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Kathmandu Wednesday January 16, 2002 Magh 03, 2058.
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Is LSG Act fundamentally flawed ?
By DR ALOK K BOHARA
Bottom line of fiscal federalism: Federalism or
decentralization purports establishing a tiered system of governments for the purpose of
providing public goods and services in an efficient manner. And, taxing and spending
powers and responsibilities are appropriately assigned to different levels of government
keeping in mind the two objectives: vertical balance and horizontal balance.
Vertical balance means that each level of government should
be given power to raise revenue that is commensurate with its responsibility. For example,
the local level of government (eg, VDC), whose expenditure responsibility is small (eg,
garbage collection, drinking water, village roads, parks, public libraries), should only
have a correspondingly small share of revenue.
Also, small local governments should not be burdened with
costly administrative responsibilities, especially if the assigned activity has a
spillover effect on a larger area. The vehicular related taxes should not be raised at the
VDC level, since the vehicles are highly mobile and generate positive (transportation of
goods and people) and negative externalities (pollution) for a much larger geographical
region outside the village level.
The horizontal balance attempts to discourage a huge
permanent gap across different local units. This means that a natural resource rich VDC
level unit, when given a taxing right to exploit it —as has been alluded in the
Act—, will have an imbalanced and undue advantage over many other not-so-fortunate
local units. Thus, harnessing of the natural resources (eg, mining, mountaineering, forest
management) should be done at the regional and/or the national levels for the benefit of
larger areas. These examples are given for an illustrative purpose, and the point is that
the Act should consider these types of economic rationalities.
The regional level government can also carve out its own
comparative advantage with a very minimal intervention from the central authority (eg,
tourism initiatives, autonomous university system, vocational enterprises, business taxes,
sales taxes, vehicle registration and renewals, waterways). The regional and local units
should also devise a formula to share the sales and business taxes.
Transparency and process: A small country like Nepal should
not have a massive fragmentation: 75 districts, 4,000 counties, thousands of wards and
tens of thousands of representatives. Some may falsely argue that a large representation
at the local and the middle layer is the sign of a healthy democratic process. But, what
should matter is the set of transparent rules and regulations, under which a well-informed
group of individuals debate and make important decisions. Too many uncoordinated cells in
an administrative structure breed inefficiency and lacks economy of scale to make a
difference in generating a strong collective voice against the central power.
Just to keep things in perspective, a vast country like the
US with a population of 250 million people has a three-tier system with 50 states and
slightly over 3,000 counties. A typical county has just a hand full of representatives.
Similarly, many other nations have taken a reasonable approach to their administrative
structure to create a balance between local units and the central authority (eg, Canada:
10 provinces, Germany: 16 states, Malaysia: 13 states, Argentina: 23 provinces, Austria: 9
provinces, South Africa: 9 provinces, and a highly populated 2 million sq km big Mexico
with one hundred million population has 31 states).
But what is important is not the number of provinces and
states that a country gets divided into, it is the nature of legislative independence and
the clarity of power and responsibilities that constitute the degree of decentralization
and self-reliance. For example, South Korea had a fewer number of provincial
administrative units, and yet it was very authoritative and command-like with a system
where many local leaders were basically appointed by the central authority. Despite much
economic progress the country suffered from political turmoil for a long time period, and
now it is slowly moving towards a more devolutionary system of government.
In Nepal too, under the Panchayat regime, the intention
behind the formation of 75 districts and five regions was done arguably more for the
political control and the bureaucratic network to carry out administrative and development
work rather than for the purpose of economic freedom and self-reliance. Existence of
numerous districts kept voices fragmented and weak, and a centrally command structure of
government continued its domination throughout the political and economical landscape of
the country. Political turmoil continued and economic development and the better living
standard remained unrealized.
Some recommendations: Decentralization is a very complex
issue. What may work for one country may not be appropriate for another. It inherently is
a political process that requires a thorough assessment of political, institutional, and
economic elements of a country in question. For example, instead of leaving it
appropriately under a more resourceful central administration, the country adopted a
complete decentralized healthcare system in the Philippines, which produced questionable
results. Similarly, the privatization of the sewerage and the water system in the capital
of Argentina has been more than a satisfactory experiment. In any case, many years of
successful experiences in numerous countries have shown that a properly implemented
decentralized system does work better than a command system. A set of recommendations is
given below.
(1) Keep the current constitutional provision for the central
government, but I would like to argue that Nepal should introduce five regional
assemblies. The governor may be elected either directly or by the majority vote of the
elected assembly. A similar provision may be adopted for the deputy governorship. The
current district composition may serve as a natural constituency for the assembly
election. But, the size of the assembly may depend on the regional population.
(2) Following the Austrian model, the district level
composition may be retained to use it as a vehicle to implement federal and possibly
regional programs, but without any taxing power. A district officer or commissioner, a
career civil servant, can be appointed by the governor for each district.
(3) The current village level government (council and/or
development committee) should be perhaps streamlined by reducing the number of ward-level
representation from three to one from each ward. To increase administrative efficiency,
West Germany reduced the number of local units (Gemeinde) from 25,000 in the late 60s to
8,500 by the 90s. The current provision of representation from women and underprivileged
classes outlined in the proposed LSGA can still be accommodated.
(4) All levels of governments (eg, local and regional
legislative council) should be formed based on direct voting, including the heads of such
units (Mayors, Governors, village council Chairs). Deputies could be appointed by the head
of the units or elected by the people.
(5) Taxing power and assignment of responsibilities should be
based on economic arguments and reasoning as outlined in various sections presented
earlier.
(6) Provisions must also be made that any rights and
responsibilities not clearly articulated in the Constitution may automatically fall under
the purview of either the regional or the central domain, but not both. Any disputes among
the three layers of governments about power and responsibilities can be settled in the
Supreme Court.
(7) Each level of government must work on a set of
transparency mechanism in their decision making process to ensure that power,
responsibility, and accountability go hand-in-hand.
(8) Avoid duplication. For example, instead of two sets of
governing groups (eg, council and development committees), institute a system of one
directly elected governing body, and allow the A chair of such a body (eg, Mayors,
Governors, village council Chairs) to form a cabinet of experts and administrators to
manage and execute tasks. The elected members can then focus on making policies, laws, and
regulations, whereas the chairs and their cabinet (perhaps non-political individuals)
would be responsible for carrying out the prescribed tasks.
(9) Clearly define the process of forming and amending the
regional and local constitutions within the context of the national constitution.
(10) Make sure to give the central legislative body (eg,
based on two-thirds majority) a complete authority to take over regional and local
governments in case of a grave emergency situation (eg, local and/or regional insurgency
threatening national security). The regional and local legislative bodies should not be
allowed to create laws that are in direct contrast with the national ones. The Supreme
Court shall settle any such disputes.
Given the current rising regional sentiment and frustration,
it is very important for Nepal to move towards a regional setup. It will create a much
more stronger regional voice, a source of advocacy for the local units, capable of
standing against the central government. Without a regional structure as a viable
political force and a direct voting mechanism at all three levels of governments, the
decentralization effort in Nepal is less likely to be successful.
It is likely that such a proposal may fall within an
intersecting negotiation domain of the battling parties - government and the Maoists, and
it may even lure the rebels back to the negotiation table. Luckily, Nepal does not suffer
from an ethnically motivated regional conflict as in Sri Lanka. In Nepal, conflicts and
dissensions have mostly emanated from economic deprivation and regional disparities. A
well-articulated democratic regional structure of self-reliance will move the country
towards a true form of decentralization process.
Serious problems do require serious undertakings. The
question is: Does the political leadership of the country have courage to think
unthinkable?
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