Decentralization, Competitiveness, and Globalization: Opportunities and Challenges

Eduardo Wiesner

The discussion about Latin American decentralization, competitiveness, and globalization merits special attention given the current situation. It has become clear that the decentralization models and practices of the 1980s and 1990s need to be reexamined to explore what modifications are needed in the context of increasing globalization, a trend that will neither significantly change course nor remain altogether stable.1 Furthermore, there are now lessons and experiences from the first phase of decentralization (Wiesner, 2003: 10) that can be built upon specifically to confront the challenges of globalization, and to take advantage of the opportunities it offers. In short, the assumption is that this region2 is—for better or for worse, though in a range of degrees—immersed in globalization, as it has been for decades since it correctly chose decentralization as its strategy for long-term development.

The first conceptual message of this chapter is that these two process- es—decentralization and globalization—are not significantly incompatible, despite the increasing intensity of their relationship, which is not likely to subside. The situation urges one to ponder the adjustments that must be considered to make them more complementary. The second message is that competitiveness depends greatly on how these two processes complement each other, and the cumulative effects achieved in terms of strengthening decentralization at the national level and adjusting it to the requirements of globalization.3

The underlying point is that there are few options to choose from outside of greater global integration. Latin America experienced the relative openness of the Belle Epoque (1870-1914) as well as the protectionist era during and after the Great Depression (O’Rourke and Williamson, 1999).4 Recently, the region seems to have locked into a path toward integration with foreign markets. In spite of the complex challenges that lye ahead, there has been no consensus, at least in the short term, in favor of returning to the ways of protectionism and minimum international integration.

To develop these approaches, the following three questions will be addressed:

  • (i) What are the analytical differences between a national policy framework of decentralization and one of openness toward globalization?
  • (ii) What seems to be the main political economy requirement to achieve a higher level of competitiveness, and what is the region’s track record in that area?
  • (iii) What seems to be the greatest political economy restriction that must be overcome in order to lower the transaction costs in, and access to, global markets?

These questions are interdependent and organized around a common thread, which is that in order to succeed, both decentralization and commercial or financial openness to national or international competition demand the fulfillment of similar requirements in terms of economic policy. So a country that does not meet the economic policy requirements to develop a decentralization strategy will find it difficult to take advantage of the opportunities of decentralization or to respond to its demands. And if it cannot overcome the political economy restrictions in a process of domestic economic integration, then it will not be able to deal with those kinds of restrictions in the case of globalization.

The second and third questions are similar, but each one contains a particular nuance. While the second refers to the technical requirements demanded by decentralization and globalization, the third refers to the political economy requirement for achieving, mutatis mutandis, those same objectives. This focus seeks to integrate the normative and strictly technical dimension with the positive political economy dimension. These two focuses are interdependent, and their interaction is an idiosyncratic and endogenous process in each country, which is largely determined by circumstantial factors and the history of each case.5

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