Reforms and Decentralization: Friends or Foes?

Systemic concerns about markets, capitalism and the role of the state in the economy are salient again. Relatively large-scale reforms of economic and social arrangements are seriously considered. Historical experience suggests that reforms of that kind are sometimes associated with important changes in institutional arrangements pertaining to political decentralization. To explore the relationship between economic reforms and decentralization, the paper argues that a reform has two dimensions. It is a process and it is a design. The organization of the paper is inspired by that distinction. For economists, it seems natural to reason in terms of design -- that is, to perceive reform as the replacement of one state by another, presumably better. The first part of the paper discusses some aspects of that design perspective, which, although it is dominant in the literature, proves in the end somewhat disappointing. The second part is devoted to the process perspective, which has also inspired a relatively large body of work on economic reforms, albeit most of it unconcerned with decentralization. It is suggested in that second part that integrating decentralization in an analysis of reforms as processes may be worthwhile.…