Working Paper Series
DECENTRALIZING BOLIVIA: Local Government in the Jungle1
9 May 2005
Forthcoming as Chapter 4 of P. Bardhan and D. Mookherjee (eds.), Decentralization and
Local Governance in Developing Countries: A Comparative Perspective, Cambridge, MA:
MIT Press. (Expected 2006)
Does decentralization change policy outputs at the local level? If so, for better or worse? Do
such changes reflect deep changes in the policy-making process itself, or are they related to
technical parameters in the flow of funds? Why do some local governments respond well to
decentralization while others respond badly? These are some of the most important
questions surrounding the issue of decentralization, which – Bardhan and Mookherjee point
out in chapter 1 – remain open despite a large related literature. This chapter seeks to answer
some of these questions for the remarkable case of Bolivia, through a blend of econometric
analysis at the national level and detailed qualitative research into local political and
institutional processes. I argue that the “outputs” of decentralization are simply the aggregate
of local-level political and institutional dynamics, and so to understand decentralization we
must first understand how local government works. Hence this chapter examines what
decentralization did at the national level, and then digs down into local government processes
to understand how it did it. Employing a blended qualitative-quantitative approach allows us
to benefit from econometric rigor and generality as well as the deep insight of qualitative
approaches, which in the best circumstances allow a researcher to choose amongst competing
theories and pin down causality. Focusing on one country avoids problems of data
comparability and controls for external shocks, political regime, institutions, and other
exogenous factors. Bolivia is particularly deserving of study because reform there consisted
of a large change in policy at a discrete point in time. The data available are of surprising
scope and quality for a country of its socio-economic characteristics, and include information
on the political, social and civic, economic, institutional, and administrative characteristics of
all of Bolivia’s municipalities. They beg to be exploited.
I define decentralization as the devolution by central (i.e. national) government of
specific functions, with all of the administrative, political and economic attributes that these
entail, to democratic local (i.e. municipal) governments which are independent of the center
within a legally delimited geographic and functional domain. The rest of the chapter is
organized as follows. Section 2 reviews Bolivia’s decentralization program, focusing on its
legal and budgetary aspects, and then provides summarized analysis of the economic
outcomes of decentralization. Section 3 introduces the second, qualitative half of the chapter,
which examines local government in close detail in Baures and Guayaramerín, two lowland
municipalities in Bolivia’s tropical northeast. Section 4 analyzes the governance process in
each in terms of its local economy, local politics, and civil society. Section 5 provides a
conceptual model of local government based on these fundamental concepts. Section 6
connects this analysis to the broad trends in Bolivian public investment post-decentralization,
2. Decentralization in Bolivia
2.1 Historical Context
On the eve of revolution, Bolivia was a poor, backward country with a repressive
state and extreme levels of inequality (Klein 1993). The nationalist revolution of 1952
expropriated the “commanding heights” of the economy and launched a state-led strategy to
create a modern, industrial, egalitarian society by breaking down provincial fiefdoms and
transforming social relations (Dunkerley 1984). To this end revolutionaries built a
monolithic state in which power and control cascaded downwards from the presidential
palace to the farthest corners of this large country.
Forty years of military coups, combined with the intellectual trends of the 1950s-
1970s, contributed to this centralizing tendency (Klein 1993). Such a regime had little need
for municipalities. As a result, beyond the 30 or so largest cities local government existed at
best in name, as an honorary and ceremonial institution, devoid of administrative capability
and starved for funds. And in most of Bolivia it did not exist at all.
Although the 1994 reform was sprung on an unsuspecting nation, the concept of
decentralization was by no means new. For more than 30 years a decentralization debate
focused on Bolivia’s nine departments ebbed and flowed politically – at times taking on
burning importance, other times all but forgotten. The issue became caught up in the
country’s centrifugal tensions, as regional elites in Santa Cruz and Tarija manipulated the
threat of secession to Brazil and Argentina respectively – with which each is economically
more integrated than La Paz – to extract resources from the center. The Bolivian paradox of
a highly centralized but weak state, and a socially diverse population with weak national
identity, meant that such threats were taken seriously by the political class, which blocked all
moves to devolve power and authority to Bolivia’s regions.
So what spurred the change of tack? and why then? Two factors stand out. The less
important one arises from Bolivia’s failure to achieve sustained growth despite wrenching
economic reform. Fifteen years of near-zero per capita growth sapped the credibility of the
state and fomented social unrest. The new MNR administration of Pres. Sánchez de Lozada
saw the structure of government itself as an impediment to growth. Decentralization was an
attempt to deepen structural reform in order to make the state more efficient and responsive
to the population, and so regain its legitimacy in the voters’ eyes.
The more important factor is the rise of ethnically-based, populist politics in the
1980s, which undercut the MNR’s traditional dominance of the rural vote, and posed a
serious challenge to its (self-declared) role as the “natural party of government”. This rural
dominance was itself born out of the MNR’s agrarian reforms of the 1952-3 revolution.
Hence a party with a tradition of radical reform, which found itself in secular decline, sought
a second, re-defining moment. In a typically bold move, it sought to reorganize government,
re-cast the relationship between citizens and the state, and so win back the loyalty of
Bolivians living outside major cities. To a very important extent, decentralization was a
gambit to capture rural voters for at least another generation.3
2.2 Reform Design: The Law of Popular Participation
Against this background, the Bolivian decentralization reform was announced in
1994. The Law of Popular Participation was developed almost in secret by a small number
of technocrats in the President’s office (Tuchschneider 1997). The law was announced to the
nation to general surprise, followed by ridicule, followed by determined opposition by large
parts of society.4 First made public in January of that year, the law was promulgated by
Congress in April and implemented from July. The scale of the change in resource flows and
political power it brought about were enormous. The core of the law consists of four points
(Secretaría Nacional de Participación Popular, 1994):
1. Resource Allocation. Funds devolved to municipalities doubled to 20 percent of all
national tax revenue. More importantly, allocation amongst municipalities switched from
unsystematic, highly political criteria to a strict per capita basis.
2. Responsibility for Public Services. Ownership of local infrastructure in education, health,
irrigation, roads, sports and culture was given to municipalities, with the concomitant
responsibility to maintain, equip and administer these facilities, and invest in new ones.
3. Oversight Committees (Comités de Vigilancia) were established to provide an alternative
channel for representing popular demand in the policy-making process. Composed of
representatives from local, grass-roots groups, these bodies propose projects and oversee
4. Municipalization. Existing municipalities were expanded to include suburbs and
surrounding rural areas, and 198 new municipalities (out of 311 in all) were created.
Before reform local government was absent throughout the vast majority of Bolivian
territory, and the broader state present at most in the form of a military garrison, schoolhouse
or health post, each reporting to its respective ministry. After reform, elected local
governments sprouted throughout the land.
2.3 The Economic Effects of Decentralization
% of National
3 Cities Sub-total 191,427 163,494
Rest of Bolivia
N.B. Average exchange rate: US$1=Bs.5
1993 1995 % Change
Revenue Sharing (Bs'000)
Figure 1: The Changing Allocation of Public Funds
The extent of the change is perhaps best appreciated by examining the changes in
resource flows it catalyzed. Figure 1 shows that before decentralization 308 Bolivian
municipalities divided amongst them a mere 14% of all devolved funds, while the three main
cities took 86%. After decentralization their shares reversed to 73% and 27% respectively.
The per capita criterion resulted in a massive shift of resources in favor of smaller, poorer
A more important and telling change was to the composition of investment. Figure 2
shows central and local government investment by sector for the periods 1991-3 and 1994-6.
In the years leading up to reform, central government invested most in transport,
hydrocarbons, multisectoral5 and energy, which together accounted for 73% of public
investment during 1991-3. After decentralization local governments invest most heavily in
education, urban development, and water & sanitation, together accounting for 79% of
municipal investment. Of the sectors accounting for roughly ¾ of total investment in both
cases, central and local government have not even one in common. The evidence implies
that local and central government have very different investment priorities.
Figure 2: Local v. Central Government Investment
0% 5%10% 15%20% 25%30%35%
Water & San.
% Total Investment
It is also instructive to examine how investment was distributed geographically
among Bolivia’s municipalities before and after decentralization. Figures 3-5 below give us
a rough sense of this by placing Bolivia’s municipalities along the horizontal axis and
measuring investment per capita as vertical displacement. A highly skewed allocation would
appear as a few points strewn across the top of the graph, with most lying on the bottom; an
equitable distribution would appear as a band of points at some intermediate level. What do
the data show? Figure 3 shows that per capita investment before decentralization was indeed
highly unequal, with large investments in three districts and the vast majority at or near zero.
Figure 4 corrects for the skewing effect of the highest observations by excluding the upper
twelve and showing only those below Bs.2000/capita. Though the distribution now appears
less unequal, there is still monotonically increasing density as we move downwards, with
fully one-half of all observations at zero. Investment under centralized government was thus
hugely skewed in favor of a few municipalities which received enormous sums, a second
group where investment was significant, and the unfortunate half of districts which received
nothing. Compare this with figure 5, which shows municipal investment after
decentralization. This chart shows no district over Bs.700/capita, a broad band with greatest
density between Bs.100-200/capita, and only a few points touching the axis.6 These crude
indicators imply that central government, with a much larger budget and free rein over all of
Bolivia’s municipalities, chose a very unequal distribution of investment across space, while
decentralized government distributes public investment much more evenly throughout the
Figure 3: Investment per capita, 1991-93
0 50100 150200250 300
Municipal Identity No.
Bs per capita
Figure 4: Investment per capita, 1991-93
0 50 100 150200 250300
Municipal Identity No.
Bs per capita
Figure 5: Local Investment per capita, 1994-96
Municipal Identity No.
Bs per capita
A third key fact comes from Faguet (2002b), which uses econometric models of
public investment to show that decentralization increased government responsiveness to real
local needs. After 1994, investment in education, water & sanitation, water management,
and agriculture was a positive function of illiteracy rates, water and sewerage non-connection
rates, and malnutrition rates respectively. That is to say, although investment in these sectors
increased throughout Bolivia after decentralization, the increase was disproportionate in
those districts where the objective need for such services was greatest. I argue that these
changes were driven by the actions of Bolivia’s 250 smallest, poorest, mostly rural
municipalities investing newly devolved public funds in their highest-priority projects.
The econometric models in this paper yield a fourth notable fact: centralized
investment was economically regressive, concentrating public investment in richer
municipalities and ignoring poorer ones. Decentralization, by contrast, shifted resources
towards poorer districts; after 1994, public investment rose in municipalities where indicators
of wealth and income are lower. The four key facts are summarized in figure 6.
Key Facts About Decentralization in Bolivia
shifted public investment into social services and human capital
formation, at the expense of economic production and infrastructure
2distributed investment more equally across space
3made investment more responsive to local needs
shifted investment towards poorer districts
3. Understanding Decentralization in Bolivia
To say that decentralization drove these results is only to relocate the fundamental
question. How and why did decentralization achieve this? Why did central government
behave so differently when all resources lay in its largely unfettered hands? To answer these
questions we must examine how local government works, as the effects of decentralization
are inseparable from those of the local governments it empowers. Hence the remainder of
this paper comprises a detailed examination of local government in two of the best and worst
municipalities I was able to find in Bolivia – Baures and Guayaramerín. I focus on extremes
of municipal performance in order to better highlight the systematic differences in decision-
making that characterize each, leading to their very different outcomes. The fact that both
are located in the Beni department, in Bolivia’s tropical northeast, strengthens the contrast.
I rely on qualitative information gathered during six months of field work in Bolivia,
in a number of municipalities selected to control for size, region, economic base, rural vs.
urban setting, and cultural and ethnic characteristics. In each of these I conducted extensive
semi-structured and unstructured interviews of local government and community leaders, key
informants, and citizens at the grass-roots level. I spoke to over 300 people in more than 200
interviews, following a systematic program in which I put standard questionnaires to key
local officials and central government representatives, local business and labor leaders, NGO
spokesmen, grass-roots leaders, and ordinary citizens. Interviews were carried out in the
main city/town and throughout the rural catchment area in each district. In each district I was
careful to visit a significant number of rural communities. The majority of the interviews by
number (and duration) were with members and spokesmen of grass-roots organizations.
What follows is a highly summarized account of the findings of this research. Full account is
given in Faguet (2002a).
Before commencing the analysis, it is useful to review quickly the institutional
framework of local government in Bolivia. The Law of Popular Participation (LPP)
stipulates that municipal councilmen be elected from party lists in single-constituency
elections. The council then elects the mayor indirectly from amongst those of them who
garnered the most votes. Bolivia’s fragmented political culture, grafted onto an American-
style presidential system, ensures that most municipal (and national) governments are
coalitions. Hereafter, this paper uses “mayor” to refer to the mayor and executive branch of
local government, including all appointed administrative and technical officials – by far the
largest and most important of the three. The third institution of local government is the
oversight committee (OC), which is composed of the representatives of grass-root
organizations within each municipality. A municipality will typically be divided into four or
more regions, each of which nominates one member to the OC from amongst its local grass-
roots leaders. OC members elect from amongst themselves a president, whose legal status is
comparable to the mayor’s. The OC’s power lies in its natural moral authority, as well as the
ability to suspend disbursements from central to local government if it judges that funds are
being misused. Oversight committees thus comprise a parallel, corporatist form of social
representation similar to an upper house of parliament, enforcing accountability on the mayor
and municipal council.
3.2 The Quality of Local Government in Baures
Top marks amongst civic leaders, grass-roots respondents, business, union and
religious authorities, and other local notables clearly go to the youngest municipal
government of the bunch, Baures. The quality of its investment projects and the public
services it provides was judged “good” or “very good” by all of the respondents I spoke to, a
standard which none of the others approached.7 Its investment planning system was based on
village-level assemblies which discussed and approved project requests, on which local
government then based its Annual Operating Plan (AOP). These meetings were reported to
be extremely open and participatory – “even animals can attend,” in the words of one
respondent8 – and won the broad approval of the local population. And the mayor and
municipal council were deemed of high quality and eager to serve their jurisdiction. “Here
they work well and the people are content with them,” the leader of Jasiakiri said of the
council. “They’re with the people.”9 Several respondents from both town and countryside
testified approvingly that town hall had so far favored rural farmers, “as they have the
greatest needs and are in the majority here,”10 and not cattle-ranchers nor miners, whose
needs were less pressing. Baureños’ contentment with their municipal government stood in
stark contrast to their denunciation of the previous one, based in Magdalena, of which they
were then a part. There was a broad consensus in Baures that Magdalena had ignored their
needs and given them nothing, and had run an untransparent administration that was possibly
corrupt. Self-government, they testified, had solved these problems.
3.3 The Quality of Local Government in Guayaramerín
Guayaramerín presents a very different picture of governance. Most respondents
testified that public investment and services in Guayaramerín were “regular” or “bad”.
Planning procedures were dominated by municipal staff and closed to popular input. While
some projects did originate in community ideas, others did not, and communities had little or
no say in project planning or execution, and no recourse for altering official plans. One
technical officer in the municipality of Guayaramerín told me, “We reformulate the AOP as
we see fit. We don’t consult grass-roots organizations because they bitch too much. We
know we should, but we don’t.”11
Luckily for Guayaramerín’s authorities, public opinion had not yet boiled over. In
particular in the city, in the wake of a previous mayor widely considered corrupt and
ineffective, people suspended judgment as they waited to see what the current one might
accomplish. Further out, however, rural community leaders attacked the mayor for grossly
favoring the city at their expense. The municipal councils was widely held in very low
esteem as a politicized, unresponsive institution, and councilmen were generally considered
corrupt. “The municipal council,” observed the director of the Guayaramerín Hospital, “is
4. Economics, Politics, Society
Given a single reform program, and the same institutional framework for local
government nationwide, how can we explain such large differences in local government
effectiveness? As I have said elsewhere (Faguet 2004), an explanation of local government
performance based on the quality of its institutions focuses only on proximate causes. More
fundamental causes lie deep in the interactions of the local economy, political dynamics and
social structure of each municipality. Understanding these is the key to understanding how
local government occurs, and why it is good or bad in different places. We take each factor
4.1 The Local Economy
Baures is a farming community. The mainstay of its inhabitants is twofold –
subsistence or near-subsistence agriculture on family plots, and a cattle economy of 35,000
head. The few large farms in the district belong to ranchers based in La Paz, Santa Cruz and
Trinidad, and remaining ranchers are medium-sized to small.13,14 Baures once had large
land-owners whose farm workers were virtual slaves.15 But they entered decline in the 1970s
and eventually died out. Partly as a result, land is not a source of social conflict. In a
sparsely populated district, land is in abundance, easily available, and there is little
competition for it.16 The town primarily supports the farming economy through commerce
and agricultural services, and is essentially devoid of all other industry.
By contrast, Guayaramerín consists of a highly urbanized municipality with an
extensive rural hinterland which, alone amongst our group, comprises a single agribusiness
economy. It has the transport and trade-based economy of a frontier town, but also benefits
from large agricultural enterprises, including almond, Brazil nut, and heart-of-palm
packagers/exporters, cattle ranchers, loggers and timber merchants, and a significant retail
sector that exploits exchange-rate movements between the Boliviano and Real. This last
spans the barrier of legality, running to drugs and contraband. The nature of these businesses
implies that the urban and rural economies are intertwined: wealthy businessmen have large
rural landholdings and employ many villagers, and the economic conditions that large and
small actors face – given by weather, disease and infrastructure among others – are often the
same. But this economy is dominated by a small group of powerful businessmen who
collectively own much of the local economy and all of its large businesses. Some of the
strongest among them are timber merchants and cattle ranchers, who also control the local
political parties and through them local government, to which we return below. The most
important two, “Cacho” and “Gigi”, were locked in a battle for influence that is typical of the
dominance of the business elite to which they belong. Hernán “Cacho” Vargas Rivera is the
most powerful businessman in Guayaramerín, with Brazil nut, heart-of-palm, and river and
land transport companies, two television stations, and 140,000 hectares of land in Pando.17
His rival, Adrián “Gigi” Rivera, is a hotel-owner, president of the local electricity
cooperative, and money-lender at rates of 5-7% per month.18 Their names came up often in
my interviews throughout the district when respondents were asked “who runs the show”.19
While Cacho attempted to gain control of municipal policy via the local Acción Democrática
Nacionalista (ADN) party, which he leads, Gigi refused to lend the electricity cooperative
$37,000 unless the municipality agreed to assume the debt, thus ensnaring it in his web.
Though Cacho raged against this “scandal”, he also admitted that, in his view, “the
municipality has become an instrument” of powerful interests in Guayaramerín.20
4.2 Local Politics
The only district with a fully competitive party regime was Baures, where clearly
delineated governing and opposition alliances existed which mirrored at least in form the
national pattern of politics. Local government was in the hands of an ADN-MIR coalition,
and the MNR was in opposition. Indeed although politics in such a small population had an
undeniably cozy air, and politicians knew each other and their families personally and well,
politics was quite competitive in Baures, with rival blocs vying to unseat each other in local
elections. “There’s a lot of politics in this town,” said one observer, referring to how party
loyalties ran deep in local society. “Yesterday the people [at the village festival] were
absolutely divided by political party, each off to one side.”21 Not surprisingly, Baures had
the lowest rate of electoral absenteeism amongst the seven, at 24%. Perhaps as a result,
politics was not dominated by powerful economic or other interests, but was open to all and
represented a broad range of views. Indeed, in the previous election the MNR had co-opted
the indigenous vote by naming a Baureño to its party list.22 And unlike other municipalities,
as we shall see below, municipal councilmen did not cover up each other’s transgressions;
thus two MNR councilmen from the 1995 election had not yet been recognized, pending
allegations against them from the previous government. But despite political competition
that was often sharp, politicians managed to work relatively smoothly together, and it is
telling that Baures’ worst political conflict during this period came from the outside. This
happened when the (MNR) prefect unilaterally donated a generator belonging to the town of
Baures to nearby El Cairo when the latter’s, used to pump water, broke down. The municipal
council and oversight committee intervened at the scene of a public commotion and
prevented him from doing so.23 Their action was widely applauded throughout the district,
even in the village of El Cairo.24
Guayaramerín, by contrast, suffered high rates of absenteeism and endemic interest-
group capture. Money politics dominated. Prominent businessmen – the spiritual
descendants of the cattle barons of the past – were firmly in control of the major political
parties, and through them local government, using their resources to fight elections and
expedite their political strategies. And once in power, officials and their businesses profited
from the contracts, contacts and policy-making powers that local government afforded to
further their business interests. Thus when the MNR sought to prevent the re-election of
Guayaramerín’s long-time ADN mayor, who had won the popular vote,25 it offered the MBL
councilman $30,000 for his vote. This councilman, an ex-priest of modest means, used the
money to buy a local television station, and so became one of Guayaramerín’s media
magnates.26 His vote elevated a prominent logging and timber merchant to the mayoralty of
a district that contained large tropical forests. But it is notable that these political dealings
occurred amongst individuals much more than amongst parties. Political alliances were
much the same. Indeed, during my stay the mayor and senior ADN councilman inaugurated
a new coalition between their respective parties with a karaoke duet in a local nightclub.
This broke up the previous MNR-MBL pact. But the local ADN chief was unconvinced.
“Ivan [the ADN councilman] and Tico [the mayor] don’t seem to belong to any party
anymore. They’re just looking to accommodate themselves.”27 Political competition in
Guayaramerín was the province of narrow interests – i.e. individual businessmen – vying for
control over the machinery of government and its policy-making. It was not a broader
contest of ideas or ideologies, and in it broad collective interests were essentially
unrepresented. Once elected, Guayaramerín’s politicians were content to find an
accommodation, and did little to oversee or discipline each other’s activity. The fact that
they were friends and members of the same restricted social set greatly facilitated this
process. The fate of the previous mayor, widely accused of embezzlement but never
investigated by the municipal council on which he still sat, was illustrative.28
In a political system in which accountability did not obtain, voters not surprisingly
reported a loss of faith in government, and a loss of interest in politics. “The people here feel
that their vote has no value,” added an observer in Guayaramerín. “It’s all cooked between
them [politicians], so why vote?”29 This worsened the problem of absenteeism, which in turn
made it easier for elites to perpetuate themselves and decreased their accountability – a
vicious cycle that was potentially difficult to break.
4.3 Civil Society
With five rural and three urban GROs, Baures comprised a compact society where
whites lived largely in town, indigenous people in the countryside, and mestizos in both. The
district had some 720 indigenous residents,30 and people of mixed race made up the majority.
But the social implications of this ethnic diversity were less than elsewhere in Bolivia due to
the greater degree of assimilation by Baureño natives and mestizos. In linguistic terms, for
example, 93% of Baures’ people spoke only Spanish, 5% Spanish plus a native tongue, and
0.1% a native tongue only; this compares starkly with Bolivian averages of 32%, 19% and
43% respectively.31 Baureños’ dress was essentially Western dress, largely free of
distinguishing features such as the multi-layered skirts and bowler hats of the altiplano, and
mixed Baureño-Spanish surnames abounded, indicating a high rate of intermarriage.
Consistent with this, observers reported smooth social relations among these groups, and
described Baures as “pacific”. “Here everyone gets along well,” said the nuns from CETHA.
“All participate equally in each others’ feast days.”32 Indeed, the controversy surrounding
the generator and the prefect “was the first time since 1704 that there was a commotion in the
town,” the head of one GRO reported.33
Good social relations can partly be explained by the similar economic interests of its
citizens, whether indigenous, mestizo or white. As explained above, Baures comprised a
single agricultural and cattle economy devoid of industry, lacking in trade, where small and
medium-sized landowners prevailed. Town and countryside faced similar economic
incentives, and when the countryside prospered the town did too. There was, thus, an
encompassing interest in Baures, and one that expressed itself in a context of social harmony
using a common language, Spanish. This bred a similarity of outlook that transcended
politics and reached down into the social realm; as their goals were similar, the social
organizations they employed to advance them were similar too. Rural and urban
communities alike described their communities as “grass-roots organizations”,34 using the
language of the 1994 LPP reform, so eschewing the opposition between “indigenous/original
communities” and urban “neighborhood councils” common in the rest of Bolivia. We might
expect trust to flourish in such a context, and in Baures it did. “The distribution of money is
much better now,” said the head of Jasiakiri’s GRO, explaining that his community was
willing to forego investments in one year so that resources might flow to other communities.
“Now communities take turns to receive investment. It’s good this way.”35 This leader
valued cooperation as such, illustrating an attitude that was common throughout the district.
With high levels of trust, a clear encompassing interest, and social relations that were
close and smooth, Baures’ civil society boasted a high level of institutional coherence and the
ability to involve the people in their local government. Its geography may well help to
explain these characteristics. Isolated by large plains that flooded half the year, its only
reliable link to the rest of Bolivia was by air. With only 5,133 inhabitants, and outside
Bolivia’s main west-east migratory flows, it comprised a micro-society with its own rules,
traditions and social patterns of interaction. It was a stable population that changed little
from year to year, and its inhabitants knew that conflicts with their neighbors would not go
unnoticed, nor become much diluted. With only the most limited of outside recourse,
Baureños got along because they had to.
Guayaramerín was made up of eight rural and two urban GROs, and though 85% of
its population claimed Spanish as their language, many also understood Portuguese. It had
the typically mixed population of a thriving border town. But uncharacteristically,
Guayaramerín was the product of a migratory boom that multiplied its population thirteen
times during the previous half-century.36 As a result it was a relatively new town, the sum of
many cultures and ethnic groups, with relatively little unity amongst its diverse population.
“There is mutual tolerance here,” said Sr. Ana of Caritas, ”but the people don’t relate much
amongst themselves. Each group celebrates its own feast day.”37 It was also a “very
complex society”, where enormous wealth rubbed shoulders with abject poverty38 and drugs,
prostitution and alcoholism abounded.39 New social organizations were slow to form in a
context of high demographic flux, which provided local politicians with a valuable
opportunity. When community groups finally did organize, it was at the instigation of local
government. But rather than catalyze the sort of social self-organization that has been the
rule throughout Bolivia, the government of Guayaramerín provided a channel for political
parties to penetrate a weak and easily divisible civil society during GRO formation, and so
colonize civic institutions for political ends.40 According to the secretary of the Chamber of
“The GROs are terrible here…they’re totally politicized. They make midnight deals in search
of payoffs…. GROs don’t consult their members before making decisions – rather the leaders
meet with the parties, receive money, and then commit their misdeeds.”41
By falling under the sway of the parties, GROs became complicit in the endemic
corruption of Guayaramerín’s local government. Such collusion was both a symptom of, and
contributing factor to, the lack of social mobilization in Guayaramerín. Had organized civil
society preceded politics, it might not have been co-opted so easily, nor so thoroughly, by the
parties. Instead GROs became political franchises that stifled civic participation in
government. “The people are like children here,” the 1o de Mayo community explained.
“They receive a misery [from local government] and are happy with that.”42 Lacking an
autochthonous organization and excluded by their civic leaders, the people of Guayaramerín
lay dormant before the government they had elected.
Guayaramerín, where urban and rural sectors were intertwined in a modern
agribusiness economy, benefited from an encompassing interest. This gave city and
countryside a common outlook and facilitated collective action for the progress of the
municipality. “The development of this town has been through the money of its own
citizens,” reported the parish priest. “They pooled their efforts to form their own water,
telephone, and other cooperatives” in order to provide basic services and improve the local
standard of living.43 These efforts were spearheaded by the city’s well-organized business
elite, which formed a powerful, all-party, pro-Guayaramerín lobby. They benefited from
growth throughout the district, and hence favored a comprehensive local development. If
public services were better in richer than poorer areas, this was due as much to the financial
constraints of cooperatives in a context of rapid population growth as to discrimination by the
Regarding trust, Guayaramerín’s migrant peoples were simply too diverse and too
unaccustomed to each other for trust to blossom amongst them. And the politicization of its
civic institutions served to replace the logic of cooperation that operates at their core with a
logic of (political) competition. Thus, on the few occasions when the practice of local
government brought Guayaramerín’s social groups into contact, it was not so much to
organize collective action as to do battle on behalf of their political patrons. A process which
might otherwise have promoted trust served instead to undermine it further. And a latent and
potentially powerful encompassing interest was ultimately undone through the active
subversion of society’s organizational structure by political parties intent on partisan gain.
5. Theorizing Local Government44
5.1 Analytical Concepts
Now abstract away from the experiences of Baures and Guayaramerín to consider the
processes by which local governance is produced. I take the three factors – economy,
politics and society – in turn. What is the role of the local economy in producing good or
bad local governance? The striking contrast between Baures and Guayaramerín suggests a
political version of economic orthodoxy in which open and competitive markets lead to the
efficient allocation of resources. Parties – especially opposition parties – require resources to
sustain themselves and to campaign. Where a municipality’s economy is dominated by an
economic hegemon, that hegemon will tend to reduce political competition by financing a
favored party, and may well abuse its position in other ways in order to hinder its political
rivals. Thus monopsony in the provision of political funds will tend to lead to monopoly in
the party system. Such a reduction in political competition will reduce the level of oversight
that local government institutions are subjected to as a by-product of political competition,
and may well leave sectors of the population unrepresented and effectively disenfranchised.
An open and competitive local economy, by contrast, promotes competition in politics,
leading to an increased diversity of ideas and policy proposals that compete for public favor,
as well as improved public accountability for government officials. Where an economic
hegemon and a dominant political party actively collude, the effects can be multiplicative –
together they can distort the local party system, capture the institutions of government, and
deform the governance process to their own ends.
With respect to the local political system, our comparison suggests that effective
local governance requires a vigorous local politics in which competition spurs political
entrepreneurship and policy innovation as parties vie to win new voters. The analysis above
indicates two conditions necessary for such a local politics to obtain: (i) an open and
transparent electoral system, which both promotes and is (indirectly) sustained by (ii) a
competitive party regime. These combine naturally to produce a third, endogenous
requirement of good local politics: a substantive focus on local issues and local people.
Systemic electoral reforms which increase the transparency and ease of voting serve to
increase participation by making voting both feasible and fair. Voters who are able to reach
a polling center and cast a vote will be more likely to do so the less likely it is that results
will be misrepresented or distorted by local interests. Reforms which promote all of these
things encourage citizens to express their political preferences freely, both inside and outside
the voting booth. This in turn raises the electoral return to parties which actively canvass
local opinions and propose policies that respond to changing voter needs. Policy innovation
of this sort can be termed political entrepreneurship.
But a competitive party system must be in place if the full beneficial effects of
systemic opening are to occur. Political entrepreneurship which attempts to offer dissatisfied
voters a political alternative will be thwarted by a party regime which is monopolized by one
actor. In a way which is, again, closely analogous to the working of competitive markets, a
competitive political environment will encourage policy entrepreneurs to innovate in the
hopes of capturing electoral share from their rivals. Party systems characterized by multiple
participants and free entry, featuring political agents who succeed or fail based on their
ability to attract votes, will tend to serve the welfare of their constituents better than those
dominated by a single actor, and hence a narrower range of policy options. And a
competitive local economy, as discussed above, will tend to promote a competitive political
The third key element in the local governance process is civil society. In order for
civil society to provide useful oversight and a feedback mechanism for the governing
process, it must be able to accomplish a limited but important set of tasks. First, it must be
able to identify a specific failing of local policy at the community level. It must then
formulate a coherent demand or complaint and transmit it upwards through, typically, two or
three of its own hierarchical levels. Finally, local civic leaders must be able to take up this
complaint and communicate it convincingly to the mayor or municipal council. Such
abilities are not culturally or organizationally specific, and thus a wide variety of societies are
likely to have them. But they will all share four general traits that facilitate these tasks. The
first is simply the ability to communicate, often across large areas and diverse ethnic groups.
The second is norms of trust and responsibility, both within communities and across them
(including leaders in the seat of government), as well as across time. Where community
leaders do not comply with their duties of leadership and advocacy, government will not reap
the information it needs to right policy mistakes. Communities must then trust leaders
farther up the hierarchy to accurately represent their interests before government, and leaders
must trust that their information is correct. And civic leaders at the municipal level must
then actively pursue communities’ demands if government is to be held socially accountable
for its policies at the community level.
The third trait is a minimum level of human capital amongst civic leaders such that
those at the municipal level are able to interact productively with local government. This
involves both cooperating with elected officials to advance policy goals, and opposing their
decisions in such a way as to modify their actions. The last trait, and often the most difficult
in Bolivia, is a minimum level of resources required to carry out these activities. Even if
civic officials are unpaid, there remain unavoidable and non-trivial transaction costs
associated with their activities. Communities in Bolivia have for the most part long-standing
traditions of reciprocal generosity which cover the transactions costs of community self-
government. But the extension of these social institutions to the municipal level has in many
places strained such finances beyond the breaking-point.
5.2 A Model of Local Government
Local government is a hybrid. Its function is to produce local services and policies at
the intersection of two market relationships and one organizational dynamic. Hence local
government occurs at the confluence of two distinct forms of social interaction. Political
parties and politicians are at the center of both market relationships. The first of these occurs
between parties and individual voters. This can be thought of as the primary, or retail,
political market in which parties exchange ideas and declarations of principle for votes;
parties compete with promises and ideas to attract voters, who vote for the party or candidate
that inspires the most confidence. The second market connects parties to private firms,
producer associations, and other economic and issue-oriented interest groups. This can be
thought of as a secondary, or wholesale, political market in which specific policies or entire
policy bundles, as well as broader influence over legislators and the policy-making process,
are sold to interest groups in exchange for money. , For simplicity, I assume from here
onwards that civic organizations do not engage in this market; the assumption is supported by
evidence from all nine case studies. The first of these relationships is intrinsic to the process
of representative democracy. The second is derivative but compelling, arising from political
parties’ need to fund election campaigns and sustain party operations.
It is important to emphasize the distinction between politicians/parties and
government institutions: it is politicians and not governments who compete for votes in
elections; likewise, it is not governments who sell influence in exchange for campaign and
political funds, but the parties and politicians who control them. I follow Downs in defining
party as “a team seeking to control the governing apparatus by gaining office in a duly
constituted election.” This raises a wealth of complex ethical issues concerning the
mechanics of political finance and the limits of official responsibility. For purposes of the
analysis that follows, I sidestep these issues by assuming that elected politicians engage in
this secondary market as politicians, and not as governing officials, observing the
organizational and behavioral constraints necessary to ensure this is so. The fact that such
constraints are regularly violated in practice does not contradict the logic of the argument,
nor its generality.
The second form of social interaction in local government involves civil society
conceived as a collectivity or set of collectivities – as opposed to atomized individuals – and
their relationship with the institutions of government. Where governance is concerned local
civil society operates like a complex of organizations, aggregating preferences and
representing communities’ needs, mediating community participation in the production of
certain services, facilitating social expression and the assertion of local identity, and
enforcing political accountability on the institutions of government. It is not useful to
conceive of it as a quasi-market, either internally or in its dealings with government, as its
dynamics are not founded on buying and selling. It is rather a set of social organizations that
develop their own norms of behavior and responsibility organically, and over time may
develop stores of trust and credibility that enhance capacity, or may not. Local government
depends on the relationships that collectively comprise civil society to elicit information
necessary to the policy-making process, judge the efficacy of previous interventions, and
plan for the future. Politicians also depend on these relationships to gauge public satisfaction
with their performance between elections. The organizational dynamic of civil society is
thus intrinsic to the process of local governance. Figure 7 illustrates how civil society
combines with the political markets described above to give rise to local government. In this
diagram, the political parties which are most successful in competing for votes and resources
win control of government institutions. These institutions then enter into a separate, more
complex interaction with civic organizations that features varying degrees of feedback and
Figure 7: A Model of Local Government
Local ConstituencyPolitical Parties
In order for local government to be effective it is important that the market
relationships and logic of social representation described above counterbalance each other,
and none dominate the others. A stable tension between the three elements creates a self-
limiting dynamic in which the impulses and imperatives of interest groups can be contained
within the bounds of political competition, and do not spill into the machinery of government
nor erupt as civil strife. This is equivalent to allowing the economic, political and civic
conditions outlined in the model above to obtain. Breaking this tension, on the other hand,
can hobble government. Where the market for votes is weak or missing, government will
tend to be undemocratic; where the economic market for political influence is weak,
government may be insensitive to economic conditions; and where society’s civic
organizations are weak government will be lacking in information, oversight and
accountability. In the interplay between these, the market for influence has the advantage of
being a continuous process of exchange in which the priorities of economic interests are
constantly brought to policy-makers’ attention. By contrast, the electoral dynamic is binding
on local governors only intermittently at elections. This lower periodicity is balanced
however by the severity of the potential consequences – the ejection of politicians from
power. These imperatives are therefore roughly balanced.
Under usual circumstances, as discussed above, civil society is at a comparative
disadvantage. Despite having the most pervasive network of the three, the instruments which
civic leaders can deploy to influence policy define the extremes of costs and consequences.
They carry in one hand the relatively inexpensive lever of public complaint and
admonishment, including encouraging the grass-roots to vote in a particular way. But
experience indicates that this tool is weak against well-financed politicians with strong
incentives to continue along a particular course. In its other hand society carries the threat of
demonstrations and civil disobedience, culminating in civil revolt. This instrument is
powerful indeed, but also very costly to deploy, and is only an effective threat when levels of
social discontent have passed a given, relatively high threshold. The genius of Bolivian
decentralization was to include civil society directly in the local governance process via
oversight committees, thus making accountability an explicit and continuous process.
Bolivian society now has a third instrument at its disposal: the ability to freeze all central
disbursements to municipalities – and thus effectively cripple the vast majority of the
country’s districts – if it is dissatisfied with local policy. This, along with the direct insertion
of the OC into the policy-making process, gives it a permanent voice and continuous
participation in how it is governed. It allows public problems to be identified at an incipient
stage, before discontent rises dangerously. It also levels the playing field between the
competing logics of market and representation that are intrinsic to local government. But in
doing so it increases the premium on social trust and responsibility and the coherence of
social organizations, which enable civil organizations to effectively represent their interests
It is now time to stand back and consider what decentralization achieved in Bolivia.
Detailed empirical evidence shows that decentralization made public investment more
responsive to the real local needs of Bolivia’s citizens, and shifted resources towards poorer,
mostly rural districts. As a result, public investment became much more equal across space,
and investment shifted massively away from economic infrastructure in favor of social
services and human capital. These results are impressive, and do much to recommend reform
to us. But how did decentralization achieve this?
Quantitative approaches are unsuited to a nuanced examination of such issues, and so
in the second part of the chapter I turn to a qualitative analysis of one of the best, and one of
the worst, municipalities I encountered during extended fieldwork in Bolivia. In little
Baures, the institutions of government – mayor, municipal council and oversight committee,
operated transparently, boasting regular consultations with the populace and an easy
openness to citizens and their concerns. In Guayaramerín, by contrast, power was openly
bought and sold, and the institutions of local government were populated and dominated by a
tiny clique of businessmen who attended to themselves first, second and third.
Based on this evidence, I develop a conceptual model of local government which
construes local government as the nexus of two political quasi-markets and one
organizational dynamic, where votes, money, influence and information are freely
exchanged. In order for local government to be effective, these three relationships must
counterbalance each other and none dominate the other. Such a stable tension leads to a self-
limiting dynamic where pressures from various interest groups are contained within the
bounds of political competition.
Now, reconstruct Bolivia’s decentralization story from the ground up.
Decentralization created of hundreds of local governments throughout the country. These
proved more sensitive to local conditions, and more accessible to lobbying and grass-roots
pressure, than a central administration that simply abandoned large expanses of territory as
convenience dictated. The superior responsiveness of local government is a product of the
structure of local governance, in which power and influence are nurtured and ultimately
channeled by voting and information. Indeed, the effectiveness of decentralization as policy
reform is largely the result of enabling such local government dynamics throughout the
country, where previously no policy-making took place. In so doing, decentralization
engaged thousands of neighborhood councils, peasant communities, ayllus and mallkus, as
well as interest groups and business associations which previously had no voice in how their
communities were run. By locating real resources and political power in municipal
institutions it reached out to rich and poor strata alike offering them the means to improve
their lives, and a concrete incentive to participate.
And throughout Bolivia the people did participate. Their energies were channeled in
positive ways that improved the quality of the nation’s public investments. Of course, there
were bad Guayarameríns alongside the good Baures. But the Baures were legion, and their
effects were much greater.
This study has ultimately been about the possibility of change, and its message is
hopeful. The reform of institutions and their associated incentives can bring about
significant, nationwide changes in social and political behavior in the space of a few years.
The Bolivian experiment argues against Putnamite assertions that policy performance is
determined by thousand-year historical conditioning. When reform creates the opportunity to
establish social organizations that improve group welfare, people can rise to the challenge
and succeed. This includes the very poor and oppressed. The conditions necessary for
reform to prosper are a complex of economic, political and social characteristics, and may
well be lacking as often as they are present. But under the right circumstances,
decentralizing resources and political authority can generate real accountability where none
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1 I am grateful for financial support from the World Bank Research Committee, the ESRC,
the LSE/DFID Crisis States Programme, and the LSE’s William Robson Memorial Prize. I
am indebted to Tim Besley, Teddy Brett and Paul Seabright for extensive criticisms and
advice. I also wish to thank Pranab Bardhan, Shanta Devarajan, James Dunkerley, Armando
Godínez, Dilip Mookherjee, François Ortalo-Magné, James Robinson, Fabio Sánchez and
seminar participants at DESTIN, the World Bank and the 2003 STICERD conference for
their thoughtful comments and suggestions. All remaining errors are my own.
2 Lecturer in the Political Economy of Development, Development Studies Institute and
STICERD, London School of Economics, Houghton Street, London WC2A 2AE
3 At the time MNR strategists gleefully predicted such a result. They proved wrong.
4 “Injertos Tramposos en ‘Participación Popular’”, Hoy, 19 January 1994; “La Declaratoria
de Guerra del Primer Mandatario”, La Razon, 27 January 1994; and “Arrogancia Insultante”,
Presencia, 27 February 1994 are only three of the many articles which appeared in the
Bolivian press documenting popular reaction to the “Damned Law”. These are documented
in Unidad de Comunicación (1995).
5 A hodgepodge, including feasibility studies, technical assistance and emergency relief, that
is difficult to categorize.
6 Investment sums here are much lower because they exclude central government funds.
7 All respondents were asked to rate public investment projects and the quality of local public
services on the following scale: Very Bad – Bad – Regular – Good – Very Good.
8 Oscar Durán, neighborhood council president, interview, Baures, 2 May 1997.
9 Juan Jahnsen, Jasiakiri community leader, interview, El Cairo, 3 May 1997.
10 Hugo Melgar Barbery and Erland Ayllón Parada, municipal council president (MIR) and
member (independent, ex-MNR), interview, Baures, 2 May 1997.
11 Alberto Albert, municipal technical advisor and ex-municipal council president, interview,
Guayaramerín, 20 October 1997.
12 Gabriel Sosa Salvatierra, hospital director, interview, Guayaramerín, 22 October 1997.
13 Hugo Ayllón Parada, Cattlemen’s Association president, interview, Baures, 2 May 1997.
14 Grover Martínez Franco, mayor, interview, Baures, 2 May 1997. I adhere to local
definitions, where large is more than 1,000 head of cattle, medium is 300-600, and small is
less than 300.
15 El Cairo, op. cit. See Chapter 4, Box 3: The Slavery of Captive Communities, for a
description of the general phenomenon.
16 H. Ayllón, op. cit.
17 Hernán Vargas Rivera, agro-industrialist, TV station owner and ADN chief, interview,
Guayaramerín, 21 October 1997.
18 Adrián Rivera, electricity cooperative president, money-lender and hotel owner, interview,
Guayaramerín, 21 October 1997. The only bank in Guayaramerín is a branch of BIDESA,
which dispenses local salaries but does not lend.
19 Quien manda? in Spanish.
20 Vargas R., op. cit.
21 Sisters Pilar and Teresa and Prof. Oscar Velázquez, CETHA, interview, Baures, 4 May
1997. CETHA is a church-supported institution specializing in adult education.
22 Juan Oni Antelo, municipal councilman (MNR), interview, Baures, 2 May 1997.
23 Melgar and Ayllón, op. cit.
24 El Cairo, op. cit.
25 Guido Roca
26 Vargas R., op. cit. Cacho owned Guayaramerín’s two other TV stations.
28 ibid. “Tilly” Rodríguez was widely denounced by people throughout Guayaramerín.
29 Sr. Ana López, NGO director, interview, Guayaramerín, 22 October 1997.
31 1992 census.
32 Sisters Pilar and Teresa and Prof. Oscar Velázquez, op. cit.
33 Oscar Durán, president of the Nicolás Carageorge neighborhood council, interview,
Baures, 2 May 1997.
34 Organizaciones Territoriales de Base in Spanish, or OTBs.
35 Jasiakiri, op. cit.
36 Sosa S., op. cit. According to him, the city’s population rose from 3,000 to 38,000 over 54
37 Sr. Ana López, Director of Caritas (NGO), op. cit.
39 Fr. Julio Corredor, parish priest, interview, Guayaramerín, 19 October 1997
40 Manlio Roca, port (customs) manager, ex-mayor and ex-MP, interview, Guayaramerín, 21
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41 Elío Simoni Casangeli, Chamber of Industry and Commerce secretary, interview,
Guayaramerín, 21 October 1997.
42 Dionisia Cuéllar Pérez, Emilse Choquere and Santiago Méndez, community officers,
interview, 1o de Mayo, 23 October 1997.
43 J. Corredor, op. cit.
44 The arguments in this section are based on Faguet (2003).