How Eastern Europe's Recovery Can Succeed First at the Local Level

LESTER M. SALAMON

August 07, 1991|By LESTER M. SALAMON

Ultimately, the success of the reform process in Central andEastern Europe hinges not on political changes at the national level, nor on the privatization of massive governmental enterprises, but on the extent to which democratic reforms and market processes take root at the local level.

Yet despite a new law to bolster the role of local government in Poland, and similar changes under way elsewhere in the region, the task of creating an effective system of democratic local government is proving even more difficult than the comparable national changes.

After 50 years of centralized Communist control, there is little or no meaningful experience in the region with how to operate autonomous local governments in a market system, how to create and manage private land markets and private property tax systems, how to foster local development without usurping the position of the private entrepreneur, or how to encourage the market without sacrificing the environment, the historic heritage, housing for the poor.

It is against this backdrop that the completion on July 4 of a special Declaration of Principles for Local Self-Government in Central and Eastern Europe by a team of urban experts from 21 countries assembled in Prague by the Johns Hopkins University Institute for Policy Studies and the Czechoslovak State Institute for the Preservation of Historic Towns and Monuments takes on special significance.

Representing virtually every country of Western and Eastern Europe as well as parts of the developing world, the policy-makers and leading urban specialists who took part in this conference, most of them past participants in the Johns Hopkins International Urban Fellows Program, managed to hammer out a workable manifesto to provide guidance to the local government reform effort that is gathering force throughout the Central and Eastern European region.

What is notable about this ''Prague Declaration'' is its balanced approach to the role of the state in a market system, its rejection of both the pro-State orthodoxy that has characterized social democratic approaches to urban policy in Western Europe, and the radical free-market orthodoxy that has recently tended to characterize approaches to these issues in America and Eastern Europe.

Instead, the Declaration urges a middle course that stresses the urgent need to expand the role of the market but also acknowledges a continuing, vital role for local government -- in housing, in historic preservation, in environmental protection, and in other spheres. For this to work, the Declaration calls for:

* Establishment of a truly autonomous set of local governments in Central and Eastern Europe equipped with their own taxing and spending powers and open to public scrutiny and control.

* A new form of state involvement emphasizing ''market-correcting'' as opposed to ''market-displacing'' interventions, thus utilizing the incentives of the market to promote public objectives.

* Extensive training to equip local officials to implement this new approach.

In addition to its general principles, the Declaration also identifies more specific guidelines in five especially crucial fields: (1) local government operations; (2) local economic development; (3) environment; (4) historic preservation and (5) housing.

Among the more salient of these specific guidelines are the following:

* Traditional notions of local planning in Central and Eastern Europe, which stress physical construction and land use controls, have to be replaced by a broader ''policy analysis'' approach.

* Radical decentralization is not always the best solution to policy problems; some problems, such as pollution control, require regional approaches.

* Local governments have a significant role to play in promoting local economic development, but not principally as owners of enterprises; more important over the long run will be the creation of sensible incentives for private action and the formation of public-private partnerships.

* Reliance on outside investment is not likely to be the principal means for economic development in Central and Eastern Europe; more important will be efforts to foster indigenous enterprises and small businesses.

* Those who cause pollution must be made to pay for it through user charges, special taxes and the like -- and this applies to government enterprises as well as private ones.

* Efforts to protect the historical heritage of cities are important for economic as well as cultural reasons, but these efforts must be integrated with overall city development. Historical areas must be treated as parts of ''living cities,'' not isolated museums.

* Historic preservation must be made economically viable -- through special fees, taxes, and incentives -- and both national and local policies must be designed to foster this.

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