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The link between devolution and economic inefficiency

UREPORT
By Ndirangu Ngunjiri | February 13th 2017

Since independence, Kenya has experienced episodes of political instability, which have had adverse effects on the country's economic performance and social cohesion.

Devolution has been a political response to the ills plaguing fragile and plural societies, such as, conflicts, inequalities, rent seeking, economic stagnation, corruption and inefficient use of public resources. Besides, devolution is also implemented as a reaction to external pressure from organised groups (or separatists).

It is more than ever regarded as a means of achieving greater efficiency in a globalised environment. From this perspective, the greater the degree of autonomy, the stronger the scope for enhanced efficiency and for efficiency in public spending to be growth enhancing.

Modern majimbo consequently regards devolution and the decentralisation of powers as a step towards achieving economic change.

Devolution, including other forms of decentralisation, may not always lead to improved governance and economic development performance. For example, devolution may reduce the ability of the national government to redistribute resources and therefore the ability to assist the less developed sub–counties.

In addition, devolution may lead to the capture of local governments by the political elites, especially if devolution rules and systems are not well designed, and hence allow the local politicians to use the local resources to consolidate their hold on to political power through patronage.

If, as is often the case, ambiguity exists regarding the responsibilities and functions of different tiers of government, complexity increases and the possible benefits of greater transparency and accountability disappear. Under such circumstances, citizens are unable to distinguish between responsibilities of each level of government and are thus less likely to exert pressures for a more efficient delivery of services.

Consequently, a devolved system would imply greater cost of co-ordination among government tiers to avoid duplication.

Devolution entails a transfer of powers from national to county elites, raising the possibility of exacerbating corruption through the enhancement of relations based on proximity between officials and private individuals or local interest groups. In cases of limited local accountability or weak civil society, local officials who have greater discretion and opportunity in a devolved system may be subservient to the needs of local elites particularly when under direct pressure.

The frequent perception by lower tiers of government that national government will provide a bailout in the case of excessive spending or debt encourages reckless expenditure and, in many cases, an inefficient over supply of goods and services.

Yet, as our results show, there is little trace of a connection between devolution and greater economic efficiency, no evidence of a positive and robust correlation between the inception of regional autonomy or of increases in transfers of resources to county governments and a better economic performance than under a more centralized regime.

As a result, devolution is far from being the economic cure envisaged by many devolutionists. Although the transfer of authority and resources from the centre to the regions is likely to imply social, cultural, and even political benefits, caution is prescribed when trying to discern any economic effect of devolution, as it does not seem to be associated with greater growth.

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