THE DANGERS OF DECENTRALIZATION

Demand for decentralization is strong throughout the world. But the be nefits of decentralization are not as obvious as the standard theory o f fiscal federalism suggests, and there are serious drawbacks that sho uld be considered in designing arty decentralization program. An analy sis of these dangers makes it easier to understand some of the real ch oices. These choices are not so much whether to decentralize in genera l, but rather what functions to decentralize, in which sectors, and in which regions. In many cases the problem is not so much whether a cer tain service should be provided by a central, regional, or local gover nment, but rather how to organize the joint production of the service by the various levels. In many-if not most-cases, such measures have a n enormous potential and could, if properly designed and implemented, significantly improve the efficiency of the public sector. Decentraliz ation measures are like some potent drugs, however: when prescribed fo r the relevant illness, at the appropriate moment and in the correct d ose, they can have the desired salutary effect; but in the wrong circu mstances, they can harm rather than heal. This article looks at some o f the negative effects of decentralization in the hope that a better u nderstanding of its dangers will contribute to a wiser application of potentially desirable decentralization programs.