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CHAPTER 3 The Theoretical Defence of Decentralization
- University of Ottawa Press
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68 Introduction By its very nature, a federal system of government embodies a contradiction. In a federal state (such as Canada, the United States or Germany), authority is constitutionally divided, with legal jurisdiction being given to the national government over some ma ers, to sub-national governments for others, while some are shared. As a result, a federal system amounts to a kind of decentralized centralization. For some, ‘decentralization’ and ‘centralization’ can be thought of as the two ends of a continuum. For me, the terms truly represent a dichotomy: two very divergent dynamics with a very unstable middle. This chapter proceeds in several stages. First, the decentralization -centralization dichotomy and their divergent dynamics are presented. Second, the same problem is shown to apply in the study of federal systems: two opposing concepts of federalism ensue. Third, the uses of the two (opposing) formulations suggest a number of propositions. The conclusion suggests that Canada is operating in the unstable middle and that a bet on decentralization is the be er alternative. Chapter 3 TheTheoretical Defence of Decentralization Gérard Bélanger The Theoretical Defence 69 Decentralized and centralized economic systems Economic systems are o en thought of as occupying a place on a continuum between pure decentralization and pure centralization. While, in principle, the whole range of possibilities along the continuum might be regarded as possible, the dynamics of the polar cases are such that sustainable workable options are likely to be located only close to the polar positions. There is no way to decentralize centralization by fi y percent without inconsistencies and instability. Decentralization and centralization Decentralization allows for freedom of choice, flexibility, diverse actions, autonomy and the accountability of decision makers. It relies very largely on market institutions to allocate resources. It underpins the operations not only of private companies, but also of non-profit organizations, of producers’ and consumers’ cooperatives and even of households and families. To be effective in normal circumstances, decentralized arrangements require an appropriate legal basis, such as well-defined property rights. But such arrangements can generate inefficiencies and/or unacceptable outcomes as a result of the existence of external and large-scale economies , asymmetric information, public goods, monopolistic powers or an income distribution that is seen as unsatisfactory . As a result, despite the advantages of decentralization, economists have developed a whole arsenal of arguments to justify central and governmental interventions. Unfortunately the countless ways in which decentralization may generate inefficiencies or failures have encouraged some economists to try to justify government intervention in virtually every activity. This is not unlike the case of the Roman emperor who, in judging a singing competition between two individuals, listened to the first, and then quickly awarded the prize to the second without bothering to listen to him, on the presumption that he could not be worse. [18.207.98.249] Project MUSE (2024-03-29 16:32 GMT) 70 Gérard Bélanger Justifying governmental intervention on the basis of market inefficiencies alone focuses only on the waste and inef- ficiency of decentralized decision making. It ignores the corresponding inefficiencies and waste generated by centralized interventions, such as li le user accountability, standardization and ‘cartelization’of services, or the relative suppression of experimentation and flexibility, to mention just a few. The presumption is that the mechanisms for resource allocation in a centralized system (i.e., political processes, elections, lobbying, etc.) are more capable than the market to allocate resources so as to satisfy citizens’ preferences. The promoters of centralized mechanisms conveniently presume that the centralized authority is a benevolent and omniscient despot whose sole goal is the well-being of citizens. As a result, deficiencies in the political processes are deemed to be unimportant , and the mechanisms creating this ‘magnanimous’ authority are not seen as warranting examination. Glimpses at the Canadian case The expanded role of the public sector in the 20th century, coupled with an acceleration of economic growth, has had important impacts on Canada. Direct public expenditures grew from 15.0 percent and 21.3 percent of gross domestic product (GDP), between 1926 and 1950, to approximately 50.0 percent between 1985 and 1995. In 2007, it was 39.0 percent . But these numbers do not give a complete measure of the government impact. For example, the substitution of a child tax credit for family allowances in the 1990s transformed a direct government expenditure into an indirect one (i.e., loss of public income), thereby reducing the...