The Case for Decentralized Federalism

Ruth Hubbard, Gilles Paquet, Ruth Hubbard, Gilles Paquet

• Publisher: University of Ottawa Press
• Year: 2011
• ISBN:
  9780776618166
• Topic: Politique et relations internationales
• Subtopic: Gouvernement américain

The Case for Decentralized Federalism and its sister volume The Case for Centralized Federalism are the outcome of the Federalism Redux Project, created to stimulate a serious and useful conversation on federalism in Canada. They provide the vocabulary and arguments needed to articulate the case for a centralized or a decentralized Canadian federalism.

The Case for Decentralized Federalism brings together experts who believe decentralized federalism is the optimal arrangement for governing the contextual diversity and cultural pluralism in Canada. Using different approaches, they argue that by dividing the work of public governance among different levels of government, it is easier to address the needs and aspirations of the diverse groups that make up Canada.

Part I:

The Positive Case

Chapter 1

Federalism, Decentralization and Canadian Nation Building

Thomas J. Courchene

Introduction¹

Federations come in all varieties: some are parliamentary (Canada, Australia), others are presidential (United States, Mexico); some have two constituted levels of government (Canada), others include municipal/local governments in their constitutions (Mexico, Germany); some are commonlaw federations (Canada, Australia, United States), others are civil-law federations (Germany, Austria); some have triple-E senates (United States, Argentina), others have appointed senates (Canada) and still others have upper chambers that are ‘houses of the sub-national governments’ (Germany); some are highly centralized (Australia, Germany), others are decentralized (Canada, Switzerland), and so on. In all cases, however, federalism is a combination of self rule and shared rule for the constituted levels of government.

The obvious starting point of any analysis of the relationship between decentralization and federalism is the constitutional division of powers. However, this static or legal degree of decentralization may not correspond with the actual degree of decentralization. In part at least, this is because the actual positioning of a federation along a centralization-decentralization spectrum will also be a function of many other factors, including the federal characteristics or trade-offs mentioned above. For example, regardless of the division of powers, a uniformly civil-law federation will be more centralized than will a uniformly common-law federation (Fleiner 2010). In other words, to an important extent, the degree of centralization or decentralization is also a policy and societal instrument, one that can be called upon to accommodate the underlying nature of the federation and/or to achieve deeper societal goals. Indeed, and as the title indicates, the ensuing analysis will attempt to demonstrate that decentralization has played and will continue to play an absolutely pivotal role in our collective journey toward Canadian nation building.

The chapter proceeds as follows. First, it presents the analytical rationales for decentralization and, in particular, for decentralized federations. The next section deals with the constitutional, institutional and political/policy determinants of Canadian decentralization. On the constitutional front, for example, the Judicial Committee of the Privy Council (JCPC) shifted its initial focus from “peace, order and good government” (POGG) as the effective residual clause toward “property and civil rights” (Section 92 (13)), especially after the landmark 1937 Labour Convention decision. On the institutional front, the lack of any provincial representation in our central governing institutions meant that the provincial premiers would fill this void. On the political/policy front, the focus is, inter alia, on the Charter. The section concludes with a discussion of process vs. structure in terms of the de facto division of powers. The following section, entitled “Centralization-Decentralization, Asymmetry and Deux Nations”, focuses on selected events leading up to the House of Commons proclamation that “the Québécois form a nation in a united Canada”. Included here are the implementation of the Quebec personal income tax; opting out, Section 94 and, of course, deux nations. The next section, “Is Decentralization Endogenous?”, addresses the issue of whether decentralization is an independent driver with its own internal dynamic or whether it may better be viewed as an accommodative instrument responding to deeper societal values and forces. After a review of several developed federations, the endogeneity thesis seems credible. A brief conclusion completes the chapter.

Decentralization as political and economic efficiency

The role of this section is to focus on decentralization as an instrument that advances economic efficiency (defined to include what has come to be called ‘competitive federalism’) as well as political efficiency (defined to include both democracy/accountability and ‘taming leviathan’).

Economic efficiency

The obvious launch point is the efficiency argument for a decentralized public sector. Although penned nearly forty years ago, Wallace Oates’ 1972 Fiscal Federalism still merits quotation in this context:

…a decentralized public sector possesses several economically desirable characteristics. First, it provides a means by which the levels of consumption of some public goods can be tailored to the preferences of subsets of the society. In this way economic efficiency is enhanced by providing an allocation of resources that is more responsive to the tastes of consumers. Second, by promoting increased innovation over time and by providing competitive pressures to induce local governments to adopt the most efficient techniques of production, decentralization may increase both static and dynamic efficiency in the production of public goods (Oates 1972: 13).

Along related lines:

Decentralization may, moreover, result in greater experimentation and innovation in the production of public goods. With a large number of independent producers of a good, one might expect a variety of approaches … that, in the long run, promise greater technical progress in modes of providing these goods and services (Ibid., 12).

Readers will recognize that this exactly describes the role that Saskatchewan played in the evolution of Medicare. More generally, federalism allows the flexibility and creativity of the market to come into play in the production of public goods and services. This is why the term competitive federalism has come to apply to this competition among the provinces.

To be sure, competitive federalism has its detractors. The typical concern is that competition among provinces could lead to the proverbial ‘race to the bottom’. A good example of this occurred when Ottawa devolved succession duties to the provinces: they rather promptly reduced these duties to zero. It was clearly a mistake to devolve this tax to the provinces since it became captive to a negative-sum, crossprovince competition for rich golden-agers. However, in Racing to the Bottom (Harrison 2006), the conclusions on this score tend to run in the opposite direction, namely that the competitive race is often to the top. This is demonstrably the case in terms of the climate change file: California and British Columbia are leading their respective federations on the environmental front, and in this they are well in front of their respective national governments.

Drawing from the work of Weingast (1995) relating to market-preserving federalism, McKinnon (1997) outlines the conditions under which sub-national (horizontal) competition can be welfare and efficiency enhancing. These conditions are four-fold: monetary separation (no financial bailout for governments); fiscal separation (no fiscal bailouts from the central government); freedom of interprovincial/interstate commerce (an internal economic union); and unrestricted public choice (tax and expenditure autonomy at the sub-national level). The first two conditions ensure that there are ‘hard’ monetary and budget constraints and the third condition prevents governments from fragmenting the economic union and/or legislating in a discriminatory manner. Within this context, interprovincial competition is benign, efficient and welfare enhancing, and leads to the positive results aired in the earlier quotes from Wallace Oates.

The principle of subsidiarity and the centralizationdecentralization spectrum

As commonly understood, the principle of subsidiarity posits that, other things being equal, powers and programs should be assigned/located to the lowest level of government that can effectively implement these powers/programs, again for all the reasons indicated by Oates as well as for reasons related to enhancing democracy, accountability and citizen engagement. Moreover, if one defines the new global order as I do, namely a combination of globalization and the knowledge/information revolution (Courchene 2001), then the knowledge/information component argues strongly for increasing the extent of decentralization. This is because the associated tele-computational developments allow for much greater coordination and more ability to access and integrate relevant data and information at progressively lower levels of government than has hitherto been the case. In turn, this means that it is possible to “push down to the local level more power and revenues than ever before” (Friedman 1999: 293).

However, there is a flip side to the subsidiarity principle: in policy areas where externalities or policy spillovers exist, these policy areas should be transferred up the jurisdictional hierarchy to that level where the spillovers can be addressed or internalized. Whereas the knowledge/information component of the new global order argues, as noted, for transferring powers downwards, the globalization or ‘ultramobility’ component, where relevant, argues for transferring powers upwards. The interesting and important caveat here is that internalizing externalities need not imply passing provincial activities upwards to Ottawa; internalization can also be accomplished at the pan-provincial level. Indeed, this is one of the key rationales for the Council of the Federation: to perform the requisite overarching coordination that allows the provinces to design and deliver selected programs that otherwise would call for centralization. The recent (2009) Council of the Federation-driven agreement on ensuring full cross-province mobility of credentials and occupations is a case in point.

At this juncture, it is important to emphasize that in numerable cases where policy spillovers required either passing powers upwards or finding creative ways to internalize these externalities, Canada opted for the latter. Often the exercise of the federal spending power was called upon for the task. A good example here was the use of federal costsharing for welfare (in the context of the Canada Assistance Plan (CAP)), replete with prohibiting residence requirements. In tandem, cost-sharing and no residency requirements respectively allowed the provinces to develop more generous welfare programs and to ensure that these individual provincial welfare programs could be integrated into a version of a national system. The key point here is that both Ottawa and the provinces cooperated to ensure that the requisite pan-Canadian requirements were achieved in a way that allowed our decentralized design and delivery of welfare to be maintained and enriched.

A further reason for linking subsidiarity with the centralization-decentralization spectrum in the title of this section is the following: when reference is made to decentralization in Canada, it virtually always means transferring powers from Ottawa to the provinces and not from Ottawa and the provinces to the municipal level. Why should subsidiarity stop with the provinces? Any new global-order version of subsidiarity would suggest that many activities can and should be passed down to the city/municipal level. The reality is that, in terms of access to own revenues and to expenditure responsibilities, Canada’s cities rank among the most constrained anywhere in the developed world. This is most unfortunate because the new era has led to the economic, political and even democratic ascendancy of cities, especially for what have come to be called global city regions. If our cities remain both fiscally weak and jurisdictionally constitutionless, the likelihood is that they will fall short of their new global-order potential (Courchene 2007). Here is another area where Canada remains too centralized, not too decentralized.

One can take this further and suggest that the lack of meaningful decentralization is one of the reasons why the recognized potential for democracy to flourish at the local level has not materialized in Canada. Simply put, it is difficult for citizens to be enthusiastic about local democracy as long as city politicians are largely administrators of responsibilities and policies that are legislated (and funded) elsewhere. Much better, if this is the case, to join the city politicians and engage in rent-seeking at the provincial and federal doorsteps. However, were there greater political autonomy involving enhanced responsibilities and greater access to tax revenues, the stage would then be set for more meaningful citizen engagement since much more would be at stake at the city level. In effect, the result would be more local autonomy and more democratic governance.

With this as backdrop, attention is now directed to the origins of our decentralized federation.

Decentralization: constitutional, institutional and political determinants

The division of powers and “property and civil rights” (Section 92 (13))

Accepted wisdom is that our Fathers of Confederation, fully aware of the ongoing American Civil War at the time of the 1864 Charlottetown and Quebec conferences, did not want to create a constitution embodying a degree of decentralization that could lead to similar ‘states’ rights’ movements on our side of the border. Presumably, this was among the reasons for including the “peace, order and good government” preamble to listing of federal powers in Section 91 of the British North America (BNA) Act (henceforth, Constitution Act, 1867) with the intention of it serving the role as the “residual clause”.

However, there were several other factors, some societal, some constitutional, some geographical, etc., that conspired to ensure that Canada would likely end up as a decentralized federation. The most important was that Confederation was the union of three English-speaking, common-law colonies and Quebec with its own language, legal system and culture. Of and by itself, this was probably enough to tilt the balance toward a decentralist federation rather than, say, a centralized federation or even, as some of the Fathers of Confederation wished, a unitary state. This decentralist thrust was powerfully buttressed by the inclusion of Section 92 (13) “property and civil rights” in the list of exclusive provincial powers. This wording initially appeared in the Quebec Act (1774) and was carried over to the BNA Act, where it was deemed, at least by Quebec and eventually by the JCPC to essentially encompass what we would now call the social envelope as well as aspects of ownership/property (from which provincial securities regulation, for example, initially drew its raison d’être). Indeed, such is the potential sweep of Section 92 (13) that it arguably has replaced “peace, order and good government” as the effective residual clause with respect to selected areas.

More generally, the entire Section 92, entitled “Exclusive Powers of Provincial Governments”, is effectively a guarantee that the Canadian federation will be more decentralized than most, since a listing of exclusive sub-national powers does not characterize many federations. For example, the US Constitution articulates a series of federal powers and then leaves all other powers to be assigned to the states or to the citizenry. One rather obvious implication arising from this is that federal heads of power in Canada like “The Regulation of Trade and Commerce” (Section 91 (2)) have been interpreted much more narrowly than is the case for similar provisions in the United States and Australia. Arguably, the reason for this is that neither the Australian High Court nor the United States Supreme Court is faced with the equivalent of a Section 92-type list of exclusive sub-national powers to constrain the sweep of their federal interstate-commerce clauses (as well as a whole host of other federal powers). As a result, some key aspects relating to securing the Canadian internal (cross-border) economic union have to be achieved through the political route rather than through the courts, e.g., the Agreement on Internal Trade (AIT).

There is another, and surely ironic, way in which our Constitution serves to increase the role and the power of the provinces, namely the fact that in terms of our national governing institutions, Canada surely ranks as the world’s most centralized federation. Indeed, there is no meaningful provincial representation at all at the centre. This is an extreme version of what in the federalism literature is referred to as “interstate federalism”, namely an intergovernmental relationship that has a complete structural separation between the provincial (sub-national) governments and the governing institutions at the centre. The alternative approach, “intrastate federalism”, is a structure where the constituent units are brought directly into the operations of the central government. For example, the Canadian Senate resembles the House of Lords in the unitary state the United Kingdom, in that appointments to our Senate are the prerogative of the Prime Minister. In contrast, the traditional second chambers of federal systems represent, in varying ways, the provinces, states, Länder, etc. As important, there is no provincial role in the appointment to national institutions such as the Supreme Court, the Bank of Canada, the Canadian Radio-television and Telecommunications Commission, the Canadian Transport Commission, and on and on. Driven in part by the reality tha...

Table of contents

• Cover
• Title Page
• Foreword
• Introduction Federalism as a Philosophy of Governance
• Part I: The Positive Case
• Part II: The Normative Case
• Conclusion Decentralized Federalism as Baroque Experiment
• Index
• Copyright