Federalism and the Market: Intergovernmental Conflict and Economic Reform in the Developing World

Abstract

Federalism and the Market: Intergovernmental Conflict and Economic Reform in the Developing World. By Erik Wibbels. New York: Cambridge University Press, 2005. 276p. $85.00.In this book, Erik Wibbels explores the “federal collective action problem” (pp. 47, 62). Because in federal countries national and regional leaders answer to different constituencies, their electoral interests and preferences toward socially costly reforms might conflict. Market economic reforms constitute one type of such measures. As Wibbels argues, in crisis-ridden federations, “economic reforms takes [sic] on the quality of a public good requiring the individual regions to cooperate, whereas it is more rational for each career-oriented politician to avoid the costs associated with austerity” (p. 27). National leaders concerned with macroeconomic stability want market economic reforms implemented in the regions, but regional leaders have an incentive to free-ride and adopt fiscally expansionary policies. The book suggests that “many market reform policies are a function of a constant process of bargaining between national and regional leaders struggling for political survival” (p. 5). Moreover, it argues that “[t]he degree to which the two sets of actors [national and regional leaders] conflict depends on four crucial factors: the electoral interests that each brings to the game, a shared intergovernmental fiscal system, the manner in which regional interests are represented in national policy making, and the levers of partisan influence national leaders have over subnational politicians” (pp. 5–6). The author proposes that fiscally autonomous regions with competitive party systems are more likely to converge with the national government's interests on market economic reforms; and that national electoral coattails are a more effective means for disciplining regional leaders than partisan harmony through centrally dispensed carrots and sticks (pp. 38–39).