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HOW CONFEDERACY COULD TURN INTO A FEDERAL SUPERSTATE * - Anthony de Jasay, Political Economy, Concisely 
Political Economy, Concisely: Essays on Policy that does not work and Markets that do. Edited and with an Introduction by Hartmut Kliemt (Indianapolis: Liberty Fund, 2009).
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HOW CONFEDERACY COULD TURN INTO A FEDERAL SUPERSTATE*
It is a tenable proposition, supported by masses of historical evidence, that the main reason why any human society fails to attain the prosperity and material comfort that its endowments and culture should enable it to reach, is that its politics stifles and disrupts its economic potential. Moreover, it is likely that the gap between what would be possible and what is achieved tends to grow larger as technology advances and as political power expands and gets a grip on more and more aspects of people’s lives.
Two polar cases illustrate this thesis. One is the average black African country. Its women and most of its men would till the land, engage in commerce, and peacefully go about their business. However, a fraction—the army, the police, lawyers, bureaucrats, and professional politicians—have got hold of the levers of a rudimentary government. They extort taxes from the rest “legally” and steal them blind “illegally,” especially if the country produces cash crops, minerals, or oil. Some of the most able and energetic who are excluded from the stealing coalition and cannot get themselves co-opted have an incentive to form countercoalitions of “rebels.” Militias of half-crazed adolescents, with machetes and submachine guns as their toys, will rampage across the country, massacring the villagers who have not fled to the misery and doubtful safety of refugee camps. Poverty and the shredding of the social fabric produce more teenage recruits for the militias, and so it goes on. At any one time in postcolonial Africa, an ample handful of countries are suffering from some version of this syndrome and the others are not far from falling victim to it. Arguably, none of this could happen if there were no rich prizes to be had from using the all too potent machinery of politics.1
The other polar case is the mature welfare state. Its government need not be corrupt and usually it is not, or not in a big enough way to make much difference. However, it is a prisoner of democratic politics. Unless it wants to commit political hara-kiri, it must fashion policies that will buy it a majority of votes. This involves it in selecting a variety of interest groups, necessarily including the poor, the unemployed, the sick, and the old, who all will vote for whoever best looks after them. It also involves a scattergun approach hitting most groups, whereby resources are taken from all strata and used to buy the votes the government needs to survive. It must stretch itself to the limit of the country’s tolerance of redistribution, for if it left the least bit of slack in the system, its political rival could outbid it by promising to increase benefits by taking up the slack. The mature welfare state eventually ends up with a set of subventions, regulations, and entitlements to resource transfers to favored groups that is carved in granite and very difficult to change, let alone substantially to reduce. The net result is that mature welfare states tend economically to stagnate. Germany, France, and Italy are eloquent contemporary examples. The irony of this is that if they bore no excessive welfare burden, they would grow faster and be richer, hence a given welfare burden would no longer be so crippling.
Many economists have in recent decades come to be persuaded that there is a way to get the political incubus off the economy’s back. All you need is to devise the right rules. The idea has been formally developed by the school that calls itself “constitutional economics.” It maintains that if only society saw its best long-term interests and ignored short-term gains to be had from pressure-group politics, it would adopt a constitution that strictly limited the scope of collective choices, forbidding the government to go beyond the enforcement of law and order and maybe a welfare safety net to catch the genuinely helpless. Property would be secure from public covetousness, and full scope would be left for voluntary exchanges. Market solutions could not be interfered with except to facilitate manifest Pareto-improvements, if any are left to facilitate.
Dissenters from this idyllic conception, including the present writer, suspect that such a constitution would not be adopted and that if it were, it would be circumvented and after a while twisted out of all recognition. They point to the American Constitution, in intent as close to the ideal as one can get, and what happened under it to states’ rights, the freedom of contract, and the role of government at the hands of the Congress and the Supreme Court.
Another great test is about to start. The draft constitution of the European Union, elaborated over the last year and a half by a 105-member convention of delegates, is up for approval by an intergovernmental conference by mid-December 2003.
It will not be approved as it stands, and some wrangling will continue past the deadline, but the likely modifications will not greatly affect the central issues.
The final text will then have to be ratified by the fifteen existing and ten new member states of the Union. A few are also obliged to submit it to popular referendum and a few more will opt to do so. Barring a miracle, several of these will be lost and some fudge will have to be produced to get over this obstacle. A couple of states—Spain and Poland are bracing themselves for the role—may go to the brink, refuse to ratify, and hold out for special concessions. There will be many false and a few genuine alarms. In the end, however, the holdouts will be bullied into acceptance. Pressure of Europe’s mostly pro-Union media, and the carrot-and-stick potential inherent in the Union budget by which a wavering state may be bribed or blackmailed, will presumably prove strong enough. Within two years or so, the Union will have its brand-new constitution ratified.
The text, absurdly long at 360 pages in the French version, bears the hallmarks of verbose French rhetoric and cautious English fudge. Its ambiguities will prove a gold mine for tomorrow’s lawyers. However, for all its clumsy grandiloquence, it is bound to turn out to be a fascinating experiment for economists and political theorists to watch.
The constitution was expected by the hopeful to settle the issue between confederacy and federation. In fact, it did what the realists thought it would do, and produced a compromise neither side really likes. Of the two camps, it is the federalists who are the more disappointed. The text provides for no common defense, no common economic government, no tax harmonization among the member states, and no common executive branch of government. Worst blow of all for the federalist is that under this constitution the Union has no power to tax. For its budget, it must continue to look to the contributions of the member states, which are negotiated for four-year periods. The main channel through which power in federal structures is drained from the states and migrates to the center has apparently not been opened.
Confederate relief at this reassuring absence of the essential ingredients of a federal superstate is premature, to put it no higher. It is rather like seeing a tadpole and rejoicing that it is not a frog.
A tadpole, if it survives at all, is quite certain to turn into a frog. A confederacy may survive without turning into a federation, and not every constitution laying down the ground rules of a confederacy carries in itself the seeds of a future federal state. As in all historical processes, multiple causation is at work and the issue is more a matter of odds than of predictable certainties.
[* ]First published as part 1 of “A Tadpole Constitution,” by Liberty Fund, Inc., at www.econlib.org on December 1, 2003. Reprinted by permission.
[1. ]The late Peter Bauer, one of the most clear-sighted of development economists, often insisted that foreign aid is actually harmful because it is given to, or distributed under the control of, governments, which increases the prizes to be had from sitting inside the stealing coalition. See P. T. Bauer, The Development Frontier: Essays in Applied Economics (Cambridge, Mass.: Harvard University Press, 1991).