Gaps in the system
By NIAZ MURTAZA

IN large diverse countries, two layers of governance only — federal and provincial — generally become insufficient.

Despite devolution of power, provinces often cannot govern effectively due to their large geographies, populations and ethnic and geographical diversities. Thus, a third, local government, layer becomes desirable.

Local governments, or LGs, confer several advantages in democracies. They become nurseries for political leaders and ideas and encourage healthy competition among districts.

LGs usually cover less diverse geographies and populations. Local leaders are more accessible and accountable to people and possess better local knowledge.

However, LGs can increase administrative costs, duplication, confusion and unhealthy competition. Thus, LG systems must be designed carefully so that their benefits outstrip disadvantages.

The most important design considerations include providing LGs with adequate legal, operational and financial independence and functional responsibilities. After a gap of almost three years, this crucial missing link between the state and people is gradually being reintroduced in Pakistan.

Punjab, Sindh and Balochistan have recently adopted new LG laws and KP is in the process of doing so. Even Islamabad may have a local government. An analysis of the Sindh and Punjab laws and the Constitution in light of these design considerations unfortunately reveals many gaps. The most worrisome gap relates to inadequate legal protection. The Constitution contains dozens of clauses protecting provincial rights and restricting the federal government’s ability to dismiss provincial governments and delay provincial elections.

However, the handful of LG clauses in the Constitution provides no protection against arbitrary dismissals by provincial governments and their ability to postpone LG elections indefinitely despite court orders.

Where the laws are concerned, in the LG system in Sindh, the provincial government can supersede local councils for up to a year if its inquiries reveal that LGs are “not discharging their responsibilities adequately”. The Punjab government can dissolve LGs during national or provincial elections. In contrast, the federal government can suspend a provincial government for two months only during emergencies. Further suspension must be approved by parliament.

Since LGs are a provincial subject, it is understandable that the Constitution does not cover detailed LG rules. Moreover, given their lower capacities and numeracy, LGs admittedly require more oversight than provinces.

Nevertheless, the Constitution must still ensure that LGs can function as independent third layers of government by reducing arbitrariness in the way provinces supervise and suspend LGs.

Effective LGs must also have adequate functional and services responsibilities and sufficient operational independence therein. Services i) whose benefits can easily be restricted within local jurisdictions, ii) whose production can be divided locally without significantly increasing their production costs; and iii) which do not require broader harmonisation must be devolved to LGs.

For example, the benefits of basic public health and education services can easily be restricted within localities. However, such services must also harmonise with national and even international technical standards. Thus, the development of educational and health standards, eg, curricula, must remain with provinces while school and clinic administration must be devolved locally. Similarly, local large universities and specialised hospitals may not be managerially feasible or cost-effective, except in mega-cities.

Although both the Punjab and Sindh laws assert that all typical LG services, eg, social sectors, local infrastructure, public safety, etc have been devolved locally, they contain loopholes to potentially undermine devolution in practice.

Senior bureaucrats will continue to be appointed by the provinces and will consequently owe their main accountability to the provinces. Punjab is establishing “district” education and health (arguably the two most important LG functions) authorities that will be managed by unelected, provincially appointed, bureaucrats. Both acts contain clauses saying that the LGs must abide by the dictates of and take permission from provinces in implementing their plans.

Finally, LGs must have independent revenue sources not only to enhance their operational independence but also to instil a greater sense of fiscal responsibility among LGs.

This principle must be balanced against the reality of the disparity in the taxation capacity across rich and poor districts and the equity imperative that residents of different districts get similar quality services.

Thus, large transfers from federal and provincial governments to poorer LGs are imperative while still ensuring as much local revenue generation as possible. Given the large number of LGs and their close proximity to several other LGs, taxpayer flight is a bigger problem for LG than for provincial and federal finances.

This is why LGs in developing countries generally apply taxes on relatively immovable revenue sources, such as property and road taxes, and depend heavily on vertical transfers from higher governments.

Both acts generally follow these principles. However, the main issue relates to the formulae by which the vertical transfers will be allocated across districts. Both bills are silent on this issue. For determining the transfer formulae, both provinces are appointing finance commissions (as under the 2001 LG system) where LG representatives will be in a minority. Until these commissions reveal their determinations, it is not possible to evaluate how effective and fair LG finances in both provinces will be.

Such determinations should preferably be based on exercises covering a representative sample of districts that analyse local taxation capacities, revenue requirements and, consequently, the needs for vertical transfers of districts of different economic status.

The current moves on the LG front are merely the first steps in their development. Just as the federal government was reluctant to devolve genuine authority to provinces, the provinces are reluctant to devolve authority to districts. As with provincial autonomy, the struggle for local autonomy in Pakistan will be a long and arduous one too.

The writer is a political economist at UC Berkeley.

murtazaniaz@yahoo.com