Finance is The Essential Thing in Establishing the Relationship between State and City but It is not Sufficient: Learning from Asian and European State-City Relationships

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Mengambil contoh dari pengalaman beberapa negara di Asia dan Eropa, kami berpendapat bahwa keuangan merupakan faktor yang sangat penting di dalam hubungan antara pusat dan daerah atau kota dan negara, walapun keuangan bukan merupakan satu-satunya
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    Finance is The Essential Thing in Establishing the Relationship between State and City but It is not Sufficient: Learning from Asian and European State-City Relationships By Mohammad Roudo PhD Program in International Development The University of Birmingham-The United Kingdom Abstract  Mengambil contoh dari pengalaman beberapa negara di Asia dan Eropa, kami berpendapat bahwa keuangan merupakan faktor yang sangat penting di dalam hubungan antara pusat dan daerah atau kota dan negara, walapun keuangan bukan merupakan satu-satunya faktor  yang melandasi hubungan tersebut. Kami menyadari bahwa komponen akuntabilitas politik dan koordinasi yang baik antar aktor menjadi faktor lain yang juga penting di dalam hubungan kota dan negara. Selanjutnya, menyadari bahwa keuangan merupakan dasar dari hubungan kota dan negara atau pusat dan daerah, kami juga yakin bahwa hubungan tersebut menjadi lebih dinamis di dalam sistem yang terdesentralisasi ketika kota mendapatkan kewenangan yang besar dari negara untuk beberapa urusan. Hanya saja di dalam sistem yang terdesentralisasi ini, hubungan pusat dan daerah menjadi lebih unik dan  spesial serta seringkali hubungan ini menjadi ’  memanas ’  dan berada dalam tensi yang tinggi, karena munculnya perbedaan kepentingan nasional dan lokal yang sangat besar. Keywords: State-Cities Relationships, Multi-level Governance, Financial Decentralization 1.   Introduction The urban population in the world has increased significantly and is now mostly concentrated in urban centres of Europe and Asia. In 2000, more than half of the global population inhabited urban areas in Asia and Europe (Miller and Bunnel, 2012) with this tendency  predicted to increase in future (Kotkin, 2005). The rise of globalization has exacerbated the challenges faced by cities in Asia and Europe, simultaneously opening up opportunities for cooperation and creating networks, but also increasing competition to appear more attractive for citizen and foreigners, as well as for investment and international events (Hall, 2005; Sassen 2005). These complex challenges necessitate urban development and greater budget,   but budgets are often insufficient to fulfil a city’s unlimited needs, so alternative revenue generation schemes are required from city administrations, or more precariously demanding more money from state or higher levels of government. As a result, the relationships between state and city are grounded on the need for finance. In this paper, we argue that finance is the essential, but not the solitary component in establishing the relationship between state and city. We acknowledge the importance of  political accountability and coordination as the other complementary components in the state-city relationship. Recognising finance as the foundation of the relationship, we also believe state-city relationship is more dynamic in a decentralized system where cities receive devolved powers from state but in this system there are unique and increased tensions in the relationship since the national and local interests are often different. This paper will begin by defining the concept of the state-city relationship through the concept of multi-level governance. In this part, two main types of state-city relationships, centralized and decentralized, will be identified. In the second part, the roles of finance in state-city relationships will be defined. It also explains the complexity and tensions in state-city relationship in a decentralized system. In the last part, other components of state-cities relations will be acknowledged including their roles and effects. 2.   State  –  City Relationships One way to understand the relations between state and city is through a multi-level government concept. This concept illustrates how the government functions are distributed and rules are set to produce mutual benefits for different levels of government (Hague and Harrop, 2010). Based on this concept, two main relationships can be identified. The first is centralized, when the state takes central control over local governments including quasi centralized system such as delegation and de-concentration. Based on centralized systems in China, Wong (1991) argues that the state manages the overall development with the cities acting only as agents of state that implement the development based on the state’s interests/plan. Rondinelli and Cheema (2007) observe that some Southeast Asian Countries also use delegation where some power is given to cities/local administration to run specific functions (e.g. Special Economic Zones) and de-concentration when the state transfers power  to local personnel outside the state ’s  agencies without followed by a distribution of authority and financial power. In contrast, while the size of state can be too big and the span of service is too large, the state has the option to transfer some powers to cities to running its functions through decentralization or/and devolution system. Smith (1985) notices that the delimitation of territory and transfer of power from state to cities as two main elements of decentralization. Gaubatz (2009) asserts that the state should identify its optimal capacity to provide effective  public services to communities or the power should be decentralized to fit the optimal range of services offered. Also as noted by Bunnel (et al. 2011) that bringing government closer to communities with expectation of better quality public service is the main justification for the decentralization process in most Southeast Asian Countries. According to Lockwood’s (2006) regardless of their governmental system, whether unitary or federal, shows that decentralized systems support the preferences/interests of cities/local government is taken into account. This is in line with the claims by Salim and Kombaitan (2009) based on Indonesia’s practices that decentralization policy gives more space to local authorities and actors to decide what they want to achieve with their city and how to implement it. From a financial perspective, a centralized system refers to the kind of fiscal arrangement when money is still administered under the central government’s accountability,  while cities depend on direct funding from the state which is not acknowledged as city’s own revenue. Bahl (2009) points out that during the implementation of centralized fiscal policy in Indonesia and Pakistan, money was directly disbursed from the state ’s  account to a city’s residents without any consultation with local administrations about their needs. Unfortunately, this grant became the only revenue stream for cities so it created a dependency where the cities were reliant on the state. In contrast, decentralization is the conceptualization of fiscal distribution from the central to local administration/accountability and guaranteeing autonomy for cities to spend/disburse on their needs. ADB (2008) identified that in some decentralized European and Asian Countries, the central government transfer comprises more than fifty percent of local government revenues and is even higher in some countries (e.g. Indonesia seventy percent and Pakistan ninety percent) and is accompanied by the decision making powers to spend money based on their interests. Treisman (2007), based on experiences in Sweden, China and Thailand points  out that fiscal decentralization is set when cities has the capacity to generate their own revenues through local taxes (property and advertisement taxes) and charges, with direct access to financing from private markets, selling bonds, and public-private partnerships without any scrutiny or need for approval from the state. Fengler and Hofman (2009) also add that in devolved fiscal arrangement, more funding is addressed to cities/m unicipalities’ account through intergovernmental transfer but the level of state transfers decreases when more autonomy is given to cities to raise their own incomes through local taxes and other  potential sources of income. UCLG (2009) and Gold (2010) distinguished two types of central-local relationship with finance as the main component of the relationship. These are shown in Figure 1  below. Figure 1.State-Cities Relations: Financial Perspectives Centralized / Delegation / De-concentration Decentralization /Devolution Spending    State controls spending of cities/municipalities (e.g. India, Thailand, The UK, Pakistan, Romania)     No/less share of inter-governmental transfer, mostly comes from direct central grants (e.g. China, Indonesia before decentralized system, Belarus)    Moderate/Complete discretion on spending (e.g. Indonesia  post reform, Vietnam)    Higher share on central government transfer (e.g. Indonesia post reform, Japan after trinity reform, Denmark, Germany, Sweden) Revenues    States control/limit local taxing or other local revenues (e.g. Bangladesh, Nepal, China, , Bulgaria)    Cities can set moderate tax or sharing taxes with states (e.g. Indonesia post reform, the Philippines, France, Belgium,)    Cities have discretion to find other alternative sources of income such as borrowing money, bond, public-private  partnership (e.g. Korea) Source: Adopted and Modified from UCLG (2009) and Gold (2010)  3.   Role of Finance on State  –  Cities Relations Finance is required by all levels of governments to do routine activities (e.g. salaries and operational costs) and development. For cities, finance is required to provide good public health and education services. Davey and Devas (1992), focusing on Southeast Asian Countries, show the minimum amount of money required for urban areas to provide sufficient local health and education services to their residents. Looking at Indonesia, Lewis (2003), also notices that local governments devote more than half of their local budget to supply just the minimum standards on health and education. Money is also required by cities for infrastructure (e.g. roads/transportation, sewage, clean water, electricity and gas) to ensure their cities are more competitive for investment and more attractive to international visitors, leading to local economic development and public welfare improvement. Dubai spends billions of dollars building cities equipped with modern and luxurious facilities and sufficient infrastructure to entice foreign investors and to establish it as central place of business and leisure (Bagaeen, 2007). Warsaw also devotes a higher  percentage of its budget to building infrastructure in promoting their industries (Ners, 2007). Furthermore, extra money can be spent by cities on building infrastructure for hosting international events such as the G20 as well as international sports games like the Olympic Games and the World Cup. Chalkley and Essex (1999) noted that, as the hosts of the Olympic Games, Tokyo and London disbursed huge amounts of finance to pay for building facilities and infrastructure. On the other hand, the state also needs money for their interests that cover inter-city and inter-regional interests such reducing income inequality and minimizing negative externalities. Musgrave (1959) and Gruber (2009) discovered that fairness on resource allocation and income distribution, economic stabilization and overcoming the negative external problems over city boundaries are some goals of state when utilizing public money. This is also similar to Kazepov ’s expla nation (2005) asserting that maintaining macro-economic indicators and reducing inequality among different regions are the main goals of most states in European Countries. Badcock (2002) and UN-Habitat (2008) also identify other state concerns including overcoming negative externalities such as pollution, contagious disease, traffic jams and flooding which extend beyond a city’s boundaries and are often ignored by cities.
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