GOLD Report I - UCLG

291ciency). Allocation efficiency is one of theprincipal economic rationales for decentralization.It is to ensure public sector decisionsare made close to the citizens whouse (and may need to pay for) infrastructureand services. For this reason, participationin choice-making – in voicingpreferences and voting in local elections –is important. These topics are covered in amore organic way in a subsequent section,below, having to do with participation andchoice.One of the front edge issues in the deliveryof services is whether and how much tocontract out, to privatize, or to delegate. Inthe case of the Middle East, mentionedearlier, so-called “external solutions” includejoint service councils for infrastructurein small rural areas and neighborhoodcommittees. A survey of North Americanlocal governments in 2003 showed that asmany as two-thirds of the municipalitieshad tried privatization of some kind,although this trend has declined in thisdecade. New Zealand and Australia havefollowed a steadily expanding privatizationpolicy. In other countries, the reformprocess that has been reliant on the privatesector has led to a reduction of localgovernment competencies (UK, Hollandand Sweden).In the 1990s, public-private-partnerships(PPP) were advanced by the internationalfinancial assistance agencies (World Bank,Asian Development Bank, International FinanceCorporation) as a promising solutionto lagging investment and poor managementby public agencies. PPPs promised apractical alternative for financing the evergrowingdemand for services. The argumentreached the point of suggestingthat local governments should limit themselvesto a strictly “enabling function,” leavingservice provision in the hands of acompetitive private sector (European Commission).In hindsight, the promise of privatesector investment in infrastructurewas overestimated. A World Bank reportshows that private participation in infrastructurerepresented a small and decreasingproportion of the total in local publicand urban infrastructure in the 1990s(Annex 2006).Technology. Finally, few if any assignmentsof functional responsibilities will hold for alltime because of shifting preferences, politicalagendas, and administrative capacityin government. Changing technology alsoplays a role. Technological change in suchfields as distributed solar power, healthcare diagnostics, distance-learning in education,and water purification can affectthe placement of responsibilities. Furthermore,the time cycles of change – either ofdecentralizing functions or bringing newtechnologies on line – have similar lifecycles. This means that a well-intentionedcountry might, say, centralize diagnosticaspects of health care and take three orfour years to accomplish it, only to findthat during the period of implementation,technological progress now permits sophisticateddiagnoses to be done virtuallyanywhere. For these technological andother reasons, the assignment of responsibilitiesis probably best viewed as a movingtarget.Financing Decentralized SystemsWhen assignments change, so should finance.Inter-governmental finance isinextricably linked with decentralizationbecause the vast majority of states on theplanet have more than one level or tier,and lower tiers of government are rarely, ifever, financially self-sufficient. In fact, it isworth noting that the notion of pure financialautonomy for local governments is illusory.Even the richest countries, forinstance those in the G-8, support half ormore of local government expendituresthrough revenue transfers of some sort.Constraints on many local governments inthe south – for instance limited or no abilityto set rates, raise taxes, or borrow –make the idea of financial autonomy evenmore remote.