The revolutionary and controversial Popular Participation Law – LPP (1994) was the most successful part of the neo-liberal reform strategy of President Gonzalo Sánchez de Lozada in Bolivia.

It decentralized government in a radical way, in a sincere way. It was a sharp break from the past. It doubled transfers to 20% of national revenues from the central government to municipalities. But much more importantly the allocation mechanism across municipalities switched from a highly idiosyncratic method to simple per capita calculation. No strings attached.

So a small town with a thousand people got 155,000 bolivianos the first year. La Paz with a million people got 155,000,000 bolivianos, and that was that. And the transparency and simplicity of that transfer led to genuine political reform.


  1. Bolivia
  2. Simplicity
  3. Politics
  4. Commentary


The rest of this article is excerpted directly from Decentralization and Popular Democracy. Governance from Below in Bolivia – Dr Jean-Paul Faguet (1:08:00) .

How the Bolivian government went about decentralization had a lot to do with its success. They picked a very simple per capita distribution rule.

A more technocratic means would be to set up an equation that weights population, but also weights poverty levels and unit costs and how dispersed the population is and last years’ incidences of diseases and malnutrition and what-not, to come up with a more rational distribution. So if you suffer more you get more money than a bigger city that’s richer and has less malnutrition or whatever.

The problem is that the political logic of that would have been against accountability.

I witnessed committees of local villagers turning up in a municipality, saying, we have fifty families in our village and we demand that you the town hall give us our school because we’ve met and decided our priorities. We want to expand the school, or we want a new healthcare center, or we want to improve our roads. We know how much money you’re getting for each one of us. We’re fifty families. We’re three hundred people. You need to give us so much money.[1]

That’s because of the transparency. If there had been a complicated technocratically accurate or rational equation some mayors would undoubtedly have said, no the equation doesn’t give you money this year. Sorry it’s not my fault. I would love to but the equation says no. The villagers would have been less effective at fighting for their share.

So the money was distributed in a particular way which was highly transparent and the message was sent out during the reform that this was everyone’s money.


Sánchez de Lozada becomes president and the first thing he does is turn around and give away power and resources to people in the municipalities he does not control. No rational politician does that.

How did he convince his political party to go along with this? How did he convince the central bureaucracy? The people who had to implement this were ministers of education, health, transport, agriculture, etc. These are not officials who have it as part of their interests to give away power and resources.

Why would they do this?

Sánchez de Lozada’s MNR party held its power because they led the 1952 revolution that redistributed land to the peasants. The undying gratitude of the peasants who benefited from that revolution was dying off. The historical memory of the MNR and what it had done for families in their time was basically going away. MNR watched their vote totals go down.

Sánchez de Lozada sold decentralization to his political party as another defining moment for the MNR. Another grand reform on a par with land reform that would win over the affections and loyalty of the voters for another fifty years, especially in rural small towns and villages.

What gets decentralization like this really done is when its reforms are functional in some sense to keeping a coalition together or to gaining political advantage or to somehow furthering politicians’ careers.


If you listen to Faguet’s lecture in its entirety you see how government can be structured to make dramatic, meaningful changes in people’s lives. How it can win their undying gratitude for a political party. How it can engage voters in the political process for their own good and for the good of politicians behind the reform.

Take away the money from the central bureaucrats and so-called experts. Municipalities collectively spend more money writing proposals and competing for Federal monies than they receive in grants.[2] If I have to justify my share of the Federal pork my local bureaucracy bloats as I compete with other municipalities. I spend $1 million writing grant proposals, and then I worry about competing municipalities spending $1.1 million, and so on.

Give the money to the municipalities, no strings attached, and watch them use it to dramatically improve the lives of their citizens and consequently improve revenues flowing to the central government.[3]

1. It becomes a very simple political calculation for citizens to get out the vote for candidates that give them their money.

2. As a local politician I will tout how I won $1 million in Federal grant money for a new housing project. I won’t tell the voters I spent $1.2 million writing grant proposals to win that money. – Munger (15:15) .

3. In his talk, Faguet describes in detail local activities needed to ensure the funds are spent wisely at the level of the municipality. He sees key roles for community organizers and local businesses.

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