Slide 3 of 12

Like globalization, localization is a mixed blessing. When it works, decentralizing power to the provincial and local level can result in more responsive and efficient government. We predict that there will be less room for close business dealings, more demands for accountability, and a continuing move away from authoritarianism. But localization can also result in overburdened local governments failing to provide basic public services, such as health and education. It can fuel macroeconomic instability, if local governments borrow and spend heavily and need to be bailed out. And at the extreme, demands for local autonomy can lead to ethnic strife and civil war.

We can think of globalization as a giant wave that can either capsize countries or carry them forward on its crest. Successful localization creates a situation where local entities and other groups in society—the crew of the boat if you will—are free to exercise individual autonomy but also have incentives to work together. Working together requires strong institutions—sets of rules—to coordinate activities of many actors—within each country and internationally.

At the global level, examples include the rules that define the World Trade Organization, or the Basle Accords, which serve as benchmarks for the banking system in most countries. Within individual countries, rules define the relations between central and local authorities.