What are we talking about when we talk about “subnational” governments?

Municipality of Guatapé in Colombia. Photo - Adrienne Hathaway / World Bank

Over the last 25 years, the relevance of local governments (states, provinces, municipalities, etc.) in Latin America has been constantly increasing. The process started with a wave of decentralization, particularly in the education and health sectors, followed by the increasing of other responsibilities of local governments (with the accompanying budget!), and most recently topped off by the allocation of additional investment resources fueled by the commodities boom of the mid-2000s. Currently, in some countries, half of the national budget is now allocated to lower levels of governments.

The World Bank has a long history supporting countries in the region as they transition political, administrative, and fiscal responsibilities to subnational levels, as part of national strategies for strengthening democracy, transparency, and efficient service delivery. 

Surprisingly enough, although the role of these lower levels of government is increasingly important, there seems to be a sort of confusion as to how to address them. Certain terms tend to be used interchangeably: sub-national, sub-sovereign, local, and the Bank’s own all-time favorite, decentralized governments.

This is not “a distinction without a difference.” Actually, some of these terms refer to very specific characteristics of the public sphere. Some are limited in meaning, while others are very broad. So, let’s try to clarify what we’re talking about.

Sub-sovereign governments: This is a term used to refer to governments in the context of credit risk (the risk of defaulting on a debt). In general, it is understood that the lowest possible credit risk in a country is that of the sovereign government. There are many reasons for this, the most obvious one – at least in the good old days – was that the national government could always print money (or raise taxes) if they wanted to pay their debts. The privilege of printing money is not enjoyed by lower levels of government, making their risk higher (together with the interest rate they would need to pay on their debt!)

Local governments: This term has a “proximity” flavor, referring to a government that is close by - a government that usually provides more immediate kinds of services to citizens: water supply, garbage pick-up, street maintenance, education, etc.  This is in contrast to the types of services generally provided by the national government, which are often less tangible – citizens don’t usually line up to receive macroeconomic stability or defense services (although the NSA could be closer to them than they think!)  

Subnational governments: I plead guilty, this is my favorite. It is very broad, everybody fits in. It could be referring to a second level of government (state or province) or to a third level (municipalities). It is also broad in the sense that it could encompass characteristics that are political, or financial (like the ones associated with the sub-sovereign term!) In fact, it is broad enough that the only thing that doesn’t fit here is the national government.

Decentralized government: At the Bank we tend to use decentralization to refer to all topics related to sub-national governments (as in “Edgardo is an expert in decentralization”).  However, in a sensu stricto this term should only be applied to those services that were originally the responsibility of the national government, which were later decentralized to the (if you allow me) sub-national governments (as was typically the case in Latin America with education and health services in the 90s).

I’ll finish it here, but don’t get me started on the related “fiscal federalism” story, I am even more semantically hyper-sensitive about that one!