Pakistan Institute of Development Economics



Empowering States and Provinces or Unshackling Local Governments: Does It Matter for Peace, Order, Good Government, and Growth? (The Gustav Ranis Lecture)
Author: Anwar Shah

Globalisation and the information revolution are profoundly influencing the division of power within, across, and beyond nation-states. Within nations, this mega change has led to a diminished economic relevance of the intermediate order of government (states and provinces) and an enhanced need for home rule (empowered local governments) in both unitary and federal countries. Considerations of peace, order, and good government further warrant that intermediate orders of governments must assume a relatively less prominent role in multi-order governance. The recent fiscal crisis and the ever-growing concern about corruption have further heightened the need to the get the government right, thereby creating additional pressures to limit the size of the government by possibly downsizing the role of the states/provinces and reconstituting these as provincial councils of local governments to perform inter-local functions and coordination. These economic imperatives, calling for an hourglass model of federalism, are at odds with the political realties in countries conforming to the traditional dual federalism model, i.e., federalism of the provinces model of economic governance as prevalent in Australia, India, Mexico, and Pakistan, among others. The political order in these latter countries has blocked local governments from assuming their due role as the primary agents of the people providing oversight on the shared rule and as facilitators for network governance to improve the economic and social outcomes. Such a role of local government is also critical to international competitiveness and growth as demonstrated by the experiences of China, Japan, Korea, and the Nordic countries. This paper outlines reform options for multi-order governance to conform with the new world economic order. The paper elaborates the role of local governments under ‘glocalised governance’—the new vision of multi-order governance—and argues that growth and economic prosperity of nations in the coming decades would critically depend on how quickly political and institutional impediments to the new (or the oldest?) paradigm of local governance are overcome. The paper concludes that path dependency makes such radical reforms infeasible in countries with strong provincial governments run by feudal, military, and industrial elites.