Free-Market Federalism | Acton Institute
10 years ago
James Bruce
Several years ago, Pete Warden offered an account of seven distinct regions in the United States from an unusual source: Facebook friends. Apparently, when I moved from Texas to Arkansas in 2008, I didn’t change cultures. Sure, I became a resident of Arkansas, with an Arkansas drivers license, license plate, etc. But, according to Warden, I’m still in Greater Texas. (The Acton Institute, located in Grand Rapids, Michigan, resides in Stayathomia. Stayathomia has sports and beer. Greater Texas has God and the Dallas Cowboys, but apparently people think more about the latter than the former).
States and municipalities craft laws that reflect local cultures, and this proximity to the people has market consequences. Let’s call it free-market federalism, the encouragement of local markets by permitting states and municipalities to frame, as much as possible, the laws by which the communities engage in commerce.
In a spirited defense of decentralization, Abraham Kuyper argues that a central government can only supplement local governments and families. Put another way, the central government exists because local governments and families already do. It exists for them. They do not exist for it. So Kuyper’s idea of sphere sovereignty supports free-market federalism. Regional governments and municipalities exist as their own sovereign spheres, and they must continue to do so. “To centralize all power in the one central government is to violate the ordinances that God has given for nations and families,” Kuyper wrote. “It destroys the natural divisions that give a nation vitality, and thus destroys the energy of the individual life-spheres and of the individual persons.” This vitality extends to national, regional, and individual economic life.
Free-market federalism allows states and municipalities the freedom and flexibility to be sensitive to what economist Friedrich Hayek called “the knowledge of the particular circumstances of time and place.” The challenge to free-market federalism should be obvious: The relentless growth of the federal regulatory regime undermines the ability of small and medium-sized businesses to compete with international behemoths. Let’s take a specific, local example: Bob Burns, the chief executive officer of Farmers Bank and Trust of Magnolia, Arkansas, said in an interview that banks with less than $500 million in assets will struggle “to keep up with the costs of regulation, technology, and everything else.” That’s where we are: A small bank in Arkansas is one with fewer than $500 million in assets.
What’s at stake here is the ability of local businesses to meet people’s needs with entrepreneurial gusto. A banker in a small town in Arkansas is going to be sensitive to his customers’ needs precisely because his success is connected inextricably with theirs. He wants his customers to flourish because, when they do, he does, too. There’s a more significant reason for his concern: He knows his customers. He sees them at Walmart; he notices that this one has a new baby in the family, or this other one is struggling to walk after his accident. A Christian banker ought easily to see the moral imperative he has to be committed to his town’s flourishing, but even a religiously uninterested banker should see our common humanity.
Local financial rules help animate this concern, but distant rules diminish it. Letting state and local governments regulate commerce can help the market in two ways: incubation and sensitivity to local needs.
First, regional differences in the country showcase incubators of innovation and nurturers of stagnation. We can see what works and what doesn’t, from tax rates to incentives to work (or lack thereof). Here’s a concrete example: During the housing boom, a prominent Christian philosopher complained to me about the lack of a state income tax in Texas because – he reasoned – the correspondingly high property taxes made it harder for the poor to own a home. But after the housing bust, encouraging the poor to own homes (or, more precisely, take on mortgages) didn’t seem like a good idea after all. Letting states experiment in different ways minimized the damage to specific people, with their own hopes, dreams, and ambitions.
Sensitivity to local needs – and local costs – is the second major advantage of a decentralized approach. One obvious example here is minimum wage laws, a map of which estimates that your minimum wage job in Manhattan is going to feel like $3.63 an hour, due to cost of living. By contrast, you’ll feel like you’re making more money in Memphis, even though, strictly speaking, you’re making less. Preserving and encouraging regional differences in wages, even minimum wages, can allow employers to hire more people. A national minimum wage set to ease the conscience of Manhattanites will make entry level jobs harder to find in Kentucky or Mississippi. And that’s not to say that people will be unhappy with the wage they get, either. Remember: What would be a low-paying job in New York City could feel pretty swell in Memphis.
Just because it’s theoretically possible for the federal government to do something doesn’t mean that it should do so. Regional variety in America isn’t reducible to local accents and fashion choices (or mistakes). It has market consequences, too. National laws can obscure these differences and stifle creativity. Free-market federalism makes room for states and towns to craft their own laws – and flourish.
