Federal governance has been long been embraced by political philosophers, legal scholars, and economists for its ability to encourage political participation, to protect personal rights and liberties, and to promote public and private sector economic efficiency. Policy-makers today, both in new and established democracies, seem equally enamored. This paper provides some initial evidence as to the ability of federal institutions to deliver on this promised agenda by comparing country performance on each of eleven valued outcomes for a sample of 73 countries, including the generally recognized thirteen federal democracies and eleven federal dictatorships. As with any cross-country analysis, cautious use of these results is recommended. Three conclusions, however, seem worth emphasizing.
First, whether formally established by constitutional provision or informally implemented by a central government decision, decentralized governance does have a unique contribution to make to a society’s ability to enforce property rights, to protect political and civil rights, and then because of such rights protections, to enhance private sector economic performance. Second, while policy decentralization is the key to federalism’s strong rights and economic performance and can be achieved within a unitary government by fiat, constitutionally established provincial (or state) governments provide an extra and important protective barrier for policy decentralization. Federal institutions protect policy decentralization, and policy decentralization provides federalism’s valued outcomes. Third, federalism needs democracy. There is no evidence from this sample that adding policy decentralization or provinces to a dictatorship significantly improves a dictatorship’s rights
or economic performance.
Finally, though we have no evidence on the point here, federalism’s greatest contribution may come from its ability to enhance the transition to democracy itself. The empirical analysis makes clear the very significant advantages democratic societies hold over dictatorships on most all of our measured dimensions of societal performance. But to move peacefully from a dictatorship to a democracy will typically require protections for the economic interests and civil rights of the once ruling elite. It is here that federal governance seems to have its institutional comparative advantage and, once recognized (as in Figure 1), may offer federalism’s greatest potential for improving societal welfare.
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TABLE 1: COUNTRY CLASSIFICATION BY POLITICAL INSTITUTIONS
COUNTRY: FORM OF GOV ERNANCE
(Date of Independence)
NUMBER OF PROVINCES (N) (N = 1if UNITARY)
PROVINCIAL REPR ESEN TAT ION ( R)
(Yes =1; No = 0)
ASSIG NM ENT (A): % REV. LOCAL (QUARTILE RANK)