For Decentralization in Industry

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For decentralization in industry, creating new companies, seestartup company.

Decentralization orDecentralisation (see spelling differences) is the process of

dispersingdecision-making governance closer to the people and/or citizen. It includes thedispersal of administration or governance in sectors or areas likeengineering,

management science,political science,political economy,sociology andeconomics.Decentralization is also possible in the dispersal of population and employment. Law,

scienceand technological advancements lead to highly decentralized human endeavours.

"While frequently left undefined (Pollitt, 2005), decentralization has also been assigned

many different meanings (Reichard & Borgonovi, 2007), varying across countries

(Steffensen & Trollegaard, 2000; Pollitt, 2005), languages (Ouedraogo, 2003), general

contexts (Conyers, 1984), fields of research, and specific scholars and studies." (Duboisand Fattore 2009)

A central theme in decentralization is the difference between a hierarchy, based on:

authority: two players in an unequal-power relationship; and

an interface: a lateral relationship between two players of roughly equal power.

The more decentralized a system is, the more it relies on lateral relationships, and the lessit can rely on command or force. In most branches of engineering and economics,

decentralization is narrowly defined as the study ofmarkets and interfaces between parts

of a system. This is most highly developed as general systems theoryandneoclassicalpolitical economy.

Contents

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1 Organizational Theory

2 Political theory

3 Decentralization in European history

4 Decentralised governance

o 4.1 Political decentralization

o 4.2 Administrative decentralization

4.2.1 Deconcentration 4.2.2 Delegation

4.2.3 Devolutiono 4.3 Fiscal decentralization

4.3.1 Fiscal decentralization and fiscal federalism

4.3.2 Fiscal federalism: the federal approach to governance

o 4.4 Economic decentralization

4.4.1 Privatization

4.4.2 Deregulation

5 Silent Decentralization
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when they were defeated by the overwhelmingmilitary might of the Stateor neighboring

States. All in all, we do not know what a truly decentralized society would look like over

a long period of time since it has never been permitted to exist, however the Zapatistas ofMexico are proving to be quite resilient.

In "On Authority", Engels also wrote of democratic workplaces that "particular questionsarise in each room and at every moment concerning the mode of production, distribution

of material, etc., which must be settled by decision of a delegate placed at the head ofeach branch of labour or, if possible, by a majority vote."

Modern trade unions andmanagement scientists tend to side strongly with Engelsin this

debate, and generally agree that decentralization is very closely related to standardisation

andsubordination, e.g. thestandard commodity contracts traded on the commoditymarkets, in which disputes are resolved all according to ajurisdiction and common

regulatory system, within the frame of a largerdemocraticelectoral systemwhich can

restore any imbalances of power, and which generally retains the support of the

population for its authority.

Notable exceptions among trade unions are the Wobblies, and the strong anarcho-

syndicalistmovement ofSpain. However, a strategy of decentralization is not always so

obviously political, even if it relies implicitly on authority delegated via a politicalsystem. For example, engineering standards are a means by which decentralization of

supply inspectionand testing can be achieveda manufacturer adhering to the standard

can participate in decentralised systems ofbidding, e.g. in a parts market. Abuildingstandard, for instance, permits thebuilding trades to train labour and building supply

corporations to provide parts, which enables rapid construction of buildings at remote

sites. Decentralization of training and inspection, through the standards themselves, and

related schedules ofstandardized testing and random spot inspection, achieves a veryhigh statistical reliabilityof service, i.e. automobiles which rarely stall, cars which rarely

leak, and the like.

In most cases, an effective decentralization strategy and correspondingly robust systemsofprofessional education,vocational education, and trade certificationare critical to

creating a modern industrial base. Such robust systems, andcommodity marketsto

accompany them, are a necessary but not sufficient feature of any developed nation. Amajor goal of the industrial strategy of any developing nationis to safely decentralise

decision-making so that central controls are unnecessary to achieving standards and

safety. It seems that a very high degree ofsocial capitalis required to achieve trust in

such standards and systems, and that ethical codesplay some significant roles in buildingup trust in the professions and in the trades.

The consumer productmarkets, industrial product markets, and servicemarkets that

emerge in a mature industrial economy, however, still ultimately rely, like the simpler

commodity markets, on complex systems ofstandardization,regulation,jurisdiction,transport, materials and energy supply. The specification and comparison of these is a

major focus of the study ofpolitical economy. Political or other decision-making units
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which gave the nobility more power. As the Middle Ages wore on, corruption in the

church, foreign trade, and new political ideas slowly strengthened the secular powers and

brought together the decentralized society. This centralization continued through theRenaissanceand has been changed and reformed until the present centralized system

which is thought to have a balance between central government and decentralized power.

[edit] Decentralised governance

Decentralizationthe transfer of authority and responsibility for public functions fromthe central government to subordinate or quasi-independent government organizations

and/or the private sector[1]is a complex and multifaceted concept. It embraces a variety

of concepts. Different types of decentralization shows different characteristics, policyimplications, and conditions for success.

Typologies of decentralization have flourished (Dubois & Fattore 2009). For example,

political, administrative, fiscal, and market decentralization are the types of

decentralization[2]. Drawing distinctions between these various concepts is useful forhighlighting the many dimensions of successful decentralization and the need for

coordination among them. Nevertheless, there is clearly overlap in defining these terms

and the precise definitions are not as important as the need for a comprehensive approach(see Sharma, 2006). Political, administrative, fiscal and market decentralization can also

appear in different forms and combinations across countries, within countries and even

within sectors.

[edit] Political decentralization

Political decentralization aims to give citizens or their elected representatives morepower

in public decision-making. It is often associated with pluralistic politics andrepresentative government, but it can also support democratization by givingcitizens, or

their representatives, more influence in the formulation and implementation of policies.

Advocates of political decentralization assume that decisions made with greaterparticipation will be better informed and more relevant to diverse interests in society than

those made only by national political authorities. The concept implies that the selection of

representatives from local electoral constituency allows citizens to know better theirpolitical representatives and allows elected officials to know better the needs and desires

of their constituents. Political decentralization often requires constitutional or statutory

reforms, creation of local political units, and the encouragement of effective publicinterest groups.

[edit] Administrative decentralization

Administrative decentralization seeks to redistribute authority, responsibility andfinancial resources for providing public services among different levels of governance. It

is the transfer of responsibility for the planning, financing and management of public

functions from the central government or regional governments and its agencies to local

governments, semi-autonomous public authorities or corporations, or area-wide, regional
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or functional authorities. The three major forms of administrative decentralization --

deconcentration, delegation, and devolution -- each have different characteristics.

[edit] Deconcentration

Deconcentration is the weakest form of decentralization and is used most frequently inunitary states-- redistributes decision making authority and financial and management

responsibilities among different levels of the national government. It can merely shift

responsibilities from central government officials in the capital city to those working inregions, provinces or districts, or it can create strong field administration or local

administrative capacity under the supervision of central government ministries.

[edit] Delegation

Main article: Delegation

Delegation is a more extensive form of decentralization. Through delegation centralgovernments transfer responsibility for decision-making and administration of public

functions to semi-autonomous organizations not wholly controlled by the central

government, but ultimately accountable to it. Governments delegate responsibilities when

they create public enterprises or corporations, housing authorities, transportationauthorities, special service districts, semi-autonomous school districts, regional

development corporations, or special project implementation units. Usually these

organizations have a great deal of discretion in decision-making. They may be exemptedfrom constraints on regular civil service personnel and may be able to charge users

directly for services.

[edit] Devolution

Main article: Devolution

Devolution is an administrative type of decentralisation. When governments devolvefunctions, they transfer authority for decision-making, finance, and management to quasi-

autonomous units of local government with corporate status. Devolution usually transfers

responsibilities for services to local governments that elect their own electedfunctionaries and councils, raise their own revenues, and have independent authority to

make investment decisions. In a devolved system, local governments have clear and

legally recognized geographical boundaries over which they exercise authority and within

which they perform public functions. Administrative decentralization always underliesmost cases of political decentralization.

[edit] Fiscal decentralization

Dispersal of financial responsibility is a core component ofdecentralisation. If local

governments and private organizations are to carry out decentralized functions

effectively, they must have an adequate level of revenues either raised locally or
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transferred from the central government as well as the authority to make decisions about

expenditures. Fiscal decentralization can take many forms, including

self-financing or cost recovery through user charges,

co-financing or co-production arrangements through which the users participate in

providing services and infrastructure through monetary or labor contributions; expansion of local revenues through property or sales taxes, or indirect charges;

intergovernmental transfers that shift general revenues from taxes collected by thecentral government to local governments for general or specific uses; and

authorization of municipal borrowing and the mobilization of either national or

local government resources through loan guarantees.

In many developing countries local governments or administrative units possess the legalauthority to impose taxes, but the tax base is so weak and the dependence on central

government subsidiesso ingrained that no attempt is made to exercise that authority.

[edit] Fiscal decentralization and fiscal federalism

The concept of fiscal federalism is not to be associated with fiscal decentralization inofficially declared federations only; it is applicable even to non-federal states ( having no

formal federal constitutional arrangement) in the sense that they encompass different

levels of government which have defacto decision making authority ( Sharma, 2005a:44). This however does not mean that all forms of governments are 'fiscally' federal; it

only means that 'fiscal federalism' is a set of principles, that can be applied to all

countries attempting 'fiscal decentralization'. In fact, fiscal federalism is a general

normative framework for assignment of functions to the different levels of governmentand appropriate fiscal instruments for carrying out these functions (Oates, 1999: 1120-1).

The questions arise: (a) How federal and non-federal countries are different with respectto 'fiscal federalism' or 'fiscal decentralization' and (b): How fiscal federalism and fiscaldecentralization are related ( similar or different)? Chanchal Kumar Sharma (2005a,

2005b) clarifies: While fiscal federalism constitutes a set of guiding principles, a guiding

concept, that helps in designing financial relations between the national and subnationallevels of the government, fiscal decentralization on the other hand is a process of

applying such principles ( Sharma,2005b: 178). Federal and non-federal countries differ

in the manner in which such principles are applied. Application differs because unitaryand federal governments differ in their political & legislative context and thus provide

different opportunities for fiscal decentralization (Sharma, 2005a:44).

[edit] Fiscal federalism: the federal approach to governance

In common parlance political and constitutional aspects (eg giving citizens or their

elected representatives more power in political decision-making, establishment ofsubnational political entities for decision making and making them politically

accountable to local electorate which often entails constitutional or statutory reforms like

providing for representation of the member states, the strengthening of legislatures,creation of local political units along with the encouragement of effective public interest
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groups and pluralistic political parties) are considered crucial for federalism. Chanchal

Kumar Sharma (2005b) however argues that it is the fiscal side of the federalism (fiscal

federalism) that is crucial for federal dynamism. This is because Federalism is not a fixedallocation of spheres of central and provincial autonomy (as assumed in federal finance

models) or a particular set of distribution of authority between governments, it is a

process, structured by a set of institutions, through which authority is distributed andredistributed.

A Federalised System is a balanced approach between the contrasting forces of

centralisation and decentralisation for combining the political and economic advantages

of unity while preserving the valued identity of the sub national units" ( Sharma, 2005).Fiscal federal principles guide how boundaries, assignments, the level and nature of

transfers should be revised from time to time to ensure efficiency and perhaps equity.

Thus fiscal federalism provides the tools for "application of the federal approach togovernance which lies in its ability to balance the contrasting forces of centralization and

decentralization" (Sharma, 2005b: 177). In the age of Globalization, when fiscal

decentralization is in vogue, all countries (federal or not) are applying what may becalled, in Sharma's (2005b) words "the federal approach to governance. The onlydifference is that in federal countries the subnational governments may be involved in

decision making process through some appropriate political or constitutional forum while

Central government may dominate quite heavily in a unitary country. Its no surprise thenargues Sharma (2005b:177; 2008) that fiscal federalism literature is far away from

Centralization Vs Decentralization focus. Final aim is not to decentralize just for sake of

it but to ensure good governance. Thus, in fiscal federalism -states Sharma(2008)"decentralization is not seen as an alternative to centralization. Both are needed.

The complementary roles of national and subnational actors are determined by analyzing

the most effective ways and means of achieving a desired objective"

[edit] Economic decentralization

Privatizationand deregulation shift responsibility for functions from the public to theprivate sectorand is another type of decentralization. Privatization and deregulation are

usually, but not always, accompanied by economic liberalization and market

development policies. They allow functions that had been primarily or exclusively the

responsibility of government to be carried out by businesses, community groups,cooperatives, private voluntary associations, and other non-government organizations.

[edit] Privatization

Main article: Privatization

Privatization can range in scope from leaving the provision of goods and services entirely

to the free operation of the market to "public-private partnerships" in which governmentand the private sector cooperate to provide services or infrastructure. Privatization can

include:
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allowing private enterprises to perform functions that had previously been

monopolized by government;

contracting out the provision or management of public services or facilities tocommercial enterprises indeed, there is a wide range of possible ways in which

function can be organized and many examples of within public sector and public-

private institutional forms, particularly in infrastructure; financing public sector programs through the capital market (with adequate

regulation or measures to prevent situations where the central government bears

the risk for this borrowing) and allowing private organizations to participate; and

transferring responsibility for providing services from the public to the private

sector through the divestiture of state-owned enterprises.

Privatization cannot in the real sense be considered equivalent to decentralisation.

[edit] Deregulation

Main article: Deregulation

Deregulation reduces the legal constraints on private participation in service provision orallows competition among private suppliers for services that in the past had been

provided by the government or by regulated monopolies. In recent years privatization and

deregulation have become more attractive alternatives to governments in developingcountries. Local governments are also privatizing by contracting out service provision or

administration.

[edit] Silent Decentralization

An often ignored dimension of decentralization is whether it emerged explicitly bypolicies, or not. Decentralization in the absence of reforms is also referred to as silent

decentralization. Consequently, it distinguishes itself mainly by its potential origins:

network changes, initiative shifts, policy emphasis developments, or resource availabilityalterations. (Dubois and Fattore 2009)

[edit] Measuring Decentralization

While diversity in degree of decentralization across the world is a fact yet there is no

consensus in the empirical literature over the questions like which country is more

decentralized? This is because decentralization is defined and measured differently indifferent studies (Sharma, 2006).

Chanchal Kumar Sharma (2006: 54) finds in his literature survey:

"On the basis of decentralization instrument there are two strands in the literature that

argue for two different approaches to measure fiscal autonomy. One gives moreweightage to devolution of tax authority as an instrument of decentralization and hold it
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crucial for subnational autonomy, the other gives more weight to the nature of

intergovernmental transfers (discretionary or not) as an instrument impacting upon the

subnational behaviour and effecting their autonomy and accountability. Thus formerchoose to focus on fiscal policy i.e., the relationship between expenditures and allocated

revenues (vertical imbalance) while latter pay attention to regulatory or financial

mechanisms i.e. the nature of intergovernmental transfers".

Out of these two approaches, observes Sharma (2006), "when it comes to themeasurement of fiscal decentralization the share of subnational expenditures and

revenues is considered the best indicator. This is because fiscal instruments are easier to

measure while regulatory and financial instruments are extremely complex and difficultto measure statistically because nowhere transfers remain strictly confined to the

technical objectives. Transfers pursue a mix of objectives and politically motivated

transfers remain key part of the intergovernmental relations across the globe" (Sharma,2006: 54).

Arjan H. Schakel (2008) notes that various experts such as Akai and Sakata 2002; Breussand Eller 2004; Ebel and Yilmaz 2002; Fisman and Gatti 2002; Panizza1999; Sharma

2006, have found the fiscal indicators on the expenditure side to be quite problematic forcapturing decision-making decentralization. This is because argues Schakel (2008) "it is

difficult to tell whether the expenditure is coming from conditional or unconditional

grants, whether the central government is determining how the money should be spent,whether it is setting the framework legislation within which subnational governments

implement, or whether indeed subnational governments are spending the money

autonomously".

Chanchal Kumar Sharma (2006:49) states,

"...a true assessment of the degree of decentralization in a country can be made only if acomprehensive approach is adopted and rather than trying to simplify the syndrome of

characteristics into the single dimension of autonomy, interrelationships of various

dimensions of decentralization are taken into account."

[edit] Notes

1. ^ Meenakshi Sundaram, SS:Decentralisation in Developing Countries. P11 Concept,1994

2. ^ World Bank:Overview of Decentralisation in Indi Vol I P 3 World Bank,2000

[edit]
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Documents

For Decentralization in Industry