Decentralization and Development

Significant intellectual and financial resources have been committed to decentralization projects in the developing world based on the idea that federal constitutional systems and local government auton- omy will encourage economic growth. These efforts have been premised in part on scholars’ claims that the federalism of nineteenth and early twentieth century America generated the nation’s enor- mous economic growth. This Article challenges the claim that politi- cal decentralization promotes economic development in two ways. First, by looking closely at the legal history of local autonomy in the United States, it shows that the shifting legal status of cities vis-à-vis their states—which has resulted in alternative bouts of centralization and decentralization—did not cause economic growth. If anything, shifts in the degree of formal local power can be better understood as a consequence of economic growth. Second, it invokes newer work in economic geography that suggests that economic develop- ment is unavoidably uneven across jurisdictions and that the reason some places do well economically and others do poorly may have more to do with luck or path dependency than with particular legal institutions. For lawyers the stakes are high for we are told that law and legal frameworks—like the vertical division of authority—can make a great deal of difference to economic welfare. But this under- standing of law does not take into account the spatial reality of eco- nomic development or the circular relationship between economic growth and legal change. This does not mean that the vertical distri- bution of powers does not matter—it does, but not in the ways that the decentralization-growth thesis presumes.