Raghuram Rajan (University of Chicago Professor) – Is it time to de-centralise power? (Jul 2020)

Chapters

Abstract

Decentralization and Empowerment: Key Strategies in Navigating Pandemic Politics and Economics

1.

In a world grappling with the multifaceted challenges posed by the COVID-19 pandemic, the role of decentralized political structures and local empowerment has become increasingly significant. This article delves into the complexities of political devolution during a pandemic, the rise of populism, the advantages of local democracy, concerns about local leadership, and the role of local governments in emerging markets. It explores how decentralized responses to the pandemic, such as those seen in New York State, have been pivotal. The discussion also covers the economic and social drivers of populism, the pandemic’s impact on societal fault lines, post-pandemic politics, and the insights of Raghu Rajan on devolution, democracy, and financial vulnerabilities. The article concludes with an examination of the broader economic challenges and uncertainties of the COVID-19 crisis.

2. The Case for Political Devolution in a Pandemic

Decentralized decision-making has emerged as a crucial strategy in managing the COVID-19 pandemic. Local authorities’ ability to tailor policies to regional needs proves more effective than one-size-fits-all centralized approaches. Political devolution is beneficial as it allows local areas to tackle issues unique to their region such as varying infection rates, resources, and demographics. Central governments may lack the specific knowledge or understanding to effectively implement policies in diverse areas. Local authorities, with their deeper grasp of regional issues and challenges, can make informed decisions based on local needs and priorities.

3. The Rise of Populism and Local Empowerment

Populism, which thrives on citizens’ feelings of disconnect from national authorities, can be countered by empowering local governance. This empowerment fosters a sense of agency among citizens, reducing the appeal of populist leaders. It enhances democratic participation and responsiveness at the local level. Devolution provides local democracy and agency, preventing citizens from turning to populist alternatives. By giving people control over their local affairs, local empowerment can diminish the appeal of populist leaders and promote more inclusive and responsive governance.

4. Local Democracy in the Digital Age

The advent of modern technology has significantly bolstered local democracy. Digital platforms and apps enhance transparency and accountability in local governance, enabling citizens to effectively monitor and voice their opinions. This technological advancement ensures that local authorities act in the public interest. Local authorities’ understanding of regional problems is complemented by digital tools that allow for better surveillance and accountability. Citizens can use these tools to hold their local representatives accountable, ensuring that they act in the community’s best interests.

5. Addressing Local Leadership Quality Concerns

Concerns about corruption and incompetence in local governments are valid, yet the ease of controlling or removing local leaders, coupled with a larger pool of potential leaders, mitigates these risks. This approach increases the likelihood of finding competent individuals for local governance. Optimism for better leadership at the local level is realistic, and the law of large numbers suggests a higher chance of finding good leaders among a larger pool of candidates. The ease of removing local leaders further ensures accountability and the replacement of those found to be incompetent or corrupt.

6. Local Governments in Emerging Markets

Empowering local governments in emerging markets is essential for improving public services and addressing local challenges. When local authorities are disempowered, it often results in neglect of public services, urban decay, and citizen dissatisfaction. The quality of local leadership is a challenge in many emerging markets. Empowering these governments can improve the quality of life for citizens and promote more inclusive and sustainable development.

7. Partisan Battles in Local Governance

Local governance is susceptible to partisan conflicts, which can be as intense and divisive as those at the national level. These conflicts can hinder effective decision-making and service delivery. The role of state governors in the US pandemic response illustrates this, with varying approaches leading to accusations of overzealous or insufficient lockdowns. It is important to manage these conflicts constructively to ensure productive local governance.

8. Decentralized Responses to the Pandemic

Decentralized responses to the pandemic, as exemplified by New York State, have been effective in containing the virus and providing crucial services. Raghu Rajan highlights the role of state, regional, and local responses in mitigating the pandemic’s adverse effects on livelihoods. He commends the efforts in creating employment, welfare services, and food banks, and emphasizes the importance of local government support for these initiatives.

9. Economic and Social Drivers of Populism

Economic factors like job losses and income inequality, along with social factors such as cultural and identity grievances, drive populism. The pandemic has exacerbated these drivers, affecting even economically well-off individuals who support populist leaders due to identification with struggling community members. Rajan acknowledges the debate around the drivers of populism, suggesting that both economic and social factors contribute to it.

10. Pandemic’s Impact on Societal Fault Lines

The pandemic has intensified societal disparities, particularly affecting those with precarious livelihoods. Rajan calls for attention to the needs of historically disadvantaged minorities and newly disadvantaged communities, such as those affected by factory closures. Focusing on policies that support and provide opportunities for these groups in the post-pandemic era is crucial.

11. Post-Pandemic Politics and Devolution

Post-pandemic politics will focus on supporting those struggling economically and socially. Rajan underscores the importance of local community involvement in policy-making and advocates for inclusive and effective communication to ensure widespread support and understanding of policies.

12. Financial System Vulnerabilities and Policy Debates

Raghu Rajan highlights vulnerabilities in the financial system and the debate around inflation targeting versus nominal GDP targeting. He stresses the need for addressing structural issues and investing in education and job creation. Decentralization should lead to inclusive localism, where local communities are empowered to determine their own development and priorities, fostering local initiative and responsibility.

13. Balancing Local Empowerment and Global Challenges

In conclusion, the COVID-19 crisis underscores the importance of decentralized political structures and local empowerment in navigating pandemic politics and economics. Challenges such as quality of local leadership and partisan conflicts exist, but the benefits of local democracy, transparency, and responsiveness are evident. As the world continues to address the pandemic’s aftermath, the insights and strategies discussed here will remain pivotal in shaping effective and inclusive responses.

Notes by: Random Access