Ten advantages of a federal constitution

This model proposes that government agents (elected representatives and public servants) act from the same motives of rational self-interest as other people. It predicts that government programmes will be administered so as to minimise the proportion of the programme’s budget that is actually received by the intended beneficiaries, with the remainder – the surplus – being used to further the interests of the administrators.

A government that enjoys monopoly power is able to generate such a surplus for discretionary use by officials and politicians. An example is Australia’s public university system. In the days when they were administered by the states, the universities were efficient bodies with the ‘flattened’ management profile so admired today.

Commonwealth involvement consisted mainly of funding Commonwealth scholarships. These were essentially a voucher system and were awarded to anyone who did better than average in the final school examinations.

The transformation began in 1974 when the Commonwealth assumed financial control over the universities. Access to the proceeds of the Commonwealth’s monopoly over income taxation generated a revenue surplus which, as the public choice model predicts, was increasingly used to expand the bureaucracy, both in government and in the universities themselves. Finally, the Dawkins revolution converted higher education into a total command economy administered from Canberra.

Just when the world was abandoning the many-layered, command-and-control management model, the Commonwealth forced the universities to adopt it.

By creating a competitive market for public goods, governments can provide consumer-taxpayers with their preferred mix of public goods at the lowest tax price. Though the composition of the tax/ service bundles may vary, the proportion of revenue that is appropriated for the purposes of the bureaucracy and politicians is less because no government is able to exact a surplus from its citizens. Competition coupled with the right of exit also makes it harder for states systematically to favour particular regions while imposing the costs on other regions.

The efficiency gains from competitive federalism are not significantly reduced by the smaller size of state governments. There are few economies of scale in government except in the areas of foreign relations and defence (and even here the problems of the Collins submarine, the Steyr rifle and the Enfield artillery piece arouse reservations), nor are large organisations necessarily any better at dealing with complex problems than smaller ones.

Competitive federalism will assume greater importance as the structural changes wrought by the new technologies continue to work themselves out. In recent years most of the net addition to employment has come from self-employment and small businesses, and the trend is likely to accelerate as the effects of the information revolution spread through the economy. Small entrepreneurs need simpler and less intrusive government, union structures and taxes, and will pressure governments to provide them. As the New Economy is uniquely mobile, governments that fail to adapt will lose business.

A common criticism based on vertical duplication (overlap between federal and state activities) is that with two sets of politicians, state and Commonwealth, Australia is over-governed and that it would be more efficient to dispense with the lower tier.

Australia has 576 state parliamentarians. That is not a huge number when compared with the 378,700 people employed in government (not counting those engaged in education, health care or social welfare, or working for government corporations) or with the nation’s 878,800 managers and administrators. But it is unrealistic to suppose that abolishing the states would lead to a net saving of those 576 positions plus their support staffs.