In some countries, decentralization reforms and the restructuring of intergovernmental arrangements are gradual processes that take years or even decades to complete, as in Ghana and Zambia, for example. In other countries, including Indonesia, Kenya, and Nepal, intergovernmental arrangements are completely changed from one year to the next (or in a few short years) following a “big bang” approach. Although decentralization and localization are not linear processes and each country’s decentralization trajectory is unique, it is useful to consider that the general nature and composition of intergovernmental institutional and fiscal arrangements tends to evolve over time and with a country’s state of development – or over time, with the level of urbanization – from a more centralized public sector to more of a decentralized public sector governance system (Figure 2.1).

Three specific institutional reforms and trends tend to capture the changing nature of decentralized or intergovernmental arrangements over time:

  • Decentralization and modernization within the central public sector. First, within the central public sector, the nature and balance of centralization versus localization tends to evolve along the development spectrum. In less developed, low-income country contexts, central government administrations tend to function as traditional, hierarchical (top-down) and bureaucratic administrative entities, which leave little or no decision-making space for officials at lower levels of the administrative hierarchy. As a country moves along the development spectrum, central government administrators tend to adopt more results-oriented and collaborative public administration approaches, and thus, start seeing local level administrators and/or local governments as potential partners within the public sector, rather than as competitors for scarce resources.
  • The nature of devolved institutions and finances tends to be associated with where countries are on the development spectrum. Second, to the extent that the public sector relies on elected subnational governments, the nature of devolved institutions and devolved finance tends to evolve as countries move along the development spectrum albeit again, not necessarily in a consistent or linear manner. While local institutional capacity is not just a function of overall development progress, the administrative and governance capacity of local governments tends to improve over time and with development progress. Similar to the central level, in low-income countries and low-empowerment contexts, local government administrations tend to function as hierarchical, rule-based, and bureaucratic administrative entities. In this kind of less developed context, public participation and bottom-up accountability is hard to achieve (Collier 2010). By contrast, in higher income countries and empowered intergovernmental contexts, local governments aim to function as collaborative, high-performing organizations which are capable of proactively identifying and responding to the needs of local constituents.
  • The shifting balance between centralized and devolved institutions and expenditures. Third, as a country’s state of development evolves, the balance between different modalities of decentralization and localization tends to shift from central government institutions towards greater reliance on devolved institutions, such as regional and local governments, and devolved financing mechanisms.

While these three general decentralization trends tend to take place as a country’s state of development evolves, the three different trajectories of decentralization and localization do not necessarily evolve at the same speed. For instance, devolution in any specific country may tend to progress more or less rapidly compared to the extent to which the public sector is effectively deconcentrating. Considerations regarding the sequencing of decentralization reforms are explored further below.

In addition, before getting into further detail, it is important to recognize that it is not necessarily every country’s ambition to adopt a highly devolved public sector structure. Although there are certain benefits uniquely tied to democratic decentralization, devolution is merely one way to deal with the pressures on the public sector brought about by social and economic complexity. At the same time, because this analysis is partial to the fiscal features of decentralization, there might be important political or societal forces that provide a counterweight to demands for devolution. For instance, it is understandable for central officials to resist pressures to decentralize (by devolution) if this reform is expected to promote societal fragmentation and promote centrifugal forces (Brancati 2009).