The Case for Decentralized Federalism

CHAPTER 1 Federalism, Decentralization and Canadian Nation Building

15 Introduction1 Federations come in all varieties: some are parliamentary (Canada, Australia), others are presidential (United States, Mexico); some have two constituted levels of government (Canada), others include municipal/local governments in their constitutions (Mexico, Germany); some are commonlawfederations (Canada,Australia,UnitedStates),othersare civil-law federations (Germany, Austria); some have tripleE senates (United States, Argentina), others have appointed senates (Canada) and still others have upper chambers that are ‘houses of the sub-national governments’ (Germany); some are highly centralized (Australia, Germany), others are decentralized (Canada, Switzerland), and so on. In all cases, however, federalism is a combination of self rule and shared rule for the constituted levels of government. The obvious starting point of any analysis of the relationship between decentralization and federalism is the constitutional division of powers. However, this static or legal degree of decentralization may not correspond with the actual degree of decentralization. In part at least, this is because the actual positioning of a federation along a centralization-decentralization spectrum will also be a function of many other factors, including the federal characteristics or trade-offs mentioned above. Chapter 1 Federalism, Decentralization and Canadian Nation Building Thomas J. Courchene 16 Thomas J. Courchene For example, regardless of the division of powers, a uniformly civil-law federation will be more centralized than will a uniformly common-law federation (Fleiner 2010). In other words, to an important extent, the degree of centralization or decentralization is also a policy and societal instrument, one that can be called upon to accommodate the underlying nature of the federation and/or to achieve deeper societal goals. Indeed, and as the title indicates, the ensuing analysis will a empt to demonstrate that decentralization has played and will continue to play an absolutely pivotal role in our collective journey toward Canadian nation building. The chapter proceeds as follows. First, it presents the analytical rationales for decentralization and, in particular , for decentralized federations. The next section deals with the constitutional, institutional and political/policy determinants of Canadian decentralization. On the constitutional front, for example, the Judicial Commi ee of the Privy Council (JCPC) shi ed its initial focus from “peace, order and good government” (POGG) as the effective residual clause toward “property and civil rights” (Section 92 (13)), especially a er the landmark 1937 Labour Convention decision. On the institutional front, the lack of any provincial representation in our central governing institutions meant that the provincial premiers would fill this void. On the political/policy front, the focus is, inter alia, on the Charter. The section concludes with a discussion of process vs. structure in terms of the de facto division of powers. The following section, entitled “CentralizationDecentralization , Asymmetry and Deux Nations”, focuses on selected events leading up to the House of Commons proclamation that “the Québécois form a nation in a united Canada”. Included here are the implementation of the Quebec personal income tax; opting out, Section 94 and, of course, deux nations. The next section, “Is Decentralization Endogenous?”, addresses the issue of whether decentralization is an independent driver with its own internal dynamic or whether it may be er be viewed as an accommodative instrument responding to deeper soci- Canadian Nation Building 17 etal values and forces. A er a review of several developed federations, the endogeneity thesis seems credible. A brief conclusion completes the chapter. Decentralization as political and economic efficiency The role of this section is to focus on decentralization as an instrument that advances economic efficiency (defined to include what has come to be called ‘competitive federalism ’) as well as political efficiency (defined to include both democracy/accountability and ‘taming leviathan’). Economic efficiency The obvious launch point is the efficiency argument for a decentralized public sector. Although penned nearly forty years ago, Wallace Oates’ 1972 Fiscal Federalism still merits quotation in this context: ...a decentralized public sector possesses several economically desirable characteristics. First, it provides a means by which the levels of consumption of some public goods can be tailored to the preferences of subsets of the society. In this way economic efficiency is enhanced by providing an allocation of resources that is more responsive to the tastes of consumers. Second, by promoting increased innovation over time and by providing competitive pressures to induce local governments to adopt the most efficient techniques of production, decentralization may increase both static and dynamic efficiency in the...