By Arnold Kling
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.