Federalism

Federalism

Description

Federalism is today a topic of intense intellectual debate in many countries throughout the world. In Europe, the former Soviet Union, South Africa and elsewhere, the view that good government will involve a blending of local and central governmental decision-making is now well accepted. With a topic such as federalism that has been so widely debated from so many perspectives, it would be impossible to provide a comprehensive review of the literature. Rather, we provide a particular perspective, one that balances the twin goals of political participation and economic welfare. A carefully specified theory of federalism has many useful applications: to government expenditure policy (Martinez-Vasquez 1994), to tax policy (Inman and Rubinfeld 1996), to deficit policies (Inman 1990), or to regulatory policy (Rose-Ackerman and Mashaw 1984). Confederation of small governments have been praised by many—from Plato and Aristotle, through Rousseau, Montesquieu, Smith, and Mills, to contemporary federalist legal and economic scholars—as that political institution most likely to encourage a trio of social virtues: political participation, protection of the sovereign rights of citizens, and economic efficiency. Other scholars have been more skeptical. The Federalist Papers (particularly No. 47), the intellectual blueprint for the US Constitution, raises serious doubts about the virtues of loose confederations of small governments. Leading contemporary social scientists from political science (Robert Dahl and William Riker) and economics (Joseph Schumpeter and Paul Samuelson) have lent theoretical support to the Federalists’ concerns. Like the Federalists, these scholars have argued that a strong, democratically elected central government is generally the more effective means to ensure political participation, protection of the rights of citizens, and more efficient and equitable resource allocations. Which level of government is best suited to make public policies, given that we want those policies to be democratically decided, respectful of personal rights, and economically efficient? A considered answer—whether for Europe’s new Economic Union, the new South African Constitution, or to the regulation of anticompetitive firm behavior with the United States or the Economic Union—requires a careful balancing of the benefits and costs of decentralized and centralized political structures. To fashion such a balance, it is essential that we first review the potential virtues of each federalist structure. We begin by defining what is meant by decentralized and centralized federalist structures. In this chapter, governments will be defined as “decentralized and state” or “centralized and national” according to the combination of two constitutional decisions. The first decision—called the partition decision—divides the single national citizenry into states. Following the partition decision, there will be a group of separate state governments and one central government to which each state will send (for simplicity) one representative to a central legislature, the single policy-making body of the central government. Policy decisions made by state governments will be decided by their separate legislatures. Courts and legislatures are concerned with the second constitutional decision—the assignment decision—which allocates final political responsibility for choices over a social or economic policy to either the legislature of the central government or to the legislatures of each of the separate states. If the assignment decision allocates ultimate responsibility for a social or economic policy to the states (or their localities), then we describe policy-making for class of government decisions as “state” or “decentralized.” In contrast, if the assignment decision gives final responsibility for a social or economic policy to the central government, then we describe policy-making for these assigned responsibilities as “national” or “centralized.” Together, these two constitutional decisions define the essential federalist—decentralized or centralized—structure of government. We realize, of course, that federalist structures may have decentralized and centralized components, as, for example, when the central government mandates the form and function of certain decentralized government activities. The much-debated virtues of these decentralized or centralized governmental structures include democratic political participation and enhanced economic efficiency. Which federalist structure or combination of structures favors which virtues given the realities of the political and economic marketplace? We review the arguments and the contemporary evidence in Section A (participation) and B (economic efficiency) below. Not surprisingly, neither a centralized nor a decentralized structure maximizes public participation and economic efficiency all the time. Which structure is preferred turns on a balancing of these values. In Section C we discuss briefly how a society might set that balance.

Source Publication

Production of Legal Rules

Source Editors/Authors

Francesco Parisi

Publication Date

2011

Federalism

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