11 April 2013

To centralize or not to centralize?

I've run into many instances of a struggle between small- and large-scale governance, e.g., local vs. regional or national water management.

These struggles occur over money, regulations, water allocations, and so on.

I can see why they happen -- someone in power decides to take over responsibilities from a lower-level of government* -- but I can also see why they are inefficient and unfair. It's one thing, for example, to impose the metric system on a country, entirely another to impose the same water tariff!

The problems of overcentralization are three (at least). First, centralization tends to impose one-size-fits-all solutions onto situations that do not require them. Second, those solutions tend to create correlations in mistakes that would normally offset each other, e.g., standards that strike high or low. Third, centralization increases the cost of gathering information, administering the system, etc. because details are lost in aggregation.

In the EU, they speak in terms of "subsidiarity," i.e., pushing responsibility down to the lowest possible level of competence, and that's the right term to use here. The Swiss have been well governed for centuries due to their relentless pursuit of it. The Dutch have done the same with their water boards. American mayors tend to their potholes and schools.

But there are many examples of failures: The Colorado river is NOT managed across the whole watershed (Upper and Lower in the US, separated from the Mexican tail), water and wastewater are often managed by different organizations, the US Department of Education intervenes when there's no need to homogenize methods across the country. You get the idea.

So my advice is to solve problems based on solutions that are formed at the right scale. Incumbents who are at higher scales may protest at their loss of power, but those who care about results (instead of their power) will relinquish it.** That's a tough conversation, of course.

Bottom Line: Centralization has costs and benefits. Don't tell me what to eat for lunch, and I won't tell you how to educate your children.

* Ukraine has a Ministry of Regional Development, but why does the center need to develop the regions? It appears that the MRD redistributes money taken form the regions, but that's an invitation for imbalances.

** Economists speak of Tiebout competition among different cities that attract citizens looking for different mixes of amenities, but there's also a value in publicizing these differences, so that people (and administrators) can compare ideas without having to move.

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