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Anwar Shah with Sana Shah
Local self-financing is important for strengthening governance, efficiency, and accountability. Although most countries have opted for formula-driven fiscal transfers, the design of these transfers remains flawed. They do not create any incentive for setting national minimum standards or accountability for results and typically do not serve regional fiscal equity objectives either. Local governments also typically have very limited autonomy in hiring and firing local government employees. In a number of countries with decentralization, such as Indonesia and Pakistan, higher government employees are simply transferred to local levels; financing is then provided to cover their wage costs. This approach limits budgetary flexibility and opportunities for efficient resource allocation at the local level. Overall, local governments in developing countries typically follow the old model of local governance and simply provide a narrow range of local services directly. The new vision, with the local governments assuming a network facilitator role to enrich the quality of life of local residents, as discussed earlier in this chapter, is yet to be realized in any developing country.
Concluding Remarks We have presented a brief overview of the conceptual and institutional literature on local governance. A synthesis of the conceptual literature suggests that the modern role of a local government is to deal with market failures as well as government failures. This role requires a local government to operate as a purchaser of local services, a facilitator of networks of government providers and entities beyond government, and a gatekeeper and overseer of state and national governments in areas of shared rule. Local government also needs to play a mediator’s role among various entities and networks to foster greater synergy and harness the untapped energies of the broader community for improving the quality of life of residents. Globalization and the information revolution are reinforcing those conceptual perspectives on a catalytic role for local governments. This view is also grounded in the history of industrial nations and ancient civilizations in China and India. Local government was the primary form of government until wars and conquest led to the transfer of local government responsibilities to central and regional governments. This trend continued unabated until globalization and the information revolution highlighted the weaknesses of centralized rule for improving the quality of life and social outcomes. The new vision of local governance (table 1.9) presented here argues for a leadership role by local governments in a multicentered, multiorder, or multilevel system. This view is critical to creating
