Fiscal Devolution in East Asia

East Asian success at promoting economic growth and poverty reduction is well known. Since the early 1980s and particularly in recent years, sustained economic growth rates on the order of five percent have reduced poverty rates by half. But it is a clear fact of contemporary geopolitics that not all people in developing nations are benefiting nor are they well connected within rapidly expanding economies. Particularly for women, children and rural residents, the same basic entitlements to publicly provided goods and services are not accessible. As economic growth has progressed, poverty has come to be manifest in pockets of exclusion. Income and access to economic opportunity reveals increasing rather than decreasing inequality both across the region and within countries. Such opportunity is sharply differentiated by age and gender, level of education, urban-rural, upland-lowland, and other variables including ethnicity and geographic barriers to transportation and commerce. Across Asia Pacific, and most marked in East Asia, one common feature of policy and institutional packages applied by governments keen to foster growth alongside poverty reduction has been to assign state powers, responsibilities and resources to sub-national authorities and to private and civil society agencies under various forms of contracts, partnerships and other principal-agent arrangements. Decentralization has become a catch-all term for what proves in practice to be a highly differentiated, and differently motivated, range of practices and institutional forms. In this light decentralization probably is not as useful conceptually or for establishing a framework for analysis compared to the concept of devolution of authority - which better captures the essence of what has taken place in terms of change in institutional arrangements in East Asia. Despite assertions to the effect that in East Asia devolution of authority has heralded major political restructuring, the region's experience defies any uniform application of the concepts 'decentralization' and 'devolution'. And although central - local relations have been reconfigured in many different ways, it is quite clear that local, sub-national units of government are now overwhelmingly regarded as high priority sites for increasing governance capacity. To this level of governance is pinned the hopes for better public services delivery and private enterprise promotion. Increasingly, sub-national governments are viewed as highly desirable nodes for the exercise of new forms of citizen participation and citizenship that are emerging throughout the region. Yet while this is the case, problems are evident with respect to the accompaniment of revenue generation capability for local entities that matches the degree and amount of devolution of fiscal authority and responsibility from national governments. This paper provides and analyzes case studies of East Asian devolution of authority including studies of the People's Republic of China (PRC), the Philippines and others. The special interest of these case studies is to gauge the impact of different country approaches to fiscal decentralization and devolution on what broadly may be referred to as 'state-civic society' relations. Here, the particular interest includes whether and how decentralization and devolution have supported the near universal policy commitments to increase public access to the affairs of government; bring about greater responsiveness and accountability of locally elected leaders, better match resources for public services with locally defined and often highly specific needs, and investigate how decentralization is associated, positively or negatively, with achievement of commitments made by central governments in the region to poverty reduction and sustainable economic growth. Relationships between political participation, enhanced democracy, decentralization and devolution have been debated since the time of John Stuart Mill and are still not entirely clear. Still, the intention in this paper is to identify problems, challenges and innovative experiences in ways that contribute to building fair societies and democratized public policies that work for poverty reduction within a framework of fiscal discipline. There are four parts to this paper. Part I provides an introduction to basic definitions of decentralization and devolution of authority. This section serves to set some preliminary limits on scope of the case studies that follow and also places them in an international context. The paper then sets out broad parameters against which different country experience may be mapped without compromising the rich variety of decentralization and devolution of authority and fiscal responsibility in Asia Pacific. Part II briefly surveys how decentralization and devolution of authority have been implemented in the case countries. The Asian Development Bank (ADB) has done little comparative, cross-country research and analysis on decentralization and devolution, although center - local relations and patterns of state-society relations very often feature in ADB technical assistance and lending operations. Part III draws conclusions from the country cases including those related to revenue generation capability for local entities and devolution of fiscal authority and responsibility to them from national governments. Part IV provides what are deemed to be critical questions to be pursued in further theoretical and case study work in this topic area.