Federalism and the New Economic Order: a Citizen and Process Perspective

FEDERALISM AND THE NEW social and political cultures of the respective ECONOMIC ORDER: nations. What this means is that, despite the A Citizen and Process Perspective1 inevitability of the NEO dictates, federal systems do have a rich variety of choices in terms of how they will accommodate the NEO. By

The second order of business is, of course, to Thomas J. Courchene detail the salient features that characterize the Jarislowsky-Deutsch Professor of transition from the old societal paradigm to the Economic and Financial Policy NEO. Included among these will be the Queen=s University implications for governments, citizens, and and markets, as well as for the division of powers. Senior Scholar Institute for Research on Public Policy With this overview focus on both the demand Montreal side (the nature of the NEO) and the supply side (the range of structures and processes to accommodate the NEO), the remainder of the paper I: INTRODUCTIONi focusses in more detail on selected policy and The power and pervasiveness of governance issues within federations themselves globalization and the knowledge/information and also with reference to their participation in revolution (henceforth referred to as the new supra-national agreements like NAFTA, the EU and economic order, NEO, or the new global order) Mercosur. Included among the former are the are such that all nations will have to conform to preconditions for the successive exercise of this new paradigm. However, the federal model competitive federalism, approaches to generating is so inherently flexible that it can accommodate hard budget constraints, securing an internal the NEO dictates on the one hand and a wide economic union, and preserving and promoting the range of domestic political and social values on social union. These relate in large measure either to the other. Substantiating this assertion B that aspects of intergovernmentalism (horizontal, federalism can, consistent with underlying vertical or both) or, in the case of the social union, societal values, deliver both economic to co-determination. competitiveness and social cohesion in the new economic order B is the primary purpose of the There is, however, a key aspect of federalism ensuing analysis. that transcends these interrelationships among and

between levels of government, namely the Toward this end, the first order of business relationship between federalism and citizens. will be to draw on the experience of four While, the literature on intergovernmental transfers successful but politically and institutionally does pay appropriate attention to horizontal and widely different federal systems in order to vertical equity, a key role of the ensuing analysis is demonstrate the remarkable ability of the to transcend this socio-economic relationship and structures and processes of federalism not only address citizens= rights, democratic participation to deliver competitiveness and cohesion, but to and accountability in federal systems. While this is do so while fully respecting the underlying important in its own right, especially in light of the citizen-enhancing aspects of the WEO, it is doubly 1Keynote Address to the Forum of important in the federalism context since without Federations Conference on Federalism In The features like sub-national accountability to citizens Mercosur: The Challenges of Regional Integration, it is highly unlikely that desirable operational June 26-27, 2002, Porto Alegre, Brazil characteristics such as hard budget constraints and an internal common market can be achieved.

Working Paper 2003 (7) 8 2003 IIGR, Queen=s University 1 Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective

The final section of the paper then turns intergovernmental arrangements can and does vary briefly to the relationship between federalism widely across federations, it is nonetheless (and and regional trading blocs. The main message perhaps surprisingly) the case that the nature of, here is that, for federations that have already and incentives within, these grants is anything but accommodated themselves to the dictates of the arbitrary across federations. Rather, they tend to NEO (as outlined earlier in the analysis), the embody and indeed to re-enforce the values and transition to a regional trading block or to norms of the citizen-government and citizen-citizen Asupra-national federalism@ should neither be relationships that underline the societal difficult nor unnatural. Nonetheless, some new social/political contract. challenges will arise such as centrifugal pressures relatING to provincial-international To see this, it is instructive to focus on the linkages or to province-to-province associations structure and process dimensions of federal systems across national boundaries. And the advent of in a comparative context, beginning with the the euro means that issues relating to currency Commonwealth of Australia and then dealing in integration will inevitably surface. turn with Germany, Canada and the US.

A brief conclusion completes the essay. A. Australia Australia is not only a highly centralized federation, it is also a highly egalitarian nation. For II: FEDERALISM AS THE EMBODIMENT example, welfare payments are designed and OF SOCIETAL VALUES: A delivered from Canberra and, as a result, are COMPARATIVE PERSPECTIVEii identical across the country, in sharp contract to, say, Canada where responsibility for welfare is Federations come in many varieties. What provincial and benefits vary widely across they all have in common is a constitution that provinces. Wage grids are also essentially uniform allocates powers on a self-rule, shared-rule basis across the country B university professors are on the and a set of processes to implement this same wage grid whether they teach in Perth, constitutional structure. Given the difficulty of Sydney or Launceston. On the tax side, the accomplishing constitutional amendment in Australian states do not have effective access to most federations, this puts a premium on process broad-based taxes (income taxes, sales taxes) and as a means of accommodating change, especially the taxes that they do levy are being eroded by a during periods in which societies are in full combination of global forces and High Court evolutionary flight. As Friedrich (1968) noted: decisions (Courchene, 1999). Not surprisingly, therefore, the Australian states are highly transfer Federalism should not be seen only as a dependent: AAustralia has by far the highest degree static pattern or design, characterized by a of vertical fiscal imbalance among the major particular and precisely fixed division of federations in the world@ (Walsh, 1996, 115).iii powers between government levels. Federalism is also and perhaps primarily More relevant for present purposes, the system the process ... of adopting joint policies and of intergovernmental grants fully complements making joint decisions on joint problems Australia=s centralized/egalitarian society. First, (quoted in Bastien 1981:48, emphasis over one-half of the cash transfers to the states are added). in the form of conditional grants (Specific Purpose Transfers, in the Australian context) which, in turn, But the process dimension plays a larger role enhance both centralization and uniformity.iv still. Specifically, while the combination of Second, Australia=s approach to removing intergovernmental grants, equalization and horizontal fiscal imbalances B the Financial

2 Working Paper 2003 (7) 8 2003 IIGR, Queen=s University Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective

Adjustment Grants monitored by the federalism@ that prevails in, say, Canada where the Commonwealth Grants Commission B is the provinces have wide legislative responsibilities. most comprehensive among federal nations. The Not surprisingly, therefore, all major tax rates in fiscal equalization principle that guides the Germany are set centrally with no variations Commonwealth Grants Commission (CGC) is as allowed at the Länder level (although the Länder follows: Athat each State should be given the Aadminister@ or collect these tax revenues). Apart capacity to provide the average standard of state- from a relatively minor range of Länder and type public services, assuming it does so at an municipal taxes, most Länder revenue comes from average level of operational efficiency and revenue-sharing arrangements with the centre. The makes an average effort to raise revenues from major shared or joint taxes include corporate and its own sources@ (CGC, 1995, 1). Operationally, personal income taxes, capital taxes and the VAT. the system equalizes revenues both upwards and Some of this revenue sharing follows the principle downwards to the common standard and then of derivation, some is allocated on equal-per-capita does the same for states= expenditures or fiscal terms and some (especially for the new Länder) is needs. based on equalizing principles. Beyond this revenue sharing, there is a second and overarching Thus, the Australians have latched on to a tier B an inter-Länder, revenue-sharing pool. One highly egalitarian equalization program and, should note that Aneeds@ are also taken into account more generally, a centralizing system of in terms of the operations of the inter-Länder intergovernmental transfers that meshes well revenue-sharing pool, i.e. the Astandardized@ with the underlying homogenous and egalitarian revenues for purposes of the pool incorporate nature of their federation. Indeed, Richard Bird expenditure needs to a degree. Other things equal, (1986,242) noted that Ahad Australia not been Länder with large cities and/or high population established initially as a federal country, it densities are deemed to require more revenues and seems rather unlikely that it would be one vice versa. (This is in sharp contrast to the today.@ The genius of the Australian approach to Australian approach to needs where population federalism is they have creatively employed the sparsity is deemed to require greater expenditures flexibility of the federal form to replicate which, in turn, suggests that equalizing for selected key features of unitary states. expenditure needs in federal nations remains a very subjective exercise). B. Germany The German federation is also highly The guiding principle underlying centralized, but in a quite different way than intergovernmental transfers in Germany is the Australia. The key institutional/constitutional constitutional (Basic Law) provision ensuring feature of German federalism in the upper house Auniformity of living conditions@. One should note or Bundesrat, which is a Ahouse of the Länder@ that in the late 1990s three Länd governments in that it is made up of direct representatives of (Baden-Württemberg, Bavaria and Hessen) the sub-national governments. All legislation challenged the system of equalization in the pertaining to the Länder must receive the German Constitutional Court on grounds that it is imprimatur of the Bundesrat. This is clearly a excessively redistributive. The resulting decision of version of joint decision making alluded to by the Court limited the degree of per capita Friedrich (above) or, more generally, a version equalization to 95% of the national average, down of co-determination, of which more later. But from the previous 99.5%. Spahn (2001) notes that the implementation of this legislation rests with while this decision will trigger a Afundamental the Länder. In federalism jargon, Germany is review@ of the existing equalization law, it might often referred to as engaging in Aadministrative not lead to a corresponding fundamental reworking federalism@, in contrast to the Alegislative of the law since Ainterregional solidarity ...

Working Paper 2003 (7) 8 2003 IIGR, Queen=s University 3 Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective continues to exert a strong hold on the political has long been a Astates=-rights@ province which, in culture, notwithstanding the stresses of turn, has moved Canada not only toward greater unification@. decentralization but greater asymmetry as well (e.g. Quebec has its own, separate, personal income tax By way of anticipating the later analysis on whereas the rest of the provinces Apiggy-back@ their supra-national integration, one might also note tax rates on Ottawa=s personal income tax system). that constitutional provisions have been introduced for the Länder to play a role in EU In any event, the Canadian federation is highly integration negotiations in those areas that fall decentralized on both the expenditure and tax under their jurisdiction. Indeed, since the Länder fronts. For example, the provinces levy their own are responsible for implementing many of the tax rates and bracket structures in terms of personal EU Adirectives@, they now have established and corporate taxes, levy their own sales taxes, mini-embassies in Brussels. This, too, represents control the natural resources within their borders a process innovation that allows the Germans to and on the program expenditure side are approach the implementation of policies within responsible for health, welfare, education, and the confederal EU in much the same way and training, among many other areas. Given the thrust spirit as they implement the policies within the of this section, it should not come as a surprise that German federation. Indeed, this co- the Canadian system of intergovernmental transfers determination approach seems on the surface to is serving to accommodate this decentralization. resonate well with the co-determination features of corporate governance (in particular the Focussing first on Canada=s equalization presence of labour unions on corporate boards of program, the constitutional principle is much less directors), although implying any causal comprehensive than that in Australia: AParliament relationship between them is neither intended and the government of Canada are committed to nor particularly relevant for the issue at hand. making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public C. Canada services at reasonably comparable tax rates@. This In contrast to Germany, the Canadian Canada does by providing equalization payments to provinces have no formal role in the operations the poorer provinces in order to bring their per of the central government: the Senate (upper capita revenues up to the so-called Afive-province chamber) is appointed for Alife@ (up to age 75) standard@ (i.e. close to the national-average by the government of the day and, as a result, is standard). Unlike Australia, however, the revenues not a Afederal@ chamber in any meaningful sense. of rich provinces are not Alevelled down@ to this Hence, provincial concerns and issues tend, by five-province average, nor does Canada equalize default as it were, to be articulated through the for needs on the expenditure side. These provinces and their respective premiers. Indeed, equalization payments are wholly unconditional. Canada also differs from the typical federation in that the Canadian constitution embodies an More interesting, perhaps, is the Canadian extensive listing of exclusive provincial powers. approach toward those transfers designed to address Beyond this, there are other features of the vertical imbalance. When introduced in the 1950s Canadian federation which propel it toward and 1960s, these vertical-balance grants were of the decentralization. The province of Quebec, with shared-cost, conditional variety, linked to various one-quarter of Canada=s population, is program areas such as welfare, health and linguistically, culturally and institutionally education. Over time, as the programs that they (continental civil law rather than English were associated with became Aestablished@ across common law) distinct. Not surprisingly, Quebec the citizenry in the various provinces, the federal

4 Working Paper 2003 (7) 8 2003 IIGR, Queen=s University Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective government relaxed the conditionality. states engage in a narrower range of activities than Currently, all vertical transfers are rolled into a do Canadian provinces, for example. What is most single Ablock-fund@, where the monies can be fascinating about the US approach to spent where the provinces wish. However, there intergovernmental transfers is the absence of a remains in place a set of social policy formal revenue equalization program although, on Aprinciples@ to guide all provincial spending in the expenditure side, regional considerations enter these policy areas. into allocation decisions (for example, with respect to defence), as they do in other federations. Because of the decentralized nature of the Canadian federation, Canada has had to engage One view of the US approach is that the in creative measures to preserve and promote its Americans simply ignore any horizontal fiscal socio-economic union. For example, all imbalances. Another view is that there really are no provinces adhere to a mechanism for allocating horizontal imbalances since any meaningful per- corporate revenues across provinces for those capita revenue differences across states will be enterprises that operate nationally. And recently capitalized in property values, wages and rents. the provinces and Ottawa have signed a Wallace Oates, one of the foremost scholars of US Framework to Improve the Social Union for federalism, takes this latter view of horizontal fiscal Canada (generally referred to as SUFA, for the imbalances and equalization: social union framework agreement). The key coordinating Canadian institutional [E]xisting fiscal differentials (e.g., varying instrumentality has been what federal scholars levels of taxable capacity) across jurisdictions refer to as Aexecutive federalism@ namely, the will tend, to some extent at least, to be frequent meetings (over 1,000 annually at last capitalized into property values so that those count) of federal and provincial officials (or who choose to live in fiscally disadvantaged executives) in areas of mutual concern and areas are compensated by having to pay lower interest. In addition, the provinces have mounted land rents; from this perspective, horizontal their own Anational@ institution, the Annual equity under a federal system is, to some Premiers Conference, which is moving the degree, self-policing. The need for equalizing provinces toward addressing some pan-Canadian grants in a federation is thus questionable. goals. Nonetheless, the internal Canadian socio- Perhaps it is best to regard their role as a economic union remains less uniform than that matter of Ataste.@ (1983, 95-96). of Australia, for example. John Kincaid (2002) presents yet another In line with the general theme of this perspective on the absence of an equalization section, Canada=s system of intergovernmental scheme in the United States, one based on transfers as well as the several individual mobility: intergovernmental agreements are in effect designed to accommodate the decentralist nature Americans are ... mobile; nearly one-fifth of country as well as its commitment to be a of the population changes its county of sharing community. residence each year. This is an historic pattern, not one induced by globalization. This mobility weakens federalism insofar as it D. The United States weakens citizen ties to states and localities and To round out this brief comparative survey, erodes sectional and regional subcultures; we now turn to the United States, which is the however, it also strengthens federalism insofar federal system that probably suffers least from as mobility spurs interstate competition for vertical fiscal imbalance, in part because US innovation and efficiency in state and local

Working Paper 2003 (7) 8 2003 IIGR, Queen=s University 5 Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective

government. Although critics of redistribute federal revenues to places via competitive federalism argue that it induces fiscal equalization, revenues are redistributed Araces to the bottom@, especially in business to persons via welfare programs. Such regulation, social welfare, and redistribution is the U.S. government=s single environmental protection, there is, to date, largest function, consuming 55-70% of the little evidence of negative downslides. federal budget, depending on how one defines redistribution. This mobility also helps to explain a distinctive feature of American federalism, However, one comes out on this equalization namely, the absence of federal fiscal issue, it is clear that the US approach to equalization for the constituent states. Most intergovernmental grants, and to the processes of federations, such as Canada and Germany, federalism generally, accords well with the laissez- engage in fiscal equalization. Given that faire US constitutional rhetoric, ALife, Liberty and mobility compels no one to live in a poor the Pursuit of Happiness@. state, the U.S. government and wealthy states are not seen as being obligated to E. Recapitulation supply poor states with revenue to provide The conclusion to be drawn from this brief services equal to the national average or to review of the role of intergovernmental transfers in a constitutional command for Auniformity the four developed federal systems is that of living standards@ as in Germany=s Basic intergovernmental transfer arrangements are Law. (Per capita income ranged from anything but arbitrary. Indeed, the opposite appears $38,480 in Connecticut to $19,012 in to be the case B they complement the existing tax Mississippi in 1998.) Although, as a and expenditure allocations in a manner that practical matter, some states, especially in integrates overall fiscal federalism in directions the Northeast, have been long-term fiscal consistent with the implicit or explicit underlying donors while some states in the South and values and norms of the respective federal systems. West have been immortal vampires, the In this sense they are, in effect, part and parcel of historic tendency in Congress has been to the constitutional/institutional machinery that treat all states roughly equally or in reflects and embodies the deeper societal values of proportion to population with respect to the federation. federal largesse. Furthermore, unlike some federations (e.g., Canada and Germany) for To be sure, the causation may go both ways. If which fiscal equalization is a key intergovernmental grants are unconditional, this component of the Asocial compact,@ this has will tilt the balance of power toward sub-national never been relevant in the United States. governments. But already decentralized federations The key component of the American Asocial may dictate that future grants continue to be compact@ is the ability of the federal unconditional. Nonetheless, this potential symbiosis Constitution and federal government does not undermine the observation that the manner to deliver individual liberty, economic in which federal systems operate resonates closely opportunity, and social welfare, plus with the underlying values of the federation. national security. As a result, rather than The larger message is the following. The analysis demonstrates is that federations can be pervasiveness of the forces of globalization and both economically successful and faithful to their the knowledge/information revolution are such societal compacts under a very wide range of that all federations are wrestling with the need to federal structures and processes. In turn, this accommodate themselves to the dictates of the implies that federations can be accommodative to NEO. However, what the above comparative

6 Working Paper 2003 (7) 8 2003 IIGR, Queen=s University Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective the NEO in ways that maintain their overarching exports. Given that the value of international and long-standing socio-political goals. exports is equivalent to roughly 55% of Ontario GDP and given, also, that over 90% of these But what are these Adictates@ of the NEO. exports are destined for US markets, it should be To this I now turn. evident to one and all that Ontario=s economic future lies in USA/NAFTA economic space. Part, III: THE IMPLICATIONS OF THE NEW also, of the rationale for the North American region ECONOMIC ORDER ON FEDERAL state label reflects the policy approach of the SYSTEMS government of Ontario: Effectively, the province is legislating with an eye to privileging Ontario and In A State of Minds: Toward a Human Ontarians in this emerging NAFTA economic Capital Future for Canadians (2001), I have space, consistent with the Acreation-of-untraded- outlined the variety of ways in which interdependencies@ requirement of region states globalization and the information era have (Storper, 1995,211). transformed the roles of citizens, markets and governments and the interrelationships among Canada is probably the most extreme example them. For present purposes, the focus is on a of the interplay among globalization, economic narrower set of implications, beginning with the geography and sub-national jurisdictions. All but implications of the NEO for what Castells one of Canada=s ten provinces are now more (1989) refers to as the Aspace of places@ and the integrated, trade-wise, with the rest of the world Aspace of flows@. The former reference is to the (essentially the US) than with the rest of Canada.v integration of geo-economic space and the latter In this sense, virtually all provinces are also in the is to the (inherently-non-territorial) information- process of embarking on region-state status.vi This revolution-driven networking relationships leads to several observations that, although among economic and political agents. specifically related to Canada, are likely to have important implications for federations elsewhere. A. Integrating Economic Geography: The The first is that Canada is progressively less and Sub-National/International Interface less a single east-west, national economy and more At the highest level of generality, Anothing and more a series of north-south, cross-border is >overseas= any longer@ (Ohmae, 1990, vii). economies. A second implication is that since these Alternatively, everything is! Ohmae (1993,98) cross-border economies are quite different from further observes, AOn the global economic map, each other, the net result will not only be more the lines that now matter are those defining what decentralization but more asymmetry across might be called Aregion states@. Indeed, in From provinces: the manner in which British Columbia Heartland to North American Region State: The integrates with the US northwest and the Pacific Social, Fiscal and Federal Evolution of Ontario Rim is likely to be quite different from the way in (1998) Colin Telmer and I designated the which Ontario integrates with the New York- Canadian province of Ontario as having donned Chicago axis. Thus, the resulting challenge on both the mantle of a North American region state. counts is how to mount an east-west (or internal) Part of the rationale for this was trade related: social/political union over an increasingly north- from a position in 1981 when Ontario=s exports south (external) trading union. The traditional to the rest of Canada (interprovincial exports) nation-to-nation interface in terms of international and its exports to the rest of the world economic relations is progressively giving way to a (international exports) were both running at or series of Aregional-international interfaces@ (or sub- near C$40 billion, Ontario=s international national/international interfaces). Federal systems exports are now in the C$200 billion range, fully must be flexible in order to accommodate these three times larger than its interprovincial centrifugal forces.

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was signed by Ottawa and all provinces in 1994 While the above focus has been on Canada, and came into effect in 1995. As an aside, note that it is clear that the upper tier of Mexican states is the Canada-US Free Trade Agreement became also progressively integrating into NAFTA effective in 1989 and, as noted above, provided an economic space, e.g., one can also view Nuevo important catalyst for CLAIT. Leon as a North American region state, and as well one can view key aspects of its legislation Rezende and Afonso (2002, section 5) provide as being directed toward privileging its citizens an excellent overview of many of the challenges within a progressively integrating North facing federations as members of a regional trading America. And as Rezende and Afonso (2002, bloc. For example, they proceed to sketch out what 34) note, some Brazilian regions are also tax reform in an integrated geo-economic space becoming more integrated externally and in the ought to achieve B common tax bases, both levels process reducing their former dependence on of government able to set tax rates, effective audits, domestic inputs and markets. etc. However, as I will argue later, these are increasingly also the requirements of the NEO, Since these region states are more likely to whether or not one is part of a regional trade block. arise in the context of regional free-trade Indeed, under the heightened mobility of capital arrangements, it is convenient to direct attention (physical, financial and human), the top marginal to them. tax rates for mobile factors must be in line with those of one=s major trading partners. More generally, short of the creation of some sort of regional integration (Mercosur, NAFTA, EU) global tax on capital, taxation has to shift from To this point the discussion of integrating away taxing income and toward taxing geo-economic space has essentially dealt with a consumption, where the ideal form of the latter is federation operating within a WTO framework. I an export and import neutral VAT. now turn to the implications for federations that are part of regional (or supra-national) Of more concern is that regional integration economic/trading unions. could lead to unequal growth prospects or to

provincial economic disparities within federations. Regional free trade agreements (RFTAs) While one cannot deny this possibility, Canadian provide both opportunities and challenges. experience has been instructive. The Atlantic Intriguingly, they may make it easier, politically, Provinces (Newfoundland, Prince Edward Island, for a federation to create an internal economic Nova Scotia and New Brunswick), long dependent union either because the RFTA would on the federal government for income support of incorporate operating provisions like Anational various sorts, have in the context of the FTA and treatment@ which would be binding on both NAFTA been able to begin to wean themselves off federal and provincial governments, or because of decades of federal largesse and to attempt to of the Adirectives@ or harmonization agendas that pursue a more independent way within NAFTA flow from the RFTA. In Canada=s case, the economic space. Rezende and Afonso (2002) Ademonstration effect@ of the Canada-US FTA suggest that this might also hold for the poor and of NAFTA turned out to be a powerful northeast region of Brazil. catalyst for freeing up internal markets. In effect, Canadians said to themselves, Aif we can B. Integrating Networks (The Space of Flows) negotiate international free trade, then surely it One of the ways in which the information must be possible to negotiate free trade across revolution manifests itself is that the network is provincial boundaries,@ with the result that becoming the dominant and pervasive Canada=s Agreement on Internal Trade (AIT) organizational form of the information age. Not

8 Working Paper 2003 (7) 8 2003 IIGR, Queen=s University Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective only do networks Aproliferate in all domains of the economy and society, outcompeting and C. Subsidiarity and the Division of Powers outperforming vertically organized corporations It is by now commonplace to recognize that in and centralized bureaucracies@ (Castells, 2001), the NEO powers are being transferred both upwards but they are finally providing meaningful and downwards from central governments of nation substance to the concept of a global economy, states, a process that I have referred to as namely Aan economy with the capacity to work glocalization (1995). The upward transfer is as a unit in real time on a planetary scale@ straightforward: economic space is transcending (Castells, 1996,92). Castells then goes on to political space with the result that countries are, in observe: countervail fashion, transferring powers to supranational structures and regulatory bodies The emerging forms of governance of (NAFTA, EU, European Central Bank). The international markets and other economic downward transfer is to markets (privatization, processes involve the major national contracting out, deregulation), to lower levels of governments but in a new role: states come government (e.g. the devolution in Canada of to function less as Asovereign@ entities and powers relating to forestry, mining, tourism, more as components of an Ainternational training, etc.), and to citizens (via the polity.@ The central functions of the nation- democratization of access to information state will become those of providing technology). Indeed, one aspect of this downward legitimacy for and ensuring the transfer of powers is that governments have lost accountability of supranational and their erstwhile monopoly or control over subnational governance mechanisms. information which has, in turn, resulted in a Nation-states will increasingly be nodes of redrawing of the boundaries between what ought to broader networks of power (1997,304-5, be public or private, or federal or provincial. emphasis added). The process of glocalization can also find a These (essentially non-territorial) networks of rationale in terms of the operation of the Aprinciple power range both horizontally (among and of subsidiarity@. In its most general version, the between nation states) and vertically (up, down principle of subsidiarity states that the locus of and across the hierarchy of cities, regions, decision-making and delivery should be as close to nations, and supra-national institutions). Thus, the people affected as is feasible. Clearly, the governance and power are being distributed information revolution component of the new across these networks and more generally across societal order (especially the dramatic fall in society, economy and polity. Paquet (1997,30) communication and computation costs) is notes that these relationships can shift from decentralizing in that it makes more feasible the being hierarchical to being heterarchical, very downward transfer of many more similar to the common game of paper, rock and programs/policies. However, there is a corollary to scissors, where paper covers rock, rock crushes subsidiarity that states that if there are spillovers or scissors, and scissors cuts paper. Thus, Aany externalities associated with locating service sector may at times have dominion over the delivery at a given level or jurisdiction, then these others: indeed, the three sectors [society, externalities should be Ainternalized@ by economy, polity] co-evolve.@ (loc. cit.). transferring the activity up the jurisdictional ladder. Since one of the key determinants of spillovers or The interaction between the changing externalities is the inherent mobility of the good or nature of the space of places and the space of service in question, and since one of the frequently flows has obvious implications for the division used definitions for globalization is Aultra- of powers, to which I now turn. mobility,@ it is clear that globalization component

Working Paper 2003 (7) 8 2003 IIGR, Queen=s University 9 Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective of the new societal order can serve to transfer To round out the discussion of issues relating powers upward, e.g., the emergence of the Euro to governance and powers, one needs to address the as a supra-national currency. Note in this context emergence of global city regions. that a transfer upward from the provinces need not imply a transfer to the central government B D. Global City Regions the externalities could also be internalized by The interplay among globalization, the coordinated pan-provincial initiatives emergence of region states, the information era and (Courchene, 1996). the principle of subsidiarity have conspired, as it were, to catapult Aglobal city regions@ into the role Intriguingly, one can also make a case that of dynamic motors of the NEO. For example, part of the rationale for the upward or supra- without Toronto and the Greater Toronto Area national transfer of powers is to strengthen (GTA) as an economic engine with an international national autonomy. The argument runs roughly reach, Ontario could not be a meaningful North as follows. Global forces, including the ultra- American region state. Presumably the same would mobility of capital, are progressively impinging apply to Monterrey and Nuevo Leon. Beyond this, on the ability of nation states to control key there is a growing recognition that large urban policy areas within their own borders. Hence, agglomerations are driving much of what falls the resort to supra-national fora for oversight under the umbrella of globalization. In a recent and regulation occurs in part in order to regain book, Scott et al (2001,18) note that Aglobal city and/or re-assert some domestic control over regions come to function increasingly as the these policy areas. For example, one of the regional nodes of the global economy, that is, as reasons for the success of the EU is that Athe dynamic local networks of economic relationships European Union does not supplant the existing caught up in the more extended worldwide webs of nation-states but, on the contrary, is a interregional competition and exchange.@ Ohmae fundamental instrument for their survival on the (2001,33) takes an even more sweeping view: Athe condition of conceding shares of sovereignty in world, economically and in management terms, has exchange for a greater say, in world, and become a network of prosperous regions, domestic, affairs in the age of globalization@ prosperous city-regions.@ (Castells, 1998,330, emphasis added). Hence, Anationalism not federalism, is the concomitant The emergence of global city regions poses a development of European integration@ (Ibid, structural or process problem for some federations 327). where cities are in effect Aconstitutionless.@ Consider the Canadian federation, where This line of reasoning can be carried cities/municipalities are not mentioned in the beyond the European Union. Arguably, an constitution and are the creatures of the provinces. important part of the rationale for nation states Hence, they find themselves without an participating in supra-national arrangements is independent fiscal base and have no direct roughly similar, namely to allow nations a role relationship to the federal government, unlike in formulating multilateral principles and comparable US cities which can, via accepted procedures that will hopefully provide an convention, access Washington=s infrastructure enhanced degree of order and certainty to the monies. In Toronto=s case, this has led the city to international system and, at the same time, will promulgate a ACharter@ which seeks to bring the also generate increased degrees of freedom for city more fully and more formally into the them to manoeuvre on the domestic front. intergovernmental operations of Canadian federation. The larger message for all federations is that the economic and, therefore, the political star of global city regions is rising in the NEO and, one

10 Working Paper 2003 (7) 8 2003 IIGR, Queen=s University Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective way or another, this reality has to be undermine the nation state Afrom below,@ as it were. accommodated. Undoubtedly, the most significant aspect of this interaction between citizens and the NEO is Thus far the discussion of the relationship that the knowledge/information revolution is between the NEO and federalism has focussed privileging skills and human capital in much the on the implications among and between cities, same way as the Industrial Revolution privileged provinces/states/länder, nations and supra- physical capital. Among the implications that flow national institutions and the consequent impact from this are: for the distribution of powers. I now turn to the relationship between the NEO and citizens and $ The absolute and relative returns to human the resulting implications for federalism. capital are rising, with the result that market incomes are polarizing; E. Citizens and the NEO Citizens have emerged as the principal $ All nations must guard against Dani beneficiaries of the information revolution. In Rodrik=s (1997,2) concern, namely Aensuring their role as consumers, they are clearly in the that international economic integration does driver=s seat, so much so that in The Borderless not lead to domestic social disintegration@; World Kenichi Ohmae (1990) actually defines globalization as Aconsumer sovereignty.@ $ The good news here is that with knowledge Moreover, like-minded citizens, networking at the cutting edge of competitiveness, social within and among countries, are emerging as policy in its human capital development increasingly important players in domestic and aspects is essentially identical to economic global governance. Information empowerment policy; and the democratization of technology will make this so. As Lawrence Grossman, former $ Relatedly, and assuming that we can President of NBC News remarked: surmount the Adigital divide@ associated with the information revolution, human capital is Printing made us all readers. likely to be distributed much more equally Xeroxing made us all publishers. than access to physical and/or financial capital, Television made us all viewers. with significant implications for developing Digitization makes us all broadcasters.@ nations and the north-south divide. (cited in Friedman, 1999,45). The obvious policy response is to increase the equality of opportunity for all citizens to develop For example, of the 25,000 INGOs listed in the their human capital. That this may create special Union of the International Organizations, fully challenges for federations is now highlighted. 20,000 of them did not exist a decade ago. Phrased differently, INGOs are the product of F. More on the NEO and the Division of Powers the Internet. Not only are these institutions of Consistent with the thrust of the above analysis civil society playing a significant role that the NEO will catapult citizens and human internationally (e.g., helping derail the capital into the economic policy limelight, it Multilateral Agreement on Investment and appears that the political marketplace is evolving stalling the WTO process), they are also serving along similar lines. In Canada, at least, the electoral to Ainternationalize@ citizenship in terms, for currency of the old paradigm B resource-based example, of trans-national goals and rights economic development B is no longer the stuff of agendas and in the process are also serving to nation building. This being the case, one may as well devolve some of these areas to the provinces,

Working Paper 2003 (7) 8 2003 IIGR, Queen=s University 11 Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective as Ottawa has done for substantial aspects of emphasizing the importance of Afederalism as mining, forestry energy, etc. What does have process.@ electoral salience, and what is increasingly the essence of nation building in the NEO, are G. Recapitulation and Transition citizen-based issues as they relate to information Having elaborated in turn on the inherent empowerment, human capital development, and flexibility of the federal model in the previous redressing the actual and potential income- section, and on the challenges to governments and distributional fallout from the new global order. governance arising from the NEO in the present The challenge for some federal systems, and section, we can now marry the two, as it were, in certainly the Canadian federation, is that many the context of addressing selected issues central to of these citizenship issues fall under provincial ensuring that federal nations can succeed in the new jurisdiction. In some areas, Ottawa (more economy. In order to facilitate this, it may be useful generally, central governments of federations) for the reader to have a skeletal overview of the can mount a reasonable case on policy, if not on implicit federal model that will underpin the constitutional grounds, for becoming more following analysis. involved in some of these areas. For example, with knowledge on the cutting edge of The model has five components or features. competitiveness, Ottawa will be a meaningful The first is the constitutional framework player in human capital development no matter embodying the allocation of taxing and spending what the constitution says, since the country=s powers. Essentially, this will be taken as Agiven@ for competitiveness is at stake. In many other areas, the analysis, and the presumption will be that this however, federal systems are likely headed for allocation will lead to both vertical and horizontal considerable jurisdictional in-fighting as central imbalances. governments are going to be driven in the direction of catering to citizen-related issues, A second principle or component is a fiscal- traditionally the domain of sub-national equity or equalization program to address governments. interprovincial or horizontal imbalances. A third component is a set of transfers to offset any vertical While this will presumably not be welcomed imbalance. Given that fiscal differences across by many sub-national governments, there may provinces have been accommodated via the be a window of opportunity for some win-win equalization provision, these vertical transfers trade-offs. By their very nature, Aregion states@ could be equal per capita, and presumably the more both in Europe (Newhouse, 1997, 72-73) and in centralized is the federation the more conditional Ontario (Courchene and Telmer, 1998, Chapter these transfers will be. 9) tend to be biased toward wealth creation rather than income redistribution. This means The fourth component is an intergovernmental that they may well welcome an increased fiscal covenant. This is intended to encompass income-distributional role for the federal several sorts of arrangements that the NEO now government, because the quid quo pro is that makes more important. One of these is a Acode of these region states can now more effectively fiscal conduct,@ designed to ensure that pursue an allocative-efficiency or wealth- governments (national and sub-national) do not use generation role. their tax (and fiscal) autonomy to fragment the national economic union. Some might prefer a cast While jurisdictional Aoverlap@ is more or this in the larger context of an Aagreement on less inevitable in modern federal systems, this internal free trade,@ which would include a fiscal electoral competition may lead to Aduplication,@ code as a subset. A second component of the fiscal as well. Again the message is one of covenant would be an Ainternal social union@ which,

12 Working Paper 2003 (7) 8 2003 IIGR, Queen=s University Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective among other goals, would guarantee non- jurisdiction, then the provinces must have revenues interruption of essential social services to sufficient to deliver them. Note that these citizens as they move from province to province. citizenship rights are also important in terms of A third feature might be a Acitizens= rights economic development and competitiveness now charter@ which would guarantee certain rights of that human capital is emerging as a key element of citizenship no matter where citizens choose to the NEO. One can of course continue to rationalize live, e.g., the right to move anywhere in the these transfers in terms of the traditional concepts country, the right to have one=s of fiscal equity and fiscal efficiency. credentials/qualifications recognized throughout the country, and the right to appeal treatment With NEO-compatible or globalization- under the various agreements falling under the compatible federalism thus defined to embrace both covenant. Beyond the obvious, namely that an economic competitiveness and social cohesion, the internal economic union will enhance remainder of the paper addresses a range of competitiveness, the rationale for the remaining principles, policies, instruments and institutions two agreements is that developing a social union intended to Aensure that globalization works for for services and human capital is important for people, not just for profits (United Nations both competitiveness and cohesion, while a Development Programme, 1999). Specifically, the citizens= rights charter will enhance participation analysis will focus in turn on competitive and democracy and also serve as a reminder that federalism, achieving hard budget constraints, federal systems are intended to benefit citizens, securing the economic and social unions and, not just governments. Moreover, this is finally, issues related to democracy and consistent with the earlier observation that the accountability. By and large, the formal structure balance between citizens and governments under and division of powers will be taken as given in the NEO is now tilting in the direction of what follows and emphasis will be directed largely favouring citizens. to the process dimensions of federalism.

The fifth final component would be some IV: TOWARD NEO-COMPATIBLE version of a federal-provincial commission on FEDERALISM fiscal federalism. Australia=s CGC is an example of a formal approach to this intergovernmental A. Competitive Federalism body, but less formal versions also exist. The hallmark of the economic theory of federalism is that it is welfare-enhancing because By way of elaborating on the rationale for jurisdictions are able to cater the provision of intergovernmental transfers, as they relate to this public goods and services to the preferences of their implicit model, my preference is to view them in citizens, and citizens for their part are free to terms of a constitutional/federal rationale and a choose their preferred jurisdiction. This ability of citizenship rationale (Courchene, 1998). The jurisdictions to experiment with alternative former is straightforward. If the federal principle approaches to the design and delivery of policies is to be effective, then the sub-national levels of and services, typically referred to as Acompetitive government must have revenues sufficient to federalism,@ becomes especially important in times exercise the powers assigned to them under the of paradigm shifts. While the operations of constitution. The citizenship, or nationhood, governments are not (and should not be) rationale begins with the premise that wherever characterized by the creative-destruction processes citizens live in the county they ought to have of the private sector, federations do have the access to certain key economic and social rights distinct advantage that their sub-national B rights that ought to attend citizenship, as it governments can and will experiment with creative were. If these basic rights fall under provincial approaches to emerging challenges on the social or

Working Paper 2003 (7) 8 2003 IIGR, Queen=s University 13 Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective economic fronts. This allows the public sector of environment, the exercise of competitive federalism federations to replicate some of the dynamic- (or Aunrestricted public choice,@ to use McKinnon=s adjustment, even dynamic-efficiency, properties phraseology) will enhance, rather than be of the private sector. Superior approaches to potentially destructive of, both welfare and policy or to service design and delivery in one efficiency. province will find their way to other provinces, where further experimentation will occur, and so Competitive federalism has played an on. extremely important role in Canada. Our medicare system was the result of creative experimentation in What are the pre-conditions for ensuring the province of Saskatchewan, which was that these provincial initiatives are indeed eventually parlayed into a national system. Not welfare and adjustment enhancing? surprisingly, the provinces are now reacting to the Conveniently, an overall framework which NEO with a flurry of creative approaches across a addresses this is Weingast=s (1995) Amarket- broad range of policy fronts. There is some concern preserving federalism.@ According to among Canadians that this experimentation may go McKinnon=s (1997) elaboration of this too far, i.e., it may run afoul of some cherished framework, market-preserving federalism ideals on the social policy front. Phrased embraces four principles: differently, the McKinnon formulation is referred to as Amarket-preserving federalism@ for good reason: 1. Monetary Separation: Provincial it is driven by efficiency concerns with no governments cannot own or control guarantees that the result will also be Acohesion- commercial banks; preserving federalism.@

2. Fiscal Separation: Provincial Intriguingly, in the 1999 social union governments do not have access to open- framework agreement (SUFA) which was signed by ended and/or discretionary central all governments except Quebec, these social or government finances to cover their deficits; cohesion concerns were addressed by way of a set of agreed-upon principles that would guide social 3. Freedom of Interstate Commerce: Goods, policy reform and implementation. Moreover, services, people, firms and capital are SUFA also allowed the federal government to allowed to move free and freely across exercise its spending power in areas of provincial provincial borders; jurisdiction, while simultaneously allowing the provinces a significant role in designing and 4. Unrestricted Public Choice: Provinces implementing these federal initiatives. As an are allowed to compete with one another in important aside, this is a welcome initiative since, designing and delivering alternative as Breton has convincingly argued, it is bundles of public goods and services and to inappropriate to exclude the federal government finance them by alternative means of from playing the competitive federalism game, i.e., taxation. (Note that in the context of competitive federalism needs to be both vertical market-preserving federalism, unrestricted and horizontal. This caveat aside, were one to public choice is the same as Acompetitive marry these social union principles to the principles federalism). of market-preserving federalism, the result would then be a framework for the exercise of competitive The first two principles guarantee Ahard budget federalism that would be both market- and society- constraints@ at the sub-national level, while the preserving. And now is the time for these third ensures that provinces cannot inhibit the frameworks to be in place since flexibility and free mobility of goods and factors. Within this encouragement to experiment creatively across the

14 Working Paper 2003 (7) 8 2003 IIGR, Queen=s University Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective widest range of policy areas are the order of the breaching of monetary separation via the issue of day in the NEO era. the bonos provinciales is an obvious case where the exercise of competitive federalism will almost B. Generating Hard Budget Constraints surely trigger the proberbial Arace to the bottom.@ Given that all of the euro members have agreed to the Aprinciple of monetary separation@ In general, however, the lack of fiscal (e.g. the Bank of France cannot bail out the separation between the two (or three) levels of French government), it is surprising that government tends to be a far more pervasive monetary separation remains an issue in the problem across federations than the lack of internal workings of some federations. Brazil monetary separation. Serra and Afonso (1999,9) and Argentina fall into this category. Both highlight this in the Brazilian context: Rezende and Afonso (2002) and Serra and Afonso (1999) document recent Brazilian effects [Unlike] what occurs in federations like the to privatize, liquidate, or transfer to central bank United States, the Brazilian federal management those commercial banks that were government has always played the role of controlled by the Brazilian states. Given the lender of last resort for states and magnitude of the problem, it is some comfort municipalities threatened with insolvency. that only 7 of the original 48 state-controlled And this is an attitude that generates more banks remain in the hands of the state (Rezende permissive fiscal behaviour. and Afonso 2002,22). But this is still 7 too many. Tommasi (2002,19) also lists Abailouts@ as one of the major deficiencies of the Argentinian fiscal Tommasi (2002) documents similar system. problems with province-bank linkages in the Argentine federation. He then goes on to The challenge, therefore, is to generate hard- describe provincial initiatives that serve to budget constraints. There are no doubt a goodly breach monetary separation in a creative, albeit number of ways to do this. One is to rely on outside inherently destructive, manner. The issue relates pressures arising, say, in the context of a regional to the bonos provinciales, or low- denomination integration agreement. For example, one of the provincial bonds that a few provinces (e.g., reasons why the citizens of the so-called Club Med Cordoba in the mid-to-late 1990s) introduced to groups of countries (Italy, Spain, among others) help finance their government spending, e.g. the were so much in favour of the euro was that the payroll for public sector workers. Canadians external discipline of the Maastricht Guidelines would view these bonos as a type of Ascrip.@ would (and did) exert a degree of control over their Since these bonds do not pay interest, one would fiscal authorities that was too difficult to assume that they would immediately trade at a accomplish via domestic politics. Another is to put discount. However, what makes them generally in place some preconditions for successful internal accepted as substitutes for Argentine pesos is discipline. One version of this would run as that they are accepted for payment of provincial follows. Assuming that the provinces/states have taxes owing to the issuing province(s). As access to NEO-consistent tax bases, they should Tommasi notes, these issuing provinces are then be allowed tax autonomy such that, at the effectively appropriating the right of seigniorage margin, they can control their tax revenues. This of the central-government/central-bank. He also will serve two purposes. First, it will make notes this practice has become rather widespread provinces/states masters of their own fiscal in the wake of the collapse of the Argentine fortunes, unlike the status quo in many federal currency board. As an instructive aside, in the systems where they are overly dependent on context of market-preserving federalism, this transfers from the federal government. Second, and

Working Paper 2003 (7) 8 2003 IIGR, Queen=s University 15 Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective relatedly, it will provide an incentive for accountability are among the necessary taxpayers to hold their provincial governments preconditions for securing that sub-national fiscally accountable. Rezende and Afonso governments face hard budget constraints. (2002,20) have already made this case for Brazil: given that most of the municipal budgets C. Securing the Internal Economic Union come from transfers Aaccountability at the local Canadians are often told that goods, services level was severely affected.@ It is far easier (but and factors flow more easily across the borders of not necessarily easy) to implement hard budget member states of the EU than across provincial constraints when sub-national governments can boundaries in Canada. Actually, this should not be exercise control over their revenues and all that surprising since the primary rationale for the expenditures and, therefore, over their overall EU was and is to generate an economic union or a budget balance, because citizens will then find it single market. In other words, the EU and the meaningful to hold their governments Common Market before it are basically economic accountable on both the tax and expenditure blueprints, replete with the associated hundred-odd side. If there is no or little sub-national tax EU directives which are subject to administrative autonomy then incentives exist for citizens to law. On the other hand the constitutions of join their province/state in lobbying the center federations are first and foremost political for a larger share of the Acommon-pool@ taxes. blueprints which are mediated, at least initially, by There is another downside to the absence of tax the political process. The NEO challenge in this decentralization and citizen accountability, respect is for federations to find creative ways to namely that the much heralded Tiebout approach secure and promote their internal economic unions. to competitive federalism (voting with one=s feet in response to jurisdictional offersings) is not For some federations, this is not an inherently really operable (Rezende and Afonso, 2002,20). difficult task. For example, it is not overstatement to assert that the US secures its internal market by I hasten to add that running deficits is not virtue of the Atrade and commerce power,@ which synonymous with the absence of hard budget the courts have interpreted in a very expansive constraints. At one extreme the Canadian manner. Similarly, the Australian High Court has provinces can borrow at market rates and are also played a major role in delivering the Australian subject to the assessment of bond-rating internal common market. However, this is not the agencies. As a relevant aside, these credit-rating case for Canada, where the courts have interpreted agencies play an important role in increasing the the federal trade and commerce power quite transparency and accountability of Canadian narrowly, no doubt in part because the Canadian provinces. I also hasten to add that the absence constitution (unlike the US and Australian of bailouts need not preclude significant fiscal constitutions) has a long list of exclusive provincial binges: the province of Ontario borrowed nearly powers. Hence, Canada has had to be creative to $60 billion over the period 1990-95, which must preserve and promote its economic union. One part be a record for a sub-national government, of this is the set of fiscal arrangements, whereby anywhere, anytime. Yet in the process Ontario Ottawa will collect the provinces= taxes free of remained with the Maastricht debt guidelines charge provided they levy their income tax rates on and largely within the deficit guidelines as a common definition for the taxable income and well.vii Ontario re-achieved budget balance by refrain from using their taxing powers to fragment the turn of the century. The moral of these the economic union. Relatedly, the provinces have stories is that good old Afiscal coincidence@ (at agreed to a formula for allocating corporate profits the margin, the jurisdiction responsible for across provinces thus avoiding both zero and spending should also be responsible for raising double taxation. But the major initiative for the requisite revenues) and, therefore, citizen securing the internal economic union market is, as

16 Working Paper 2003 (7) 8 2003 IIGR, Queen=s University Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective already noted, the federal-provincial Agreement interdependencies the need arises for Apositive on Internal Trade, modelled in part at least after integration,@ that is, a pro-active meshing of the Canada-US FTA and the NAFTA governmental programs and policies. To this I now agreements. turn.

All of this discussion has focussed on D. Preserving and Promoting the Social Union process. Yet much of the literature on the By virtue of citizenship, individuals merit fragmentation of the Brazilian market argues equality of access to those public goods and that the problem is structural, namely the tax services essential for success in the new economic assignment that leaves origin-based VAT taxes order. If these essential public goods B education, in the hands of the states. Somewhat similar health, welfare, training, etc. B fall under provincial problems attach to the Agross receipts@ turnover jurisdiction, as they do in Canada for example, then tax of the Argentine provinces. Obviously, the issues relating to vertical and horizontal fiscal most effective way to redress these problems balance come to the fore. As already noted, this would be via a redesign of the Constitutional calls for some combination of unconditional parameters relating to fiscal federalism, in equalization and conditional Acitizenship@ transfers. tandem with greater reliance on the judiciary for And unless supported by demonstrably objective Apolicing@ the internal market. Just as obviously, criteria, these conditional transfers relating to the difficulty here is not analytical but political. specific policy areas should be equal per capita, Later I will propose an overall federalism with preferential provincial per capita transfers Apackage@ that might finesse this and other contained within the equalization or fiscal equity related issues. component. Widely varying per capita transfers to provinces that are not based on revenue-means or Securing the economic union is primarily expenditure-needs criteria will not only undermine an exercise in what the Europeans would call the societal commitment to redistribution but will, Anegative integration,@ essentially a series of as well, tend to trigger provincial rent-seeking to Athou shalt nots.@ But in the face of increasing convert these fiscal excesses into entitlements. federal-provincial and interprovincial But equalizing the ability of sub-national preferably, by the central government in order to governments to mount comparable social facilitate mobility and adjustment) is not as programs is only part of the story. These important as ensuring that coverage of migrants= separate provincial programs must be linked benefits is seamless. together to form a Anational@ system by virtue of introducing principles such as portability of One of the more creative approaches to benefits, prohibition of residence requirements Apositive integration@ or promoting the internal for program access, mutual recognition of socio-economic union is Australia=s Mutual occupational qualifications across provinces, and Recognition Agreement (MRA) which, among other the like. One obvious way to Apolice@ the social provisions, guaranteed mobility of credentials and union is to make the citizenship transfers qualifications across state borders. Initial attempts conditional on provinces preserving the social at getting the six states and two territories to agree union. But beyond this, provinces have to work on a mutually acceptable text were not successful. together to ensure that their increasingly This led New South Wales, Victoria and complex social subsystems (for health and Queensland to design the MRA framework and to welfare, for example) can accommodate Aoffer@ it to the rest of the sub-national migrants from other provinces without benefit governments. Intriguingly, what happened was that interruption. Whether these transition costs are citizens of the other states did not want to be left born by the origin or destination province (or, out of what was, in part at least, a Acitizens= rights

Working Paper 2003 (7) 8 2003 IIGR, Queen=s University 17 Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective document,@ and they successfully pressured their E. Co-Determination as Institutional governments to sign on to the MRA. At that Architecture point, another issue arose: while all the states While duplication can and should be avoided, had signed the MRA, how could it be made overlap and policy interdependencies are binding on them, since they might rescind their ubiquitous in modern federations. If federalism is, signature in the future? The solution to this was as the earlier quote from Friedrich suggests, a especially creative. The states invited the process of adopting joint policies and making joint Commonwealth government to pass the MRA decisions on joint problems, then legislation, which it did. Then the states also intergovernmentalism or co-determination is an passed the legislation in their parliaments. emergent institutional instrumentality in the new Because of the federal paramountcy provision of economic order. Indeed, the German federal the Australian constitution (sec. 51(xxxvii), the system, with its Bundesrat serving as an upper legislation became binding on the states B in AHouse of the Länder,@ can be characterized as effect, it became constitutionalized. Sturgess Ainstitutionalized co-determination.@ Other more (1993,10) elaborates on this process as follows: decentralized federal systems need to create new institutions to deliver joint decision making. ... the Commonwealth is obtaining no Canada=s social union framework agreement power from the States under this very (SUFA) represents a meaningful move in this limited reference, other than to pass a single direction. Among its provisions, some of which Act of Parliament once-for-all. It cannot have noted above, are the following: a co- pass further legislation in the same area, nor determined (federal-provincial) set of social policy can it establish a bureaucracy through principles; mutual recognition of which to regulate the States. In that sense, skills/accreditation to develop an internal human there is no reference to powers at all. capital union; principles designed to increase In effect, the States are using the accountability, transparency and enhanced citizen Commonwealth to jointly make an participation; a commitment to co-operative and amendment to each of their constitutions at collaborative partnership on planning and the one time. In practice, what the States implementing new initiatives; a recognition of the are doing seceding sovereignty to each federal spending power, while providing provincial other [and not to the input into its design and implementation; and CommonwealthCTJC]. dispute avoidance and dispute resolution procedures which, among other things, would allow While this particular option may not be available for third-party fact-finding. All in all a welcome in other federations, there are other creative and innovative step, save for the political downside avenues that can be pursued. This is strong of Quebec choosing not to become a signator to testament to one of the themes of this essay: SUFA. Where there is a national will, there is a federal way! What greatly facilitated this vertical or federal-provincial co-determination in Canada was Canada=s approach to preserving and an earlier and still on-going exercise in horizontal promoting its social union will be dealt with co-determination or pan-provincialism. The apex of briefly in the context of intergovernmentalism or this process is the Annual Premiers= Conference. By EU-style co-determination arising out of the having a fixed meeting time each year, by allowing combination of decentralization and policy ample lead time for placing issues on the agenda interdependencies. (and for developing position papers) and by rotating leadership across premiers where each Premier tries to push out the envelope, the APCs

18 Working Paper 2003 (7) 8 2003 IIGR, Queen=s University Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective are beginning to create a Apan-provincial@ G. Citizen-Based Federalism perspective across both the provinces and the Even a casual reader of the above analysis premiers. Appropriately, there is increasing will recognize that one of the implicit, if not recognition that if horizontal overlaps and explicit, themes of this essay is that federalism interdependencies cannot be internalized by pan- needs to be apprized of the reality that its primary provincial policy coordination and collaboration, purpose is to privilege citizens. No doubt this then Canadians may invite Ottawa in to fundamental truth motivated the original American internalize these policy externalities. This being Federalist Papers. However, this has never been the case, the premiers have ample incentive to more the case than in the new global order where adopt pan-provincial perspectives. citizens have emerged as the principal beneficiaries on both the political and economic fronts. One often hears that co-determination will Nonetheless, it is surprising how many papers on lead to an effective transfer of powers upward to federalism essentially approach the subject from a the federal level. One cannot, of course, rule this federal-provincial or federal-provincial-municipal out. However, one must not overlook the earlier- perspective with precious little attention devoted to aired view of the European integration process, making citizens a more integral part of the analysis. namely that it also furthers the national agenda Assuredly, however, citizens now hold enough of the EU member states. This also ought to be sway to ensure that federalism of governments, by true within federations. Indeed, and unlike many governments and for governments shall perish from of my fellow scholars of Canadian federalism, I this earth! firmly believe that the longer-term implications of SUFA will actually buttress the role and There are countless ways to integrate citizens power of the provinces with Canadian more fully and more formally into the institutions federalism. This caveat aside, the larger issue and processes of federalism. Earlier in the analysis, here is that minimizing the negative spillovers the importance of having sub-national governments arising from either or both of vertical or accountable to their citizens was deemed essential horizontal interdependencies is (or ought to be) not only for sustaining hard budget constraints, but a win-win situation for both levels of also and relatedly to give effect to the process of government. competitive federalism. The Australian experience relating to its Mutual Recognition Agreement reciprocal federalism demonstrates that appeals to citizens can bring In an insightful article, Richard Zuker recalcitrant states on side. Along similar lines, it is (1999) attempts to capture this win-win easy to find examples where the policies and possibility with the concept of reciprocal processes of federalism can be improved by federalism. The name is particularly apt since it introducing more citizen participation and recognizes, at base, that in many areas the involvement. Consider the following Canadian provinces need Ottawa to act in certain ways in example. While I have heralded SUFA and the AIT order that provincial policies become more as important new instruments for creating an east- effective. Similarly, Ottawa needs some help west social and economic union consistent with the from the provinces in various areas in order that exigencies of the new economic order, they have federal policies be more effective. No matter one critical defect. Specifically, SUFA and AIT are what label one places on such arrangements, it is agreements among and between governments and, obvious that there exist ample opportunities for as such, neither agreement allows firms or citizens mutual gain arising from some or all of co- to trigger the appeal processes B for mobility determination, harmonization, coordination or barriers under the AIT or credential recognition even just from enhanced information sharing. under SUFA=s mutual recognition provisions. Yet the reason these agreements exist is to serve

Working Paper 2003 (7) 8 2003 IIGR, Queen=s University 19 Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective citizens, not governments. Hence, SUFA and the AIT need to be amended to allow for these On second thought, this is likely to occur in citizen triggers, which in turn would come close any event, since the NEO, and particularly the to ensuring that citizens have a right to a social information revolution, is dramatically altering the and economic union. This would be good balance of power between governments and their economic policy, good social policy and good citizens. Individuals are becoming much better for federalism. informed, are able to network with like-minded citizens anywhere and everywhere, and are able to At this juncture, a subjective, but hopefully mobilize special-interest groups to pursue their not provocative, proposal seems warranted. As I collective will. In the heyday of Westphalian order, read the range challenges facing the Argentine states effectively Acreated@ nations and citizenship. federation B the tug of war between powerful In the NEO, where power and information are no governors and the central government, the longer monopolized by governments, progressively widely variable per capita values of transfers citizens will create nations. So it will be for across provinces, the absence of effective federalism as well. intergovernmental machinery (Tommasi, 2002) B and the consequent political difficulties in V: FEDERALISM AND REGIONAL effecting meaningful change, it seems to me that INTEGRATION one way around all of this is to bring citizens more fully into any future redesign/reform of Federal states have much in common with federalism.viii One can conceive of a federal regional trading areas,ix i.e. many of the economic model that would, via a system of and social issues related to the EU have their intergovernmental grants of both the federal and counterparts at a federal level. Specifically, citizenship variety, provide equality of access to harmonizing tax bases, securing economic and key social services. Moreover, one could design social unions, issues related to hard-budget both a social union and an economic union and constraints and monetary and fiscal separation, couch these in terms of the inherent rights of mobility of people and credentials across citizens. Mutual recognition of credentials boundaries, intergovernmentalism/co-determination across provinces would be both good economics and managing interdependencies, etc., are at the and good social policy in a human capital era, same time both federal and regional issues. Indeed, apart from adding further to the citizen McKinnon=s version of market-preserving perspective of federalism. And efforts to federalism was meant to be applicable both to enhance transparency and accountability, while federations (specifically the US) and to Euroland. important in their own right, are also respectful And since the foregoing analysis focussed on of citizens. Were these or similar aspects of a federal policies, instruments and process in the citizens= perspective included in an overall context of globalization and the federalism reform package, the appeal to citizens knowledge/information revolution, the parallel is may well be such that they would not allow their much closer than it would otherwise be. Phrased governments to be non-signatories. As an differently, much of the harmonization, instructive aside, on at least two occasions coordination, freeing up of markets and the like that during Canada=s early 1980s constitutional are typically associated with regional economic deliberations (the Canadian Charter of Rights integration has already been addressed in the and Freedoms in 1981-82 and the Canada Health context of generating NEO-compatible federalism. Act of 1984), Ottawa effectively went over the heads of the provinces and appealed directly to Admittedly, membership in a regional FTA Canadians to ensure that these popular initiatives may force federations to align their internal markets were ratified. and policies in accordance with the principles of,

20 Working Paper 2003 (7) 8 2003 IIGR, Queen=s University Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective and regulations pursuant to, the FTA. Indeed, internal interdependence and an element of one of the reasons why federations may want to complexity into intergovernmental relations in join regional FTAs is precisely because they these federations ... Indeed, Germany has been find it too difficult politically to accomplish a pioneer both in terms of ensuring desirable goals (e.g. hard budget constraints) on participation of the Länder in decisions within their own. As noted earlier, membership in the Germany concerning its relations with the EU, euro, including adherence to the Maastricht and in securing institutionalized participation guidelines, has imposed a degree of fiscal of the Länder within the institutions of the EU discipline on the Italian government that could itself. It should also be noted that a factor in not easily be imposed internally. the resistance within Switzerland to joining the EU has been concern about the possible impact This caveat aside, the role of this final upon the character of the Swiss federation. substantive section is to focus on those implications of regional integration agreements It is not clear that there is anything one can or that are likely to differ from the implications should say about the optimal way to adjust to this dealt with in the context of free-standing multi-tiering. For example, it may be the case that federations adjusting to the NEO. I begin with some federal systems will use the rules and the challenges arising from a Afederation of regulations of the regional FTA to attempt to ride federations,@ as it were. herd on the sub-national governments. Other federations, driven by subsidiarity among other A. Cascading Federalism principles, may wish to follow the Germans in As Watts (2003,129) has observed, a finding ways to ensure that their sub-national notable feature in the contemporary world is the jurisdictions maintain much of their previous role number of federations that are themselves and powers. Still others may look toward South- members of wider federal organizations: African style Ahour-glass federalism@ by favouring AGermany, Belgium, and Austria as federations, the centre and the municipalities at the expense of and Spain, virtually a federation in all but name, the provincial level as the response to adding a are members of the broader European Union, supra-national tier. While these are, by and large, itself a hybrid which is predominantly societal decisions, it is likely that they will be confederal in character but has some of the influenced by the nature of the regional FTA, characteristics of a federation.@ Watts including both the organizing principle for the (2003,129-30) then elaborates: regional integration and the likely emergence of cross-border region states, which are discussed This has had implications for the internal later. relationships within its member states, which are themselves federations. Among In the EU, the fundamental organizational the issues that have arisen has been the role principle underlying economic integration is the of the federated units within each of these single-market principle or Ahome-country rule.@ In federations in negotiations with the NAFTA, it is Anational treatment.@ Now national institutions of the wider European Union. treatment is far more sovereignty-preserving than is Federated units within the member home-country rule. Under national treatment a US federations have established offices at the firm can do in Canada exactly what a Canadian European Union capital in Brussels and firm can do, while home country rule would allow a have obtained direct representation not only US firm to do in Canada exactly what it can do in in the Committee of Regions but in other the US. This latter approach drives the system councils of the European Union. This has toward uniformity, as perhaps benefits the quasi- introduced a new dimension into their federal EU, whereas national treatment leaves

Working Paper 2003 (7) 8 2003 IIGR, Queen=s University 21 Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective countries more or less free to design their own context of the new economic order, a regional policies, subject to non-discrimination between integration agreement with free flows of goods and their own citizens/private-sector agents on the factors will clearly intensify any such pressure. one hand and those of their NAFTA partners on the other. To the extent that sub-national governments in these cross-border clusters achieve reciprocal Indeed, in many areas, national treatment understandings, let alone succeed in negotiating under NAFTA really becomes Aprovincial agreements, to advance their mutual economic treatment.@ Thus, Ontario can still design many interests, the result will not only be greater policies in its own likeness and image, provided decentralization but as well greater asymmetry that in application the province does not favour within each federation. A related complication is Ontarians relative to Mexicans and Americans that any such asymmetry at the sub-national level doing business in Ontario. Intriguingly, it is will likely carry over to the design and probably not contrary to NAFTA for Ontario to implementation of federal policies. Consider again discriminate in favour of Ontarians vis-à-vis the Mexican example. The northern tier of Mexican Albertans or Quebecers. That this anomaly states want greater tax autonomy whereas the might arise was one of the motivating reasons poorer southern states would prefer additional that led to Canada=s Agreement on Internal transfers. One approach to this is to allow Trade (AIT) which, among many other Canadian-style tax decentralization replete with an provisions, embraces Aprovincial treatment@ as equalization program. Moreover, in order to the operating principle in domestic or enhance their position in NAFTA economic space interprovincial commerce. the northern-tier states will also want to provide various public goods and services that the poorer B. Region States states either do not want to provide or do not as yet A much more important challenge arising have the administrative capacity to provide from regional FTAs is the emergence of (Courchene, Diaz-Cayeros and Webb, 2002). In increasingly integrated cross-national-border situations like this it will be hard to avoid double- clusters, one version of which was discussed tracking, or opting in, or Atwo-speed federalism,@ or above under North American region states. This whatever one wants to call the resulting asymmetry is happening in Europe, Canada, Mexico and, as in federal policies as they relate to sub-national Rezende and Afonso (2002) intimate, it is also in governments. It is important to note that asymmetry process in Brazil. Indeed, Ontario and Michigan is well established in the Canadian federation. Not have recently embarked on discussions to only does Quebec have its own provincial income facilitate the movement of skilled labour across tax and collection system, but Quebecers pay less the border as well as to upgrade road and rail tax to the federation than other Canadians (and infrastructures to ease border congestion. receive correspondingly less in cash transfers). Arguably, this is a variant of the growing sub- While these asymmetries bother some Canadians, nation/international interfaces alluded to earlier the key message for present purposes is that in this analysis. And the incentives for these asymmetry or opting out is more in the nature of a arrangements clearly exist elsewhere in the solution, not a problem and it will become more Americas. The powers that Nuevo Leon needs in relied upon as cross-border economic integrations order to succeed in NAFTA economic space becomes more important. One might add that an bear little relation to the powers that the poorer Aopting in@ approach to asymmetry may be the southern Mexican states need or want. The same preferable route to follow. An example would be to will be true for Rio Grande Do Sul on the one allow states greater tax autonomy or greater hand and the northeast Brazilian states on the expenditure responsibility once they have the other. While these pressures will also arise in the technical and managerial expertise in place. In

22 Working Paper 2003 (7) 8 2003 IIGR, Queen=s University Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective effect, this would be a situation of de jure equality, but de facto asymmetry. VI: CONCLUSION

C. Exchange Rates and Regional Integration Globalization and the knowledge/information The advent of the Euro heralds the revolution have ushered in a new economic order. emergence of currencies as supra-national public Highlighting the salient features of this NEO in goods. It also signals an era of dramatic currency relation to citizens, markets and governments and, integration and consolidation. Richard Harris therefore, highlighting the challenges for 21st and I (1999) have attempted to make the case century governance constituted the necessary that it is in Canada=s interests to pursue North backdrop to this essay. Under the assumption that American monetary union (NAMU), modelled economic competitiveness and social cohesion have largely along Euro lines. In Canada=s case, with priority as policy goals, the core of the analysis was over 80% of its exports destined for the US directed to the manner in which these NEO dictates market, anchoring NAMU around the US dollar are interacting with the structures and processes of is the obvious route toward currency integration. federalism. Emphasis focussed inter alia, on Mercosur is more complicated, in part because political implications (subsidiarity, allocation of of its more diverse array of export markets. A powers, intergovernmentalism and co- more appropriate route might be to develop a determination, citizen and federal rationale for Mercosur common currency that could either transfers), on economic requisites (hard budget float on global markets or be fixed to the dollar, constraints, competitive federalism, internal or to the Euro, or perhaps to a basket of both. economic unions) and on social/citizen agendas The larger and more important point here is that (securing a social union, human capital mobility investing so much time and effort and political and participation/democracy challenges). In the goodwill into forming trading agreements like final substantive section the focus shifted to the Mercosur must go hand in hand with designing implications for federalism arising from the advent regional frameworks for more enduring currency of regional trading blocs like Mercosur. Here relationships. Indeed, the development of a attention was directed in turn to cascading stable currency area is in the economic interest federalism, region states, and the implications of of all of South and Central America,. and indeed the euro and currency consolidation for both of North America as well. regional trading blocs and federalism.

Note that some of the implications arising Underpinning the analysis are three sub- from a common currency for nations in a themes. The first is that the federal model is regional FTA have already been addressed. incredibly flexible. Experience from four developed Specifically, the market-preserving federalism federations reveals that achieving economic model (McKinnon, 1997) detailed earlier was competitiveness and social cohesion is compatible designed to apply to the EU in the context of the with a wide range of underlying societal values and Euro. However, it would also apply to a regional norms. In effect, this means that complying with FTA like Mercosur that also had a common the powerful and pervasive forces emanating from currency. The dictates of a monetary union the NEO is effectively an exercise in redesigning relating to prohibiting government bailouts and instruments, not rethinking overall societal goals. securing hard budget constraints are more The second theme is related: Accommodating stringent than those necessary for a regional the dictates of the NEO primarily involves FTA without a common currency. But the rethinking and reworking Afederalism as process,@ benefits are likely to be higher as well, and all not Afederalism as structure.@ Phrased differently, the moreso for nations that have histories of making federalism NEO-compatible is not monetary instability. inherently a division-of-powers or constitutional

Working Paper 2003 (7) 8 2003 IIGR, Queen=s University 23 Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective issue as much as it is a political, institutional and infrastructure issue.

The final and presumably the most controversial underlying theme relates to the role of citizens in the above analysis. Not only are citizens the principal beneficiaries of the NEO but the balance between citizens and government is shifting in their direction. Hence, enhancing democracy, participation and accountability are now the orders of the day. Beyond this, however, incorporating citizens more formally and more fully into the operational structures and processes of federalism not only endows citizens with the respect they merit, but as well it enhances the efficiency and accountability of federalism.

Endnotes

1. Following Canadian usage, Aprovinces@ or Aprovincial@ will refer to the sub-national level of government (cantons/Länder, states, provinces) while Afederal@ will refer to the central government level. I shall also try to use Aregional@ as a level above the national, even though Canadians apply it in a sub- national context, often in terms of groups of provinces. While the sub-title of this paper is AA Citizen and Process Perspective,@ in perhaps too many places it will also be a Canadian perspective. Mea culpa.

2. This section draws heavily from the Appendix to Courchene, Martinez-Vasquez, McLure and Webb (2002).

3. The introduction of the Australian value- added tax, the proceeds of which flow to the states, may increase or decrease vertical fiscal balances depending on how one defines Aown-source revenues.@ But even if it is viewed as ameliorating vertical imbalance, the operations of the Commonwealth Grants Commission takes the distribution of the value-added tax in account.

24 Working Paper 2003 (7) 8 2003 IIGR, Queen=s University Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective

t

w a s

t r u e

b e f o r e

t h e

i n 5. This refers to the dollar value oft trade volumes. As McCallum (1995) and Helliwellr (1998) have emphasized, the Canadian internalo market is much more integrated (in and efficiency or economic union sense) than is uthe cross-border market. For example, correctedc for population size and distances, Canada=st interprovincial trade is on the order of a magnitudei larger than international trade. o n 6. Lisée (2003) makes the region-state case for Quebec. o f 7. This presumes that a version of the Maastricht Guidelines (deficits under 3% tof GDP ratio of debt to GDP under 60%) is han appropriate yardstick for assessing Ontarioe =s fiscal performance. A 8. While the preamble to this sentenceu refers to Argentina, the proposal that followss is intended to be applicable more generally.t

Working Paper 2003 (7) 8 2003 IIGR, Queen=s University 25 Tom Courchene, Federalism and the New Economic Order: A Citizen and Process Perspective

9. Here Aregional trading areas@ refers to supra- Toward a Human Capital Future for Canadians national arrangements. (Montreal: Institute for Research on Public Policy). References Courchene, Thomas J. (1999) ASubnational Bastien, Richard (1981) Federalism and Budgetary and Stabilization Policies in Canada Decentralization: Where Do We Stand? and Australia.@ In James Poterba and Jürgen von (Ottawa: Supply and Services Canada). Hagen, eds., Fiscal Institutions and Fiscal Performance: A National Bureau of Economic Bird, Richard (1986) Federal Finance in Research Conference Report. Chicago: Comparative Perspective (Toronto: Canadian University of Chicago Press, 301-48. Tax Foundation). Courchene, Thomas J. (1998) Renegotiating Breton, Albert ASupplementary Statement@ in the Equalization: National Polity, Federal State, Royal Commission on the Economic Union International Economy C.D. Howe Commentary and Development Prospects for Canada, No. 113 (Toronto: C.D. Howe Institute). Report, Vol. 3, pp. 485-526 (Ottawa: Supply and Services Canada). Courchene, Thomas J. (1996) ACCESS: A Convention on the Canadian Economic and Castells, Manuel (2001) The Internet Galaxy: Social Systems (Toronto: Ministry of Reflections on the Internet, Business and Intergovernmental Affairs), reprinted in Society (Oxford: Oxford University Press). Canadian Business Economics, Vol. 4, no. 4 (Summer 1998), pp. 3-26. Castells, Manuel (1998) End of Millennium (Oxford: Blackwell Publishers). Courchene, Thomas J. (1995) AGlocalization: The Regional/International Interface,@ Canadian Castells, Manuel (1996) The Rise of the Network Journal of Regional Science, Vol. 26, pp. 220- Society (Oxford: Blackwell Publishers). 10.

Castells, Manuel (1989) The Information City: Courchene, Thomas J., Alberto Diaz-Cayeros and Information, Technology, Economic Steven B. Webb (2002) AMexican Fiscal Restructuring and the Urban-Regional Federalism: Current Practice and Potential Process (Oxford: Blackwell Publishers). Scenarios for Political and Fiscal Decentralization@ paper presented at the North Commonwealth Grants Commission (1995) American Economic and Financial Association Report on the General Revenue Grant Meetings (Atlanta, January 2-4, 2002). Relativities: 1995 Update (Canberra: Australian Government Publishing Services). Courchene, Thomas J. and Richard G. Harris (1999) From Fixing To Monetary Union: Options for Courchene, Thomas J. (2002) Embedding North American Currency Integration, Globalization: A Human Capital Perspective Commentary 127 (Toronto: C.D. Howe (Montreal: Institute for Research on Public Institute). Policy). Courchene, Thomas J., Jorge Martinez-Vasquez, Courchene, Thomas J. (2001) A State of Minds: Charles E. McLure, Jrd. and Steven B. Webb (2000) APrinciples of Decentralization@ in M.M.

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Giugale and S.B. Webb (editors) (Queen=s University: The John Deutsch Institute Achievements and Challenges of Fiscal for the Study of Economic Policy), pp. 101-42. Decentralization: Lessons from Mexico (Washington, D.C.: The World Bank), pp. Newhouse, John (1997) AEurope=s Rising 39-85. Regionalism,@ Foreign Affairs, Vol. 76 (January/February), pp. 67-84. Courchene, Thomas J. and Telmer, Colin R. (1998) From Heartland to North American Oates, Wallace E. (1983) ATax Effectiveness and Tax Region State: The Social, Fiscal, and Federal Equity in Federal Countries: Commentary@ in Evolution of Ontario. (Toronto: Faculty of Charles McClure (ed. ) Tax Assignment in Management: University of Toronto). Federal Countries (Canberra: Federalism Research Centre, Australian National Friedman, Thomas (1999) The Lexus and the University). Olive Tree: Understanding Globalization (New York: Farrar, Strauss and Giroux). Ohmae, Kenichi (2001) AHow to Invite Prosperity Friedrich, Carl J. (1968) Trends of Federalism in from the Global Economy Into a Region@ in Theory and Practice (New York: Praeger). Allen J. Soctt (ed.) Global City-Regions: Trends, Theory, Policy (Oxford: Oxford University Helliwell, John (1998) How Much Do National Press), pp. 33-43. Borders Matter? (Washington: The Brookings Institution). Ohmae, Kenichi (1993) AThe Rise of the Region State,@ Foreign Affairs, Vol. 72, pp. 78-87. Kincaid, John AGlobalization and Federalism in the United States: Continuity in Adaptation@ Ohmae, Kenichi (1990) The Borderless World (New in Harvey Lazar (ed.) The Impact of Global York: Harper Business). and Regional Integration on Federal Systems (forthcoming). Paquet, Gilles (1997) AStates, Communities and Markets: The Distributed Governance Scenario@ Lisée, Jean-François (2003) AIs Quebec a North in Thomas J. Courchene (ed.) The Nation State American Region State? A Preliminary in a Global/Information Era: Policy Challenges View@ in Thomas J. Courchene and Donald (Kingston, Ontario: John Deutsch Institute for Savoie (eds.) The Arts of the State: the Study of Economic Policy, Queen=s Governance in a World Without Frontiers University), pp. 25-46. (Montreal: Institute for Research on Public Policy), 353-63. Rezende, Fernando and José Roberto Afonso (2002) AThe Brazilian Federation: Facts, Challenges and McCallum, John (1995) ANational Borders Matter: Perspectives@. Available from Forum of Canada-US Regional Trade Patterns,@ Federations. American Economic Review (June), pp. 615- 23. Rodrik, Dani (1997) Has Globalization Gone Too Far? (Washington, Institute of International McKinnon, Ronald I. (1997) AMonetary Regimes, Economics). Government Borrowing Constraints and Market-Preserving Federalism: Implications Scott, Allen J., John Agnew, Edward W. Soja and for EMU,@ in Thomas J. Courchene (ed.), The Michael Storper (2000) AGlobal City-Regions,@ Nation State in a Global/Information Era in Allen J. Scott (ed.) Global City Regions:

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Trends, Theory and Policy (Oxford: Oxford Donald J. Savoie (eds.) The Art of the State: University Press), pp. 11-30. Governance in a World Without Frontiers (Montreal: Institute for Research on Public Serra, José and José Roberto R. Afonso (1999) Policy), 121-51. ANew Economic and Fiscal Federalism: The Brazilian Case,@ available from the Forum of Weingast, Bary (1995) AThe Economic Role of Federations, Ottawa Political Institutions: Market-Preserving (http://ciff.on.ca/reference/documents/ Federalism and Economic Development,@ docb20.html). Journal of Law and Economics and Organization, Vol. 11, pp. 1-31. Spahn, Paul Bernd (2001) AThe German Constitutional Court Takes On the Principle Zuker, Richard (1995) AReciprocal Federalism: of Solidarity,@ Federations, vol. 1, no. 1. Beyond the Spending Power,@ mimeo, available from The Caledon Institute, Ottawa. Storper, Michael (1995) AThe Resurgence of Regional Economics Ten Years Later,@ European Urban and Regional Studies, Vol. 2, no. 3, pp. 191-221.

Sturgess, Gary L. (1993) AFuzzy Law and Low Maintenance Regulation: The Birth of Mutual Recognition in Australia@ paper prepared for a Conference on Mutual Recognition sponsored by the Royal Institute of Public Administration (Brisbane, February 12), mimeo.

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