In recent decades central governments across the world have been decentralising their political, administrative and financial functions to the local level. Decentralisation has emerged as a new reform agenda for increasing citizens’ welfare at local levels. Rondinelli and Nellis (1986) define decentralisation as the transfer of responsibility for planning, management, raising and allocation of resources from central government to (1) field units of central government, (2) subordinate units or lower levels of governments, (3) semi-autonomous public authorities or corporations, (4) area-wide regional or functional authorities, or (5) non-government private or voluntary organisations. Decentralisation is also understood as the formal transfer of powers from central government to actors and institutions at lower levels within a political-administrative and territorial hierarchy (Agrawal & Ribot, 1999; Crook & Manor, 1998; Yuliani, 2004).
Rather than being part of a central government reform agenda, most decentralisation initiatives have been the result of pressure from local government citizens and elites. Local citizens and elites have sought to capture greater power from central governments in order to develop their local geographic area. Through decentralisation, national leaders granted access to central power and resources as a means of obtaining support from local allies or meeting popular demands for democratization (A. Schneider, 2003). Within developing countries, decentralisation reforms have become a common phenomenon. For example, since the fall of the Suharto regime, Indonesia had undergone the euphoria of regional autonomy and
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fiscal decentralisation (Brodjonegoro, 2001). Decentralisation of central government fiscal, administrative and political departments to local government is now supported and institutionalised by a range of regulations.
The most common reason advanced for decentralisation reform is the need for greater local revenue generation. Most local governments have low revenue and are unable to support themselves, both of which lead them to demand central government subsidies. The example of Thailand—where 43% of revenue for local government is from shared taxes, 44% from subsidies, and only 13% from locally collected revenue (Weist, 2001)—has resulted in decentralisation being viewed in many developing countries as an important institutional design feature for enhancing local economic development. Decentralisation reform encourages local governments to generate their own revenue, such as through local tax reform and improving existing charges and fees collection (Weist, 2001). In such cases, the success of decentralisation reform depends on adequate strategies and sufficient mechanisms to support the decentralisation agenda. According to Weist (2001, p. 2), an effective decentralisation strategy needs to include: a clear division of responsibilities (such as who does what in spending and taxing?), adequate financing, and a clear system of accountability (such as who is accountable to whom?). Conversely, the inappropriate design of decentralisation programs, or the lack of commitment among political elites, risks failure, which in some cases is reflected in the further concentration of power rather than the realisation of the common good (Hadiz, 2004). Igreja (2013) has pointed to such a failure in Mozambique, where regulation which was created to support decentralisation did not provide a clear definition of the extent of local authorities’ power and how local citizens should participate in the local political process.
There are three forms of decentralisation: political, administrative and financial (Kauzya, 2007; Min & Narisong, 2016; White, 2011). These three forms of decentralisation policies are discussed in the following sub-sections.
47 2.6.1Political Decentralisation
Political decentralisation is described as the effort of central government to transfer responsibility for e.g. the appointment of local officials and the direct election of local political leaders to the local government level (Treisman, 2002). Political decentralisation covers a range in degrees and types of political autonomy and accountability at the sub-national level (Antwi-Boasiako, 2010). An example of political decentralisation is documented in Antwi-Boasiako’s (2010) study of Ghana, where the local citizens at the district level are able to elect their own legislative and executive personnel.
In pursuing a policy of political decentralisation, central government decentralises political power, which typically includes:
(i) transferring the power for selecting political leadership and representatives from central governments to local governments, and
(ii) transferring the power and authority for making socio-politico-economic decisions from central governments to local governments and communities (Kauzya, 2007, p. 4).
In this way, central government empowers local citizens to exercise their political rights through local elections, voting for their own local rulers and local members of parliament. In relation to East Kalimantan, I would argue that through political decentralisation local citizens are able to elect the most suitable elites to represent them in local government institutions—though ‘suitability’ tends to be viewed through the lens of the politics of patronage. But this qualification notwithstanding, these local political elites represent local citizens in determining local policy implementation and limit central government intervention in local policy-making. 2.6.2Administrative Decentralisation
Within a centralised government system, bureaucracy is usually experienced as a drawn-out, seemingly endless administrative process. Local citizens may have to visit a number of institutions at different levels at different times to obtain government
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services. Central government policy to decentralise administrative offices to the local level was an effort to cut through the bureaucratic impasse, with decentralisation enabling local government to make their own decisions in the local administration office. The concept of administrative decentralisation reflects the perceived need for greater responsiveness and the belief that the decentralisation of decision-making power to the local office will improve local services (M. P. Brown, 1986). From a financial point of view, administrative decentralisation was seen as a way of reducing the cost of government office administration in delivering services to local citizens.
The tangible benefits of administrative decentralisation included improved governance, increased transparency and accountability, and more effective and efficient production and delivery of public goods and services (Cohen & Peterson, 1997, p. 1). Administrative decentralisation also allows the distribution of human resources to the local level to support better decision-making at the local level (Treisman, 2002). The local government administrative office can make decisions regarding service provision to local citizens without relying on central government administrative oversight and control. In this way, ideally government services can be brought closer and faster to the local citizens because bureaucracy has been reduced. 2.6.3Financial Decentralisation
Equal and fair distribution of financial resources across local government is difficult to achieve without a policy of decentralisation. Local citizens’ needs are better understood by their own local government. With financial resources transferred to local government to cover local spending on local citizens’ basic needs in such areas as education and health, financial decentralisation can be understood as ‘the empowerment of people by the empowerment of their local governments’ (Bahl, 2008, p. 3). Bahl (2008) argues that an important element in financial decentralisation is that ‘local government’—such as states or provinces and cities or districts—is empowered when budgetary authority is transferred to elected local government officials with the power to make taxing and spending decisions.
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Previous studies (e.g. Agüero, Carter, & Woolard, 2007; Martinez-Vazquez, Lago-Peñas, & Sacchi, 2015) have highlighted the positive impacts of financial decentralisation. The positive impacts include reducing chronic local deficits and local poverty, and encouraging local economic growth. Local governments often have their own revenue sources which serve to finance their responsibilities, but their income usually does not cover all the expenditure. Intergovernmental financial transfer helps them to cover the local deficit and can also serve as an incentive for countering local low economic growth. Wildasin (2009) gives the example of the United States economic recession, when central government transfer was able to sustain long-term economic growth and reduce the unemployment rate.
When financial policy is transferred to the local level, the local authorities are given greater autonomy to implement funds endowment and spending strategies in their own territory, rather than wait for a solution or for the provision of public goods from central government (Rodríguez-Pose & Ezcurra, 2011). Local government can discover new ways for generating revenues and use it for local citizens’ welfare, for example by issuing a local regulation to collect taxes from local households and businesses.
The focus of this thesis is on intergovernmental financial transfer in the context of the role of elites and systems of patronage. In my study, intergovernmental financial transfer is understood as the transfer of central government funds to local government, in the form of conditional and unconditional grants, which are discussed in the following section. As discussed above, there are three aspects of decentralisation: political, administrative and financial, and intergovernmental transfer—the focus of this research—is part of financial decentralisation.