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How Does Federalism Result in More Competent and Competitive Governance?

When we think about Federalism, we generally think of the power distribution between the states and the federal government. Professor John McGinnis explains one of the overlooked benefits of federalism - competition between the states themselves. State and local governments have to regulate their policies to benefit their citizens, or the citizens and businesses can opt to relocate to another state with better policies. https://youtube.com/watch?v=AuoRavvVWa8


Ideally government should be as small, or as limited a jurisdiction, as the public good it provides. The reason for that is that you want to have people who are benefiting from the public good pay for the public good. Now, everyone benefits from national defense and it really won't work at a local level. But then a lot of public goods - a museum or something like that, or a bridge in a particular locality. The benefits are localized. And so one wants to pay for it in that area. You'll get government that is more competent in the sense that it will take funds from those who are benefiting it. I think one of the greatest virtues of federalism, and I don't think it was wholly even understood by the founders, but is implicit in their structure, is a creation of a market for governance. One can think of the states as in competition. As competition for people and for companies. And their actions are therefore restrained by the fact of competition. I mean, we observe that in regular markets. Companies try to act leanly, try to not overspend. They try to meet the needs of their consumers. Otherwise, the consumers are going to go elsewhere. Now, to be sure, states are in an imperfect structure of competition. There's a lot of inertia for people to go from one state to another. Nevertheless, it's still a competitive structure One observes that regularly today, that governors are very concerned about putting up their tax rates too high, of doing some useless boondoggle that will require greater public spending, because people are able to exit. Still very imperfect, but always the question is compared to the alternative. Compared to the unitary government, compared to having the federal government pay for all of the public goods in the United States, there'd be much less competition. And that's one of the greatest virtues of federalism.

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