On 1 January 1999, four major reforms took effect in Poland in the areas of health, education, pensions and local administration. After 20 years, only in the last case does the original structural design remain essentially unchanged. We examine the implications of this reform from the perspective of the distance of municipalities from their regional administrative capitals. We show that despite fears of negative consequences for municipalities which ended up on the periphery with respect to their post-reform administrative centres, the reform did not result in slower socio-economic development in these regions. We argue that regional inclusiveness in the process of development is likely to be an important factor behind the stability of Poland’s administrative design.
Four major reforms took effect on 1 January 1999 in Poland, substantially changing the structure of healthcare, education, the pension system and local government administration. The extent of the changes and the fact that all four reforms were implemented on the same day could in fact be considered as representing a symbolic final step of the Polish socio-economic transition which had started nearly ten years earlier. However, in 2019, twenty years after the reforms took effect, the originally introduced structural design remains unchanged in only one of the four areas – local government.
In a recent paper (Myck and Najsztub, 2019) we take a close look at the implications of the 1999 administrative reform treating it as a form of a “natural experiment” and analysing its consequences for socio-economic development dynamics in municipalities, which ended up on the periphery with respect to their post-reform administrative capitals. Using a broad set of indicators we find that the reform did not have significant negative consequences for these municipalities and ensured inclusive development at the regional level. This might be an important factor which has determined the longevity of the administrative design implemented in 1999.
The local administrative design in Poland before and after 1999
Major administrative reforms are relatively infrequent, which makes the scope and scale of the one implemented in Poland on 1 January 1999 a rather unique point of reference for analysis of potential implications of administrative restructuring. The reform went far beyond the administrative rearrangement of local government, as it was the culmination of a process that reintroduced local autonomy to the Polish political system.
The goal of the reform was to further decentralise political power and increase public finance transparency. The middle tier of local government – the counties (powiats) – was reintroduced as a body responsible for the administration of institutions beyond the scope of a single municipality (e.g. hospitals, secondary schools, public roads, unemployment). At the same time the number of top tier administrative regions – the voivodeships – was reduced from 49 to 16, and their responsibilities were focused on overall regional development, higher education, regional infrastructure and the prospective management of EU funds. In the end, the reform resulted in the formation of 16 voivodeships, 308 counties, 66 towns with county status and 2478 municipalities. This administrative division of Poland has been in place, with minor modifications, since 1 January 1999 (for details and comments, see Blazyca et al. (2002), Regulski (2003) and Swianiewicz (2010)).
The reform implied the loss of regional administrative capital status for 31 cities (administration in two voivodeships, Lubuskie and Kujawsko-Pomorskie, is split between two capitals), and for nearly 60% of municipalities it resulted in an increase in the distance to their regional administrative centre compared with the pre-reform arrangement. These features of the reform are illustrated in Figure 1. Cities marked in blue used to be administrative capitals before 1999, while those marked in red maintained their status after the reform. The blue rays show the distance of municipalities from their respective administrative capitals before 1999, with the post-1999 distances marked in red. In the case of the two new voivodeships where two cities received capital status (Lubuskie and Kujawsko-Pomorskie), we measure the distance to the city that became the site of the regional government (sejmik wojewódzki), which is the key institution responsible for regional development.
Figure 1. Administrative arrangements in Poland before and after the 1999 administrative reform: voivodeships, capitals and distance from municipalities to regional administrative centres.
Notes: Blue rays show the distance of municipalities to their respective administrative capitals before 1999; the post-1999 distances to regional administrative centres is marked in red. Distances (in straight lines) between centroids of municipalities.
Source: BDL, own calculations.
Identifying implications of the reform for regional capitals and peripheral municipalities
An important concern related to the introduction of the reform was first, its consequences for the voivodeship capitals which lost this status due to the reduced number of top-tier regions. Secondly, at the level of municipalities, the question was whether the redesign of the administrative network would result in any negative changes of development dynamics in municipalities, which as a result of the reform landed on the periphery with respect to the new voivodeship capitals. In Myck and Najsztub (2019) we consider both of these concerns looking at a number of indicators of socio-economic developments, including population dynamics, local government finances as well as the intensity of nighttime lights measured by satellites, which has recently been treated in the literature as an overall proxy for economic development (Henderson et al., 2012; Pinkovskiy and Sala-i-Martin, 2016). We look at each of these problems using the difference-in-differences approach. In the first instance we compare the developments before and after the reform for voivodeship capitals, which maintained the status and those which did not, and in the latter we look at municipalities for which the distance to their administrative capital increased relative to those for which it remained unchanged or fell.
In the case of voivodeship capitals, due to the obvious differences between the two groups of pre-1999 capitals which in the end determined their post-reform status, our estimates can only be treated as descriptive. In the second case though, since municipalities had little choice with regard to their assignment to the new voivodeships, the results can safely be interpreted as causal. To address the differences between the two groups of municipalities, we apply the entropy balancing method of matching to ensure pre-reform uniformity in the distribution of the analysed municipality characteristics (Hainmueller, 2012; Adda et al., 2014). A summary of the results of both sets of estimations is presented in Table 1 where we show the difference-in-differences coefficients for six socio-demographic outcomes. The estimation period covers the years 1995-2012.
As we can see in Table 1 the only consistently negative and significant coefficient which we find in the two main specifications concerns net migration. Other than that, the results seem to go against the initial concerns with positive coefficients on own revenues, which are statistically significant in the case of the voivodeship capitals, though not in the case of peripheral municipalities. Results for the intensity of nighttime lights are negative in both cases but are not statistically significant. Particularly in the case of peripheral municipalities – where as we argued we can treat the results as causal – we find no evidence of major negative implications of the reform for socio-economic dynamics. This result, as we show in Myck and Najsztub (2019) is confirmed in a number of robustness tests.
Table 1. Diff-in-diff regression estimates for voivodeship capitals and municipalities
|Outcome||Voivodeship capitals: effect of loss of regional capital status||Municipalities: increased distance to administrative capitals|
|Net migration, pers.||-1.902||(-2.906)||**||-12.579||(-2.372)||*|
|Own revenues, p.c. log||0.076||(1.872)||+||0.024||(1.028)|
|Own non-capital revenues, p.c. log||0.136||(2.307)||*||0.033||(1.246)|
|Total lights, p.c. log||-0.028||(-1.396)||-0.002||(-0.049)|
|Number of observations:||882||43218|
Note: + p < 0.10, * p < 0.05, ** p < 0.01, *** p < 0.001; standard errors clustered at the municipality level. Monetary values in real 2005 PLN terms. Values in log in cases where the dependent variable is log-normally distributed. Per capita estimations (p.c.) weighted by population size. All estimations include capital/municipality and time fixed effects.
Source: Authors’ calculations using data from the Local Data Bank (Bank Danych Lokalnych, BDL; data on population and finances) provided by the Polish Central Statistical Office (GUS) and nighttime lights data provided by the National Oceanic and Atmospheric Administration (NOAA) (Elvidge et al., 2009; National Geophysical Data Center (NGDC), 2010). Data for years 1995-2012.
The socio-economic development in central and peripheral municipalities with respect to the new voivodeship capitals seems therefore to be unaffected by the reform. Importantly also, despite concerns about the marginalization of the cities which lost the voivodeship capital status in 1999, their socio-economic performance has not been much worse compared to those which remained capitals and received greater administrative responsibilities and budgets to manage. From this point of view, the stability of the structure of Poland’s local government and the longevity of the administrative design implemented in 1999 should not be surprising. The claims of the need to change the Polish administrative design and promises of changes resurface at each parliamentary election. These promises have so far been left unmet and inclusivity of socio-economic development at the regional level that followed the reform is likely to be an important factor behind this.
The authors gratefully acknowledge the support of the Polish National Science Centre through project no. 2016/21/B/HS4/01574. For the full list of acknowledgments see Myck and Najsztub (2019).
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Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
The current Ukrainian political system, which is a highly centralized “winner-take-all” system, is one of the main causes of the recent mass street protests. A decentralization reform is needed to make the system more stable by providing people with more impact on policy making, and increasing accountability of the government. A decentralization reform would reduce paternalistic expectations and provide people with more opportunities to take responsibility for public policy design in their region. In addition, it would improve the quality of national politics by introducing more competition and allowing successful regional politics to spread to the national level. However, as all reforms, decentralization bears some risks. This policy brief discusses the benefits and risks of such reform, suggests some ways of mitigation of the risks, and the procedure for reform development.
“In decentralized systems, problems can be solved early and when they are small. And when there are terrible failures in economic management—a bankrupt county, a state ill-prepared for its pension obligations—these do not necessarily bring the national economy to its knees.” / Nassim Taleb
In their path-breaking article Roger Myerson and Tymofiy Mylovanov argue that the underlying reason for the Ukrainian street protests in 2004 and 2014 is a fundamental flaw in the country’s Constitution, namely, the design of its government system. Currently, it is basically a “winner-take-all” system, where a winner of the national elections gains almost a dictator’s power, and then tries to prolong his stay in office with all means.
Such a system – where almost all the power is concentrated in the hands of the central government, and where local authorities, even the elected ones, have very little room for their own decisions – resembles an inverted pyramid and is therefore unstable. A natural way to stabilize the system is to put the pyramid on its foundation – i.e. to provide people with more impact on (and responsibility for!) both local and central government policy.
However, the Ukrainian government has announced a decentralization reform, and has already adopted a Decentralization Concept, which defines the main goals and milestones of the reform. According to the Concept, the legislative base for the decentralization should be developed by the end of 2014. However, it is clear that these plans are unrealistic. This, since on top of Constitutional changes, the reform implies changes to the administrative structure of the country, a redistribution of responsibilities between different levels of local government, and changes to the Tax Code, the Budget Code, and to several other documents. Such a scope of reforms is hardly attainable within the planned timeframe.
So far, the President’s office has developed changes to the Constitution, and the Cabinet of Ministers has drafted changes to the Budget Code. However, both documents miss the main point of the reform – empowering of people (rather than simply delegating some responsibilities from central to local governments). Instead, the drafted law on changes to the Constitution empowers the President, and the drafted changes to the Budget Code are an attempt of the central government to get rid of its “headaches” (e.g. ecological or social housing programs) while at the same time consolidating “electorally valuable” spheres, such as education and healthcare. This Draft Law proposes transferring some revenue sources from central to local levels, and at the same time to extract a part of the revenues that currently belong to local budgets to the central budget. A more detailed analysis of the proposed changes is provided in this article.
To my mind, the main impediment to the decentralization reform is a lack of a systemic approach. The Decentralization Concept does not provide a clear reform path, and changes to the legislation proposed so far look like pieces of a puzzle that do not fit together.
I suggest that the decentralization reform should be developed together with the administrative reform and proceed according to the following algorithm:
- Define functions of the state and distribute them between different levels of government according to a subsidiarity principle; i.e. a function should be transferred to the lowest government level capable of implementing it.
- Estimate the volume of funds needed to implement these functions.
- Assign sufficient revenue sources to local governments.
- If a community is too small to generate a sufficient revenue flow, merge several communities and repeat steps 3-4, keeping the distance between the center of such a united community and its most remote settlement below a defined limit.
- Establish feedback mechanisms through which people in a community could control the authorities and impact their decision-making. These mechanisms are not only elections, but also, more importantly, permanent between-elections activities, such as public hearings/discussions of drafts of local government decisions.
- Use a few communities as pilots and thus find out potential strengths and weaknesses of the proposed reform and make necessary corrections.
The outcome of this algorithm should be a logically connected package of legislative changes rather than a bunch of separate documents.
The development of this reform should be as transparent as possible, and accompanied by wide information and education campaigns about the opportunities that decentralization will provide, and the ways to use these opportunities. These information campaigns are necessary because many Ukrainians now think that decentralization (or federalization) is pushed by the Russian president in order to split Ukraine into parts.
As with all reforms, the decentralization has its potential benefits and risks, which should be accounted for. Fortunately, there exists both a wide academic literature and international experience on this issue.
The economic literature, both theoretical and empirical, does not unambiguously show that “decentralization is good”. Rather, a success of decentralization depends on a number of other factors, such as the presence of democracy (Inman, 2008) and a sufficient accountability of the government (both local and central).
In itself, decentralization does not lead to higher economic growth (e.g. the review of Feld et al, 2013). However, when accompanied by other growth-enhancing reforms, decentralization can positively impact a country’s economic development (Bardhan 2002).
Both the literature and experience of other countries suggest the following major risks of decentralization:
- Decentralization may increase corruption at the local level. If a local official is not accountable to a higher-level government, she may try to extract some rent from her position. This risk can be reduced by a high transparency of the government and working mechanisms of control of citizens over officials.
Indeed, Lessmann and Markwardt (2009) show that decentralization lowers corruption in countries with high levels of freedom of the press, and is harmful for countries where monitoring of the government is not efficient. Besides, Fan, Lin and Treisman (2009) find that “giving local governments a larger stake in locally generated income can reduce their bribe extraction”, i.e. for decentralization to lower corruption, the institutional setup should encourage local officials to create a favorable business environment in their regions.
- Decentralization may intensify secessionist movements. To lower this risk, the largest volume of responsibilities should be transferred to the lowest (community) level. It is rather easy for separatists to buy support of oblast-level officials and get control over an entire oblast. It would be much harder for them to buy every community head in an oblast. Moreover, getting control over an oblast, even rayon by rayon, let alone by community, is practically infeasible.
- Decentralization enhances initial inequality between regions – so the central government has to step in by providing subsidies/subventions to less developed regions (Cai and Treisman, 2005).
At the same time, the “bonuses” of decentralization are worth taking the risks:
- Reduction of tensions between the regions. In the Ukrainian situation, this implies removing grounds for mutual accusations that “one region feeds other regions” or “one region rules the entire country”. If a party that wins a majority in the national elections does not have extensive power over the daily life of people, they can more easily accept the fact this is not the party they voted for.
- Improvement of the national politics by increasing competition between local officials, and between local and central officials. As we know, competition typically increases the quality of a product. Political competition is no exception. As Myerson (2006) notes, “by creating more opportunities for politicians to build reputation as responsible democratic leaders, a federal [decentralized] system can effectively offer an insurance policy against general failure of democracy”. Thus, democracy and decentralization strengthen each other.
- More efficient government. On average, policy decisions will be made closer to their final beneficiaries and hence, will be more fitted to the needs of a certain community. At the same time, all levels of government will work more efficiently.
Decentralization does not imply a weakening of the central government. Rather, it frees its institutions from an unnecessary workload allowing them to concentrate on more strategic tasks, such as:
- protecting people’s rights by establishing a working judicial and security (police and army) systems;
- forming a strategic vision and general directions of the country’s development;
- protecting the country’s interests on the international level.
To make sure that decentralization does not result in feudalization, local officials should be controlled not only by local citizens but also by the central government (law enforcement); strong country-wide political parties would also help to hold the country together.
A decentralization of the Ukrainian political system is currently in the very focus of political, public and research debate.
However, this reform is not likely to be an easy one. The prerequisites for successful decentralization include functioning democratic mechanisms – fair elections, a free press and a strong civil society – resulting in government accountability. Also, for the decentralization reform to succeed, it needs to be coherently bundled with a range of political and administrative reforms (such as the development of a functioning judicial system, deregulation, reduction of rent-seeking opportunities etc.), and development and implementation of such a package is challenging and time-consuming.
At the same time, a wisely designed decentralization process will be highly beneficial for Ukraine, both politically and economically. It will strengthen democracy (by increasing people’s participation) and improve the quality of national politics by introducing more competition into the political system. It is also likely to significantly contribute to economic growth and prosperity, and these benefits make the decentralization reform in Ukraine a challenge worth undertaking despite of all the costs and risks.
- Bardhan, Pranab (2002). “Decentralization of Governance and Development,” Journal of Economic Perspectives, American Economic Association, vol. 16(4), pp. 185-205
- Brancati, Dawn (2006). Decentralization: Fueling the Fire or Dampening the Flames of Ethnic Conflict and Secessionism? International Organization. Vol.60, issue 03, pp. 651-685
- Cai, Hongbin and Daniel Treisman (2005). Does competition for capital discipline governments? Decentralization, globalization and public policy. The American Economic Review, Vol. 95, No. 3, Jun.2005
- Cai, Hongbin and Daniel Treisman (2009). Political decentralization and policy experimentation. Quarterly Journal of Political Science. Vol 4. Issue 1.
- Deiwiks, Christa, Cederman, Lars-Erik und Kristian S. Gleditsch (2012). Inequality and Conflict in Federations. Journal of Peace Research. March 2012 vol. 49 no. 2, pp. 289-304
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- Fan, C. Simon, Lin, Chen and Daniel Treisman (2009). Political decentralization and corruption: Evidence from around the world. Journal of Public Economics. Vol.: 93 (2009)
Issue: 1-2, pp: 14-34
- Inman, Robert P. (2008). Federalism’s Values and the Value of Federalism. NBER Working Paper 13735. http://www.nber.org/papers/w13735
- Lars P. Feld, Baskaran, Thushyanthan and Jan Schnellenbach (2013). Fiscal Federalism, Decentralization and Economic Growth: A Meta-Analysis. Public Finance Review 41 (4), 421-445
- Lessmann, Christian and Gunther Markwardt (2009). One Size Fits All? Decentralization, Corruption, and the Monitoring of Bureaucrats, CESIFO Working Paper No. 2662, Cat. 2: Public Choice.
- Myerson, Roger B. (2006). Federalism and Incentives for Success of Democracy. Quarterly Journal of Political Science, 2006, 1: 3–23
- Treisman, Daniel (2006). Fiscal decentralization, governance, and economic performance: a reconsideration. Economics and Politics, July 2006, 18, 2, pp. 219-35.