While I am a huge fan of decentralization, it is important to be cognizant of the potential negative effects. Proponents of decentralization argue that local governments are more responsive to the needs of people. However, local governments can be dominated by local special interests, restricting the overall level of freedom.
This tension was apparent during the drive to Burning Man. Many towns would pull over cars, ticketing them for any perceived traffic violation. This would have no negative effect on the elected officials as out of towners don’t vote. A more insidious example is Ferguson and the broader St. Louis area. They weren’t ticketing one time passers through, but oppressing an entire population, keeping them impoverished.
Zoning restrictions are another example. Japan decides zoning policy on a national level, and as such, Tokyo has cheaper housing prices than San Francisco. This is because the property owners in Tokyo are unable to effectively lobby the national government, while San Francisco property owners are much closer to the relevant decision making body.
This point can be brought back the the 16th, 17th, and 18th centuries and the building of the nation state. One of the primary advantages of the modern nation state was its ability to crush local monopolies. Rivers which previously had tolls every mile for a different fiefdom would be traveled at much lower cost. By crushing the local monopolies the modern nation state created a free trade zone within its borders. This allowed Britain to experience the industrial revolution, overtaking the rest of Europe, despite having higher tariffs than France.
The question advocates of political decentralization must ask is, under what circumstances will the benefits of local governments outweigh their costs? Moving cities is already much cheaper now than previously, increasing the elasticity of demand for local governments. Trade, rather than plunder, is also a far greater part of wealth today. Another option is a shareholder state, one where the incentives of the population are more closely aligned with the ruling class than most forms of government.