| Federalism
by Leonard P. Liggio
The
U. S. Constitution is based on the principle of federalism. This
was not only desirable but necessary as well. The thirteen provinces
of England's empire in North America who jointly gained independence
in 1776 insisted in the convention of 1787 on their autonomy as
they formed a single entity to conduct international relations.
Those
Americans were well aware of the confederal forms of government
too, such as The United Provinces of the Netherlands and the Helvetic
Confederation. John Adams, Thomas Jefferson and James Madison undertook
studies of confederations, ancient and modern. The new state constitutions
as well as the Articles of Confederation during the revolutionary
war were the subjects of intense discussions in Europe, in particular
in France. Articles were published discussing the pros and cons
of the different American constitutions. It was a model that inspired
them to produce the specific document that still describes how its
government was supposed to work.
Felix
Morley, the president of Haverford College, saw John Locke as the
link to earlier thinking on how to integrate local communities and
national states. It was his “great influence on the founding
fathers” that “goes far to explain why the difference
between society and state is generally recognized on this side of
the Atlantic. Society is the voluntary collective acting of individuals
in areas where the state is not concerned” whereas the national
state utilizes “the coercive force of the laws that the state
makes binding” on all.
“Because
the rules of society are voluntarily adopted,” they are not
coercive. Indeed, “on the moral scale, society is clearly
a type of organization superior to the state, since its authority
is based on individual agreement rather than on external coercion.
Morally speaking, it is reactionary rather than progressive whenever
the state expands its authority at the expense of society."
(Felix Morley, Freedom and Federalism (Indianapolis, IN, Liberty
Press, 1981, pp. 39-40). The advantage of federalism is that if
uses both the state to control coercion but allows local communities
to perform the overwhelming amount of social work voluntarily.
The
great advantage of real federalism is that its decentralization
permits the wealth creating advantages of tax and regulatory competition.
Each state or province or canton has the ability to raise or lower
taxes or increase or decrease regulation of activities purely within
its territory. Of course, the unit cannot tax or regulate activities
which occur beyond or above its area. For example, a U. S. state
cannot tax or regulate internet use as it is trans-state in its
scope, or air flights above its territory. Otherwise, each state
can do it pleases and suffer the benefits or consequences.
In
the U. S. states which do not have income taxes become the choice
for new businesses or retired people. In the U. S. the right to
work law permits states to opt out of the compulsory unionism of
the national law. Twenty-two states permit the right of workers
to work without compulsion to join a union. Those are the states
that have become increasingly wealthy as companies move their plants
there to gain increased productivity and better wages for workers
in freedom from union interference in production.
Tax
and regulation competition is an historical tradition in Europe
which 1993 Economics Nobel Prize-winner Douglass North said explained
the Rise of the West. Europe’s decentralized institutions
and moral framework “provided a hospitable filter for learning
that led to adaptations congenial to political/economic growth...
In that competitive, decentralized environment, lots of alternatives
were pursued as each society confronted its own unique external
circumstances. ...The dynamic consequences of the competition amongst
fragmented political bodies resulted in an especially creative environment.
Europe was politically fragmented; but it was integrated in having
both a common belief structure derived from Christendom, and information
and transportation connections that made it possible for scientific,
technological and artistic developments in one part to spread rapidly
throughout Europe." (Douglass C. North, "Competition and
Values in the Rise of the West," (Swiss Review of World Affairs
(November, 1993) pp.23-24)
The
foundations of capitalism in Medieval Europe were the Christian
religion, the voluntary Law Merchant, representative institutions,
and the polycentric political system. Albert Hirschman has described
the importance of voice or exit in the polycentric political system
of Europe. Merchants in Flanders or Brabant or Basel or Aix or Florence
often had branches and relatives in different jurisdictions; if
the ruler raised taxes or impeded commerce, the merchant could move
to another jurisdiction more hospitable to the economic improvement
of its citizens. The citizens could give voice to their doubts about
taxes with the option of exit to a more enlightened, lower tax jurisdiction.
These
ideas and institutions were transferred to America before Europe
itself began to centralize and met their zenith in the adoption
of the United States federal Constitution. For a long time, the
federalist system has been a protection against the unintended consequences
of legislation. Yet, the maintenance of federal institutions in
the 21st century has become a challenge. Over time the value of
a federalist system may be lost sight of and has been taken for
granted by many. It is time to take another look.
Leonard
P. Liggio is a Professor at George Mason University and Executive
Vice President - Academics of Atlas Economic Research Foundation.
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