Arnold Kling  

Cartel Federalism

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In his book The Upside-Down Constitution, Michael Greve suggests that in theory there are two types of federalism. With competitive federalism, state governments compete with one another for citizens. With cartel federalism, state governments collude to raise spending and taxes and expand regulatory authority. I have cited Greve here, where Medicaid is an example of this sort of collusion. We also did a talk with Greve.

Examples of competitive federalism include Canada, Switzerland, and the 19th-century United States. Examples of cartel federalism include Argentina and, increasingly, the United States today. With cartel federalism, the central government lowers the cost to the states of spending and regulating. When the central government distributes tax revenues to the states, it encourages spending. When the central government restricts state regulatory competition (for example, by allowing state X to restrict the ability of health insurance companies, doctors, or lawyers from state Y to offer their services in state X), it encourages over-regulation.

Greve's book examines the Constitution as a bulwark against cartel federalism. However, as he points out, it seems that other factors, notably sectional discord, seem to provide a better bulwark. Thus, Canada and Switzerland, with their internal linguistic differences, resist cartelization. In the U.S., the intersectional discord between the North and South may have accomplished something similar.

What to expect from Europe, then? The press is reading the latest European election returns as a rejection of "austerity," because that is the way the elites promoting cartel federalism wish to read it. However, another way to read the returns is as an assertion of nationalism and a sign of resistance to cartel federalism.

My sense is that the people of Europe do not want cartel federalism. The elites want it in the worst way. My prediction is that the elites will win and the masses will lose, because the elites are more determined and they understand political power more clearly.

Ditto for the United States.


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COMMENTS (5 to date)
Becky Hargrove writes:

But even if they 'win' it is only temporary. Ideas will once again have their day and we will make certain that knowledge is not lost.

R Richard Schweitzer writes:

Perhaps Greve's text deals with it, but in terms of developments to be expected, it might be useful to consider the studies of Mancur Olson on the effects of the densities and proliferation of what he labeled "special" interests; that is the fragmentation of competing interests seeking special distributive results within any economic jurisdiction such as a state.

See, The Rise and Fall of Nations (1982)

Mat writes:

About Europe I am not sure. Yes, "the elite" wants cartel federalism. But the price to be paid is not evenly spread: the so-called core nations have to pick up the bill. Therefore the elites of those countries are shifting. If they shift enough, it will not happen.

And a second risk for the cartel-minded elite is democracy. If the elites in the core is too cartel-minded, they will lose elections.

Therefore, the outcome is not so certain.

R Richard Schweitzer writes:
Democracy is a process, not a condition
.

As a process (particularly in its plebiscitary form), it is not long entrenched in Europe. Other processes have been known to gain or maintain the consent of the governed.

Jeff writes:

This is not a pretty picture you paint, but I'm inclined to agree with the other comments. The great European project suffers from too many flaws to endure over the long term. This is its first significant test, and already it seems destined to fail.

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