In Search of Decentralization and Deconcentration: Local Autonomy and Fiscal Reform in Korea

Article excerpt

Roy W. Shin and Yeon-Seob Ha*

ABSTRACT. Decentralization initiatives that focus mainly on electoral and political processes without considering the fiscal and institutional dimensions can not be sustainable. Political decentralization is associated with the devolution of power to subnational political entities. If decentralized institutions in Korea are to perform the responsibilities devolved to them, they will need an appropriate level of fiscal resources to cover the costs of providing local public goods and services. The fiscal risks from decentralization are greater under an unbalanced financing strategy that creates large windfall gains and losses.

INTRODUCTION

Over the last decade, the trend of government decentralization observed in many nations around the globe has also been occurring in Korea. Proponents of local autonomy often say they want to shift government authority "closer to the people.' This transfer of authority to regional, state, and local entities has, to some extent, gained a reputation as the "cure all" for a variety of political and economic problems. In theory, decentralization may strengthen democratic participation and improve the quality and delivery of local services, but it is also plausible to argue that decentralization may be used by central governments to cut deficits and reduce public sector spending by exporting these costs to regional and local authorities while only partially compensating the local authorities for the costs of assuming greater responsibility. Furthermore, it cannot guarantee more effective citizen participation in civic life or higher standards of public accountability. Decentralization has to be supplemented by other types of institutional reforms. The ratio of decentralization of fiscal support mechanisms to government responsibilities may be the single most important, and hence most complex issue that nations must address during this process.

Understanding the underlying intent of central government is therefore an essential element in analyzing decentralization initiatives. Decentralization initiatives that focus primarily on electoral and administrative processes without considering the fiscal and institutional dimensions will not be sustainable. The purpose of this paper is to study how Korea's local public finance has changed and to examine policy options for intergovernmental finances in creating a fiscal system that supports political reform. The current debate over the fiscal decentralization in Korea is a timely one because a fundamental problem in harnessing political accountability at the subnational government level lies in the general attitude about the proper function of local governments. The central issue - the role of different levels of government in providing services and in undertaking development tasks -- is precisely the question that Korea should tackle. It is subjected to dual forces that have advocated decentralization (of political authority) as well as deconcentration (of administrative authority). In other words, the process of decentralization involves two dimensions. First, deconcentration requires delegation of administrative authority. In this system some administrative responsibilities are transferred to the lower levels of government. Second, devolution entails the assignment of decisionmaking authority to subnational governments.

Regardless of the particulars of Korea's administrative traditions, the issues of intergovernmental fiscal relations, personnel management, and allocation of functions applies to most countries that are in transition to democracy. Korea has fully recognized the contribution that local autonomy can make in achieving the goals of political democratization. It is predicated on the assumption that when "service" recipients are involved through their own representatives, local government responds more effectively to their needs. Whereas participatory patterns of behavior have been widely accepted among the general population, many of the contemporary democracies have not been solidified in both the institutional and cultural sense. …