Federalism

Summary by Namalie Jayasinghe ** Pablo Beramendi, ****“**** Federalism, ****”**** in Carles Boix and Susan C. Stokes, eds., **// The Oxford Handbook of Comparative Politics //** (Oxford University Press, 2007), chap. 31, pp. 752-81. ** __ Purpose __ : Partial review of the evolution, dominating themes and pending tasks awaiting the comparative politics of federalism. ** Federalism as an Institution ****–**** Delimiting Federalism ** • __Federalism__ – fragmentation of political power; existence of several levels of government is a necessary, yet insufficient, condition for federalism to exist. • Federations have a dual structure, driven by a process of bargaining between constituents units and a center • In a federal system, both constituent units and the central government have constitutionally recognized autonomous powers to interact directly with citizens • __Fundamental dilemma of federalism__ – how to devise a set of institutions that reconcile the ability of centralized government to create economies of scale and overcome the collective action problem in certain realms, and the capacity to deal with local issues • Moving away from Riker ’ s dichotomy of federalism (centralized/maximum and peripheralized/minimum) to recognize the multidimensional character of federations. ** Impact of Federalism ** • Federalism makes a difference – alters the set of options and constraints faced by political actors at two different levels of government, modifying actors ’ political preferences as well as the incentive structure • But what kind of difference? Not straightforward as it seemed in the past, where scholars believed that federalism led to better democracies, better markets. This isn ’ t true and much of scholarship on federalism is moving away from this “ federal illusion ” ** Federalism and Democracy ****–**** what the literature says ****…** Under what conditions does federalism facilitate democracy? Jury is still out on this … • Linz (1997) argues that where state institutions and rule of law are consolidated before the transition to democracy leads to conflict, violence and regime failure. But where the reverse happens (democracy first, then consolidation of state institutions), then federalism is able to accommodate contending national identities • Bunce (2004) thinks that democracies emerging in a pre-existing federal setting tend to be more vulnerable to the secessionist pressures of pre-existing groups • Bermeo (2004) suggests that federations that remain as a legacy of authoritarian regimes are less successful than federations emerging from a contractual agreement • Stepan (2001) points to the internal articulation of power within federations – higher the institutional leverage given to already mobilized ethnic minorities, the lower the likelihood that federations are able to prevent territorial disintegration • Roeder (2000) – quantitative analysis – symmetrical and asymmetrical forms of federalism lead to significant increases in the likelihood of ethno-national crises • However, there are a bunch of studies that show the opposite – federations are able to contain conflict and prevent disintegration • Boix (2003) notes that insofar as federalism decentralizes the control over redistribution by facilitating the survival of democracies with high levels of inter-regional income for federal stability • Taylor (2005) points to the control over coercive power as a dimension whose organization bears importance on federal stability • Myerson (2006) focuses on electoral sequences, arguing that holding local elections first facilitates the selection of better leaders at the national level, which creates a better democracy ** Federalism and the Economy ** • Welfare economics and public choice theory reinvigorated the “ federal illusion ” • __Welfare economists__: a decentralized institutional design works towards the goal of an optimum allocation of resources by ensuring a better fit between preferences, needs and policies • __Public choice theorists__: federalism is market friendly because it restrains the predatory nature of the public sector • However, this isn ’ t true – reality more complex than this. For example, federations in developing countries appear to be systematically associated with mismanagement, overspending and market failures • Scholars realizing the best route to explain the consequences of federalism is to not focus exclusively on the underlying forces and preferences in the political system (Rikerian way) nor to conceive of institutions as abstract entities able to reshape preferences and incentives in any given social context (institutional economics) **need to instead focus on the interplay between the two** ** Social and Economic Conditions of Federations ** • Governments ’ preferences and citizens ’ ability to hold them accountable are to a large extent a function of the societal and economic conditions surrounding them • Distribution of social capital: poor, uneducated electorate vs. better-educated • Degree of asset specificity: capital mobility facilitates the ability of poor units ’ incumbents to engage in ineffective public policy • Competition and federalism – makes central and subnational governments behave non-cooperatively ** Architecture of Power in Federations: The Fiscal Constitution ** • Financial self-reliance of subnational units combines fiscal autonomy and fiscal accountability – so while fiscal accountability usually means high levels of fiscal autonomy, the reverse is not necessarily true • As fiscal autonomy of subnational governments increases, markets function better and economic outcomes improve • Fiscally autonomous subnational units reduce aggregate deficits and inflation rates and facilitate sustained economic growth • Fiscal autonomy operates as a first barrier against the uncooperative behavior of subnational governments ** Architecture of Power: Organization of Shared Rule ** • Dimensions of the distribution of power in federations: Relative strength of the national executive, formal representation of subnational units within the national policy-making process, and organization of party systems • Focusing on the important of formal decision-making rules and procedures – actors will make use of their strategic advantage to maximize the rents they are able to extract • Under unclear divisions of authority, governments at different levels have incentives to transfer the fiscal burden of their policies to other levels – subnational governments have an incentive to incur debt and hope to be bailed out by the center ** Origins of Federations ** • Pre-Rikerian Efforts: Federalism emerged as the institutional correlate of a number of cultural historical or even ideational characteristics of societies • Riker ’ s (1964) //Federalism:// Theoretical breakthrough – establishment of a federal government must be a rational bargain among politicians • Endogenous Federal Institutions • If federal institutions and political unions are known to have discernible political and economic effects, actors derive their preferences from their expectations as to what these effects are, and what their relative position is going to be  • For regional integration to succeed, distributional concerns by potential losers of integration must be smoothed out, or else they will have an incentive to renege – need to overcome the collective action problem by having a dominant member willing to play the role of a “ paymaster ” to facilitate integration • Research on endogenous federalism and decentralization reverses the conventional causal line from outcomes to origins and suggests that the observed association between federal institutions and certain outcomes responds to a process of historical self-selection ** Conclusion ** • Still need to develop a general theory of the causes and consequences of federalism • Federalism and decentralization per se do not provide a magic recipe to ensure political integration or economic prosperity.