Draft Law on the Budget Code is not about decentralization, although it has some positive developments.

By Ilona Sologub (Kyiv School of Economics, Ukraine)

On August 8^th, the government registered the Draft Law on changes to the Budget Code concerning decentralization. The draft law has already received some complimentary as well as some negative (here and here) feedback. Since the Draft Law was supposed to become an integral part of the decentralization reform package, this post analyzes it from this point of view. The main conclusions are:

1. The proposed amendments to the Budget Code do not correspond with the logic of the reform and with the Decentralization Concept adopted by the government.
2. It seems that the main motivation behind the proposed Budget Code amendments was “making the central government look good” by transferring all problematic issues, such as cultural and ecological projects, renovation of housing, etc. to the local level while keeping the most “electorally valuable” spheres, such as education, healthcare, and social protection under the central government hand.
3. The Draft Law contains some positive developments, such as the new system of calculating inter-budgetary subsidies and somewhat eased procedures for obtaining external loans by local governments.

The more detailed analysis is presented below.

A Perspective on the Current Situation in Ukraine

By Roger Myerson (University of Chicago, 2007 Nobel Prize Winner)

In the Ukrainian crisis today, the important question is whether Ukraine will have an  opportunity to develop as a sovereign democratic nation. Questions about extensions of international alliances may be a dangerous distraction from this vital point.

Since the end of the Soviet era, the development of democracy in Ukraine has been frustrated by a unique and perverse form of constitutional centralization. Ukraine's constitution gives the president the power to appoint and dismiss all local governors. Such presidential power over local officials is extremely unusual among parliamentary democracies. This centralized control of local government has exacerbated regional tensions and hindered the development of trusted democratic leadership in Ukraine.

Democracy is about voters having a choice among alternative candidates who are trusted to exercise power responsibly. When such trusted leadership is lacking, democracy is inevitably disappointing and fragile. Although a presidential election can give prestige to its winner, it does nothing to develop the broader supply of trusted alternative candidates on which the success of democracy will ultimately depend.

Local Government Reform: Corruption and Accountability

By Donna Kim and Yuriy Gorodnichenko (UC Berkeley)

Robert Hawkins once said that corruption has been with us since the beginning of human organization but one cannot be complacent about corruption because it eats not only at the economic fabric of society but also at the moral foundations. It is hard to imagine that corruption is going to be eradicated completely but there is a simple set of rules that can minimize corruption. “Corrupt cities” is a wonderful cookbook of such rules. The guiding principle is that one can identify areas where corruption can arise and then prevent it.

Specifically, the book offers a simple formula: corruption = monopoly power + discretion of officials minus accountability. In other words, corruption is strong where an official has exclusive power to deliver a service (e.g. issue a permit), where he or she has freedom in interpreting facts and rules (e.g., there is no framework or formula for making consistent decisions),  where he or she does not report to anybody and his/her activity is not subject to the public’s scrutiny (e.g., all documentation is for “internal use only”). “Corrupt cities” presents many examples of how one can break corruption by a combination of simple policies that reduce monopoly power (e.g., use procurement or vouchers to obtain services) and discretion (e.g., minimize stages of decision making and simplify rules) and increase accountability (e.g., make hearings on key decisions public, publish reports about tenders, and use e-governance).

Poland Local Government Reform: Division of Responsibilities

 

By Yuriy Gorodnichenko and Donna Kim (UC Berkeley)

 

Poland demonstrates a successful case of transition from a centralized communist state to a decentralized local government system. The transition in Poland was made possible through persistent negotiations, trials and legislative amendments regarding various aspects including administrative division, responsibilities, and financing. This experience is highly informative for Ukraine in building a democratic country based on the principles of decentralization. In fact, the survival of Ukraine as a unitary country depends on delegation of power to local governments.  This post, the first one in a series of our posts about decentralization, will focus specifically on the topic of allocation of responsibilities among the different levels of local governments in Poland.

Federalization Problem: Russia vs. Ukraine

by Kateryna Dronova (Berkeley, CA)

Shortly after Russia swallowed Crimea, its appetite grew even stronger: next day after March 16 Crimean referendum Russian Foreign Ministry called upon Ukrainian government to create a new constitution providing for “democratic federal state”. On April 17 Vladimir Putin questioned Ukrainian current borders and called its eastern and southern part “Novorossiya” (New Russia, Russian-speaking regions formerly controlled by Russia during the imperial times). By the end of the month federalization in Ukraine has become #1 issue in Russian-Ukrainian dialogue. Sergey Lavrov, Russian Minister of Foreign Affairs, in his interview stated that Russia must insist on federalization “not because we want this, but because it is a request of the southern and eastern regions.” Ukrainian Transitional Government strongly opposes the idea of creating a “federation” out of a unitary state and views Russian suggestion as an attempt to “dismember” a country. At the same time the idea of decentralization of power has acquired recognition and support from Ukrainian officials and is currently promoted to become central in the reforms package. Unexpectedly President of Belarus Alexander Lukashenko (old Russian ally) joined Ukrainian side and commented that federalization would "split the country" and “destroy the Ukrainian state.” This post makes humble attempt to distinguish between Russian “federalization strategy” and Ukrainian “decentralization ambition” and clarifies whether one should follow Mr. Lukashenko’s example.