Ten advantages of a federal constitution

In a properly working federation, a national government seeking to implement a uniform policy in an area where it has no constitutional power must learn to proceed by negotiating and seeking consensus, not by diktat, bribery or menaces. Government by consensus can not only be more efficient, it can also be an end in itself. The relative slowness of the process of consensus-seeking, especially in a federation, is a source of the great stability of federal systems and of their exceptional political efficiency.

6. Better supervision of government

Decentralised governments make better decisions than centralised ones, for reasons additional to the spur of competition provided by the citizen’s right of choice and exit. State governments can be more closely supervised because of lower monitoring costs. There are fewer programmes and employees, and the amounts of tax revenue involved are smaller. Citizens can exercise more effective control over government officials when everything is on a smaller scale. Unlike the Commonwealth, the states cannot create money, and this further limits the scope for abuse of power.

Large governments encourage wasteful lobbying by interest groups engaged in what economists call ‘rent-seeking’, the pursuit of special group benefits or privileges. Rent-seeking is easier in large than in small governments because it is harder for ordinary citizens to see who is preying on them.

All but one of the world’s geographically large countries are now federations (in China’s case, de facto) for reasons of effective supervision or sheer governability. The exception is Indonesia, which is belatedly considering a federal solution.

7. Stability

Stability is a cardinal virtue in government. Stable government enables individuals and groups to plan their activities with some confidence and so makes innovation and lasting progress possible. Political stability is much valued by ordinary people because they are the ones likely to suffer the most from sudden shocks or changes of direction in the government of the country. Stability is obviously a high priority with the Australian people. This can be seen from their widespread practice of voting for different parties in each of the two houses of parliament, thereby denying the government a free hand in passing whatever legislation it likes. Based on the voters’ distrust of the career politician, this practice reduces the destabilising potential of transient majorities in the lower house.

Federations are exceptionally stable. Of the five countries that survived the 20th century without a violent change of government, four are federations: the USA, Canada, Australia and Switzerland. The unitary United Kingdom (UK), on the other hand, is slowly disintegrating, with Ireland’s secession in 1921, 30 years of Ulster civil war and a Scots separatism only partly satisfied by the bizarre 1998 devolution scheme. Adopted in time, a federal structure might have saved the UK.

8. Fail-safe design

Besides acting as a brake on extreme or impetuous action by the national government, federalism cushions the nation as a whole from the full impact of government blunders by making it harder for any one group of politicians to ruin the entire economy at once.

The mixture of neo-corporatism and public sector expansion on borrowed money that undid Victoria, South Australia and Western Australia in the 1980s, for instance, was also the fashionable policy in Canberra at the time. It might well have been comprehensively extended to the whole country if the constitutional power to do so had existed. Had that happened, Australia might not have weathered the Asian economic storm as well as it did.

For the same reasons, damage control can bring results more quickly when the impact of an economic mistake or misfortune can be localised in this way. The three states that were devastated in the 1980s have now recovered from their tribulations. In their reconstruction processes they were able to borrow policies that had proved successful in other states: fiscal policy from Queensland, privatisation and reform of government business enterprises from New South Wales, scaling back the public sector from Tasmania. Repairing the damage done by a policy error in an area where the Commonwealth has a monopoly, such as monetary policy, seems to take longer, however. The unprecedented inflation ignited by treasurer Frank Crean’s 1973 and 1974 federal budgets has only recently been brought under control, almost a generation later.

One should therefore not assume that a healthy national economy requires comprehensive macroeconomic and microeconomic control from the centre. The economic commentator P. P. McGuinness maintains that there is no good reason for Canberra to deny to states the possibility of divergent policies with respect to the overall level of revenue raising and spending. Most of the powers the Commonwealth exercises in relation to economic policy are not only unnecessary but positively counterproductive. ‘In fact,’ he writes, ‘the need for central macroeconomic policy is largely the product of over-regulation and mistaken micro-economic policies’.

9. Competition and efficiency in government

Inefficiency in government usually takes either or both of two forms. One is a tendency to higher tax rates, which is obvious and easy to detect. The other, less obvious, has been identified and extensively described by the economists who have developed the ‘public choice’ model of government.