Limitations of diversity

I’m inclined to the idea of federal systems of government; they more easily reflect regional diversity. Federal systems can also mitigate against bad policies; innovations tried first in one jurisdiction before spreading nationally. For all that there are a wide diversity in federal models.

I tend to defend the Australian model against perennial attack from the Canberra centralists. Aussie federalism was hammered out in fiery forges of constitutional conventions, ensuring all former colonies retained a fair go regardless of size or economic strength. A favourite point is that the Aussie model prohibits any trade barriers between states.

There are other systems I wonder at, like Canada’s. Interprovincial trade barriers leave the provinces to endlessly negotiate bilateral, trilateral or quadrilateral deals. Canada's constitution prohibits internal tariffs, but it says nothing about non-tariff barriers.

For 130 years, the provinces have erected a spider's web of licensing requirements, product standards and other regulations that protect their own workers and local markets -- at increased costs to consumers and businesses, as well plumbers who simply want to move from one province to the next.

Before a landmark free-trade deal was struck between Alberta and British Columbia last year, an Alberta farmer had to restack the hay on his pickup truck when crossing the provincial border to meet B C hay-stacking regulations. At one time BC’s Campbell government had tried to force Costco and others in Alberta to provide purchase records of BC residents who slipped across the border to shop.

At the same time Alberta’s major windfall from the oil-sands chimera was held jealously for the sole benefit of that province. But now that dream has burst with falling oil prices and general economic gloom that prairie province will soon be dusting off their begging bowl and heading to Ottawa.

Obviously each of the various federal models have shortcomings. National governments consciously use their budgets as a device to "manage" the state of their economies, increasing their spending or cutting their taxes when private sector activity is weak and unemployment is rising, and cutting their spending or increasing taxes when private sector activity is too strong and inflation pressure in rising.

State/provincial governments aren't national governments and what they should do with their budgets during downturns in the economy is different from what national governments should do. That is because, unless duplication can be justified, state/provincial government should be purely in the business of delivering service, they are business managers in effect.

Of course that model works well, though not seamlessly, when there are no trade barriers between these subordinate jurisdictions. Canada, and to a degree the US, have never established that sort of clarity between state and national responsibilities. I expect it makes managing the economy just a touch problematic.