from a European Perspective. Annual Review of Political Science 37 (1): 314.

Fisman, R., and R. Gatti. 2002. Decentralization and Corruption: Evidence Across Countries. Journal of Public Economics 83 (3): 325345.

Mendoza, R., and C. Bahadur. 2002. Towards Free and Fair Trade: A Global Public Good Perspective. Challenge 45 (5):2162.

Oates, W. 1972. Fiscal Federalism. New York: Harcourt Brace Jovanovich.

Peterson, P. E. 1981. City Limits. Chicago: University of Chicago Press.

Tiebout, C. 1956. A Pure Theory of Local Expenditures. Journal of Political Economy 64 (5): 416424.

Kenneth K. Wong

Ted Socha