From a very good op-ed in NYT about how well functioning cities (in this case Lagos) could show the way for failing states,
Nigeria, of all places, may be pointing the way to a strategy by which fragile states might begin to succeed: Devolve more power to cities from their corrupt and overcentralized national governments. At least in democracies, the cities have promise because their elected politicians face pressure to deliver specific services to their constituents. In the central governments, which are more remote, there is too much power and wealth to be grabbed by dysfunctional politicians and their cronies, and too little direct accountability...
The turnaround in Lagos can be traced to 1999, when Nigeria returned to democracy and the city began holding regular elections. For the first time since independence, Lagos was able to re-elect its own leaders, or turn them out of office. And while national elections became a mud fight between elites to control the state’s enormous oil wealth, local contests forced candidates to show pragmatism and competence. Citizens in densely populated cities find it easier to organize themselves. And in an ethnically and religiously diverse metropolis like Lagos, politicians could not afford to pit ethnic and religious groups against one another, a problem that has long bedeviled Nigeria. Simple geography also helped the city administration. The powerful and wealthy classes are more likely to insist on better governance when their own neighborhoods are affected.
Whether Lagos is a model or not, the central point about encouraging cities as the locus of development is hard to disagree. For many strife-torn African countries, where the capacity of the central government is very weak, smaller sub-national governments are far more likely to be effective. Among sub-national governments, city governments are best positioned to push the boundaries on economic growth. Therefore, devolution of power to city governments should be top of the agenda in political reforms for these countries. In large countries like India too, the major source of dynamism is already from well governed states rather than the central government.And unlike national politicians, local leaders know that the better they perform, the more money their city nets. The better its roads, schools and business environment, the more likely companies will pay taxes, and individuals will buy goods and services, which also contribute to the tax base. At the national level, by contrast, the great majority of the central government’s income has little to do with government’s performance, since about 75 percent of the national budget comes from the $50 billion a year that Nigeria collects in oil revenue.
The challenge is to get national governments to devolve power to these local governments. Multi-lateral agencies and international diplomacy should spend as much capital pushing for such reforms as they do with democratization and the like. That will be good politics as well as sound economics.