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5.0 out of 5 stars
A little book with a big idea, January 11, 2001
This review is from: The New Democratic Federalism for Europe: Functional, Overlapping, and Competing Jurisdictions (Studies in Fiscal Federalism and State-Local Finance) (Hardcover)
preliminary version, please do not quote in scholarly papers
comments are welcome to varadib@ceu.hu
It is rare that political economists should present radical political-institutional reforms that are novel, yet practically implementable, something you can feel a missionary's passion for, yet reasonably grounded in political and economic theory and empirical studies. It is even more unique that suggestions like that should have a non-zero chance to shape reality: the muddling-through EU marathon towards an adequate institutional framework presents the opportunity for a peaceful public debate about how sovereignty should be best distributed in Europe, in which Frey's and Eichenberger's proposal should be seriously considered. What is not surprising though is that something as inventive and down-to-earth as the plan in question should emerge from the political practice of the land of local patriotism, army-knifes and bankers, the home country of the authors, Switzerland.
But what do the authors propose?
The main idea of the book is that of Functional, Overlapping and Competing Jurisdictions (FOCJ). It works like this: individuals or small local communities are free to choose amongst competing FOCJ (which have their own constitutions, including democratic institutions for members and power to tax them) These concentrate on specific functions (e.g. schooling or "reducing utility losses due to fires"), have no monopoly whatsoever to supply the function in question for a certain geographic area. These FOCJ take over most of the services now provided by different levels of government.
The authors' claim that such a system would keep democratic decisions as close to people as possible, could make the quid-pro-quo between taxes and public services clearer, would make it possible for certain services to be provided for the economically optimally sized area, would open the floor to motivated "single-issue" individuals to enter active politics without getting mired in dozens of issues they don't care about, and would create flexible alternatives to the institutional strait-jackets that are nation-states.
They present and try to refute some of the most plausible counter-arguments. To quote some, they claim that quite some redistribution - the more, the less mobile the citizens - can take place in the rather decentralized system of local communities and FOCJ they propose, while larger FOCJ with appropriate entry and exit barriers could exclusively serve the function of large-scale redistribution. Further, they claim that the loss of internal coordination that is there within present regional, national, etc. governments may well be compensated for by the higher pressure on FOCJ leaders from their better informed constituents to come to agreements with other FOCJ. They also claim that the loss of opportunity to trade votes and thus reveal the intensity of preferences could be made up for by well designed constitutions for FOCJ and special FOCJ for those with especially intensive preferences about certain services.
In the rest of the pamphlet they first expand on their main idea: in the rest of part I, chapters 2-5, they compare FOCJ with political decentralization and strengthening direct democracy, arguing that FOCJ would produce advantages of both; they discuss the how-to of implementation, mentioning, if not solving, the possible problems of natural monopolies and discrimination; finally, they look for similar arrangements in history, and in the modern Switzerland and the USA. In part II they consider the role of FOCJ in Europe. They chastize the centralizing tendencies of the EU, which flies in the face of the declared European value of subsidiarity; they compare theirs with other constitutional proposals for Europe. They conclude that Europe-wide constitutional guarantee to form and run FOCJ and a prohibition of blocking FOCJ, especially of double taxation, by national governments could best contribute to European integration (by cross-border FOCJ) without further centralization. In the third part they look beyond Europe: they argue that the expansion of certain European FOCJ beyond the strict nation-state-based borders of the EU could ease the bitter yes-or-no nature of EU expansion: the Ukraine or Turkey or some of their regions could easily participate in certain European FOCJ without the Ukraine's or Turkey's accession. They also argue that FOCJ could solve many of the political and social problems of developing countries.
The presentation is easy to follow and clear of technicalities, set in the framework of mainstream political economy. The empirical parts are supported by apposite tables and relevant articles, and every chapter followed by suggested further reading.
My reference to the book as a pamphlet is not meant to disparage it: it is natural that it should be a pamphlet. When first presenting something fairly radical that one believes in, pledging for its being considered for public debate, when affirming its untried advantages over the many second-best existing institutional alternatives already in existence, the adequate genre is the pamphlet.
Of course such an unabashedly one-sided approach makes the reader prone to take up the role of the devil's advocate. And there is a host of considerations, even over and above the criticisms mentioned but not convincingly refuted in the book itself, that are not tackled in a convincing manner.
One is the question of residual responsibilities. What about the default of FOCJ? The moral hazard created by the threat of default? Who has the ultimate right to use legitimate force?
Another is the question of control of FOCJ. The status of FOCJ, with its internal democracy coupled with economic relations with its members (taxing and serving them) is a mixture of market and democratic-bureaucratic coordination, somewhat akin to cooperatives or employee-controled entreprises. Is a democratic control necessary? Is it efficient? Wouldn't FOCJ without democratic control be the same as privatizing services and the collection of taxes?
A third one is a lack of analysis of the political conditions that make such a system of FOCJ feasible. What changes would make it possible to establish such a system in regions where nothing like it has existed? If interests and path dependence have blocked the introduction of a socially better system of FOCJ, why would that change? In other words: why here and now? Is it that the shaping of the EU and the political reshuffling necessary for it simply puts major political-institutional changes on the agenda?
It is my tentative answer to the last question that explains why I like the pamphlet and accept it wholeheartedly as a direction of institutional development and as a reasearch agenda. I believe that the picture in The Sovereign Individual painted by Davidson and Reese-Mogg is essentially true: the technological development that makes advanced telecommunication and the Internet possible erodes the power of nation-states based on the tax-exploitation of low-mobility individuals and companies at their mercy. The long-run political-economic effects of that process have not been analyzed yet, however, at the minimum, that change forces nation-states to compete more and more with each other for retaining individuals and legal persons that are less and less physically localized.
If that is the direction in which technological developments drive political-institutional changes, then the system that the authors argue for, a framework of FOCJ backed up by a Europe-wide constitutional guarantee, could be an ideally flexible device for a relatively gradual and peaceful transition to the adequate political setup of the future, whatever it will be like. An intriguing institutional reform proposal with such a prospect should be enough to brighten up any political scientist's or political economist's eyes. But the lion's share of the job, a lot of analytical and modelling work to analyse the trade-offs between the traditional system, the book's suggestion and the market is still ahead.
Balázs Váradi,
www.cesa.hu
and
Department of Political Science, Central European University
the right to re-use all or parts of this review in scholarly papers is retained by the author
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