As the job-displacing effects of markets and global integration and the cultural shocks of large immigration have rattled workers, particularly the less skilled ones, their reactive turn to populism in different parts of the world has dismayed liberals. This has been reinforced by resentment against centralised bureaucracies (not just in Brussels or Washington but also in Mexico City or Delhi or Jakarta) run by professionals and technical experts whose dispensations often ignore local realities and sensibilities. The alliance between liberals and workers that used to form the backbone of centrist democratic parties is getting frayed, as in the minds of many blue-collar workers the liberals with their mobile professional skills come across as privileged meritocrats and rootless cosmopolitans (‘citizens of nowhere’).
Global markets and mobility of capital have required standardisation and harmonisation of local rules and regulations, which some communities feel are ironing out their local distinctiveness and proximity-based personalised networks. Increasing market concentration in large corporate firms, their blocking of small business, capturing of state power in democracies through strong lobbies and copious election funding, and weakening of labour organisations and depressing labour share have made many small people precarious in their livelihood and suspicious of markets.
State-provided public services which are supposed to relieve the harshness of the market are everywhere riddled with bureaucratic indifference, malfeasance, and resistance to reform, while the better-off liberals are increasingly seceding from them. In developing countries the public delivery of social services is often so dismal (with inept, corrupt or truant official providers) that in contrast the image of voluntary community organisations (including charitable religious institutions run by Muslim, Hindu or Christian evangelicals) trying to fill in the gap is often much better than that of the state. Even when the state delivery mechanisms work reasonably well, the projects often do not involve the people but simply treat them as passive objects of the development process. (In rich countries, communities have sometimes rejected negotiations over their heads by corporate and city officials to help investment in the community — as in the recent case of the failed Amazon investment proposal for Queens in New York.)
In general, in the day-to-day democratic process political parties which used to be viable mediators between the state and society are now in some decay all over the world, and thus the regular political-organisational channels of demand articulation and conflict resolution are clogged. At the global level there is also a general feeling that in facing the environmental challenges both the state and the market have failed us. Even in the community management of local environmental resources (forestry, fishery, irrigation water, grazing lands etc) the rampant encroachments by market expansion of private business and by the over-reaching and collusive state officials have played havoc in many parts of the world. Thus there is widespread disillusionment with both the market and the state. In such a situation some liberals are turning to the local community to provide an anchor for democratic institutions and solidarity.
Communitarians and sociologists have argued for this over many decades, but economists have usually emphasised the resource allocation efficiency and productivity effects of mobility and footloose factors of production for which community loyalties can be a drag. The emphasis has been more on anonymous competition than on social cooperation. The only recipient of the Economics Nobel prize who had extensively worked on community institutions of cooperation, Elinor Ostrom, was a political scientist, not an economist. (When in the early 1990s I linked up with her in connection with my work on community institutions in the local commons of developing countries, she expressed to me her bewilderment why so few of my fellow economists were interested in these issues at that time.)
This is changing now. More economists, persuaded by the ubiquity of both market and state ‘failures’, are turning to the community as the ‘third pillar’ of society and economy — as a very sensible and balanced recent book by Raghuram Rajan has called it. Policy suggestions of devolution of power to local community associations, or to village councils and municipal administrations now abound in the economic governance literature for both rich and poor countries.
The main economic arguments in favour of such devolution involve: (a) a better utilisation of local information, ingenuity and initiative, particularly in the targeting and implementation of local public projects, which distant technocrats cannot easily mobilise or sustain; (b) the procedures of trust, coordination and social sanctions of defaulters that undergird local social contracts become weaker as the domain expands beyond small local communities, exit becomes easier, and social norms get diluted; and (c) a desire to keep under control the inequalities that large-scale agglomeration and network externalities inevitably generate (when talented and skilled people gravitate to one another in a small area or entity, others suffer the consequences of the brain drain).
Examples are many, in both rich and poor countries, of devolution leading to better decisions, from the point of view of efficiency as well as equity. Technological changes have now made it administratively somewhat easier for lower levels of government to handle certain tasks. Politically, the arena of local democratic contestation and governance is also a good training ground for future democratic leaders at the national level. And, in a world of rampant ethnic conflicts and separatist movements, devolution of power can diffuse social and political tensions and ensure local cultural and political autonomy.
But liberals should also beware of communitarian romanticism. Compared to central entities where many rival groups contend, small local community institutions may be more susceptible to capture by local overlords, oligarchs and majoritarian tyrants — think of white supremacists in the localities of US South, the tyranny of dominant castes in Indian villages, or mafia capture of local institutions in Sicily. In all these cases outside intervention has been necessary to relieve institutionalised systems of local oppression. In India, during the freedom struggle, important social thinkers like Gandhi and Tagore had emphasised the centrality of the village community, but Ambedkar, the leader of a marginalised oppressed group (who later as one of the founding fathers of the Indian Constitution tried to do something about that oppression through liberal-constitutional means), used to call the Indian village community a ‘cesspool, …a den of ignorance, narrow-mindedness and communalism’. When there is such ‘community failure’ for the socially marginalised groups, the anonymity of the market or an intervention by the distant state with its impersonal legal procedures may be welcome.
At a somewhat less oppressive level of associational life, all of us are familiar with too much insider control in local bodies for zonal restrictions or professional licensing, not-in-my-backyard-type resistance to new projects (even liberal but expensive cities like San Francisco are, for example, divided on the issue of public housing projects), and local property tax based school financing, that work against the interests of the poor and disadvantaged. Decentralisation can thus exacerbate inter-community inequality; under devolution of power and more autonomy communities with initial advantages build on them and advance faster. Then there are related issues like externalities and spillovers where local control mechanisms are inadequate, as in the case of upstream deforestation causing flooding and soil erosion in downstream communities. Intra-community economic inequality can also have an adverse impact on trust and cooperation. For instance, in my empirical work on south Indian irrigation communities, I have found statistical evidence that across villages when land is more unequally distributed, farmers’ cooperation on resolution of water conflicts breaks down more easily.
The small scale of communities can also be a disadvantage when they face covariate risks (for example, natural disasters or local market mishaps affect most members of a local community simultaneously), so risk-pooling to keep insurance costs under control requires supra-local involvement and larger scale. Small scale is also a disadvantage when infrastructure investments require raising large amounts of external finance.
(Tomorrow: Dilemmas of community participation)
(The article was first published in the international blog 3 Quarks Daily) The author is professor of Graduate School at University of California, Berkeley. His most recent two books are Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India; and Globalisation, Democracy and Corruption: An Indian Perspective