Is Federalism “Competitive”?

Very short summary: In this essay, I discuss the relevance of the model of “competitive federalism” for analyzing actual federal polities. I point out that competitive federalism belongs to the domain of ideal theory and, therefore, relies on several idealized assumptions that limit its relevance in explaining historical instances of federalism. In particular, actual federal polities may depend on strong local loyalties that directly contradict the assumptions of competitive federalism. While this alternative account of federalism is also a model in its own right, it suggests interesting questions to be explored further in the broader polycentricity studies.

Economists and political scientists of liberal/libertarian persuasion generally don’t miss the opportunity to remind us of the virtues of federalism compared to more centralized political orders. In the liberal perspective, a federal polity is composed of several functionally overlapping jurisdictions[1] that compete for citizens by supplying public goods and legislative frameworks. In the most abstract picture of federalism, competition is mostly horizontal (i.e., between jurisdictions that have the same competences) but can also be vertical (i.e., a jurisdiction that is under the authority of another can eventually compete with it). The vertical distribution of competences is determined by the principle of subsidiarity, according to which public decision-making should be made at the least centralized level of government that is able to address a given issue effectively. At the top of the polity stands the federal state. It provides some public goods that cannot be efficiently provided at lower levels (for instance, because of economies of scale) and implements the framework of rules that organizes the competition between jurisdictions at the lower levels. While jurisdictions are likely to be territorial, this is not necessary – some accounts of federalism conceive jurisdictions as purely functional and not territorial.[2]

What I have just sketched is the model of competitive federalism. The best way to understand the appeal of this model from a liberal perspective is to recall Milton Friedman’s remark in Capitalism and Freedom that while “the role of the market (…) is that it permits unanimity without conformity,” the characteristic feature of action through explicitly political channels is that it tends to require or to enforce substantial conformity.”[3] That political decision-making, even democratic, requires everyone’s conformity is related to its inherently coercive nature. As James Buchanan and Gordon Tullock point out, any political decision that falls short of unanimity therefore ...