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26 June, 2015  ▪  Duncan Leitch

Decentralization: The Wrong Solution to the Wrong Problem?

An off-the-peg decentralization solution to the complex problem of development without effective physical and institutional infrastructure can do Ukraine more harm than good

In the wake of the annexation of Crimea and the continuing conflict in Donbas the government of Ukraine has embarked on a radical decentralisation of power in Ukraine based broadly on the model of local and regional government reorganisation in Poland in the pre-accession period. The Verkhovna Rada, Ukraine’s parliament, has already approved the first stage, which is to be enacted by the autumn of 2015, and has established a constitutional commission to bring forward proposals for changes will ultimately affect every level of administration. Reform of this kind has been under discussion ever since independence in 1991, but this is the first time such bold proposals seem likely to be passed into law. Apart from its domestic objectives, the reform is intended to give the European Union a signal that Ukraine is serious in its wish to harmonise its system of government with what it understands to be good practice in the EU. This article provides a brief summary of the current proposals, set against the background of previous attempts to introduce decentralisation reforms.

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It goes on to argue that it is a mistake to understand the planned reforms as a concession to long-standing but frustrated pressure to decentralise power, particularly stemming from the east of the country. Ukraine is in many ways a highly centralised state but apart from the immediate post-independence period of the early 1990s and during the time of the Orange Revolution in the winter of 2004/5, there has been little upward pressure for greater regional autonomy in Ukraine. Indeed the balance of authority between the centre and the regions under successive presidents has actually suited the interests of regional elites rather well. Further, it is most unlikely that the Poroshenko administration’s proposals for decentralisation will satisfy the demands of separatists in the east of the country. The conflict in Donbas has gone well beyond the point of resolution through administrative reorganisation. The article also suggests that however well thought through and long overdue the reforms may be, in the current context they will do little to address the major blockages to Ukraine’s economic development and democratic consolidation and the chronic dysfuntionality of its public institutions. In fact they may well have quite the reverse impact.

Ukraine’s hybrid structure of sub-national government

First, some background on Ukraine’s structure of regional and local government which has changed little since the adoption of the country’s first independent constitution in July 1996. Indeed in some important ways has not dramatically changed from the Soviet structure of centre-local relationships which preceded it.

The period immediately following independence in 1991 up to the adoption of the new constitution was characterised by centrifugal tendencies which seriously threatened the disintegration of the newly independent Ukraine. There were three attempted breakaways. The most serious was in Crimea but there were also locally organised referendums on the issue of independence in the western region of Zakarpattya and in the eastern oblasts of Donetsk and Luhansk, collectively known as the Donbas. The movement for independence in Zakarpattya was largely inspired by a feeling of isolation from the rest of Ukraine and closer historical ties with neighbouring Hungary and Slovakia, a feeling which survives to some extent today. In the Donbas the conflict with Kyiv was a continuation of the tensions between the declining mining and steel industries of the region and Moscow, which had been a feature of the late Soviet period.

With the adoption of the constitution in July 1996, Ukraine finally opted for a unitary rather than a federal state structure but, as a concession to the pressures for greater local autonomy, the constitution offered what was described as a ‘combination of centralisation and decentralisation in the exercise of state power.’  Crimea was granted the status of an autonomous republic within the Ukrainian state, with its own parliament and prime minister, and the cities, towns and villages in all Ukraine’s 24 regions were to have their own locally elected councils and the promise of enhanced financial autonomy from national government in Kyiv. At the same time however, the so-called ‘state vertical’ of oblast and rayon state administrations was strengthened. This meant that at the wider regional and district level within which self-governing towns and villages were located the delivery of public services was the responsibility of de-concentrated units of national ministries, responsible upwards to Kyiv rather than to the local electorate.

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This uncomfortable hybrid system of local and regional government, with its set of parallel responsibilities between appointed state structures and locally accountable self-government is what has existed in Ukraine ever since. The arrangement has an inbuilt tendency towards confusion and dysfuntionality, but to place it in an international context, the hybrid structure was common in the post-communist countries of Eastern Europe in the 1990s and, perhaps more surprisingly, in France until the Mitterand reforms of the 1980s.

The key post in the hybrid system is the regional governor, appointed by the President. To understand how the system works in practice it may be helpful to draw an analogy with the Soviet structure of regional administration, and with the post of Obkom first secretary. In much the same way as the Obkom first secretary, as the senior Party figure in the region, was in effect the boss of both Party and state structures and as such the chief bestower and withholder of patronage, so the regional governor is undoubtedly the key political figure in the current structure and the main source of political power and patronage in the region. City mayors, particularly in the larger cities, are inclined to underline the importance of their elected status compared with that of the appointed oblast governor, and in regions where city councils are under the control of parties other than that of the President this has led to considerable tension. In practice however there is little doubt where the greater political clout lies.

Previous attempts at reform

Unsurprisingly then, past efforts to introduce decentralisation reforms have focused largely on reducing or eliminating the power of the state vertical, and in particular the pivotal position of the regional governor.  They have also attempted to address the problem of Ukraine’s 15,000 or so small village communities which are nominally self-governing but which do not have the resources to deliver the services for which they are responsible. Prior to the current package of reforms, there have been two major initiatives since 2,000 to deal with these issues and to increase the autonomy of local government, both of which were unsuccessful.

First was the so-called Budget Code reform of 2000-2001, described by one Ukrainian source as ‘the most striking attempt to fight against the pervasive feudalism in centre-local relations’ (Maynzyuk & Dzhygyr 2008/9). Its principal aim was to strike at the heart of the regional governor’s ability to exercise patronage by bringing to an end the situation where governors were able to control the distribution of all transfers from the state budget in Kyiv to local governments in the region to assist with their revenue expenditure and capital construction. The practice of ruchnoye upravleniye or ‘steering by hand’ had given regional governors immense scope to reward their political friends and punish their opponents. The Budget Code reform by-passed the governor entirely in the setting of local budgets, with the aim of guaranteeing that elected local governments from the largest cities to the smallest rural settlements had sufficient income to meet their responsibilities in law. Although the reform was passed into law in 2001, oblast governors successfully undermined its implementation in practice. Some years later the process of financing of local government in Ukraine was described by the World Bank as continuing to be an impenetrable ‘black box’ (2008).

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The second attempted decentralisation was even more sweeping and followed the accession of Viktor Yushchenko to the presidency after the Orange Revolution of the winter of 2004-5. The so-called ‘Reform for the People’, led by vice-premier Roman Bezsmertniy, proposed the complete dismantling of the state vertical and the replacement of appointed regional governors and district heads of administration with locally elected councils with full executive powers. The reform also envisaged the compulsory amalgamation of Ukraine’s 15000 village and settlement communities into larger, more financially viable units of administration. The ‘Reform for the People’ proposals were never to reach the statute books. The Yushchenko administration handled them badly and their introduction was generally criticised for being too top-down and lacking proper consultation. The proposed compulsory amalgamations at village level were regarded as particularly heavy-handed. Crucially and somewhat paradoxically given the current situation in the Donbas, the reforms were most roundly rejected in the east of the country where many regional and city councils were under the control of Yushchenko’s political opponents.

The Poroshenko/Yatsenyuk proposals

The current reform proposals are more or less identical to those of the Yushchenko period, with one important difference. They were first set out in a Concept of Local Government and Territorial Organization of Power in Ukraine, which was adopted by the Cabinet of Minister on April 1 2014. The Concept again proposes an end to the state vertical and the granting of full executive powers to elected regional and district councils. The post of regional governor is to be replaced by a ‘President’s Representative’, whose power is limited to monitoring and oversight of the legality of local government decisions, a role based on the Voivode in Poland and the Prefet in France. The Concept also again proposes a consolidation of the so-called primary units of administration, the villages and settlements, into larger hromada or communes but this time on a voluntary basis with financial incentives to those who opt for amalgamation. The scale of the proposed reorganisation is very considerable, with the abolition of all the 24 oblast and approximately 500 rayon state administrations, a reduction in the number of (now to be self-governing) rayons from the current figure to about 120-150, and of the present 15,000 village administrations to 1,500-1,800 hromada.

The early months of 2015 have seen an increased tempo in moves to implement the decentralisation reform. In February the Verkhovna Rada adopted legislation giving the go-ahead to the voluntary amalgamation of villages into larger administrative units, with the target of achieving this by the autumn of this year in time for elections to new self-governing councils who will be responsible for the delivery of services in the new hromada. In March the Rada introduced amendments to the Budget Code intended to ensure that those who opt for consolidation into hromada receive sufficient annual tax transfers from the state budget to meet their new responsibilities for schools and pre-school education, for primary health care and so on. Also in March President Poroshenko signed a decree establishing a Constitutional Commission to bring forward proposals for wider decentralisation, including the 2014 Concept’s radical plan to dismantle the apparatus of the state vertical at oblast and rayon levels. The process is being led by the Verkhovna Rada Speaker Volodymyr Groisman, formerly mayor of Vinnytsia city and therefore with a background in local self-government, who has risen quickly under the Poroshenko presidency and Yatsenyuk premiership.

The response of the international community

The international community has been quick to offer its enthusiastic support to the policy of decentralisation, since it reflects a model of sub-national government that the EU, the Council of Europe and others have been advocating for Ukraine since the 1990s. For example the United States Agency for International Development (USAID) is financing a ‘Dialogue’ programme in conjunction with the Ministry of Regional Development and the Association of Ukrainian Cities, and jointly with the Council of Europe (CoE) is supporting the establishment of Offices for Local Government Reform Implementation in every region. The CoE has unveiled a new Action Plan for Ukraine 2015-2017, in which decentralisation of power to the regions is seen as a key plank in the process of implementing the Minsk agreement.

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Significantly perhaps, while CoE Secretary General Thorbjorn Jagland has argued that models of “differentiated devolution” in other European states are a relevant model for Ukraine to learn from, President Poroshenko, in launching the Constitutional Commission, was unequivocal in asserting that “We have to preserve the integrity and unity of Ukraine. There should be no chances for those who wanted the so-called federalisation or, in fact, the split of Ukraine.” In any event it seems unlikely that the present proposals will have any impact on the conflict in the Donbas, and it is tempting to conclude that they are driven as much by a desire to demonstrate to the international community Ukraine’s renewed commitment to democratic reform as they are by a wish to satisfy the demands of a domestic audience.

But does decentralisation offer a solution to Ukraine’s current problems?

There is good reason to be cautious about the enthusiasm of international organisations for the decentralisation of government authority and its relevance to countries like Ukraine. Decentralisation, like ‘good’ governance, is one of those malleable concepts which are much favoured by the EU, the World Bank and others, and which somehow manage to combine a variety of shades of meaning with a strongly normative content. There is a plausible argument to be made that Ukraine, although nowadays classified as a middle-income country, shares much in common with poorer developing countries when it comes to the quality of its physical and institutional infrastructure at regional level and below. And in developing countries the record with regard to the benefits of decentralisation policies is at best mixed.

For example the State Strategy for Regional Development to 2020 states that an average 39% of fresh water supply for domestic use is in an emergency state of disrepair across the regions of Ukraine, and in some oblasts the figure exceeds 60%. In eight of the twenty-four oblasts more than a third of urban households have no guaranteed regular access to running water, and in rural areas the situation is much worse, with the village well being the only access to fresh water in up to 90% of rural communities in at least five regions. In cities the fresh water that is supplied is rarely of drinkable quality, and residents habitually buy their drinking water in bottles from supermarkets and grocery shops. 37% of the country’s waste water or sewage networks are reported to be in a similar state of chronic disrepair with serious risk to public health (GoU 2014). Meanwhile the quality of Ukraine’s municipal housing stock, much of which dates from the Soviet period, is also very poor. The problem derives largely from the rapid privatisation of communal housing in the 1990s, under which the ownership of individual apartments was transferred to their occupants at a stroke, while the fabric of the buildings remained the responsibility of poorly resourced municipal administrations.

There is little reason to believe that infrastructure regeneration challenges like these, where international experience points to the need for major national programmes of capital investment, will be satisfactorily addressed by a programme of decentralisation. On the contrary the risk is that decentralisation could provide an opportunity to devolve, and in effect offload, the responsibility for the renewal of communal infrastructure to the small towns and villages that are the intended beneficiaries of the reform.

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It is hardly coincidental that the process of decay in many of Ukraine’s essential utilities, particularly outside the major cities, has been accompanied by a steady growth in neo-patrimonial relationships between political, bureaucratic and business elites at all levels of government, a phenomenon which grew out of Ukraine’s post-independence institutional erosion in the 1990s (Fritz 2007) and which reached its apogee under the presidency of Viktor Yanukovych. In a perverse expression of the ‘centralised but also decentralised’ philosophy of the 1996 constitution, practices such as those of smotryashchiy – the supervisors acting on behalf of central government top officials, konvertatsiynyi tsentr – money laundering centers, vidkat or kickbacks, and khabar - bribes, have been organised and given protective cover from the centre but regional elites have had more or less free rein to exploit these strategies for their personal benefit on condition that a steady stream of the proceeds found its way to Kyiv also. This is a plausible explanation for why there has been so little organised pressure for decentralisation from the regional level since the presidency of Leonid Kuchma, when these practices began to flourish. Again, given the degraded state of Ukraine’s institutional infrastructure at sub-national level and the associated risk of local state capture, it is hard to sustain the argument that the bold decentralisation of power currently proposed will go any way towards resolving the immediate economic and political problems facing Ukraine.

The concerted pressure of the international community on the Government of Ukraine to proceed rapidly with what it regards as a long-overdue reform represents a depressingly characteristic response of an off-the-peg solution to the complex problem of development. It also reflects a flawed understanding of the roots of the Maidan protest.  The origins of the current crisis in Ukraine lie not so much in inter-regional tensions over its future identity as an eastward or westward looking state as in the comprehensive failure to address the criminality at the heart of government in the generation that has passed since independence. The spontaneous eruption of massed protest on Kyiv’s Maidan in December 2013, like that of the Orange Revolution nine years earlier, was not about the abstract and unwanted question of whether Ukraine’s destiny lies with the European Union or with the Russian Federation. It was above all an outcry of collective anger at the way the country has been misgoverned for the last 20 years, an issue which has touched on the everyday lives of all Ukrainians and every region, east and west.  The policy of decentralisation, however desirable in the longer term, is likely to be a distraction from the immediate task of building strong, unifying government which shows that it is capable of addressing the long-term collapse of the country’s physical and institutional underpinning and is thereby able to regain the confidence of the Ukrainian people. At worst it may even serve to subvert the achievement of that goal.

Bio

Duncan Leicht was educated as an economist and worked for 15 years as a senior manager in local government in London. Since 1993 Mr. Leicht has been working first in Russia and since 2000 in Ukraine, mainly giving advice on local government reform and regional development. He has recently completed a PhD thesis on the influence of international assistance to regional policy reform in Ukraine at the Centre for Russian, European and Eurasian Studies, University of Birmingham


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