| Montréal,
le 15 mai 1999 |
Numéro
37
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(page 10) |
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POLITICS
THE SOCIAL UNION PACT:
A THREAT TO FEDERALISM
by Jean-Luc Migué
Hard as it is to believe outside Quebec, Lucien Bouchard can some times
be right, even in matters constitutional. The rejection of the social union
pact by his government was a principled position. The action taken by the
Quebec government may have been motivated by political interest. Mr.
Bouchard presumably calculated that no new social programs would
ever be implemented by the federal government without Quebec being alloted
its share of the program funding.
The fact remains that for the first time in the history of Canada, the
provinces formally recognized the insidious federal spending power and
agreed that the federal government could invade any field of provincial
jurisdiction with the consent of six provinces. This latter requirement
could be met simply by gaining the agreement of 6 small and poor provinces
holding less than 15% of the population. One can hardly conceive of a consent
that an offer of a few million dollars by Ottawa could not buy. |
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Now it is true that in budgetary terms most social services provided by
Ottawa already overlap with provincial services. But instead of working,
as promised, to contain this deplorable tendency, through arrangements
that included financial compensation for provinces that opted out of federal
programs, provincial governments formally ratified the practice which,
as shown below, underlies the historical overexpansion of the public sector
in Canada.
Federalist Politics
When both levels of government supply overlapping services as provided
for by the social union pact, politicians of both levels find themselves
competing in the same pool of votes for the supply of similar services.
Viewing votes as inputs in the production of political outputs, we are
then faced with a situation of two public suppliers competing for a common
pool of resources (votes). Presumably the conventional analysis of allocation
under common-property rule should shed light on the outcome of this process.
Mainstream analysis of conditions where resources have common-pool properties
holds that competitive market organization may lead to waste. Consider
for instance the case of a particular pool of oil belonging to more than
one owner. It usually proves difficult to identify and assert property
rights over portions of the oil patch. Each owner has an incentive to exploit
currently as much as he profitably can. He has no interest in calculating
the effects of his actions on resource availability in the future, because
he cannot expect to reap the future benefits. Oil in the ground belongs
to whoever land owner pumps it first. Overoptimal rates of extraction are
predicted. The collective action paradox holds. In the absence of clear
property rights, competition leads to wasteful rent seeking.
A Common-Property Theory of Federalist Politics
In conditions where functions overlap between two levels of government
in national federations, a similar common-pool problem arises. Let us assume
for instance that both levels of governments have the power to offer aid
to some group of voters such as university students. Let us further assume
that such a policy is politically profitable in that it attracts more votes
than it repels. Under a single government system, a monopoly government
would simply calculate the political benefits and costs of its actions
and realize that there is political mileage to be made in adopting such
a program. Its calculus would lead it to supply the politically optimal
level of aid. By contrast, in conditions of competition between two suppliers
of the same services, it is in the interest of both suppliers to seek to
gain the votes in implementing the program first. Should one of them abstain
from supplying the political output, the potential gain of votes would
be lost to it in favour of its competitor. Competition between two suppliers
leads each one to attempt to realize the net political benefits for fear
of losing them to its competitor.
In the conditions specified, each of the two suppliers faces the same demand
and supply conditions as the single monopoly supplier would face. Each
level of government only calculates the potential vote gain and loss to
itself, to the exclusion of potential vote losses inflicted on the other
level of government. From the standpoint of each supplier, the whole pool
of voters is up for grab. Each player has an incentive to exploit currently
as much of the market as he profitably can. It has no interest in calculating
the effects of its actions on voter support in the future, because it cannot
expect to reap those future benefits, once the vote pool is appropriated
by its competitor. Like oil in the ground, votes belong to whoever captures
them first. Yet any increase in the supply of output by one reduces the
opportunities to gain votes by the other. Just as in the pumping of common-pool
oil, each level of government seeks to outbid its competitor and attempts
to pre-empt the political field in supplying its own output.
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« Whenever
a field of activity offers the
likelihood of political
gains,
all levels of government
will bid
to supply political output.
»
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Assuming no particular strategic game on the part of any player, each will
therefore be led to supply a level of political output equal to the level
chosen by the monopoly supplier. The level of public output should rise
to some multiple of what it would be under single government.
Implications of Federalist Politics
Some of the more significant implications of the theory are discussed in
the next few lines. In terms of social welfare, the outcome is guaranteed
to be excessive government spending and regulation. The logic of federalist
competition results in a wasteful expansion of the public sector. The social
union agreement thus marks a futher step in the excessive growth of government
in Canada. Here is an implication of public choice under federalism that
runs counter to predictions derived from the more familiar Tiebout line
of analysis(1). Our results
show that there are two forces operating in a typical federal system, an
expansionist one rooted in the political dynamics analysed above, and a
restrictionist one based on the mobility of resources among decentralized
entities. This may explain why the empirical record is rather mixed on
the contribution of federalism to containing government growth.
Another important consequence of the analysis is that, barring strict constitutional
or technological constraints, all levels of government will have a tendency
to enter every field of intervention. Whenever a field of activity offers
the likelihood of political gains, all levels of government will bid to
supply political output. The observed amount of overlapping should trend
upward, a conclusion clearly supported by historical facts. Taking Canadian
modern history as a case in point, Ottawa, along with the provinces, is
active in all the following fields, which constitutionally are the sole
jurisdiction of the provinces: manpower training and apprenticeship, social
services, culture, housing, tourism and sports and recreation. Furthemore,
this listing fails to include the vast range of programs whereby Ottawa
« bribes » provinces with federal money to influence
decisions in provincial jurisdictions. All cost-sharing programs (medicare,
higher education and welfare) and of course equalization programs, which
by nature affect all provincial fields, must therefore be included in overlapping
areas. Taken together, these fields account for the bulk of the modern
expansion in public budgets.
An important lesson of the modern history of federations however is that
the central government has the technological edge in the race to enter
all fields of activity. The ability of the central supplier to discriminate
between citizens and regions is greater due to its monopoly power over
the whole national common market. The potential political «
profit » available to it from invading lower-level juridictions
is higher than it is for lower-level governments to enter higher-level
jurisdictions. This consequence is clearly confirmed by historical trends
in all federations. In Canada, the bulk of the expansion in federal budgets
and regulations over the past 50 years occurred in areas of provincial
jurisdiction. The iron law of centralization holds with even greater force
than previously thought.
It is also significant that the rate of growth in public expenditures over
the last three decades was highest in areas of provincial jurisdiction
where the extent of intrusion by federal initiatives is most pronounced.
Three areas of intervention have contributed most of the growth in provincial
expenditures over this period: Education and training, medicare and welfare.
All three are characterised by the largest amount of overlapping. By contrast,
increases in budgets were the lowest at the municipal level, where the
extent of overlapping and the level of monopoly power are minimal. This
would mean that the restrictionist Tiebout effect was the strongest at
the municipal level, while expansionist political competitive forces were
limited. To complete the picture, the rate of growth of federal expenditures
for own purpose was intermediate. In the latter case, the Tiebout effect
was inoperative, but so was the competitive effect in the absence of overlapping.
Overall the two opposite effects resulted in intermediate growth.
Constitutional Implications
A direct, if possibly naïve, constitutional implication of the above
analysis would be to radically decentralize federations by eliminating
overlapping jurisdictions in favor of provinces and states. The analysis
developed above shows that the Tiebout theory of federalism was based on
the assumption of firm constitutional limits on the powers of the federal
government. Once these limits broke down, both levels of government began
to exploit the common pool of voters, with the expected consequences on
the explosive growth of government. Some of the desirable constitutional
changes implied by this approach would provide that: Provinces and states
have the sole jurisdiction in fields where overlapping presently is the
rule; the federal spending power and its power to bribe lower-level jurisdictions
is struck out; referenda, initiatives and recalls are required for all
constitutional amendments, including regional majorities conferring veto
powers to provinces/states; federal powers to disallow provincial laws
or to legislate in areas of provincial jurisdiction are ruled out. Note
that all these conclusions conflict head-on with the provisions of the
social union pact.
1. Because they can easily move
away from unfavourable legislation by provinces,
resource
owners in federations are more sensitive to relative tax and regulatory
actions
by provincial
administrations. For this reason, the originator of the economic theory
of federalism,Tiebout,
led to the conclusion that governments would grow
more slowly
in federations than in unitary states. >>
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