| Abstract | Devolution of political-administrative powers to localities is thought to create a more
conducive environment for local economic development. The objective of the research was to
investigate economic effects of devolution of governmental powers to the local people in a
direct democratic fashion. The research compares two Asian localities in Thailand and the
Philippines with two European localities in Spain and Switzerland. Through this research
simulation models of the politico-economic process of four sample localities was developed.
The lack of hard data on the local level suggested the use of System Dynamics as analysis and
simulation methodology. System Dynamics modeling methods were amalgamated with Social
Network analytical and econometric tools. Social Network Analysis was used to develop the
systems' power structure. The dynamic models become locality specific by filling structural
and behavioral parameters with local values derived through field research. The models allow
the simulation of the devolution of powers to the villagers versus the exclusive or partial
concentration of these powers in the hands of the local governments. Thus the research does
not deal with the power and choice relations between local and upper government, but rather
with granting direct democratic powers to the villagers themselves, with the local government
being the executioners of the peoples' will only
Through this research, it was demonstrated that the combination of the methodologies of
System Dynamics, statistics, econometrics and Social Network Analysis allows gaining more
profound insights in the workings of politico-economic systems, particularly with respect to
long-term economic effects of changes in the political and economic environment. The
simulations demonstrated that policy variations matter very much on the local level for
gaining competitive advantage against other localities. From a point of view of cause and
effect of policy variations, there are no fundamental differences between the European and
Asian loca lities. It is the structural and process settings of each country that make the systems
behave differently. This allows indicating more clearly which policies, behaviors or
parameters should be changed for the attainment of particular objectives.
The research also showed that devolution of powers, not only to local governments, but in a
direct democratic fashion to the vi llagers themselves, creates the best results. Low education
and low income and wealth status could not be found to seriously constrain devolution of
governmental powers to the localities.
Education, and there particularly private education efforts turned out to be the major key to
development and growth. Despite this fact, education was not an important need of the
villagers, and if mentioned by vi llagers, it was vocational education that was needed.
Corruption and irregular financing practices are important growth deterrents. The field
research revealed that corruptive practices on the local level, even in the Asian localities, do
however not come near the figures circulated for the national levels. The simulations showed
that irregular financing practices are best held in check indirectly via improved general
education and a high organizational intensity.
A major obstacle to growth turned out to be a large public sector, if it's financing must come
mainly from local sources. The negative effects work on one hand through high tax rates, and
on the other hand, through opportunities for corruptive and irregular finance practices offered
by large infrastructure budgets. This shies away private investments. Locally financed public deficit spending resulted in negative results, even when the loans were completely channeled
into public education.
Culture, particularly Hofstede's (1984) Power Distance dimension, rather than education and
income, seems to be one of the major obstacles to devolution of powers to the localities and to
the villagers. Though culture is no hindrance for devolution, culture probably determines the
pace for the devolution process.
The general expectation that the Asian localities in particular, and rural localities in general,
function according to Riggs' (1962) Sala model that describes a corruption driven and rule
lacking government, could not be confirmed for the four sample localities.
Although statistically weak, the results allow the conclusion that the higher the organizational
intensity, the more likely will villagers take part in the local political life, and put pressure on
their councilors through questioning village councilors and making proposals. Organizational
intensity does, however, not seem to play the central part in the development and economic
process as often asserted.
The simulations showed that without drastic policy changes, particularly in empowerment of
the local villagers, it will not be possible for the Spanish the and two Asian localities, to close
up to the Swiss village in terms of disposable household income and Development Status. A
general conclusion to the extent that fully empowered villagers are beneficial for the
development of a locality can be made. |