Recent interest in federalism scholarship has been sparked by transformations in multilevel governance around the world brought on by deepening global economic integration and the spatial politics of austerity that followed from the 2008 global financial crisis. Despite this, much of the literature remains focused, as it has historically, on power struggles within federations driven by territorial and regional cleavages rather than on the competing ideological projects driving transformations within political economies and federations. Within this context, Adam Harmes's The Politics of Fiscal Federalism makes a welcome and timely addition to the field. By putting in dialogue the fiscal federalism, comparative federalism and international political economy literature, Harmes is able to articulate the normative projects motivating the multilevel governance reform efforts of neoliberal and social democratic forces across a variety of spatial scales (local, national, regional and global). In doing so, he uncovers a key blind spot of the federalism literature regarding the political economy of federal reform and the contest between left and right actors over the restructuring process.
The book puts forward three main arguments. First, Harmes highlights two distinct normative approaches within the fiscal federalism literature, corresponding to a social democratic and a neoliberal vision of federal system design. The social democratic perspective is a synthesis of the “first generation” fiscal federalism theory of Wallace Oates, Charles Tiebout and others with Keynesian insights on public finance. The result is a normative theory of fiscal federalism that stresses the need to centralize functions related to macro-economic stabilization and decentralize to constituent units legislative control over those policy areas deemed best suited to local control and that are facilitated by a egalitarian system of transfer payments. The neoliberal vision of federalism, on the other hand, put forward by “second generation” fiscal federalism theorists, such as James Buchanan, Barry Weingast, Jonathan Rodden and the like, stresses decentralization not only of legislative control but, more importantly, of fiscal autonomy in order to facilitate interjurisdictional tax competition over mobile firms and individuals. Only those elements related to regulating the smooth functioning of a national economic union should remain at the centre, while social spending is devolved to subnational governments.
Harmes's second argument is that these normative projects inform and can predict the nature of the competition between left and right social movements, broadly understood, over issues of federal system reform. Accordingly, social democratic actors on the left—including an assortment of political parties, labour unions, academics and think tanks—advocate for a more centralized vision of “cooperative federalism” based on strong patterns of intergovernmental cooperation, equalization and redistribution. Juxtaposed to the social democrats are neoliberal parties and social forces on the political right that strive for a more decentralized vision of “competitive federalism” or “market-preserving federalism.” The second half of the book evaluates this claim through comprehensive case studies of multilevel governance situated at the global, regional (European Union) and national (Canada and the United States) level, and in doing so, proves the third argument: that the battle of political-economic ideas can add significantly to existing explanations of federal system reform. The case studies demonstrate how at each spatial scale, social democratic and neoliberal actors inside and outside of the state push for their respective visions of federalism and how this left/right battle of ideas, in many cases, has a significant impact on the reform process, or at least forms a substantial subplot to other social cleavages: an example of the latter being the Canadian constitutional disputes of the 1980s and early 1990s. Quebec's demands for autonomy certainly drove the political agenda at the time, but in a manner that aligned with the vision of decentralized competitive federalism promoted by Brian Mulroney and the Progressive Conservatives. In this way, territorial demands in tandem with normative ideas about fiscal federalism drove attempts at system reform.
The major strength of Harmes's work is his ability to bring these major political ideologies squarely into view on questions of federalism reform. The focus on territorial over political divisions within the existing literature leads to a preoccupation with decentralization/centralization as the primary modality of federal system change. The neoliberal and social democratic visions of federalism, however, combine a mix of decentralized and centralized elements, each adhering to its own political-economic, rather than territorial, logic. The combination of elements helps explain otherwise paradoxical transformations from the perspective of the decentralization/centralization binary, like the fact that Stephen Harper's “open federalism” involved the decentralization of fiscal responsibility for social provisioning alongside the attempted centralization of national market-making securities regulation and workforce development policy.
In order to achieve the level of conceptual clarity that Harmes obtains, it is necessary to sacrifice some nuance. But there are ways that the focus on political parties and ideologies vis-à-vis federalism reform can be extended in a fruitful manner. For instance, while Harmes does touch on the market-conforming “third way” trend within contemporary social democracy, he does not delve into its relationship with federal reform, which can appear paradoxical from a more traditional social democratic perspective. Instructive here is the Australian example, where a “modernizing” Labour party engaged in a comprehensive process of neoliberal state restructuring in the 1980s and 1990s. This was achieved, however, not through decentralized, competitive federalism but through a cooperative model that centralized key areas of reform, such as industrial relations and securities regulation, and led to the creation of a powerful intergovernmental form, COAG (Council of Australian Governments, now the National Cabinet), that ensured policy coordination among the Australian states. In this sense, the transformations of Australia federalism in the 1980s and 1990s can be explained through a combination of old social democratic thinking on federalism with the modern third way's penchant for neoliberal reform.
The clarity of analysis of The Politics of Fiscal Federalism is impressive. In centring political parties and ideologies in the process of federalism reform, Harmes brings a fresh angle to the comparative federalism literature and incorporates the highly normative fiscal federalism literature into the analysis itself. As Harmes is careful to point out, his thesis is not meant to entirely displace the focus on territorial cleavages in the existing literature but to add a level of nuance in terms of how these ideological/political-economic divisions often form a significant subplot to the high-drama of territorial politics and can even drive the reform process in certain circumstances.
