Strategic Federalism (Why More Decentralization Can Be Welfare Enhancing in a World of Increased Interaction between Disperse and Interdependent Players)

Abstract

The world has witnessed significant changes after the Berlin Wall fell down, exteriorizing the end of the bi-polar geopolitical dispute between the US and the USSR. Countries around the world have reorganized their boundaries, their strategic priorities, and their governance tools, presenting the world with faster and more developed inter-state relationships and highly increased international investment, communications and trade flows. Concomitantly, a two-layered process of aggregation of smaller countries/markets and decentralization of existing and novel constitutional and inter-state arrangements took place. The Paper will submit that under these conditions arising from the post-Cold War era, increasing at the margins the degree of systemic decentralization of US' Federalism ⎯ or any given constitutional or inter/supra-state arrangement ⎯ in all areas not strictly related to national defense, foreign relations, international trade negotiations, and policing narrowly defined collective action problems among local governments, is likely to be welfare enhancing. Counterintuitively, the Paper will alert about the special threats existing federalisms like the US face when trying to re-decentralize what has been centralized over the years. Path-dependence and past partisan and interest group alignment appear to be strong enough forces to prevent beneficial decentralization from happening. However, a new approach based on the strategic merits of decentralization in a redefined competitive world could present both sides to the centralization/decentralization debate with fresh grounds for some level of agreement.