Thursday, 19 June 2014

Roger Myerson's Commonsense Case for Decentralism

Over the past several years, Chicago Economics Professor Roger Myerson has blessed those around him by taking many opportunities to  discuss the numerous advantages of decentralization of political decision-making. Why does centralism lead to poor(er) performance by governments? Because it causes leaders to lack the local experience and knowledge necessary to be nationally successful (or less unsuccessful). Compare decentralized solutions to the state's management of local issues, incentives to learn about local issues will surely be greater under the former regime than under the latter one, in which conditions in any one area constitute only a small part of some pool from which rewards (rent) may be extracted.

For instance, Myerson explains the topical issue of the unruliness after the regime changes in Iraq (starting 2003) and Afghanistan (2001) by the fact that the rules instituted by the coalitions responsible for the regime changes are insufficiently decentralized. If anyone remembers Paul Bremer, he was the person in charge of the occupation of Iraq until the reconstructed constitution had been ratified, and he would not permit local politics to develop until this had happened. Other tendencies towards centralism have been seen in Afghanistan.
In a recent article written for the Huffington Post, Myerson applies his ideas to the recent brouhaha in the Ukraine. Myerson argues that provincial governors, the supervisors of state administration in the provinces of the Ukraine, have neither knowledge of, nor significant stake in, local conditions in their provinces, because they are appointed centrally. By contrast, locally-elected counsellors are better at determining where the winds are blowing in their provinces. This local knowledge comes in handy when Vladimir Putin gives them a ring, perhaps with promises of rewards for various pro-Russian manifestations which could potentially result in annexation. Myerson highlight's Putin's skill in manoeuvring local conditions, a likely consequence of his experiences working within the local authorities in St Petersburg, as well as with provincial relations to Moscow under Yeltsin.
I strongly agree with Myerson that decentralization is the best way of stabilizing the situation in the Ukraine, as well as in other unruly parts of the world. However, there are probably many ways of achieving this outcome. For instance, the nationally-appointed governors of the Ukrainian provinces mentioned above could be paid for performance in their provinces, incentivizing them to gain more local knowledge. This will not look very decentralized, because the governors are still appointed as before, but - depending on the exact design of the reward structure - the effects could be identical.
The question remains why states would become centralized to begin with. One explanation is that foreign interposing in national affairs is an added channel for rewards and punishments for the national leaders, which may cause them to neglect local conditions when strings are attached. I don't know, but I think this may be something for me to consider as I resume my hiatus.

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