Moldova in this sense represents another, more subtle case: the state in Chisinau functions, money is collected, laws are passed. The problem arises at a lower level – in small towns and districts, where local power exists legally, but hardly exists operationally.
This is an important difference. It is not the absence of a state, but an institutional asymmetry within it: powers are concentrated at the top, while responsibilities are delegated downwards. The mayor is responsible to citizens for the quality of water, the condition of roads, the work of schools. But he is not the one who makes decisions on tariffs, inter-budget transfers, investment priorities.
Economic theory describes this configuration well: it is a problem of “mandate without resource” – a kind of principal-agent failure, when an agent is given responsibility, but not the tools to fulfill it.
The question, however, is not only diagnostic. The question is operational: what can the mayor do under such conditions? What is the real – not declarative – range of his actions?
The answer to this question requires rejection of two symmetrical illusions: the illusion of complete helplessness (“the system leaves no room for action”) and the illusion of heroic management (“a good leader will overcome any limitations”). Both are inaccurate. Both are harmful.
The institutional “matryoshka doll” and its economy
Moldovan local government is embedded in several nested frameworks, each of which forms constraints for the level below.
The central government determines the fiscal architecture – the amount of transfers, the rules for their distribution, and the parameters of local taxes.
Above the central government is the external framework: the European Union sets the conditions of financing programs, the IMF – macro-fiscal parameters, international donors – project priorities. Moldova, as a small open economy with high dependence on external financing, does not produce this framework; it receives it.
The result is what can be called an institutional matryoshka doll: the mayor acts within the limits set by the district; the district – within the limits set by the center; the center – within the limits set by the external framework. Each layer justifiably invokes the constraints of the layer above. Each layer reproduces the logic of the fulfillment of other people’s conditions.
This is not a conspiracy. It is a structural outcome. The political economy of such systems is well understood: when resources are allocated from above, the incentives of lower levels shift from producing to receiving – from value creation to redistribution of transfers. Local leaders rationally invest not in the organization of the territory, but in relations with the center, because that is where the real resource lies.
Here lies the first paradox of Moldovan local governance: the system creates rational incentives for behavior that reproduces the weakness of the territory. A mayor who works “correctly” within the system – loyally, without initiatives, with a focus on receiving transfers – makes a rationally bad choice in terms of the development of the territory entrusted to him.
What the mayor really controls
Economic analysis of local governance requires a clear distinction between what is within the mayor’s area of control and what is outside it. This is not a trivial exercise. In Moldova, the boundary between these zones is often deliberately blurred, both politically (the center avoids responsibility) and culturally (voters expect decisions on issues that are not objectively within the competence of the local government).
Outside the control of the mayor:
– Inter-budget transfers and their volume;
– tariff policy for public utilities;
– national investment priorities;
– donor decisions to close or modify programs;
– demographic trends – migration, population aging;
– macroeconomic conditions.
In the zone of real control of the mayor:
– quality of execution of daily administrative functions;
– structure and priorities of local expenditures within the available budget;
– land use regulations and speed of permitting;
– quality of communication with citizens;
– relations with local businesses;
– use of municipal assets – buildings, land, enterprises;
– the level of transparency of decisions;
– readiness for donor programs.
The last circumstance deserves special attention. In conditions of competitive distribution of grant funding, the real advantage is not the scale of the problem, but the readiness to solve it: availability of documentation, technical specifications, land permits, and co-financing calculations.
Money is not given to the poorest territories, but to those who are better prepared. This may be unfair from the point of view of distributive justice, but it is a stable empirical observation.
The conclusion is straightforward: the mayor’s zone of control is smaller than voters expect, but larger than the mayors themselves recognize. Most failures of local governance occur in this gap between real powers and their implementation.
Four operational theses
1- Inventory of reality as a basic managerial act
The first thing that distinguishes management from maintenance is the knowledge of one’s own territory. Not in the rhetorical sense (“we know our people”), but in the operational sense: which buildings are on the balance sheet and in what condition, which lands are used unsustainably, where utility costs exceed any reasonable effect, where infrastructure generates future liabilities rather than opportunities.
Most small Moldovan towns do not have this inventory. There is accounting, there is reporting for the center, there is cadastral data of varying degrees of relevance. But there is no management picture of the territory – an understanding of which assets work, which ones create costs without return, which ones can be mobilized.
This is not a technical problem. It is a problem of managerial attention. A mayor who knows who owns a vacant building in the city center, why it is not used and what local business could work there, has a real advantage over a mayor who does not know this. Even with the same budget.
2. Deficit as a filter of priorities
The standard response to budget constraints in Moldovan local government is to try to do a little bit for everyone. A little for the road, a little for the holiday, a little for the roof, a little for landscaping.
Politically, this is understandable: it creates a sense of fairness, minimizes specific losers. Economically, it’s a disaster. Spreading small resources in many directions does not solve any problem, but reproduces all of them.
The theory of budget constraints offers a different approach: the smaller the resource, the more important the concentration.
A mayor with a small budget should do less, but do it fully. Choose projects not on the basis of political visibility, but on the criterion of long-term effect: does it reduce costs in three years, does it increase the revenue base, does it create conditions for the next step?
Donor logic deserves special attention. A classic trap is the construction with grant funds of facilities whose maintenance exceeds the operational capacity of the budget.
A cultural center with new windows that next year requires heating, security, and maintenance at a cost that exceeds the entire cultural budget is not an asset. It is a liability. Smart work with donors means money for competencies, documentation, digital systems, technical preparation of projects. For things that do not require maintenance, but open access to the next funding.
3. Predictability as an economic policy
There is a consistent result in economic growth theory that the quality of institutions – in particular, the predictability of rules – explains variation in the level of entrepreneurial activity better than short-term economic incentives. This observation applies to the small city level with equal force to cross-country comparisons.
Local government cannot always give businesses subsidies or incentives. But it can give it something more valuable: predictability. Not changing rules retrospectively. Respond to requests within a foreseeable time frame. Not using permitting procedures as a tool for rent extraction. Don’t divide entrepreneurs into “insiders” and “outsiders.” Do not turn every interaction with the administration into an asymmetrical negotiation exercise.
In a small Moldovan city, where everyone knows everyone and information spreads quickly, the reputation of the administration as a predictable partner is an economic asset. It is not measured in lei. But its absence is measured in businesses that did not open, investors who did not come, and people who left.
4. Diaspora: from sentimental politics to institutional offerings
Moldova is one of the countries with the highest share of remittances in GDP in the world. For a small city, this means: there is private capital in households. It is used for consumption, not investment – not because the diaspora does not want to invest in their homelands, but because there are no mechanisms to turn private desire into collective action.
Diaspora policy in most Moldovan cities is reduced to two formats: nostalgic events and abstract calls for investment. Neither works because neither offers a concrete management construct.
A person who has left for Germany or Italy has not ceased to be a citizen of his city. But he makes economic decisions as rationally as any other investor: he needs transparency of conditions, clear responsibility, foreseeable return or at least reliable reporting on the use of funds.
A cooperative where you can invest five hundred euros and get a transparent annual report is not a utopia. It is a matter of political will and minimal institutional infrastructure at the local level. Where this infrastructure is in place, the diaspora participates. Where there is no such infrastructure, the diaspora participates.
Trust as an institution
In political economy, there is a concept of “social capital” as a factor that determines the effectiveness of collective action.
Applied to a small Moldovan city, it can be formulated more precisely: trust in local government is the only resource that does not depend on the center, does not come from donors and is not defined by an external framework. It is a local level production.
Trust is destroyed in a specific way. Not by one big failure, but by accumulation of small discrepancies between what was promised and what happened.
A mayor who promises a new road, a renewed water supply system, and a major investor, but fails to fulfill any of his commitments and attributes this to external circumstances, is not just a bad manager. He systematically reduces citizens’ readiness for collective action because he demonstrates that participation does not change the outcome.
The reverse is also true. A government that honestly identifies constraints – “we can’t do a new road this year, but we can do three specific things on the block by the school” – and does just that, creates something more valuable than a completed project. It creates a workable model of accountability. In an environment where that model is rare, that’s a competitive advantage.
Transparency in decision-making – who gets land and on what terms, why this project is the first and another is waiting, how much it costs to maintain municipal facilities – does not make the budget richer. But it reduces the asymmetry of information between the authorities and citizens, which is a necessary condition for trust.
Subjectivity as a managerial position
To conclude the analysis, it is necessary to formulate a broader thesis. In the current configuration of the Moldovan political economy, local power fulfills a function that can be called “the last line of subjectivity”: the level where the country either remains institutionally alive or finally turns into an administrative scheme of transferring other people’s decisions.
This is not a romanticization of local government. It is an observation about how institutional systems work. When all levels of government function in a top-down decision-transfer mode, the system loses its ability to adapt. It becomes fragile – because knowledge of what is really happening at the territorial level does not rise to the top, and problems are not solved where they arise.
A local government that understands this acts differently. It fixes problems so that they cannot be silenced. It prepares projects so that the refusal of the center looks like a political, not a technical solution. It builds local coalitions around specific issues – water, roads, schools, markets – not around political ideologies. It refuses the trough – not for moral reasons, but because it realizes that it is the trough that reproduces the very rut that makes the territory weak.
This is not a revolution. The local mayor will not change the architecture of Moldovan fiscal federalism. He will not cancel the logic of the external framework. It will not reverse the demographic trend overnight.
But he can make life on his territory a little more manageable, and therefore a little more dignified. And this is where the line between governance and service is drawn.
Dmitri Taraburca,
expert in real estate development and valuation
