Ideal Governmental Decentralization

 

The starting point for reorganizing governmental decentralization in order to increase governmental innovation is to consider the defects in the current governmental decentralization. The original design attempted to completely separate the functions of federal and state governments to achieve a concept of dual sovereignty. However, in the subsequent expansion of government most new government functions were decentralized with more than one level of government performing tasks of the new functions. For example in the implementation of the Clean Air Act, the federal government set the standards and states and cities had to submit plans for implementing the standards.

The problem is that the current decentralization of governmental tasks does not pay much attention to either efficiency or effective learning. An example of inefficiency is that funding social programs at the federal level and operating them at the state level leads to overpayments. An example of failure to learn is that in developing a plan to implement the original federal clean air standards, the cities and states were not allowed to experiment with alternative incentive systems to achieve the targets. This lack of variation seriously limited empirical learning needed for improving performance over time.

A rational criteria for the decentralization of governmental tasks must balance considerations of improving governmental innovation  with considerations of governmental efficiency. Let us first consider how appropriate decentralization of governmental tasks can improve innovation. Currently, the most common strategy for implementing governmental innovations is the improvisatory  strategy where government implements a plan and improves the performance through learning by doing. Decentralization  of government tasks would greatly improve strategies for implementing government innovation as decentralization would enable government to shift from an improvise to a separation strategy for innovation. As was pointed out, the separation strategy, which is applicable to cases with a large number of similar tasks, is implemented by separating the research task from the operational task.

With a separation strategy for governmental innovation the governmental function is partitioned into tasks with the federal government performing research and development while subordinate governments perform the operational tasks of the government function. This strategy has been used since 1900 in agricultural research and since since World War II has been initiated in some types of social policy. National social policy now is increasingly based on pilot projects, demonstration studies and social experiments. For example, the social experiments in income maintenance provide some empirical knowledge for future tax policy for low income groups.

Nevertheless, because most research promoting governmental innovation would involve humans, such research would face restrictions not found in research on inanimate objects. This is because in many cases systematic experimentation requires negative treatments on some individuals. For example, positive variations in copayments with government medical insurance to test alternative demands for medicine can be construed as a negative stimulus, since a destitute person would conceivably forego a treatment which could save his life. In informational society as under current law variations which could have a negative effect would require informed consent. Thus an experimental design which wished to incorporate negative or risky treatments would have to consider the need to compensate subjects for accepting the risk. Consequently where possible, research in governmental functions would focus on variations in treatments where all the variations have a neutral or positive effect on the participants. Such would be the case in the testing of new educational software on selected schools with a control group which does not have the new software.

However, as the governmental research task would be performed regardless of whether the operational tasks of the governmental function were decentralized, the advantage of decentralization of operational tasks requires further clarification. In the proposed governmental decentralization if a task is assigned to a subordinate government, this government must be granted some control over both the setting the objectives of the task and selecting the alternatives to achieve the selected objective. And as will be subsequently discussed the subordinate government could file for an experimental variance to gain greater control than granted by the superior government. For example in the current decentralization of medicaid to the states, the states have little control over the objectives of the program or the choice of alternatives. Under the proposed type of decentralization if the task of providing medical services were decentralized to the states the states would determine both the objectives and the policy to achieve the selected objective. Thus with the decentralization of a task, it is likely that different subordinate governments will select different objectives as being the best estimate of their respective common weal. Such empirical differences are needed to improve the estimate of the common weal over time.

In addition, with the decentralization of a task the differences between subordinate governments in terms of political beliefs and accepted theories also make it likely that more than one policy alternative would be implement by these subordinate governments. Decentralization would also increase because policy variations among subordinate governments would not require informed consent. For example, if operational control of medical insurance were passed from the federal government to the states, variation in copayments among the states would not require informed consent of the recipients of medical insurance unless a state wanted to vary copayments within the state. Thus decentralization of governmental tasks is very much likely to increase the variation in risky tradeoffs. To further enhance variation on a more systematic fashion, higher levels of government could offer lower levels of government incentives to try new alternatives. Finally, with more governments implementing alternatives competition will encourage immediate implementation of any successful features in implementation.

An additional factor favors decentralization in promoting innovation. The federal government's role in research would be enhanced because part of the research role would be in carefully measuring and evaluating the differences in objectives, policy alternatives and their implementation by subordinate governments. This analysis, as will be subsequently demonstrated, would be distributed to voters is such a fashion that it would galvanize them into demanding higher performance from their elected officials in the subordinate governments. Such demands would increase the properties of general benefits, consistency and efficiency in the estimates of the common weal by subordinate governments. And the competition between subordinate governments would greatly increase the concern for efficiency leading to much more rapid imitation of successes. Also, decentralizing activities from the federal government would simplify the federal government which consequently, would reduce the amount of intensity bias  at the federal level.

Now let us consider the efficiency factor in governmental decentralization. It is obviously inefficient to decentralize some governmental functions such the military, foreign policy and monetary policy. Although such governmental functions should not be decentralized, the government should consider more systematic policy variations over time to learn more; however, this topic will not be pursued in this book. Decentralization of other governmental functions, such as automobile safety standards, could add costs to national businesses who would have to modify their products to meet subordinate government policies. Such businesses could lose economies of scale in production. Thus, the efficiency of decentralizing a governmental task must consider both the efficiency of performing the task itself and its impact on the political economy.

The development of a decentralization plan must be based on balancing efficiency  and effective learning. For this purpose, government should be more decentralized and have greater variation at lower levels of government than is the case today. Most groups in society seriously underestimate the need for variation in government. Frequently in public policy debates, such as national educational testing or workplace child care, one faction or another raises a clarion call for the need for a national policy. Such groups fail to understand that a national policy is a poorly defined experiment with a sample of one. Given equal treatment under the law, nothing is learned about the alternatives. In as much as social problems usually continue for decades, variation is needed to obtain empirical information in order to make systematic improvements in performance over time.

In addition, advances in the political economy are making increasing decentralization more efficient. In the 1930s there were economies of scale in placing social programs at the federal level because of the small number of trained experts in the political economy. Today with the great expansion of professional education, the supply of trained experts is sufficient to enable all levels of government to obtain competent help. Because the need to place governmental tasks at high levels of government in order to obtain experts is not likely to be a factor in the future, administration of smaller programs can be just as effective as larger programs. In addition, advances in automation and the resulting reduction in the costs of batch production will enable industry to respond much more cheaply to variations in regulations which are needed to promote learning. Finally, advances in decision support systems will enable decision makers to quickly, cheaply deal with greater variation in governmental policies.

To implement this decentralization theory into government, two steps are proposed. First, the various functions and tasks of government would be initially reorganized in order that a separation strategy for governmental innovation could be employed whenever decentralization is efficient. Second, decentralization criteria would become part of the professional review in order to maintain ideal decentralization as the political economy advances.

Thus under the proposed reorganization, operational control over current governmental functions and tasks would be transferred to the lowest governmental level where they can be efficiently performed. And for this criterion efficiently refers to the overall political economy and not just government. The federal government would fund most research promoting innovations in government activities at all levels of government. Lower levels of government with operational control over programs would then be able to select the most promising alternatives for implementation. However, obtaining a better governmental innovation strategy requires much more than greater decentralization. Governmental organization and elections need to be much more sharply focused so that bounded rational voters would demand better performance from their elected officials.

In order to obtain a more focused government, governmental functions and tasks would be reorganized into a four level  government. The first two levels would remain the federal and state governments. Under the new design, the role of the federal government would be international affairs both military and political, basic constitutional human rights, the coordination of state activities, and the operation of programs with very large economies of scale. An example of an activity with very large economies of scale would be the research task of the separation strategy for governmental innovation. However, the federal government does not have economies of scale in operating programs for individuals and local concerns such as communities and small business. In such programs, most operational attempts of government to reduce individual risk through product safety, worker safety, and household safety should, therefore, be focused at the state level. The operation of most social programs, such as social security and welfare, would be transferred to the states.

Currently, the states vary enormously in size, population and resources. In order to make decentralization of governmental programs by the efficiency criterion uniform across states, the boundaries of the states would be reorganized such that the variations in size, population and resources of the various states would be greatly reduced. Under the proposed design, the role of the states would become promotion of the state economy and risk management where risk management includes welfare and the regulation of local hazards and the state environment.

Major reorganization would be required below the level of the state government. Currently below the the state governments are a large variety of local governments with overlapping jurisdictions. These local governments include municipalities, counties, towns and townships, and a variety of special purpose and hybrid arrangements. The fastest growing category of government is the special purpose district to provide services such as schools, fire protections, and water. Because voters are bounded rational and have limited resources to devote to ensuring public officials are held accountable, this complex structure should be simplified to two levels of elected government. These two levels of government in urban areas would be metropolitan and town government. In rural areas the government level corresponding to the metropolitan government would be the district government where the district would comprise a large area with common features such as the same agricultural crops. The government for local rural areas in districts would be the county.

The role of the metropolitan government would be to govern the local political economy with an emphasis on the production of metropolitan wide services. How much metropolitan governments would use special purpose governments to produce metropolitan services would vary greatly. The role of the town government would be to promote the community lifestyle. The roles of the district and county governments would correspond to their urban counterparts.

As technology and knowledge advance after the initial restructuring of government, the ideal governmental decentralization would gradually change. To maintain an ideal decentralization the professional review would be employed. In the operation of the professional review those activities which were constitutionally specified to reside at particular levels of government would stay at those levels, but all other activities would be controlled by the principle of decentralization.

Consider how the shift of those activities not constitutionally mandated at a particular level of government would occur. Governmental functions and tasks would be transferred from all subordinate governments to a higher government any time the higher government passed a legislative act for such a transfer. Such an upward transfer would not require a professional review, but could be challenged in a professional review  suit by any of the subordinate governments involved. However, a decentralization professional review would have to be filled by a subordinate government wishing to decentralize a governmental function or task. In such a case depending on their analysis the judges could dismiss the case, decentralize the function or task, or grant the filing government an experimental variance.

In deciding whether a particular governmental task should be decentralized the judges would have to weigh the efficiency of decentralization against the value of additional variation through decentralization. The economies of scale criterion translates to mean that government activities should be assigned to the level of government which can most effectively perform them. The knowledge criterion means that the less that is known about the consequences of alternatives for a government activity, the lower the level of government to which the activity should be assigned. The tradeoff between the economies of scale and the knowledge criteria requires that the value of future learning be compared with the value of economies of scale. There is, for example, some value in accepting a slight loss in economies of scale if placing the activity at a lower level generates much greater empirical consideration of alternatives and more imitation from a larger number of other governments at the lower level. The hidden cost of placing activities at too high a governmental level, especially without variation over time, is the loss of empirical knowledge about alternatives.

If the opinions were in agreement that a particular governmental task was being performed at the appropriate level the case would be ruled in favor of the defendant, the higher level of government. And if the opinion were in agreement that a particular governmental task should be decentralized, the task would be assigned to the appropriate level of government. For some activities the consideration of economies of scale will be sufficient to place an activity at the proper level, but for many activities, where the value of economies of scale must be weighed against the value of increased learning, reputable analyses could differ as to the most appropriate level of government. For governmental functions and tasks for which the some judges agreed that decentralization was appropriate, the subordinate governments would have the right to petition for an experimental  variance.

In proposing an experimental variance, the subordinate government would have to demonstrate what could be learned by the variance. In some cases several governments at the same level might jointly propose an experimental design to obtain an experimental variance from the higher level of government. In cases where lower levels of government applied individually for variant roles, they would propose demonstration projects or pilot studies, and each of these individual pilot projects would have to offer a unique learning approach.

To encourage numerous experiments in government lower levels of government would have incentives to press for decentralization. If a lower-level government won a decentralization case, either by the decentralization criterion or by an experimental variance, the lower-level government would obtain the funds that would otherwise have been spent by the higher-level of government for performing the same task.

An example of a potential candidate for an experimental variances in the triple damages award for antitrust violations in civil actions. If a large firm, for instance, tries to bankrupt a small firm through predatory business practice, the small firm can sue the large firm in civil action to recover triple damages. The positive effect of this award is the creation of incentives for firms to avoid predatory practices. But at the same time, the negative aspect of this award is that triple damages may create incentives for small firms to file too many suits of questionable merit, that is, nuisance suits. With triple damages the national standard since 1914, we do not know the consequences that might result from double damages or from an award based on the inverse probability of being caught. Consequently, a state or groups of states could file for experimental variances in the amount of the award or the creation of a variable formula.

In the proposed design, a subordinate government could file for an experimental variance in the precedent of the judiciary one level above the subordinate government. Many court decisions involve difficult tradeoffs such as those between individual rights and the needs of society. When the court makes a single precedent, no empirical knowledge is gained concerning the consequences of possible alternative precedents. In an area of law undergoing rapid change, then, a multiple precedents would be useful to empirically determine the best precedent. Multiple precedents would be made operational through the professional review. If in setting a precedent the minority issues a minority opinion in conflict with the majority opinion, this minority opinion forms the basis for a subordinate government to file for an experimental variance in the majority precedent on the basis of the minority opinion.

The experimental variance applied to legal precedents would greatly change the dynamics of precedent setting when the majority of a court shifts from liberal to conservative or vice versa. Under the current operation of the judiciary the political shift of the majority of a court results in a corresponding shift in the political interpretation of the precedents. With the right of an experimental variance unless the judges were unanimous subordinate governments opposed to the majority would file for experimental variances. Thus a political shift in the majority would simply change which subordinate governments were filing for experimental variances. With more variation in precedents empirical knowledge of their effect on the political economy would be gained more rapidly.