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M A Y 1 9 9 7
by John D. Donahue
THE wisdom of transferring governmental power away from Washington and toward the separate states enjoys something as close to consensus as American politics often sees. Devolution figured in the 1996 presidential election chiefly as a conventional piety, like family values or fiscal rectitude. Bob Dole brandished on the stump his pocket copy of the Tenth Amendment, affirming the principle of state primacy. Bill Clinton endorsed the "inexorable move to push more basic jobs of the public sector back to the state level," and the 1996 Democratic platform featured the taunt "Republicans talked about shifting power back to states and communities -- Democrats are doing it."
Recent surveys conducted by the Gallup Organization, The Wall Street Journal and NBC News, Business Week and the Harris Group, and Hart and Teeter have discovered strong public support for state rather than federal leadership in education, crime control, welfare, job training, low-income housing, transportation, and farm policies. A bellwether poll conducted by Princeton Survey Research Associates in 1995 for The Washington Post, the Kaiser Family Foundation, and Harvard University found that by a margin of 61 to 24 percent, respondents trusted their state governments to "do a better job running things" than the federal government. Except for Jewish and black voters, every subgroup gave the edge to the states, including self-defined liberals, Democrats, and, by 72 to 21 percent, voters under thirty.
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Enthusiasm for devolution, among elites and the electorate alike, has already reconfigured public authority. Welfare reform is only the most vivid recent instance of control over policy cascading to lower levels of government.
Budget figures underscore Washington's eclipse. Federal spending is increasingly dominated by transfer programs, interest on the national debt, and the shrinking if still enormous defense budget. Within what most people think of as the government, states and cities occupy a huge and growing share of the terrain. State and local spending -- the majority supported by state and local taxes, but some by federal grants -- is over 13 percent of the gross domestic product: more than seven times the amount of federal domestic spending for other than transfers, debt service, and intergovernmental grants. If Congress and the Administration follow through on their budget-cutting plans, the federal government's domestic role will continue to shrivel. So the United States' public sector -- already about a third smaller, as a share of the overall economy, than the average in other industrialized countries -- will shrink further. Or the relative importance of the cities and states will soar. Or both.
Some admittedly alluring logic supports the ascendancy of the states. Supreme Court Justice Louis D. Brandeis popularized a resonant metaphor when he wrote that "a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country." Varied state strategies test and winnow policy alternatives, providing the nation with information about what works and what doesn't. Beyond the laboratories-of-democracy scenario, in which diversity invites the discovery and diffusion of best practice, there can be value in diversity itself. Since priorities differ, the country may be better off if constituents can find arrayed within its borders alternative packages of services, regulatory regimes, and tax burdens from which to choose.
A related line of reasoning stresses the virtues of competition. One engine of private-sector efficiency is the constant pressure that enterprises face to match the pace set by ambitious rivals. Extending that logic to government, states that are compelled to compete for citizens and investment must be more creative and more diligent in carrying out the tasks of governance than an unchallenged Leviathan in Washington.
A quite different argument for devolution as a core strategy for public-sector reform is commonest among those with direct experience in or around the federal government. It varies in its details, depending on one's specific exposure to the crippling debt and toxic politics that have come to dominate Washington. But in its essence it boils down to a kind of grim gratitude that since we have wrecked one level of government, the Founding Fathers had the foresight to provide a spare.
There is also a soothing a priori case for predicting that public-sector efficiency will increase as responsibilities flow to lower levels of government. Yet the states have, at best, a slightly milder case of the inefficiency that chronically plagues the federal public sector. And for at least some functions (public schools, license bureaus) claims of superior efficiency ring hollow indeed. Even where decentralization does promise significant economies, it is rare that economic or managerial logic will call for the reassignment of authority away from the central government but then stop at the states. State boundaries have been drawn by a capricious history, and only by accident does a state constitute the most logical economic unit for either making policy or delivering services.
Moreover, devolution is largely irrelevant to the debt service and middle-class entitlements that are straining citizens' tolerance for taxation. The ascendancy of the states, by the most optimistic assessment, will have only a minor impact on the cost of American government. This argument is not based on ideology or economic theory. It is a matter of arithmetic. In 1996 total public spending came to roughly $2.3 trillion. State and local activities, funded by state and local taxes, already accounted for about one third of this total. Another third consisted of check-writing programs, such as Social Security and Medicare. National defense (12 percent of the total), interest on the national debt (10 percent), and federal grants to state and local governments (another 10 percent) accounted for most of the remaining third of the public sector. All other federal domestic undertakings, taken together, claimed between four and five percent of total government spending.
Now, suppose that every last thing the federal government does, aside from running defense and foreign affairs and writing checks (to entitlement claimants, debt holders, and state and local governments), were transferred to the states -- national parks and museums, air-traffic control, the FBI, the Border Patrol, the Centers for Disease Control, the National Weather Service, student loans, and all the rest. Suppose, then, that the states proved able to do everything that the federal government used to do, and do it a full 10 percent more efficiently. The cost of government would fall by less than half of one percent.
America is struggling to maintain itself as a middle-class society in a world grown inhospitable to that heritage, and our successors will judge this generation by whether we succeed or fail in the struggle. The reshaping of the industrial landscape, the maturation of the mid-century transportation and communications revolutions, and the emergence as economic rivals of huge populations long dismissed as backward are transforming the planet into an ever more integrated market. Like the industrial upheaval of the late 1800s, today's economic transformation is widening consumers' options, expanding opportunities for those who are able to seize them, conferring staggering wealth on a select few -- and stranding those unable to adapt. Observers with the luxury of taking the long view, or those with no special stake in any single country, may find this moment in history to be richly promising. But it is by no means assured that America's magnificent achievement of broadly shared prosperity will survive.
Devolution will worsen the odds. Shared prosperity, in the maelstrom of economic change tearing away at the industrial underpinnings of middle-class culture, is an artifact of policy. Policies to shore up the middle class include work-based anti-poverty efforts that become both more important and more expensive as unskilled jobs evaporate, relentless investments in education and job training, measures to strengthen employees' leverage in the workplace, and a progressive tilt to the overall burden of taxation. The individual states -- fearful of losing industry and richer residents to lower-tax rivals and anxious to minimize their burden of needy citizens -- will find such policies nearly impossible to sustain.
As Washington sheds responsibilities, and interstate rivalry intensifies, it becomes unrealistic to contemplate anything but a small-government agenda. But even for principled conservatives, devolution is likely to prove less satisfying than expected. Since it has been justified as improving, not shrinking, government, the ascendancy of the states skirts the debate over the public sector's proper size and scope. Like the run-up in federal debt, devolution short-circuits deliberation over government's purpose by making activism impossible -- for a time. America's federal system is sufficiently resilient that unless citizens are persuaded of small government's merits, the tilt toward the states that suppresses public-sector ambition will eventually (and after a hard-to-predict price has been paid) be reversed. By attempting to enthrone the states as the sole locus of legitimate government, conservatives muffle their own voices in the conversation over the country's future.
And by the standards of those who believe that what ails America is something other than big government, shifting authority to competing states, though it may solve minor problems, is likely to cause or perpetuate far graver ones. Federal officials, as a group, are certainly no wiser, more farsighted, or defter at implementation than their state counterparts. But America united remains much less subject to the flight of wealth and the influx of need than are its constituent states. Policies to shrink the underclass and solidify the middle class are thus far more sustainable at the federal level.
Five broad propositions suggest how we can readjust the federal-state balance to meet contemporary challenges. They will not be the last word on the proper structuring of America's federal system but are offered as a contribution, and perhaps a catalyst, to the next round of America's endless argument.
1. Do devolve -- where it makes sense. Underscoring devolution's limits should not be misconstrued as belittling the benefits of moving duties as far down the governmental scale as possible. Many responsibilities do belong at the state level. Where states vary greatly in circumstances or goals, where external impacts are minor or manageable, where the payoff from innovation exceeds the advantages of uniformity, or where competition can be expected to inspire efficiency gains instead of destructive stratagems, the central government should stand clear -- both to honor our culture's durable preference for decentralized power and to forestall federal overload. The list of public functions in which Washington has little legitimate interest is long and important. But it is shorter today than it was a quarter of a century ago, and will be shorter still another quarter century hence.
2. Restore federal primacy in anti-poverty policy. The devolution of anti-poverty policy will eventually be seen as a mistake, if perhaps an inevitable one. By the mid-1990s the Gordian knot of the welfare status quo may have been beyond untangling. We will never know; the first Clinton Administration lost its nerve on welfare reform and forfeited the issue to Congress. But with the first serious recession (if not before), the new state-based welfare policy's built-in bias toward undue harshness will be revealed. As hard times swell the ranks of needy families while hobbling job-creation efforts, as welfare is forced to compete with every other budget item for shrinking state funds, and as taxpayers and officials ponder the prospect that anything but the sparest safety net will lure the poor from other states, anti-poverty programs will spiral toward the deepest degree of austerity that citizens' consciences will permit. Budgetary and political realities at the federal level will preclude reversing course anytime soon. Nor is there yet any blueprint for achieving the humane, work-oriented welfare policy that virtually everyone endorses in principle. We have embarked upon a period of state-dominated anti-poverty policy, and may as well make the best of it by harvesting every bit of evidence that state experimentation produces, to be analyzed and stockpiled for the eventual reconstruction of a national system. And we should hope that the country does not become permanently coarsened by what we will witness in the meantime.
3. Recognize the states' limits as stewards of education. Revenue crunches and the accumulation of competing burdens may lead states to fumble their long-standing responsibilities for education and training -- just when productive skills are soaring in importance. At a minimum Washington should enlarge its role in financing higher education, from which the states are already retreating. The federal role in primary and secondary education will, and should, remain limited, but national performance standards ought to undergird state and local reform efforts. And we must be vigilant against the prospect that budgetary pressures and fractious politics will lead states to retreat from the campaign of sustained, universal education investment that is the best hope for America's middle class. The odds that this retreat will occur remain difficult to gauge; the calamitous consequences should it do so are all too clear.
4. Curb the competition for business. Not least to lower the risk that budgetary pressures will force states to retreat from education investment, Washington should place limits on the competition for business that is increasingly warping state taxing and spending policies. Bidding wars for business have intensified in recent years. Beyond the high-profile rivalries for major plants and sports teams, there is a systematic evolution of state policies to favor footloose enterprises. What states surrender to lure or retain jobs, moreover, yields no net national gains; incentives may affect the location of economic activity within America, but don't appreciably augment the total. Politicians and businesses won't like it, but citizens would be well served by the sturdiest curbs that can pass constitutional muster on state location subsidies and tax incentives.
5. Fix the federal government. A feeble federal government served Americans badly in the 1780s and will do far worse today. We must redouble efforts to make federal operations more efficient, innovative, and accountable. Serious federal reform may not be gentler than devolution to the public-sector status quo. Quite the contrary -- it will often involve privatization, vouchers, and more traumatic "reinvention" than Washington has yet seen. But there is no inconsistency in pursuing common goals through means that make the most of the market. Beyond such procedural improvements, we must confront the politically difficult budgetary decisions needed to rebalance federal priorities and to forestall Washington's scheduled retreat into near irrelevance throughout much of the domestic sphere.
The embrace of devolution risks truncating a painful but vital national
conversation over the scale and purpose of America's public sector. "Shrink
government" is one answer to America's problems but not the only answer.
Paradoxically, if we want to have a free choice about whether and how we will
prepare all willing workers for rewarding roles in the global economy, about
the terms on which our citizens engage global capital, and about how we should
share the burdens of economic change -- if we want to have a choice,
choose together, as a nation. Fifty separate choices add up to no choice at
Illustration by Maris Bishofs
Copyright © 1997 by The Atlantic Monthly Company. All rights reserved.
The Atlantic Monthly; May 1997; The Disunited States; Volume 279, No. 5; pages 18-22.