On June 12, 1823, Thomas Jefferson, writing to Justice William Johnson, warned of the dangers of centralising power. He wrote: “I believe the states can best govern our home concerns, the general government our foreign ones. I wish, therefore, to see maintained that wholesome distribution of powers established by the constitution for the limitation of both, & never to see all offices transferred to Washington, where, further withdrawn from the eyes of the people, they may more secretly be bought and sold as at market.”
Modern political economy confirms Jefferson’s insight. Corruption is not merely a moral failing but a structural phenomenon. It thrives where power is concentrated, discretion monopolised, information opaque, and accountability distant. Conversely, dispersing authority alters these structural conditions and constrains corruption more effectively than exhortation, surveillance, or central control alone.
In The Logic of Collective Action: Public Goods and the Theory of Groups (1965), Mancur Olson explained why centralisation often facilitates corruption. He showed that “concentrated interests”, such as large firms, industry lobbies, or cartels, enjoy a decisive organisational advantage over “diffuse interests”, such as ordinary taxpayers or consumers. When the gains from favourable policy are large and focused, concentrated interests are willing to invest heavily in influence; when the losses are small and spread thinly, the public under-invests in resistance.
Centralisation amplifies this asymmetry. If licences, regulatory approvals, procurement decisions, or natural resource allocations are controlled by a single ministry or nodal authority, rent-seeking becomes highly efficient: influence one office and the rewards may extend nationwide. Decentralisation alters this calculus. When authority is distributed among multiple States or sub-national governments, interest groups must negotiate with many decision-makers rather than one. This raises the transaction costs of influence and reduces the likelihood of systemic capture. In effect, decentralisation operates as a structural tax on rent-seeking. Fragmenting power and dispersing discretion diminishes the feasibility of large-scale corruption.
In his influential essay The Economic Role of Political Institutions: Market-Preserving Federalism (1995), Barry R Weingast argued that the strongest check on governmental predation is not just the ballot box, but “inter-jurisdictional competition.” In decentralised systems, sub-national governments compete to attract investment, skilled labour, and economic activity. If a State becomes excessively corrupt or inefficient, firms and citizens possess an “exit option”: they can relocate to jurisdictions offering better governance.
This possibility imposes what economists describe as a “hard budget constraint” on sub-national rulers. Governments that abuse their authority risk losing tax revenues, investment, and political legitimacy. A highly centralised government faces no internal competition. Holding a monopoly of authority, it is insulated from the disciplining pressures that neighbouring jurisdictions exert in decentralised systems. Without this corrective force, the incentives for administrative restraint weaken, making the system more susceptible to rent-seeking and abuse of power.
Decentralisation also strengthens public monitoring. In large, centralised systems, corruption is often concealed by distance, complexity, and bureaucratic opacity. Citizens cannot realistically monitor decisions taken in distant capitals or grasp the technical intricacies of national procurement processes.
Decentralised governance alters this informational asymmetry. Citizens within a State or locality possess an “epistemic advantage”—a practical knowledge derived from proximity. They know whether roads are built, schools function, or health centres operate. This proximity transforms citizens from passive subjects into active auditors of governance outcomes. When administrative authority is exercised nearer the community affected by it, public scrutiny becomes direct and continuous. Jefferson’s insight endures: corruption thrives when governance escapes the “eyes of the people”. Decentralisation restores those vigilant eyes to the conduct of governance.
Critics often contend that decentralisation merely decentralises corruption by empowering local elites who are more predatory than national officials. This argument, however, rests on what may be called the “visibility paradox”: the tendency to mistake visible corruption for greater corruption. Empirical research offers a more nuanced picture.
First, cross-country studies by Raymond Fisman and Roberta Gatti in Decentralisation and Corruption: Evidence across Countries (2002) found a strong negative relationship between fiscal decentralisation and corruption. Their work suggests that local monitoring and institutional proximity improve accountability and reduce opportunities for abuse. Second, Pranab Bardhan and Dilip Mookherjee in Capture and Governance at Local and National Levels (2000) distinguish between “retail capture” at the local level and “wholesale capture” at the national level. Local corruption may occur, but centralised systems are far more vulnerable to large-scale capture by powerful corporate or political interests. Such “wholesale” corruption is economically far more damaging and harder to detect and reverse.
Third, a survey by Daniel Treisman in What Have We Learned about the Causes of Corruption? (2011) found that perception-based corruption indices often show higher corruption in decentralised systems, while experience-based surveys show weaker relationships. Decentralised systems often have freer media, more competitive politics, and greater public scrutiny. As a result, corruption is more frequently exposed and reported. Perceptions of corruption may therefore rise even while actual accountability improves.
Historically, many of India’s largest rent pools have arisen where discretionary authority is most concentrated and outcomes least visible to citizens: natural resource allocations, central regulatory approvals, national procurement contracts, and large centralised programmes. The probity case for decentralisation is therefore straightforward: fragment rents into many smaller pools rather than one national pool; multiply monitors by creating many accountable centres; and shorten accountability chains so citizens audit outcomes directly, rather than petitioning upward.
The probity argument does not assume that local politicians are more virtuous than national ones. It assumes the opposite: that all power is susceptible to abuse. The question is whether institutions magnify or restrain that tendency. As Lord Acton famously observed: “Power corrupts. Absolute power corrupts absolutely.” Dispersed authority does not eliminate corruption, but it makes capture harder, concealment costlier, and correction quicker. By distributing decision-making across multiple centres, federalism strengthens accountability, broadens public scrutiny, and creates structural safeguards against the misuse of authority.
To be concluded
The author is retired IAS officer of Tamil Nadu cadre, former Vice-Chancellor of Indian Maritime University, Chennai, and Member, High-Level Committee on Union-State Relations constituted by the Government of Tamil Nadu