The theory of federalism revisited: Comments on the preliminary results of the Bundestag and Bundesrat committee on modernising the federal system

TABLE OF CONTENTS

LIST OF ABBREVIATIONS

1 INTRODUCTION

2 REASONS FOR FEDERALISM
2.1 ALLOCATIVE ASPECTS
2.2 DISTRIBUTIVE ASPECTS
2.3 ASPECTS CONCERNING STABILIZATION
2.4 ASPECTS OF GENERAL POLITICAL NATURE

3 AIMS FOR THE FEDERALISM REFORM
3.1 INTERNAL GERMAN AIMS
3.2 AIMS FOR THE WHOLE OF EUROPE

4 CONCLUSION

LIST OF LITERATURE

WORDING OF THE LAW

LIST OF ABBREVIATIONS

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1 INTRODUCTION

The term federalism derives from the Latin word “foedus” and is rendered in the words “alliance” and “treaty” or “agreement”. Federalism describes a national form of organization consisting of at least two members, who are joined together by means of a voluntary agreement or treaty into a unitary state having its own national characteristics,^[1] but without discarding the distinctive national attributes. Through this coalition the individual / federal states surrender their jurisdiction and individual powers to the unitary state. In return, the federal system makes sure that the unitary state and the individual states control and assist each other mutually when fulfilling their obligations.^[2] Federalism is especially characterized in that assignments, revenues and expenses are distributed on several national levels.^[3] Furthermore, federalism must safeguard a certain unit from a (foreign) political, economic, military and socially cultural point of view.^[4]

Basically, federalism implements an equilibrium between decentralization and centralization.^[5] Aided by expenses and the division of assignments, revenues and expenditure, an optimal allocation is put from theory into practice.^[6] In Germany, the 16 federal states (Länder) make up the federal state, the German Federal Republic. Powers to and responsibility for national assignments in the government and governmental management, legislation and the administration of justice is divided between the federal state and the individual states. The German constitution ensures that in addition to this vertical division between the federal and the individual states’ authorities, a horizontal division of powers exists between the legislative, executive and judicial branch, thereby forming the basis of a double division of powers.^[7]

Current discussions concerning the German federal reform, more precisely defined the so-called “Kommission von Bundestag und Bundesrat zur Modernisierung der bundesstaatlichen Ordnung”^[8] are mainly centred on the reorganization of the assignments of the federal and the individual states. In the course of these discussions special attention is paid to the reorganization within the areas of powers and responsibility of both levels, especially regarding education, representation of EU-countries, a readjustment of the extent of the laws, which the federal state is obliged to approve, and the equalization of tax rates between the federal states.

2. REASONS FOR FEDERALISM

Depending on the different ways of looking at federalism, various arguments exist for this form of organization from a theoretical point of view. The most important aims, which are to be accomplished by federalism, are the aims of allocation, division and stabilization as well as general political goals. This means that a higher degree of efficiency and resolution must be achieved by means of federalism.

2.1 ALLOCATIVE ASPECTS

The aim of allocation consists of two subordinate aims. The first aim is structural efficiency, stating that the output of national goods and services must correspond to the preferences of the citizens.^[9] The second aim is described as cost efficiency, stating that goods and services must be produced at the lowest possible costs.^[10] This means that one attempts to keep the inefficiency as low as possible by means of federal structures.

In particular regarding structural efficiency some reasons point towards a decentralized division of assignments. It can be assumed that the willingness as well as the capability to safeguard the interests of the citizens is higher, the smaller the assemblies of the local districts.^[11] The increased willingness is implemented through a closer participant democracy, which in its turn is apparent from immediate personal experience, thereby opening up the prospect of basing resolutions on one’s own information without relying on indirect information.^[12] A further argument for a closer relationship between citizens and administration is that citizens in small administrative units have a stronger incentive compared to citizens in large assemblies to express their preferences,^[13] as it is more likely that otheir preferences, will influence decision makers. For the reasons mentioned above, a federal, decentralized state structure is more advantageous, when the territorial division is chosen in such a way that decision makers, consumers and finance bearers coincide. Through such a constellation a stronger incentive is given to balance all relevant profits and expenses against each other.^[14]

Regarding point of cost efficiency, arguments can easily be found against federalism and for a centralized succession of assignments, as further economies of scale can be realized in the form of a federal state.^[15] However not only the states cost should be considered in the case of these reflections, but also the costs of private consumers. Expenses from private households (e.g. travelling expenses) cannot be compensated by the cost saving of the public institutions.^[16] Furthermore, arguments for decentralization also exist regarding expenditure. In this way competition may exist among the lower levels, which increases the innovation rate of the administration through more frequent and independent resolutions, thereby reducing the X-inefficiency. Through a decentralized division of assignments, wrong decisions do not manifest themselves on all of the local districts and by positive effects of other decision makers these wrong decisions can be recognized faster and more easily by means of experience.

By a federal solution of the powers, assignments are being transferred to the local authorities, which for the most part only affect the local residents, thereby hardly displaying any external effects (e.g. kinder gardens and local institutions). The assignments, which are necessary for the availability of public goods, are being transferred to the federal state, these assignments being important to all inhabitants of the state (e.g. defence, justice and other nationwide infrastructures). Assignments that go beyond the reach of the local authorities, but which do not affect all residents of the state, should consequently be in the hands of the federal states.^[17] In accordance with the geographical district of revenues and creation of costs as well as the responsibility for decisions, interterritorial spillovers should be reduced to a reasonable measure.^[18]

[...]

^[1] Cp. u.a. (Föderalismus 05.05.2005), p. 1.

^[2] Cp. Fischer (2003), p. 2.

^[3] Cp. Brümmerhoff (2001), p. 623.

^[4] Cp. Kilper / Lhotta (1996), p. 53.

^[5] Cp. Kilper / Lhotta (1996), p. 41.

^[6] Cp. Petersen (1988), II p. 121.

^[7] Cp. u.a. (2005).

^[8] Cp. Fraude (2005), p. 12.

^[9] Cp. Brümmerhoff (2001), p. 623.

^[10] Cp. Andel (1998), p. 504.

^[11] Cp. Andel (1998), p. 440.

^[12] Cp. Postlep (1996), p. 9f.

^[13] Cp. Kirsch / Smekal / Zimmermann (1987), p. 53.

^[14] Cp. Andel (1998), p. 505.

^[15] Cp. Brümmerhoff (2001), p. 627.

^[16] Cp. Andel (1998), p. 506.

^[17] Cp. Andel (1998), p. 507.

^[18] Cp. Brümmerhoff (2001), p. 630.