The issue of whether authority and fiscal decentralization in Ukraine will increase competitiveness of the regions will be discussed at the debate to be held by the Foundation for Effective Governance in partnership with Intelligence Squared (London) on 5 November 2009 in Kyiv.
Administrative-territorial reform and decentralization have been discussed in Ukraine since the early 1990s. Local governments are considered to be more effective in solving local problems. However, many factors should be discussed to realize maximum potential of the regions. One of them is the ability of local authorities to implement development strategies: to create business-friendly environment and attract investments. Lack of this skill very often causes dependence of life quality in the regions on subsidies from the national government.
Will administrative and fiscal decentralization increase competitiveness of the regions? This question requires special and very attentive elaboration because the results of world practices in decentralization are controversial.
Advocates of decentralization believe that decision-making centres should be as close to citizens as possible. Local governments are better aware of the problems faced by the regions and, as a result, more competent in solving the problems than the central government. Moreover, responsiveness at the local level is always higher. Decentralization helps observe the principle of matching the authority and accountability. This approach implies that consequences of any decisions occur in places where these decisions were made. Presently, local governments in Ukraine do not have sufficient authority to make many decisions and voters can not demand a lot from the politicians elected locally. In addition, within the existing system of governance citizens do not feel confident enough that local governments are accountable to them because governments are supported by local tax payments, thus, should work for the sake of local taxpayers. If bigger authority, financial resources and responsibilities are delegated to local governments, citizens will be more demanding to the politicians they elected. This will improve local governments’ performance and help implement regional development strategies in a more effective way.
Also, decentralization will help increase competition for investments among the regions. This is exactly what is happening in the USA where each state can independently establish tax rates and fix tax administration procedures. As a result, many companies have moved to the states with lower tax rates and simple administration procedures. Agricultural states developed significantly. There is no such type of competition in Ukraine because local governments do not mechanisms or incentives to attract new companies to their areas. Indeed, a huge portion of tax payments goes to the national budget. Many regions get used to live at the expense of state subsidies - they should not compete for it. Decentralization of authority, resources and responsibilities will encourage local governments to work more efficiently.
Opponents of the decentralization believe that qualifications and competences of local governments in Ukraine are much poorer than on a national level. Local governments have failed to show their ability to develop and implement development strategies in their regions even within existing authority. There are a number of cases of corruption, irresponsibility and unprofessionalism of local public servants. That is why delegation of additional resources and authority without introduction of effective control mechanisms may be as catastrophic for Ukraine as delegation of vaccination programs to the regions in Africa.
In the regions of Ukraine there are a number of deprived areas where independent local financial bodies simply can not function. These areas need support from the national government. Otherwise, the social consequences will be negative. And decentralization will decrease competitiveness of these regions. Even in such a developed country as Japan a gap between rich and poor citizens started growing after decentralization n 2000.
Also, opponents of decentralization are sure that decentralization will not increase regional competitiveness because Ukraine still does not have a well-established public administration system on a national level. Under ongoing political contradictions power and resources should be consolidated on a national level but not delegated to the regions. Ukraine needs a strong national policy of regional development favouring growth of the regions with the highest potential. During the economic crisis resources should be concentrated at the promising places rather than scattered around the country. Such policy in particular will increase competitiveness of the country as a whole and its regions.
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