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The politics of fiscal federalism: neoliberalism versus social democracy in multilevel governance
 0773556753, 9780773556751

Table of contents :
Cover
Copyright
Contents
Tables
Acknowledgments
Introduction Theorizing Multilevel Governance
1 The Neoliberal Approach to Multilevel Governance
2 The Social Democratic Approach to Multilevel Governance
3 The Politics of Fiscal Globalism
4 The Politics of Fiscal Regionalism
5 The Politics of Fiscal Federalism
6 Conclusion: Neoliberalism, Social Democracy, and Glocalization
Notes
Bibliography
Index

Citation preview

the politics of fiscal federalism

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The Politics of Fiscal Federalism Neoliberalism versus Social Democracy in Multilevel Governance

adam harmes

McGill-­Queen’s University Press Montreal & Kingston • London • Chicago

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©  McGill-Queen’s University Press 2019 ISBN ISBN ISBN ISBN

978-0-7735-5674-4 (cloth) 978-0-7735-5675-1 (paper) 978-0-7735-5789-5 (eP DF ) 978-0-7735-5790-1 (eP UB)

Legal deposit second quarter 2019 Bibliothèque nationale du Québec Printed in Canada on acid-free paper that is 100% ancient forest free (100% post-consumer recycled), processed chlorine free This book has been published with the help of a grant from the Canadian Federation for the Humanities and Social Sciences, through the Awards to Scholarly Publications Program, using funds provided by the Social Sciences and Humanities Research Council of Canada. Funding has also been received from the J.B. Smallman Publication Fund, Faculty of Social Science, University of Western Ontario.

We acknowledge the support of the Canada Council for the Arts, which last year invested $153 million to bring the arts to Canadians throughout the country. Nous remercions le Conseil des arts du Canada de son soutien. L’an dernier, le Conseil a investi 153 millions de dollars pour mettre de l’art dans la vie des Canadiennes et des Canadiens de tout le pays.

Library and Archives Canada Cataloguing in Publication Title: The politics of fiscal federalism: neoliberalism versus social democracy in multilevel governance / Adam Harmes. Names: Harmes, Adam, author. Description: Includes bibliographical references and index. Identifiers: Canadiana (print) 20189067195 | Canadiana (eb o o k ) 20189067209 | ISB N 9780773556751 (paper) | IS BN 9780773556744 (cloth) | ISB N 9780773557895 (eP DF ) | IS BN 9780773557901 (eP U B ) Subjects: L CS H: Intergovernmental fiscal relations. | L C SH : Central-local government relations. | L CS H: Federal government. | L C SH : Socialism. | LC SH: Neoliberalism. | L CS H: Regionalism. | L C SH : Globalization. | LC SH: Right and left (Political science) Classification: L CC HJ 197 .H37 2019 | DDC 336—dc23

This book was typeset by Marquis Interscript in 10.5 / 13 Sabon.

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To Janie, William, and Alex. Nothing matters more.

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Contents

Tables ix Acknowledgments xi Introduction: Theorizing Multilevel Governance  3 1 The Neoliberal Approach to Multilevel Governance  30 2 The Social Democratic Approach to Multilevel Governance  57 3 The Politics of Fiscal Globalism  87 4 The Politics of Fiscal Regionalism  120 5 The Politics of Fiscal Federalism  167 6 Conclusion: Neoliberalism, Social Democracy, and Glocalization 209 Notes 225 Bibliography 263 Index 299

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Tables

1.1 Classical economic liberalism versus neoliberalism  33 1.2 Prominent actors and interest groups supporting neoliberalism 39 1.3 Classical economic liberalism and classical fiscal federalism 43 1.4 Neoliberalism and market-preserving federalism  47 1.5 Classical fiscal federalism versus market-preserving federalism 50 1.6 Market-preserving federalism and market-preserving internationalism 53 2.1 Prominent actors and interest groups supporting social democracy 67 2.2 Keynesian-welfare economics and social democratic federalism 71 2.3 Social democratic federalism and social democratic internationalism 81 2.4 Market-preserving federalism versus social democratic federalism 86 6.1 A political sequence of international integration  215

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Acknowledgments

The time and effort involved in writing a book go well beyond the hours of a normal workday. As a result, my greatest thanks and love go to my wife, Jane, and our sons, Will and Alex, for tolerating the whole project, including some final writing while camping in the Australian Outback. My mother and father’s love has continued to be a source of unwavering support, as has that of my best friend, my brother Dave. Special thanks also go to my broader family, including: Danielle, Marion, and Emilie; Jane, Jamie, Dianna, Sophia, and Nadia; Mr and Mrs D.; Rob, Soo, and Hannah; and Catherine, Ashley, Marella, Campbell, and Poppy. My greatest intellectual debt is owed to Stephen Gill. The ideas in this book draw on, and seek to extend, his groundbreaking concept of “new constitutionalism.” I have benefitted enormously from his advice and friendship over the years, including my involvement with the New Constitutionalism and World Order project where many of these ideas were first presented. Other scholarly friends who have provided great advice and support on the ideas in this book include: Isabella Bakker, Eric Helleiner, Tim DiMuzio, Bruce Morrison, Don Abelson, Charles Jones, Neil Brenner, and Stephen McBride. I would also like to include special thanks to the late, great Bob Young, whose friendship and advice guided me from international political economy into the world of federalism. In writing this book, I have benefitted from the excellent research assistance of Tyler Girard, Ahmed Mohamud, and Adam Francescutto, as well as the support of Jacqueline Mason at McGill-Queen’s University Press. Thanks also to the three anonymous reviewers for their comments on an earlier version of the manuscript, as well as

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Acknowledgments

those at the Review of International Political Economy and the Canadian Journal of Political Science for their comments on articles whose ideas formed the basis for this book. I am also grateful for the financial support provided by the University of Western Ontario, which assisted greatly with the research for this book. This includes support from the Social Sciences and Humanities Research Council of Canada Endowment Fund / Faculty Research Development Fund and the J.B. Smallman Fund. Final thanks go to all those who agreed to be interviewed for this book for the assistance they gave me in understanding British euroscepticism and the Brexit issue. reprinted with permission

I am grateful for the permissions to reproduce portions of articles granted by the Taylor & Francis Group (www.tandfonline.com) and Cambridge University Press (www.cambridge.org). Specifically, portions of Chapter 1 were originally published in “Neoliberalism and Multilevel Governance,” Review of International Political Economy 13, no. 5 (2006): 725–49. Portions of Chapter 3 were originally published in “The Rise of Neoliberal Nationalism,” Review of International Political Economy 19, no. 1 (2012): 59–86. Portions of Chapter 5 were originally published in “The Political Economy of Open Federalism,” Canadian Journal of Political Science / Revue canadienne de science politique 40, no. 2 (2007): 417–37.

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the politics of fiscal federalism

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introduction

Theorizing Multilevel Governance

What does federalism have to do with the political competition between left and right economic interest groups? How do economic theories of fiscal federalism influence European, North American, and global forms of governance? To answer these questions, this book examines the nature of political competition over issues of fiscal federalism, regionalism, and globalism. Fiscal federalism includes the economic aspects of federalism and multilevel governance, as well as the “assignment problem” of which policy capabilities should be assigned to which levels. Traditionally, the comparative federalism literature has emphasized the political competition between different levels of government / governance, as well as between territorially based groups. However, while these are often the main cleavages on broader issues of federalism and multilevel governance, this is arguably less the case on issues of fiscal federalism. Therefore, the aim of this book is to determine the extent to which political competition over the assignment problem relates to the right / left divide between the free market neoliberal approach and the more interventionist social democratic approach. In doing so, it makes three main arguments. The first argument begins with a detailed analysis of fiscal federalism theory in the economics literature. This literature is normative in that it focuses on which policy capabilities should be assigned to which levels of governance. It is also generally characterized, in apolitical terms, as a single body of theory whose main divisions are viewed chronologically as between “first generation theory” and “second generation theory.”1 This book challenges this characterization by arguing that the first-vs-second-generation distinction downplays a more significant right / left division between the neoliberal

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The Politics of Fiscal Federalism

public choice approach and the more social democratic public finance approach. Argued specifically is that the “neoliberal” (or free market) public choice approach and the “social democratic” (or interventionist) public finance approach both contain specific normative projects for fiscal federalism that are fully consistent across the federal, regional, and global levels. In the case of neoliberalism, this project is shown to be evident in the normative work of neoliberal and public choice intellectuals – including Friedrich von Hayek, James Buchanan, and Barry Weingast – on “market-preserving federalism” and the more recent extrapolation of these ideas to the regional and global levels. In all cases, the aim of market-preserving federalism (or regionalism or globalism) is to impose constraints on social democratic forms of government intervention through the creation of an exit option and inter-jurisdictional policy competition. This is achieved by centralizing policy capabilities related to protecting property rights, enforcing contracts, and creating markets (including capital mobility) and decentralizing those that relate to redistributing wealth and correcting market failures. The well-known logic here is that policies designed to redistribute wealth and correct market failures can be constrained by the outmigration of wealthy individuals and firms seeking lower taxes and regulatory burdens. As a result, governments are forced to compete for their investment by providing more freemarket-oriented policies. In the case of social democracy, a specific normative project for fiscal federalism is shown to be evident in the work of Keynesianwelfare and public finance intellectuals, including John Maynard Keynes, Paul Samuelson, Richard Musgrave, and Wallace Oates, and the more recent extrapolation of their ideas to the regional and global levels. In direct contrast to the neoliberal approach, the aim of social democratic federalism (or regionalism or globalism) is to promote the policy autonomy of governments by limiting “harmful” forms of policy competition. This means that, at all levels, social democratic theory seeks to have the private economy, in the form of trade and capital mobility, operate at the same level as that of tax and regulatory capabilities related to wealth redistribution and the correction of market failures. The second argument made in this book is that, when we recognize that neoliberalism and social democracy each contain specific normative projects for fiscal federalism, they can help to explain and predict

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the multilevel policies advocated by right vs left economic actors and interest groups – such as firms, unions, and various advocacy groups – on a wide range of issues related to federal, regional, and global governance. They can do so because, in addition to sometimes constructing interests, ideas can also help to more fully reveal material interests by articulating them more explicitly and in a way that highlights the “true” or full motivation behind them. Moreover, by better revealing the material interests of different economic interest groups, these normative projects can also help to explain why there is a consistency in the multilevel policies advocated by them across different national contexts and levels of governance, and over time. This is argued to be significant as it demonstrates, in terms of both ideology and interests, the existence of a unified politics of fiscal federalism, regionalism, and globalism. This challenges the current literature, which has generally not recognized the political competition between these normative approaches and thus not viewed right and left economic actors as having a coherent and principled set of interests on issues of federalism, multilevel governance, and the assignment problem. The third argument of this book is that this unified politics of fiscal federalism, regionalism, and globalism can add to existing explanations of political party and state preferences (including national policy outcomes) related to multilevel governance and the assignment problem. As outlined below, much of the positive political science literature on federal, regional, and global governance has been both compartmentalized by level and dominated by theoretical approaches emphasizing the competition between governments or between territorially based groups, or the role played by unique national institutions. Therefore, by examining the political competition between right / left economic interests and ideas across the federal, regional, and global levels, this book seeks to reinforce the relevance of a political economy approach to the study of federalism and multilevel governance.2 Specifically, while the political competition between different levels of government / governance, as well as between territorially based groups, are often the main lines of contestation on broader issues of federalism and multilevel governance, this is less so on issues of fiscal federalism. At the very least, the political competition between economic interests and ideas can constitute a significant “subplot,” which must be incorporated into any complete explanation of policy and institutional change related to the assignment problem.3

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The Politics of Fiscal Federalism

As a further goal, this book also seeks to demonstrate why federalism and multilevel governance should be a significant area of study for political economists. For example, Nobel economist James Buchanan distinguishes between “ordinary politics,” which is about the competition over policy, and “constitutional politics,” which is about the competition over the structures and “rules of the game” within which ordinary politics takes place.4 Drawing on this distinction, Stephen Gill has developed the concept of “new constitutionalism” to describe a specific neoliberal project designed to lock in more market-oriented policies through the use of various legal-juridical and constitutional mechanisms.5 In a similar fashion, this book argues that both the neoliberal and social democratic approaches explicitly view issues related to fiscal federalism and the assignment problem as forms of constitutional politics that help to determine the “limits of the possible” for a wide range of policy issues. Therefore, federalism is important for political economists precisely because economic actors now view it as an increasingly significant, and structural, terrain of political competition. explaining fiscal federalism

Fiscal federalism – which focuses on the economic aspects of federalism and, in particular, the “assignment problem” of which policy capabilities should be / are assigned to which levels of governance – is enjoying something of a renaissance. As Vito Tanzi observes, “In the past three decades, there has been a growing interest in fiscal federalism and an explosion of writing on this topic.”6 This is the case for two main reasons. First, in terms of the normative theory originating in economics – which examines which policy capabilities should be assigned to which levels of governance – there have been sufficient conceptual developments such that many now speak of a “second generation” of fiscal federalism theory.7 Second, questions of multilevel governance are seen as increasingly relevant given the recent trend toward “glocalization” (globalization plus localization). This involves the diffusion of power away from national governments, both upward, to regional and international organizations, as well as downward, to various subnational governments.8 As a result, questions related to fiscal federalism are now being raised in a growing number of countries, multilevel contexts, and issue areas. This includes many developed and developing countries,

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Theorizing Multilevel Governance

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both federal and unitary, where there has been a trend toward decentralization that has been dubbed by many as the “devolution revolution.”9 It also includes multilevel governance at the international level, such as regional integration in Europe, North America, and elsewhere, as well as globalization and global governance more generally. Finally, to the extent that the glocalization trend affects broad areas of governance, questions related to fiscal federalism and the assignment problem are seen as increasingly applicable to a wide range of economic, social, and environmental policy areas. It is for this reason that fiscal federalism research has now grown beyond its traditional audience of federalism specialists in economics and political science to include scholars focusing on a wide range of policy areas in comparative politics, international relations, political economy, local politics, and urban governance, as well as economic geography, environmental studies, and development theory. In a similar fashion to the normative economics literature, the positive political science literature on federalism – which seeks to explain the origins and dynamics of federalism in general – has also experienced significant recent developments. This includes a shift away from the methodological nationalism, single case studies, and emphasis on descriptive “old institutionalist” models toward the growing interest in cross-case analysis and sophisticated theoretical development embodied in the emerging literature on comparative federalism.10 It also includes a growing concern with “the issue of endogeneity: what brings about federalism (or federal change) rather than what does federalism bring about.”11 However, despite the growing breadth and depth of this research, there have been few books focusing exclusively on the politics of fiscal federalism. Most books that focus exclusively on fiscal federalism are concerned with purely economic rather than political questions.12 Moreover, as noted above, this literature generally characterizes fiscal federalism theory, apolitically, as first- and second-generation theory rather than in more right / left and, thus, political, terms. Illustrating this view, Wallace Oates’s 2005 review argued that, “a new ‘second generation theory of fiscal federalism’ is emerging that provides insights into the structure and workings of federal systems.”13 Thus, while providing a useful framework for understanding recent developments in the field, the first-vs-second-generation distinction tends to downplay a more significant right / left division in fiscal federalism theory between the neoliberal public choice approach and the

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The Politics of Fiscal Federalism

more social democratic public finance approach. Among economists and political economists that do distinguish between these different normative approaches, the frame generally remains one of apolitical intellectual theories competing in a marketplace of ideas rather than ideological political projects that specifically benefit, and are promoted by, competing actors, interest groups, and political parties.14 Where the economics literature has focused on fiscal federalism but not politics, the comparative federalism literature has focused on the politics of federalism in general rather than fiscal federalism specifically. In fact, in much of the comparative federalism literature, fiscal federalism is simply viewed as a relatively non-distinct subset of the broader politics of federalism. The result is that the politics of federalism are most often framed in terms of centralization vs decentralization and as being driven by forms of political competition other than that between right and left economic interests. They are also seen as being driven by exogenous factors such as globalization, as well as institutional and demographic structures, which reinforce either centralization or decentralization. As Jorg Broschek observes, “scholars have advocated different explanatory factors so as to account for federal system dynamics, most notably territorial cleavages (for example Erk, 2007; Livingston, 1956), ideas (Burgess, 1995, 2006), parties (Filippov et al., 2004; Riker, 1964) as well as institutional characteristics (Bolleyer, 2006; Cairns, 1977; Thorlakson, 2003, 2007).”15 Therefore, almost all of the theoretical approaches employed in the comparative federalism literature have adopted this centralization vs decentralization frame, and this is further reflected in the way that changes in federalism are most commonly measured along a centralization-decentralization spectrum.16 As outlined below, what has been under-examined is the competition between right / left economic interests, political parties, and ideas, or any attempt to view changes in federalism along a right / left spectrum between neoliberal market-preserving federalism and social democratic federalism (each of which reflects a different mix of centralization and decentralization). Illustrating this point, many institutionalist and structuralist approaches, which have been central to the “new wave of federalism studies,”17 tend to ignore or downplay the role of all political agency and thus do not view economic interest groups, ideologies, or which party is in power as significant to explaining federal dynamics. For example, “old institutionalist” approaches to federalism simply involved the creation of different descriptive models, such as the

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“cooperative” or “marble cake,” and “dual” or “layer cake,” models of federalism developed by Morton Grodzins.18 Some “new institutionalist” approaches explain policy and institutional change by focusing on how existing institutions have worked, over time, to construct political actors and their preferences, as well as to impose constraints on them through mechanisms such as path dependence and unintended consequences. For example, some studies have emphasized how the structure and relationship between national and subnational political parties19 can reinforce centralization or decentralization, while others have looked at the path dependence of existing federal structures (including the role of constitutions, veto points, and national legislatures).20 Such approaches tend to be better at explaining continuity than change, and, while more recent historical institutionalist work has sought to better incorporate ideas, actors, and endogenous change, they have not specifically focused on right / left economic actors, ideas, and partisan politics.21 Structural / sociological approaches, including functionalism and structural functionalism, view institutional change as the outcome of an evolutionary dynamic in which institutions respond automatically to exogenous changes in their environment. This can include demographic changes related to the population’s degree of heterogeneity, the balance between ethnic, linguistic, and cultural majorities and minorities,22 as well as economic changes due to regional shifts, globalization, and other trends.23 As Cesar Colino notes, from this perspective, “federal change is pretty much an incremental and informal adaptation of different parts of the system that respond to the environment and to the very institutional logic or path dependencies.”24 Therefore, for many institutionalist and structuralist approaches, federal change is seen as more about structure and unintended consequences than about the deliberate agency of actors including economic actors. In a similar fashion, while many actor-centred approaches to federalism do emphasize agency, they have also generally downplayed the role of economic actors and political parties, as well as the ideas that reveal their deliberate intent. State-centric approaches, for example, focus on federal vs subnational and subnational vs subnational executive branch politicians and bureaucrats, who are seen to represent the seemingly unified “public interest” of their jurisdictions in a generally benevolent and non-ideological manner.25 Therefore, by focusing on “the state” (or sub-state) as a unitary actor (rather than

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the institutional design of the state or self-interested politicians), this perspective does not view societal groups, ideology, or which political parties are in power as central to explaining policy and institutional change. As Stephen Brooks and Andrew Stritch note, “according to this view it is governments and their sprawling bureaucracies that more and more dominate the policy-making scene, particularly when jurisdictional issues are involved. Societal groups, including business interests, may be largely frozen out of the process of intergovernmental relations.”26 Rational / public choice / pluralist approaches, in contrast, do look at the agency of societal groups, as well as that of electorally selfinterested (rather than benevolent) politicians. Illustrating this view, Jessica Wallack and T.N. Srinivasan argue that “an assumption of self-interested politicians involved in multi-level contest for reelection and riches is a better picture of reality than the collection of benevolent social planners in economic federalism analysis.”27 From this perspective, societal groups (including voters) create the “demand” for public policies, while politicians create the “supply.” All are “strategic actors” whose preferences and identities are viewed as rational and fixed outcomes of their material self-interest. Institutions and ideas are thus deliberately created to advance these interests, with policy and institutional change reflecting the outcome of political competition and bargaining. However, while rational choice approaches can incorporate a variety of actors, they have tended to focus primarily on national and subnational politicians who represent the median voters of their jurisdictions. This, in turn, has led to a similar territorial frame based on the competition and bargaining between subnational units characterized in terms of ethno-linguistic majorities and minorities, as well as “have” and “have not” states and provinces.28 Highlighting this point, David McKay notes that, “the most important advance is the addition of a territorial dimension to both the rational choice literature and to comparative politics approaches.”29 While beneficial in many ways, the result has been a relative neglect of non-territorial economic interest groups and ideas, as well as right / left partisan politics. As Erik Wibbels argues, such approaches “often rely on unrealistic, simplifying assumptions (the median voter is particularly popular) and tend to ignore the political processes underlying institutional evolution.”30 Neopluralist and critical approaches have traditionally focused on the role of the business community and trade unions, as well as

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economic ideologies such as “neoliberalism” and “social democracy,” as their key units of analysis. In the case of federalism, however, they have tended to adopt a similar territorial frame as other approaches by emphasizing the competition between national and regional, or regional and regional, business interests (rather than business vs labour / social activists). For example, in the context of early Canadian federalism, Brooks and Stritch emphasize competition over centralizationdecentralization based on a “coalition of national politicians and nationally-oriented business interests” vs provincial politicians who “were responding both to the demands of regionally-concentrated business interests and to the revenue needs of their provincial governments.”31 Moreover, in addition to territorially oriented business interests, other critical works have looked at “classes of regions.” Thus, the key unit of analysis becomes “have” vs “have not” states and provinces (as with some rational choice approaches), or the “core” vs the “periphery” (as with world systems theory in international relations, or I R , theory). From this latter perspective, changes in federalism tend to reflect shifts in regional economic power and the demands for change to which they give rise among different segments of the business community. For example, Michael Burgess notes that, “in Canada the regional structure of the national economy combines with the federal structure of the state to produce intermittent trends in favour of the centralisation and / or the decentralisation of economic and political power resources.”32 To the extent that neopluralist and critical approaches emphasize national and regional fractions of business, the business community is viewed as divided, and thus as lacking a single normative approach to federalism. As Brooks and Stritch note, on issues of federalism, “the alliances between business interests and governments are determined by the self-interest of these parties, not by deeply felt beliefs about what the constitutional division of powers ought to be in some abstract sense.”33 Therefore, rather than promoting an overall normative project related to the assignment problem, nationally and regionally oriented business interests are viewed as promoting centralization and decentralization respectively. They are also seen to “venue shop,” and thus seek to locate a particular policy capability at a specific level only for the purpose of bypassing an uncooperative and entrenched political party or stronger labour interests.34 Additionally, as neopluralist and critical approaches have often been isolated from the public choice literature in both economics and political science, they have

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The Politics of Fiscal Federalism

generally not incorporated the normative approaches to fiscal federalism in terms of their broader focus on neoliberal ideology. Illustrating this view, Stephen McBride and John Shields argue that, “in federal political systems we can presume that neo-liberals will have a greater concern to limit the power of government per se rather than a principled or rhetorical position in favour of assigning powers permanently to a particular level of government.”35 Therefore, in addition to ignoring the normative projects for fiscal federalism, most actor-centred approaches to comparative federalism have tended to emphasize territoriality at the expense of right / left economic actors, ideas, and partisan politics. As Burgess observes: In one particular sense, preconceptions of territoriality as a rather one-dimensional, if oversimplified, cleavage in federations are to be entirely expected. This is because federations are ipso facto composed of clearly demarcated constituent units that are territorial units … A survey of territoriality in the mainstream literature on federalism and federation strongly suggests an uncritical and excessive reliance on the topic.36 It is thus understandable that state-centric approaches focus on national and subnational governments, rational choice approaches emphasize politicians representing territorially based groups and have / have-not provinces and states, while neopluralist and critical approaches emphasize nationally and regionally oriented business interests as well as core and periphery regions. Similarly, to the limited extent that normative ideas are incorporated in these approaches, they also tend to be of a territorial nature in terms of pan-nationalism vs states’ or provincial rights, inter-state vs intra-state federalism, or simply federalism vs unitary government. One exception, however, to this focus on territoriality is found in some of the literature on American federalism, which emphasizes right / left partisan politics, conservative vs liberal ideology, and the historical shifts from “dual” to “cooperative” to “coercive” to “competitive” federalism.37 Nevertheless, as Carol Weissert’s 2011 review of the literature observes, “US scholars haven’t really developed strong theory to understand and predict trends and actions – and tend to rely on typologies on one hand or fairly narrowly construed questions on the other.”38 To resolve this issue, she argues that US scholarship needs to draw upon the more theoretically inclined work found in

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comparative federalism. Still, even though much of this US work leans toward description rather than explicit theorizing, it does provide a strong historical account of some of the right / left politics of American federalism, and, in particular, the role of the President, Congress, and Supreme Court. It can therefore be expanded upon through cross-case analysis, more explicit theorizing, and a more detailed incorporation of economic interest groups and ideas. In this sense, just as the US scholarship can benefit from theoretical developments in comparative federalism, so too can comparative federalism benefit from the slightly greater focus in the US literature on right / left politics. explaining fiscal regionalism and globalism

At the international level, economic issues have always been central to processes of regional and global integration. As a result, while often mirroring the theoretical approaches noted in the last section, the literatures on regional and global governance have paid much more attention to the competition between right / left economic interest groups, ideas, and political parties. Of course, they have done so in different ways and there are exceptions. The most prominent exception is state-centric theory, including “realism” and “neorealism” in I R theory, and their counterpart of “intergovernmentalism” in European integration theory.39 As with domestic versions of statecentric theory, these approaches have a clear territorial frame. This includes a focus on the nation-state as a unitary actor, where executive branch politicians are seen to represent a seemingly unified “national interest” in a generally benevolent and non-ideological manner. Such approaches often employ a rational choice method where, through methodological individualism, the unitary state is treated as a single, unified strategic actor with no internal divisions.40 As a result, statecentric approaches do not view domestic institutions, societal groups, ideology, or which political party is in power as central to explaining policy and institutional change. Instead, global and regional integration are explained as reflections of changes in the structure of the international system (e.g., hegemonic stability based on the end of the Cold War and the rise of US unipolarity) and the national interests of great powers. Specific outcomes are then based on competition and bargaining between nation-states. Structuralist and functionalist approaches are also evident in the global and regional integration literatures, manifesting themselves as

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“functionalism” and “neo-functionalism” respectively. In both cases, institutional change is explained as the outcome of an evolutionary dynamic in which institutions respond automatically to changes in their environment. In I R theory, functionalism focuses on global integration and the emergence of international institutions, and generally explains economic globalization as the result of secular trends in terms of technological and market developments.41 In European integration theory, “neofunctionalism” argues that European institutional development follows a self-sustaining logic based on the notion of “spillovers,” “whereby the creation of a common policy in one sector generates the ‘need’ to transfer policy making in related sectors to the supranational level.”42 Moreover, while neofunctionalism does incorporate the roles of economic interest groups, it does so in a way that generally downplays any right / left competition between them or assigns them any autonomous causal role.43 Instead, “they are viewed as being instrumental to the self-expansive process of spillover” in that internationalization gives rise to more internationalized interests, which then promote more internationalization.44 In a similar fashion, various institutionalist approaches do incorporate the role of economic interest groups, but in a way that also downplays the right / left competition between them and / or any strong causal significance. For example, “neoliberal institutionalism” in IR theory, and its counterpart of “supranationalism” in European integration theory, adopt a form of state-centric institutionalism, which emphasizes international (rather than domestic) institutions and NGOs.45 In doing so, however, transnationally organized business interests are seen to automatically support greater European and global integration, just as some nationally organized businesses are seen to support centralization in the federalism literature. As a result, this approach does not assign a strong and autonomous causal role to transnational business interests. In the case of European integration, Bastiaan van Apeldoorn, Henk Overbeek, and Magnus Ryner note that supranationalism’s view of organized business interests is “in line with the neofunctionalist theory of interest groups” in that “they interpret its role mainly in terms of supporting preexisting political initiatives taken mainly by the Commission.”46 Regional and global integration are thus viewed as a reflection of great power interests, as well as the agency and path dependence of international institutions. Other new institutionalist approaches, including both historical institutionalism and rational choice institutionalism, have been very

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prominent as approaches to European integration and are making a growing impact in the International Political Economy (IPE) literature by looking at the role of international and domestic institutions.47 In the case of the E U, Mark Pollack notes that, “the basic concepts of institutionalist analysis are applicable both at the ‘international’ level of the E U and at the level of member states, where the mediating impact of domestic institutions can help explain patterns of Europeanization among current member states and applicant countries.”48 However, to the extent that many new institutionalists view institutions as “ontologically prior”49 to actors, interests, and ideas, they have often placed less emphasis on the agency of right / left economic actors, ideas, and partisan politics, and, in turn, on endogenous sources of change. As Pollack argues, both historical and rational choice institutionalism are essentially mid-level theories, concerned largely with the effects of institutions as intervening variables in E U politics. As such neither theory constitutes in and of itself an adequate theory of European integration, the ultimate causes of which ­typically remain exogenous to the theory. Historical institutionalism has begun to address some of these questions, examining the ways in which initial integrative acts may create unintended consequences and lead to an endogenous, path-dependent process of integration, but even in such accounts the root causes of integration may be external to the theory itself.50 One key exception here is Fritz Scharpf’s “actor-centred institutionalism,” which does examine the role of right / left economic actors and neoliberal ideology, but emphasizes institutional constraints as the key to understanding patterns of regional integration. What is less explored in this work is the agency involved in creating the institutional constraints themselves and the deliberate ideas that may underpin this agency. Somewhat related to institutionalism is the emerging “multilevel governance approach,” including the “Type I” and “Type II” models of multilevel governance developed by Lisbet Hooghe and Gary Marks.51 However, while clearly new, this approach does have some commonalities with the more descriptive models of the “old institutionalism.” As van Apeldoorn, Overbeek, and Ryner observe: “Multilevel governance is a rather new explanatory framework and

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is often confusing in its eclecticism. Hence, although it perhaps represents and describes the complex empirical reality that is the European Union, compared to the traditional theories it suffers from a lack of analytical clarity and parsimony, and as a result it is often unclear about what actually is explained through this approach.”52 The multilevel governance approach has also been characterized in more pluralist terms. As Pollack notes, “Gary Marks and his colleagues have argued that the E U should be understood as a system of ‘multilevel governance,’ in which member governments, while still of importance, have become one among many subnational and supranational actors in a complex and unique system of governance.”53 At the international level, rational choice / pluralist approaches have long opened the “black box” of the state to look at the competition between domestic economic interest groups and political parties, although the focus is generally on the competition between “producer interests” across different sectors and levels, as well as consumers, rather than on right / left actors and ideologies. In the I R literature, the pluralist approach manifests itself most explicitly in Andrew Moravcsik’s “liberal theory of international relations,” which is generally referred to as “liberal intergovernmentalism” in the European integration literature.54 As van Apeldoorn, Overbeek, and Ryner note, “Moravcsik employs a liberal-pluralist theory of state-society relations in which the units of society are ‘private individuals and voluntary associations with autonomous interests,’ the behaviour of which is assumed to be determined by a rational choice logic of utility maximization.”55 Applied to the case of European integration, for example, they further note that “Moravcsik conceptualizes the integration process as proceeding in three stages. First, national preferences are formed at the domestic level by the aggregation of interests formulated by societal actors. In the second stage, members of the EU bring their national preferences to the European bargaining table. In the third stage, a certain choice is made for a particular institutional design.”56 Moreover, from this perspective, regional and global integration are seen as being primarily driven by export-oriented firms (over firms favouring protectionism), as well as consumers / median voters who have voted for “pro-globalization” politicians.57 Specific outcomes are thus determined through competition and bargaining at both the domestic and international levels (including two-level games58) with geopolitical concerns also factoring into the latter negotiations.

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Neopluralist, constructivist, and critical approaches have also placed a strong emphasis on the role of economic interest groups and partisan politics in their explanations of regional and global integration. Moreover, in contrast to their more territorially oriented counterparts in the comparative federalism literature, there has been a much greater emphasis on the competition between right / left economic interests, ideas, and political parties. For example, in both the European integration and globalization literatures, there have been numerous works focusing on the role of neoliberal ideas and how they have been promoted by business interests, right-of-centre political parties, and sympathetic actors within various international organizations.59 What is as yet missing from this literature, however, is any incorporation of the normative projects for fiscal federalism and the resulting need to better theorize neoliberal motivations and to distinguish them from those of both classical economic liberals and populist conservatives. This is significant in that, by viewing neoliberalism simply as a more recent revival of classical economic liberalism, many of these works have conflated neoliberalism with the other political and economic strands of liberalism into a broadly pro-globalization whole. Accordingly, much like the centralization-vs-decentralization frame in the comparative federalism literature, many of these works have tended to equate neoliberalism with pro-globalization and pro-­ regionalization, and social democracy with anti-globalization and anti-regionalization. One exception here is Liesbet Hooghe, Gary Marks, and Carole Wilson, who argue that neoliberal and social democratic views on Europe depend on whether the E U is moving right or left.60 While insightful, their argument is limited to the European case and does not incorporate the normative projects for fiscal federalism. These projects are significant because they reveal the deliberate intent of neoliberal and social democratic actors and show the consistency of their positions across different cases and levels. What these projects specifically demonstrate is that, while classical economic liberalism favours free trade and capital mobility for reasons of efficiency and mutual gains, neoliberalism supports them primarily for creating the inter-jurisdictional policy competition which they believe will lock in free-market policies at the domestic level. Therefore, in contrast to the other strands of liberalism, neoliberalism is much more opposed to forms of international cooperation, such as the

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harmonization of tax and regulatory policies related to wealth redistribution and the correction of market failures, which might undermine this policy competition among governments. Incorporating the normative projects for fiscal federalism can thus help to explain neoliberal forms of nationalism, euroscepticism, and anti-globalization, and why they are distinct from the anti-internationalism of populist conservatives. It can also help to explain the evolution among social democratic actors from anti-globalization and regionalization toward a form of social democratic multilateralism. an actor-centred constructivist approach

The theoretical approach of this book reflects an actor-centred constructivism that also incorporates the role of institutions. In doing so, it draws on a number of theoretical approaches that seem to be ­converging toward a focus on the material interests of a plurality of actors, but where business is seen as the most broadly – but not universally – significant, and on the constitutive and regulative – but not determining – role of ideas and institutions. This includes the actor-centred constructivism of Mark Blyth, the actor-centred institutionalism of Fritz Scharpf, the transnational neopluralism of Philip Cerny, the Gramscian historical materialism of Robert Cox and Stephen Gill, and, to a lesser extent, some recent works from rational choice and historical institutionalism, which have sought to better incorporate the role of ideas.61 Explaining Preference Formation Institutions, material interests, and ideas all play a role in determining the policy preferences of individuals. However, it would seem important to recognize that different actors will have their preferences constructed in different ways and through different combinations of institutions, interests, and ideas. For example, Mark Blyth tells the story of how his father seemed to consistently vote against his material self-interest in a way that demonstrated the role of ideas in preference formation. As Blyth notes: “Ideas matter because they can actually alter people’s conception of their own self-interest. From every conceivable materialist position imaginable, my father should have been a Labour voter, but he was not.”62 While this example clearly demonstrates the significance of ideas in sometimes causing

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people to have preferences that contradict their interests, we can expand on Blyth’s anecdote by imagining a wealthy financier who votes Conservative in a way that is much more consistent with their material interests. We can also imagine a wealthy gay financier who must choose between voting Republican, based on his economic interests, or Democrat, based on his material interest in gay rights. As argued below, ideas matter in all of these situations (and more), but they do so in different ways and in different combinations with institutions and interests. Institutional Structures Give Rise to Material Interests A starting point for preference formation is the institutionalist notion that material self-interest can be socially constructed by policy structures and formal institutions. For example, historical institutionalists such as Paul Pierson argue that, “public policies often create ‘spoils’ that provide a strong motivation for beneficiaries to mobilize in favor of programmatic maintenance or expansion.”63 Therefore, rather than being natural and fixed, material interests can change when policies and institutions change. That being said, institutions and interests can also be self-reinforcing in ways that create path dependence and stability over time. This is particularly the case with more macro institutional structures, such as capitalism and its varieties, the nature of the electoral system, constitutions and federalism, and others. These macro structures can often appear so stable that the interests they help to constitute seem to be exogenously determined. It is for this reason that many rational choice and pluralist scholars view material interests as fixed outcomes of an individual’s place within these broader macro institutional structures.64 From this perspective, where an individual sits (in a given institutional order) can determine where they stand (on a given policy issue). Employers have different interests from employees, who have different interests from politicians, and so on. Therefore, while interests should be viewed as socially constructed as noted above, they can also display strong degrees of path dependence. This, in turn, means that the preferences of some individuals – the wealthy financier voting Conservative, the factory worker voting Labour – can be explained and predicted primarily in terms of direct self-interest rather than ideas. But even in these cases when material interests would seem to dominate, ideas can still be relevant to preference formation.

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Ideas Define Interests in Complex Situations One reason that ideas and interests should not be viewed as a dichotomy is because, in many situations, the policies that are in a person’s or group’s material self-interest are not always immediately apparent. A key example of this, outlined by Blyth, is the case of crises, which are “situations regarded by contemporary agents as unique events where the agents are unsure as to what their interests actually are, let alone how to realize them.”65 In these situations, ideas can give meaning to events and help actors to define precisely what policies are in their material self-interest. Arguably, this point can be broadened beyond crises to include areas of policy which are complex or unfamiliar to specific individuals and groups. For example, many individuals may not know what their interests are in terms of a range of complex policy areas such as monetary policy or international trade.66 More relevant to this book, many economic actors may not know what their interests are in the areas of federalism and multilevel governance, as in many countries such policy areas are often dominated by non-economic issues. Therefore, rather than preferences being formed by interests or ideas, in a number of situations, interests will be defined by ideas. Ideas Rationalize Interests As in the example of Blyth’s working-class father voting Conservative, the role of ideas in preference formation is often viewed as constructing preferences that differ from material interests. However, for some individuals, ideas are necessary for them to adopt policy preferences that are in line with their interests. Specifically, they need ideas to rationalize their self-interest by framing the policies that benefit them in more principled and universally beneficial terms. Max Weber, for example, has made this point in terms of societal elites. As Diana Kendall notes: “According to Weber … one reason why elites create ideology is to reassure themselves that their privileged position in society is legitimate and that they are entitled to the advantages they possess over others.”67 Similar arguments about the need to rationalize self-interest have been presented in Albert Memmi’s 1965 The Colonizer and the Colonized, as well as John Kenneth Galbraith’s 1992 The Culture of Contentment.68 In the field of social psychology,

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“system justification theory” has demonstrated empirically that universalizing ideologies reduce guilt among advantaged groups in a way that helps to translate self-interest into policy preferences.69 Ideas Reveal Interests Ideas are also relevant for understanding material interests in that, by articulating interests explicitly, they can help to reveal the “true” or full motivation behind specific policy preferences. This is important, methodologically, as it can help to explain and predict actor behaviour in a wider variety of situations. To promote and rationalize their preferences, many actors will couch them in more universal and principled terms, which can sometimes work to mask the underlying motivation. Rational choice scholars have long argued that, even when actors frame their preferences in terms of values and ideas, their underlying material interests will still better explain and predict their behaviour.70 In complex policy situations, however, the scholarly observer may also have difficulty determining, or at least demonstrating, what policies are in the actor’s self-interest. Looking at the actor’s public rationale may be misleading, and, given that different actors may support the same policy for different reasons, solely looking at the policy preference of the actor may not reveal their true or full interest in it. In these situations, the ideas and ideologies connected to different actors can help to reveal underlying interests in that the academics, think tanks researchers and other intellectuals who create them are often much more forthright about the motivation for specific policies. For example, as argued in Chapter 3, the broader conservative movement in the US has long (but not always) been in favour of free trade, and tends to frame this policy in terms of economic efficiency, mutual gains, and peace through interdependence. However, looking at the ideas associated with various factions of the conservative movement reveals that, while classical liberals tend to support free trade for the reasons mentioned, neoliberals tend to support free trade for the capital mobility and inter-jurisdictional policy competition it creates, while neoconservatives support it as long as it is seen to enhance US power. Recognizing these differences is significant to predicting future behaviour, as it indicates how policy preferences could change if circumstances change.

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Ideas Determine Preference Intensity and Prioritization In addition to defining, rationalizing, and revealing interests, ideas can also help to determine preference intensity and prioritization. Having a material interest in a specific policy is a condition necessary but not sufficient for political agency. Also important is how passionate an actor is about a given policy, as this will determine whether and to what degree they act upon their interest. It would seem uncontroversial to state that many individuals have policy interests that they are not sufficiently motivated to act upon. While material interests may determine how an individual might vote, preference intensity will determine whether they vote at all or donate money, research an issue, or volunteer for a political party or advocacy group. Preference intensity will also determine how actors prioritize their interests and decide between those that are in conflict. This can include short-vslong-term interests, as well as situations such as the wealthy gay financier who must decide between voting for tax cuts or gay rights. For some individuals, preference intensity will be determined by a rational cost-benefit analysis of which choice has a greater material impact on the actor’s self-interest. For others, however, it will also be determined by the ideas that provoke fear, compassion, and outrage, offer solutions and define the limits of the possible. Ideas Construct Preferences beyond Interests As noted in the case of Blyth’s father, ideas can also construct preferences in a way that goes beyond or against material interests. In many cases, this will reflect the deliberate agency of specific actors who seek to use ideas as a tool to promote their own interests. This can include efforts to universalize their interests through appeals to why their policies benefit everyone (the positive aspect of ideology), as well as promoting the view that “there is no alternative” to the policies and institutional structures they advocate (the negative aspect of ideology).71 Such ideas, if promoted with sufficient resources, can work to mislead individuals about what policies are in their best interests.72 In a slightly different fashion, ideas about universal benefits and no alternative can also construct preferences by appealing to values and norms. Thus, rather than a person voting against their interests because they do not understand them, they vote against their immediate material interests based on either values (as with a wealthy

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person voting for tax increases) or a commitment to the ideas themselves (as with some ideologically motivated academics, politicians, journalists, and others). Ideas Construct Preferences through Social Movements and Identity While policy and institutional structures can create material interests, ideas are often required for collective action based on those interests. This is the case as ideas, including ideology and nationalism, can create groups and social movements by making individuals aware of their common interests and values, and by promoting specific policy options. As Blyth observes, “given that collective action is predicated upon the mutual recognition of collective ends, the representation of those ends through ideas becomes the prerequisite of successful collective endeavors.”73 At the same time, ideas and interests can also combine with culture to build transactional coalitions into more lasting identities that further affect preferences. This occurs in situations where individuals support specific policies, not because of rational cost-benefit analysis, but because their “team” advocates them.74 Thus, some individuals may support an advocacy group or political party because it accords with their self-identity rather than their material interests.75 For example, many white, blue-collar men lean Republican, in part, because its pro-military, pro-gun, and pro-selfreliance policies are seen as more “manly.”76 Similarly, individuals may support a political party based on a small number of key issues, and, through a type of political “bundling,” support any policies advocated by that party, again because it is their “team.” Explaining Political Party and State Preferences Political party and state preferences (including policy outcomes) reflect competition and bargaining between social movements. This occurs within the context of broader institutional and ideational structures, which create opportunities and constraints for different groups. These collective preferences can also be tempered, as rational choice theory argues, by the individual self-interest of party and state officials (e.g., politicians seeking election). From this perspective, institutions – ranging from interest groups to political parties to states to international organizations – are all terrains of political competition, actors, and

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structures. As terrains of political competition, individuals and groups compete to determine the preferences, design, and behaviour of the institution. This means that, while path dependencies can create high degrees of stability, the preferences of institutions – including states – can be changed. This will occur based on internal competition, bargaining, and changes of leadership rather than the institution, as a unitary actor, changing its collective “mind” or simply responding to the external environment or median voter. As actors, institutions work to promote the preferences of their members. However, to the extent that divisions among their members, and the self-interest of their officials, can give rise to principal-agent issues, they can do so somewhat independently from their members. As structures, institutions constrain behaviour (including through path dependence and unintended consequences) and confer advantage upon some actors over others. In the latter case, as outlined in Buchanan’s distinction between “ordinary” and “constitutional” politics, the constraints imposed by institutions (such as constitutions, electoral rules, and capital mobility) can also be fully intentional and thus the products of deliberate agency. Therefore, actors and institutional structures are mutually constituted in that, while institutional structures constrain actors, they can also be changed by actors. Key Units of Analysis The specific ontology of this book draws on these assumptions about the relationship between ideas, interests, and institutions. It does so by focusing on competing social movements, and the ideas they promote, as its key units of analysis. As used here, a social movement refers to a specific configuration of actors and institutions loosely united by a core set of ideas, which are based on, but not equivalent to, an underlying set of material interests.77 Social movements can be cross-cutting and nesting, and prominent examples include the conservative movement, the progressive movement, various nationalist movements, the women’s movement, the environmental movement, the civil-rights movement, and the social conservative movement. The notion of a social movement is meant to extend the rational choice / pluralist focus on self-interested individuals and formal interest groups to include a broader and more informal network of actors who are also linked by ideas.

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Therefore, in addition to actors and interest groups, social movements can include think tanks and political parties, as well as ideologically motivated politicians, journalists, judges, academics, civil servants, and officials in international organizations. Taking into account the role of these various individuals helps us to recognize the influence of ideas and interests, even when formal interest groups may not be involved. For example, even when a policy appears to be driven entirely by politicians and civil servants, as state-centric theory highlights, social movements may still be exerting their influence through ideologically motivated individuals. Therefore, while the self-interest of an individual may ultimately trump ideology, ideology can still play a key role in influencing an individual’s behaviour. This focus on social movements also accepts the pluralist assumption that different actors will be relevant in different policy areas. However, to the extent that fiscal federalism, regionalism, and globalism are key economic policy areas, this book focuses specifically on the competition between the “neoliberal movement” and the “social democratic movement,” and the broader conservative and progressive movements of which they are, respectively, parts. The neoliberal movement includes: free-market think tanks and advocacy groups; business associations and lobby groups; fiscally conservative politicians, party factions, and political parties; free-market-oriented academics, media commentators, and news outlets; large and particularly transnational corporations; as well as individual reporters, judges, civil servants, and officials in international organizations who support more neoliberal policies. The social democratic movement includes: labour associations and lobby groups; progressive economic think tanks; left-of-centre politicians, party factions, and political parties; socially democratic academics, media commentators, and news outlets; many trade unions and environmental and social activist groups; as well as individual reporters, judges, civil servants, and officials in international organizations who support more economically interventionist policies.78 Of course, this is not to say that the neoliberal and social democratic social movements are completely homogeneous or unified, or that differences of opinion will not occur. Divisions can occur based on individual and organizational self-interest, tactical judgements, and the willingness to make compromises. At the same time, groups are terrains of political contestation whose policy preferences can reflect

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the outcome of internal competition and bargaining. Therefore, not all corporations will support neoliberal policies and not all trade unions and environmentalists will support interventionist policies. Nevertheless, it remains possible to track the preferences and behaviour of these social movements by focusing on the larger and more long-standing actors as proxies and by looking for consistency across the different components of the movement. hypotheses and method

These assumptions about the relationship between ideas, interests and institutions also lead to the three main hypotheses that are developed in this book as well as the methods used to investigate them. The first hypothesis is based on Robert Cox’s observation that “[t]heory is always for someone and for some purpose.”79 Thus, we can hypothesize that, rather than being apolitical, fiscal federalism theory in economics will contain distinct neoliberal and social democratic approaches which reflect the material interests of their related actors and interest groups. Methodologically, this will be achieved through a detailed document analysis which compares key writings in fiscal federalism theory, and the views of key neoliberal and social democratic intellectuals on federalism, with the broader principles of the neoliberal and social democratic approaches. The second hypothesis is that, because ideas help to define and reveal material interests, the neoliberal and social democratic projects for multilevel governance can explain and predict the multilevel policies advocated by right / left economic actors and interest groups across different national contexts and levels of governance, and over time. The third hypothesis, drawing on neopluralist theory, is that the political competition between right / left economic interests plays a key (but not exclusive) role in determining political party and state preferences (including national policies) on these issues. The second and third hypotheses will be examined through five illustrative case studies based on historical process tracing within cases. The focus is on the competition between the neoliberal and social democratic movements in the US, the UK, and Canada in cases related to federal, regional, and global governance. These cases include: 1. Canadian federalism; 2. US federalism; 3. Canada and the US in North American integration; 4. the UK in European integration; and 5. Canada, the US, and the UK in globalization and global governance.

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These cases were chosen because they occur in Anglo-American, liberal market economies (including two federations) where the right / left competition over federalism is more pronounced and institutionalized. The explanatory scope of this project is thus limited to the liberal market economies of the Anglosphere. Moreover, as is common with illustrative case studies and process tracing, the intent is to sacrifice scope for depth in terms of illustrating and developing the hypotheses rather than testing them in a more comprehensive manner. As John Odell notes, this type of case study approach “aims to illustrate a theoretical idea. It puts concrete flesh on the bare bones of an abstract idea in order to help readers see its meaning more clearly, and to convince them that the idea is relevant to at least one significant real-world instance.”80 In a similar fashion, this emphasis on depth is reinforced by the use of historical process tracing within cases. As Andrew Bennett and Jeffrey Checkel note, process tracing can be defined as “the analysis of evidence on processes, sequences, and conjunctures of events within a case for the purposes of either developing or testing hypotheses about causal mechanisms that might causally explain the case.”81 In terms of data, process tracing makes use of various primary sources to identify the multilevel policies advocated by right / left political parties and economic interest groups. These include: past and current party manifestos; reports and press releases issued by economic interest groups and think tanks; testimony and submissions of these groups to parliamentary / congressional committees; historical and recent statements of these groups as reported in the media, and some interviews and archival work conducted in the UK in 2017. Information from these sources is then woven together with secondary sources and media reports to construct an analytical narrative and historical sequence for each case. Some hypothesis testing will, therefore, occur through the process tracing and identification of causal mechanisms. It will also occur through the case selection – which, within the scope of the Anglosphere, has elements of a “most different” comparative approach – by looking at cases across different countries and across federal, regional, and global levels of governance. As Jonathan Hopkins notes, “the understanding behind this approach is that if a hypothesized relationship between two or more variables is replicated across a wide variety of different settings, then there are stronger grounds for arguing that there is a causal link between the variables.”82 Therefore, these cases will demonstrate the consistency

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of neoliberal and social democratic interests and behaviour, and, thus, their value in helping to explain party and state preferences in different contexts. In future research, the emphasis can shift to hypothesis testing by extending the “most different” case method to non-liberal market countries. o r g a n i z at i o n o f t h e b o o k

This book is organized into six chapters, plus this introduction. Chapter 1 outlines the neoliberal approach to fiscal federalism and multilevel governance. This includes an outline of the value and policy differences between classical economic liberalism and neoliberalism, and how they respectively correspond to the classical fiscal federalism and market-preserving federalism approaches. It also demonstrates how the principles of market-preserving federalism correspond with, and have been directly applied to, the neoliberal approach to regionalism and globalism. Chapter 2 outlines the social democratic approach to fiscal federalism and multilevel governance. This includes a theorization of the relationship between classical fiscal federalism and social democratic fiscal federalism, including the policy correspondence between Keynesian-welfare economics, the public finance approach in economics, and the political science notion of “cooperative federalism.” The chapter also shows how the key principles of social democratic fiscal federalism correspond with, and have been directly applied to, the social democratic approach to regionalism and globalism. Chapter 3 examines the competition between the neoliberal and social democratic social movements over the multilevel aspects of globalization and global governance. It argues that the neoliberal and social democratic projects for multilevel governance do help to explain the policies advocated by their respective social movements, and why these movements are best viewed as “pro-” and “anti-policy competition” rather than “pro-”and “anti-globalization.” The chapter also outlines the value and policy differences between classical economic liberalism and neoliberalism related to free trade and globalization, and how they create the potential for a neoliberal form of nationalism. Chapter 4 examines the competition between the neoliberal and social democratic social movements over the multilevel aspects of regionalism through a detailed case study of the U K in Europe and a shorter case study of North American integration. It argues that the

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neoliberal and social democratic projects for multilevel governance do, again, help to explain the policies advocated by their respective social movements. It also uses the concept of neoliberal nationalism outlined in the previous chapter to demonstrate that contemporary British euroscepticism is part of a broader and more neoliberal-driven form of conservative anti-internationalism. Chapter 5 examines the competition between the neoliberal and social democratic social movements over fiscal federalism through a detailed and “critical” case study of Canadian federalism and a shorter case study of US federalism. It argues that the neoliberal and social democratic projects for multilevel governance do again help to explain the policies advocated by their respective social movements, including the key concern with the issue of policy competition. Chapter 6 concludes the book by providing a brief summary of the overall argument, including its limitations, as well as an initial discussion of how it can be applied more broadly to cases beyond the Anglosphere, to the “glocalization” (globalization plus localization) trend, and to the politics of fiscal urbanism.

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1 The Neoliberal Approach to Multilevel ­Governance

This chapter examines neoliberal / public choice ideas related to fiscal federalism, and, in particular, to the question of which policy capabilities should be assigned to which levels of governance. In doing so, it makes two main arguments. The first is that neoliberal theory contains an explicit and self-conscious normative project for fiscal federalism, which is fully consistent across the federal, regional, and global levels. This project is shown to be evident in the normative work of neoliberal and public choice intellectuals – including Friedrich von Hayek, James Buchanan, and Barry Weingast – on “market-preserving federalism” and the more recent extrapolation of these ideas to the regional and global levels. In all cases, the aim of market-preserving federalism (or regionalism or globalism) is to impose constraints on social democratic forms of government intervention through the creation of an exit option and inter-jurisdictional policy competition. This is achieved by centralizing policy capabilities related to protecting property rights, enforcing contracts, and creating markets (including capital mobility) and decentralizing those that relate to redistributing wealth and correcting market failures. The second argument is that these neoliberal ideas work to both define and reveal the specific interests and policy preferences of the neoliberal movement. Therefore, when we recognize that neoliberal theory contains an explicit and self-conscious project for multilevel governance, it can provide us with a model for explaining the policies advocated by neoliberal actors and interest groups on a wide variety of issues related to federal, regional, and global governance. Moreover, as will be argued in later chapters, it can also help to explain why the neoliberal approaches to federalism, regionalism, and globalism are

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distinct from those of classical economic liberals, as well as from both populist conservatives and neoconservatives. differences between classical economic liberalism and neoliberalism

In terms of the influence of economic ideas, it is widely recognized that the global economy has gone through three broad periods since the early nineteenth century.1 The first was the original period of laissez-faire and free-market globalization from the early-1800s until the Great Depression, and which was based on the ideas of classical economic liberals such as Adam Smith and David Ricardo. The second period, which ran until the 1970s, was characterized by more interventionist welfare states and greater restrictions on trade and capital flows. Intellectually, this period reflected the diminished faith in unfettered markets that resulted from the Great Depression and the influence of Keynesian-welfare economics. The third period saw the reemergence of free-market policies and economic globalization based on the seeming inability of Keynesianism to explain the stagflation of the 1970s, as well as the growing influence of neoliberal intellectuals such as Nobel-laureate economists Friedrich von Hayek, Milton Friedman, and James Buchanan. To the extent that the current period represents a return to free-market ideas, the political economy literature has generally viewed neoliberalism simply as a more recent revival of classical economic liberalism. Illustrating this view, Andrew Gamble observes: “One of the significant trends of the last thirty years has been the revival of economic liberalism as a form of political economy and as an economic ideology.”2 However, to understand why neoliberalism should be viewed as a distinct approach from that of classical economic liberalism, it is useful to outline the value and policy differences between them (see Table 1.1). From Adam Smith onward, the primary normative goal of classical economic liberalism has been that of allocative efficiency and the creation of mutual gains. Allocative efficiency refers to a situation where the supply of goods and services matches the demand for them, while mutual gains describes a positive-sum situation where there is an increase in the overall amount of goods and services available. For Smith, it was the free-market economy that would best promote both of these goals. More precisely, he argued that the decentralized ­economic decisions of millions of individuals acting in their own

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self-interest would be automatically coordinated toward beneficial social outcomes by what he termed the “invisible hand” of market forces.3 Thus, even if every individual acted solely in their own selfinterest, the sum total of these actions would benefit society as a whole because they would lead to the most efficient allocation of resources. As Smith famously argued: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regards to their own interest. We address ourselves, not to their humanity but to their self-love.”4 Over a century later, Alfred Marshall formalized Smith’s notion of the invisible hand in his 1890 book Principles of Economics, and, in doing so, helped to usher in “neoclassical” economic liberalism.5 More specifically, Marshall argued that it was the laws of supply and demand, expressed through price signals, that constituted the invisible hand of market forces. As Michael Howlett, Alex Netherton, and Michael Ramesh observe, in neoclassical economic liberalism, “economic decisions are viewed as representing the point at which demand and supply intersect, just as cloth is cut at the point – in Marshall’s graphic analogy – where the blades of scissors meet. The understanding of how the prices of commodities and factors of production are determined answers all questions concerning what is produced and consumed and how income is distributed.”6 Thus, in a free-market economy, utility-maximizing individuals and profit-maximizing firms reveal their preferences and respond to price signals by voting with their feet; what Albert Hirschman later called “exit.”7 If a consumer does not like a particular product (or its price), they will switch to another. If an employee does not like their job, they will switch to another. If a firm is not selling its product, it too will switch to another. This form of coordination based on the ability to “exit” contrasts with that of centralized command economies, where preferences are revealed through producers and consumers directly communicating their concerns to state planners (through voting, lobbying, polls, etc.). Called “voice” by Hirschman, liberals consider this method of determining production and consumption far less efficient than a reliance upon the automatic coordination of price signals. Given this allocative efficiency, classical economic liberals argued in favour of a free-market economy governed by a “residual” or “nightwatchman” state.8 This means that government intervention in the economy should be kept to a minimum so as not to interfere with the automatic workings of the invisible hand. With the state thus

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Table 1.1 Classical economic liberalism versus neoliberalism Classical economic liberalism

Neoliberalism

Smith, Ricardo, Marshall

Hayek, Friedman, Buchanan

Market economy superior to command economy due to: • automatic coordination of supply and demand leads to most efficient allocation of resources • decentralization of economic and political power • stimulates innovation • self-corrects problems

Market economy superior to command economy due to: • automatic coordination of supply and demand leads to most efficient allocation of resources • decentralization of economic power promotes individual freedom • stimulates innovation • self-corrects problems

Government is benevolent

Government is coercive rent-seeker

Normative priority is allocative efficiency and mutual gains

Normative priority is individual freedom, particularly from government intervention to redistribute wealth and correct market failures More orthodox opposition to government intervention

Advocates “nightwatchman state” with some public goods

Advocates locking in free-market policies through constitutional and institutional mechanisms

out of the way, classical liberals believe that the free-market economy, including free trade and capital mobility, will promote economic efficiency and mutual gains, as well as a number of more specific economic and social benefits. These benefits include: decentralization of economic and thus political power; interdependence, democratization, and peace; innovation based on market competition; and the self-correction of economic problems that result from a mismatch between supply and demand (such as recessions, unemployment, and trade imbalances). Whereas classical economic liberalism emerged as a response to mercantilism and economic nationalism, neoliberalism emerged largely in response to the statism of both socialism and the Keynesian-welfare approach. Moreover, where classical economic liberals emphasize economic efficiency and mutual gains, the normative priority of neoliberal intellectuals such as Hayek, Friedman, and Buchanan is individual freedom, and, in particular, freedom from social democratic forms of government intervention designed to redistribute wealth and correct market failures. To explain this opposition to government

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intervention and support for more laissez-faire markets, Buchanan exemplifies the neoliberal view, arguing: The categorical difference between market and political interaction lies in the continuing presence of an effective exit option in market relationships and in its absence in politics. To the extent that the individual participant in market exchange has available effective alternatives that may be chosen at relatively low cost, any exchange is necessarily voluntary. In its stylized form, the market involves no coercion, no extraction of value from any participant without consent.9 In neoliberal theory, therefore, government is viewed as a coercive rent seeker whose intervention in the economy is unlikely to be either benevolent or effective. In general terms, this view is reinforced by two key concepts from the public choice economics literature. The first is James Buchanan and Geoffrey Brennan’s “Leviathan hypothesis,” which views government as a self-interested actor that seeks to maximize its own size rather than the public interest.10 The second is Roland McKean’s notion of “government failure,” which argues that governments are likely to do more harm than good when they attempt to correct market failures.11 Thus, as Howlett et al. observe, neoliberalism is distinguished by “the supreme importance attributed to individuals and their freedom; they emphasize individual freedom even more than economic efficiency. They prefer the market to the state because the market is based on the principle of free choice among individuals whereas the authority of the state rests on coercion.”12 Taken together, this prioritization of individual freedom and more negative view of government leads to two key policy differences between neoliberalism and classical economic liberalism, which can be understood in terms of Gamble’s characterization of neoliberalism as “the free economy and the strong state.”13 For Gamble, what is important to note about neoliberalism “is not that it is against all state intervention but that it wants the state to intervene less in some areas and more in others.”14 In practical terms, this refers to less intervention to redistribute wealth and correct market failures and more intervention to protect property rights, enforce contracts, and create markets. Moreover, while Gamble observes that this “‘free economy-strong state’ … marks the continuity of the doctrine with

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the tradition of liberal political economy,”15 it is important to note that this is also where we can observe two key policy differences between neoliberalism and classical economic liberalism. In terms of the free economy, the first policy difference is that, rather than simply being a revival of classical economic liberalism, neoliberalism should be viewed as a much more laissez-faire version of the free-market approach. Compared to classical economic liberalism, James Richardson argues that “contemporary neoliberal ideology … seeks to go further: it amounts to an attempt, far more thoroughgoing than its nineteenth-century predecessor, to subordinate the state to the market.”16 Specifically, in addition to viewing most wealth redistribution as a form of coercion, neoliberals are also opposed to the correction of many market failures such as pollution and monopolies. On the one hand, they dispute the existence of many of the market failures identified by classical liberal and Keynesian-welfare economics.17 On the other, they doubt that government intervention can effectively correct market failures, and, even if it could, they believe intervention should still be avoided in the interests of preserving individual freedom.18 Thus, even though many neoliberals trace their intellectual lineage to Adam Smith, a number of observers have argued that Smith was far less laissez-faire in his support for free markets.19 Notably, this view is also held by a number of contemporary proponents of laissez-faire who are critical of Smith. For example, as the free-market economist Walter Block argues, “Adam Smith should be seen as a moderate free enterpriser who appreciated markets but made many, many exceptions. He allowed government all over the place.”20 The second main policy difference between classical economic liberalism and neoliberalism stems from the latter’s attempt to reconcile the desire for a strong state with its stronger opposition to social democratic forms of government intervention. Illustrating the neoliberal view, Barry Weingast notes: The fundamental political dilemma of an economic system is this: A government strong enough to protect property rights and enforce contracts is also strong enough to confiscate the wealth of its citizens. Thriving markets require not only the appropriate system of property rights and a law of contracts, but a secure political foundation that limits the ability of the state to confiscate wealth.21

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To resolve this dilemma, and in contrast to classical economic liberalism, neoliberal theory places a much greater emphasis on creating “a secure political foundation” for free markets through the use of constitutional and institutional mechanisms to “lock in” free-market policies – an element of neoliberalism that Stephen Gill has termed the “new constitutionalism.”22 This focus in neoliberalism on locking in free-market policies is evident in both the “constitutional economics” developed by Hayek and Buchanan, as well as the “market-preserving federalism” and internationalism developed by Hayek, Buchanan, and Weingast. In the former case, the aim of neoliberal constitutionalism is to limit social democratic forms of government intervention through the use of legal-juridical mechanisms, such as having balanced budget amendments and protection for property rights included in national bills of rights.23 Thus, as Gill notes, “neoliberals argue for the redefinition of the political to construct a ‘protected domain’ to secure individual freedom against encroachments of the power of the state and pressures of the ‘tyranny of the majority’ in democratic systems.”24 As a result, neoliberal constitutionalism seeks to specifically limit those forms of government intervention that aim at wealth redistribution – either directly, through fiscal and expropriation policies, or indirectly, through various forms of progressive regulation, such as pro-union labour laws and environmental regulations. Notably, while some classical liberals such as Locke also sought to protect property against a tyranny of the majority, this position was opposed by classical economic liberals such as Smith, Ricardo, and Mill.25 As Adam Smith critically observed: But here when … some have great wealth and others nothing, it is necessary that the arms of authority should be continually stretched forth, and permanent laws or regulations made which may ascertain the property of the rich from the inroads of the poor … Law and government may be considered in this and indeed in every case as a combination of the rich to oppress the poor, and preserve to themselves the inequality of the goods which would otherwise be soon destroyed by the attacks of the poor.26 In addition to these constitutional constraints, neoliberals also argue for the locking-in of free-market policies through the use of

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“market-preserving” forms of federalism and internationalism. As outlined in the rest of this chapter, it is this category of lock-in mechanisms that forms the basis for the neoliberal approach to multilevel governance. actors and interest groups supporting neoliberalism

As outlined in the Introduction, a social movement can be viewed as a specific configuration of actors and institutions that are loosely united by a core set of ideas that are based on, but not equivalent to, an underlying set of material interests. It includes self-interested actors and interest groups, but also a more informal network of actors who are linked by ideas. The neoliberal movement, therefore, begins with those who promote neoliberal policies primarily for reasons of philosophy, and, thus, tend to be the most consistent in their adherence to them. These actors have been referred to as “neoliberal idealists.”27 Identified concretely, this includes: free-market think tanks and advocacy groups; free-market-oriented academics, media commentators, and news outlets; fiscally conservative politicians, party factions, and political parties; as well as individual reporters, judges, civil servants, and officials in international organizations who support more neoliberal policies.28 The neoliberal movement also includes those who benefit materially from neoliberal policies and thus seek to promote them based on their own self-interest. Of course, economic actors often seek to universalize their own interests, and thus the question of “who benefits?” from specific policies is always the subject of some debate. However, to the extent that the neoliberal project emphasizes protection for property rights and freedom from policies designed to redistribute wealth and correct market failures, its policies of lower taxes and regulations are often of most direct material benefit to large property holders.29 Thus, since the Powell Memorandum of 1971 called upon US corporations to mobilize politically against the Keynesian-welfare state, it is widely recognized that the most powerful promoters of neoliberalism are found among certain wealthy individuals and large corporations, as well as the foundations, business associations, and lobby groups funded by them.30 Moreover, while these actors often fund and support think tanks, politicians, media commentators, and academics, the fact that their promotion

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of neoliberal policies is based more on self-interest than philosophy means that their adherence to neoliberalism can be subject to greater exceptions. For example, while large firms may support free-market policies in general, they will also often support subsidies and bailouts that benefit them specifically. It is for this reason that these actors have been referred to as “neoliberal pragmatists.”31 To the extent that the neoliberal movement is a network of actors and interests, rather than a unified organization, it can be methodologically difficult to track shifts in its preferences and behaviour over time. To overcome this, the political economy literature has generally focused on the larger and / or more longstanding actors as proxies for the movement as a whole, while also looking for consistency across the different types of actors.32 As outlined in Table 1.2, this includes national business associations, such as the US Business Roundtable, the Confederation of British Industry, and the Business Council of Canada. It also includes: national chambers of commerce and sector industry associations; prominent free-market think tanks and advocacy groups; key commentators and outlets within the business and conservative media; and also politicians within small-c conservative parties and the pro-business side of the more centrist parties. Examples of the latter in the Anglo-American countries include the US Republican Party, and particularly its libertarian “Freedom Caucus,” the UK and Canadian Conservative parties, as well as some members of the Democratic Party’s “New Democrat Coalition,” the “New Labour” group in the UK Labour Party, and so-called “business liberals” within the Liberal Party of Canada. However, to fully theorize the neoliberal movement, it is also useful to make a distinction between neoliberal theory, as outlined above, and neoliberalism in practice. In terms of practice, actors and interest groups supporting neoliberalism have often made philosophical compromises and promoted their desired policies through the formation of political coalitions with populist conservatives and neoconservatives. As Gamble observes, “a number of politicians have been adroit either at combining the neo-liberal economic programme with conservative policies which do appeal to particular interests and groups, or at recasting the neo-liberal economic policies in ways that resonate as popular commonsense.”33 Populist conservatives tend to be socially conservative, nationalistic, xenophobic, and anti-elitist. Thus, while sometimes pro-free-market at the domestic level, their populist roots often lead to views that are opposed to big business and free trade,

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Table 1.2 Prominent actors and interest groups supporting neoliberalism US

UK

Canada

Business associations and lobby groups



US Chamber of Commerce • Business Roundtable



Confederation of British Industry • Institute of Directors • British Chambers of Commerce



Free-market think tanks and advocacy groups



American Enterprise Institute • Cato Institute • Americans for Tax Reform • Club for Growth



Adam Smith Institute Taxpayers Alliance



Politicians and party factions



Republican Party and particularly its “Freedom Caucus” • self-described libertarians, such as Rand Paul • the New Democrat Coalition within the Democratic Party



Margaret Thatcher Conservative Party



Media commentators and outlets







Wall Street Journal Fox News





Financial Times The Economist • The Sun •

Business Council of Canada • Canadian Chamber of Commerce



Fraser Institute Canadian Taxpayers Federation

Conservative Party of Canada • “business Liberals” within the Liberal Party of Canada



Financial Post and National Post • The Sun newspaper chain

both of which are seen as hurting the interests of working families. As Owen Worth reports, American populist conservatives “pledge to defend the US constitution against big global corporations and global institutions, which, they claim, are eroding both the freedoms and the sovereignty of the country.”34 Examples of populist conservatives include the Tea Party movement, as well as the ascendancy of Donald Trump, in the United States; the United Kingdom Independence Party (U K IP); and the former Reform Party in Canada. In addition to populist conservatives, neoliberal actors have also often allied themselves with neoconservatives. Neoconservatism is most prominent in the United States, and is associated with public intellectuals such as Irving and William Kristol, David Brooks, and Robert Kagan, as well as various think tanks and media outlets.35 It is also prominent among pro-military, pro-US “security conservatives” in the U K , Canada, and elsewhere. Moreover, while some

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observers group neoconservatives with populist conservatives, based on their social conservatism, or with neoliberals, based on their support for free markets, it is important to emphasize that neoconservatism is different from both. In terms of the former, neoconservatism represents a more elitist branch of conservatism, which lacks the antipathy toward large corporations and free trade sometimes held by populist conservatives. In terms of neoliberalism, neoconservatives are critical of liberalism’s emphasis on individual self-interest and instead advocate individual and civic virtue. As Williams observes, for neoconservatives, “the reduction of action to nothing more than the pursuit of self-interest gives rise to a destructive combination of hedonism and despair.”36 This is why, for neoconservatives, support for free markets is always conditional to that extent that virtue and the promotion of socially conservative values ultimately trumps laissez-faire. As a result, neoconservatives are more supportive of the economic liberalism of Adam Smith, which also saw a role for “moral sentiments,” than of contemporary neoliberalism, which seeks to subordinate everything to the free market and individual self-interest. As Williams notes, neoconservatives believe that, “for all modern economics’ lauding of Smith, it provides a ‘vulgarization’ of his thought that lacks an awareness of the importance of ‘moral and political philosophy’ and the central role that culture and virtuous conduct play in his account of stable and viable modern societies and even in economic growth.”37 To the extent that neoliberals, populist conservatives, and neoconservatives often ally themselves into broader “conservative” coalitions and political parties, neoliberalism and neoconservatism are frequently conflated and the terms often used interchangeably. In contrast to neoliberals, those advocating a contemporary version of classical economic liberalism are generally found in the centre to centre-left of the political spectrum. As argued in the next chapter, classical economic liberalism is most recognizable today in the “third way” doctrine outlined by Anthony Giddens and promoted most prominently by politicians such as Bill Clinton and Tony Blair.38 Actors and interest groups supporting classical or third way economic liberalism include many “moderates” within the business community and political parties, as well as a variety of “centrist” think tanks and media outlets.

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from classical fiscal federalism to “market-preserving federalism”

The value and policy differences between classical economic liberalism and neoliberalism are mirrored in similar differences between classical fiscal federalism and market-preserving (or competitive) federalism (see Tables 1.3 and 1.4). Thus, classical fiscal federalism begins with the normative priority of achieving efficiency in policy outcomes. In doing so, it views federalism – with its emphasis on decentralized decision-making – as the political equivalent to a market system that will promote similar benefits for similar reasons. As Robin Boadway and Anwar Shaw observe, federalism “is conducive to greater freedom of choice, diversity of preferences in public services, political participation, innovation and accountability.”39 Thus, most important in the classical fiscal federalism literature is that federalism is seen to promote policy efficiency, in that the supply of public policies will better reflect the demand for them. This will occur for a number of reasons. First, and most simply, federalism allows for a greater diversity of policies within a single country, and is thus better able to cater to the diverse preferences of citizens. Second, as Wallace Oates notes: “Local governments, so the argument goes, are closer to their constituencies; they have a superior knowledge of the preferences or demands of local residents.”40 Third, as seminally outlined by Charles Tiebout, federalism creates a “market” for public policy in that subnational governments must compete to attract mobile citizens and firms. Specifically, policy competition is said to produce greater policy efficiency, because citizens’ preferences are better revealed through exit rather than voice (where voters often simultaneously ask for less taxes and more spending) and as citizens “sort” themselves into more likeminded communities. As Tiebout argues, “the consumer-voter may be viewed as picking that community which best satisfies his preference pattern for public goods. This is a major difference between central and local provision of public goods.”41 In addition to policy efficiency, a further benefit of federalism is that, in the same way a free market stimulates innovation among competing firms to attract consumers, federalism allows for policy experimentation and forces subnational governments to innovate to attract citizens. This is the notion of “laboratory federalism” outlined

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by Oates.42 Also, in the same way that the decentralized decisionmaking of a market economy prevents a concentration of economic and political power, the policy decentralization inherent to federalism has long been said to promote a greater diffusion of political power. Illustrating this view, Lord Acton observed that, “of all checks on democracy, federalism has been the most efficacious and the most congenial … The Federal system limits and constrains sovereign power by dividing it, and by assigning to Government only certain defined rights.”43 Thus, for the same reasons that classical economic liberalism supports a free-market system, classical fiscal federalism supports federalism in general and policy decentralization in particular as the most efficient political system. With the free market as the default position, classical economic liberalism does allow for government intervention, for reasons of allocative efficiency, to provide “public goods” – those goods and services that will be undersupplied by the private sector. In a similar fashion, classical fiscal federalism views policy decentralization as the default position, but allows for centralization in specific cases for reasons of policy efficiency. Noting this similarity, Boadway and Shaw observe that: One useful perspective to take on the assignment of functions to higher or lower levels of government involves drawing a ­parallel between the role of markets and that of governments. Economists typically argue in favour of decentralized market solutions unless they can be shown to fail demonstrably … In the case of federal economies, it might similarly be argued that decentralizing economic functions to lower levels of government should be favoured unless sound arguments can be advanced for centralized economic power. This has been referred to as the principle of subsidiarity.44 In addition to subsidiarity, this notion of decentralization as the default position in classical fiscal federalism was formalized by Oates in his 1972 “decentralization theorem,” which postulates that “each public service should be provided by the jurisdiction having control over the minimum geographic area that would internalize benefits and costs of such provision.”45 With policy decentralization as the default, classical fiscal federalism then went on to identify three broad areas where centralization

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Table 1.3 Classical economic liberalism and classical fiscal federalism Classical economic liberalism

Classical fiscal federalism

Smith, Ricardo, Marshall

Tiebout, Oates

Normative priority is allocative efficiency (supply of goods and services matches demand)

Normative priority is policy efficiency (supply of public policies matches demand)

Free market as most efficient • Consumer preferences revealed through exit rather than voice • Decentralized producers better able to cater to consumer diversity

Federalism as most efficient • Citizen preferences revealed through exit rather than voice • Subnational governments better able to cater to citizen diversity

Free market stimulates innovation through inter-firm competition

Federalism stimulates policy innovation through inter-jurisdictional competition (laboratory federalism)

Free market decentralizes economic and political power and protects freedom

Federalism decentralizes political power and protects freedom

Free market as default

Decentralization as default (subsidiarity and decentralization theorem)

Some government intervention to promote ­allocative efficiency • Provide public goods

Some centralization to promote policy efficiency • Provide public goods with spillover effects • Macroeconomic stabilization • Redistribution

was justified. The first, as pointed to in Oates’s decentralization theorem, is the need to centralize the provision of public goods in those cases where spillover effects occur or where strong economies of scale can be realized. As Oates observes, “outputs of some local public goods (such as roads and clean rivers) can produce interjurisdictional spillover benefits: they provide benefits for residents of other jurisdictions.”46 To the extent that the local jurisdiction would have to pay for public goods without being able to recoup its costs from all the beneficiaries (in that it cannot fully tax residents outside its jurisdiction), an incentive is created to undersupply these public goods. This, in turn, creates a rationale for greater centralization: either through the federal government providing the public good, or at least paying for it through the provision of grants to subnational governments. In addition to these types of public goods, classical fiscal federalism also favoured a centralization of policy capabilities related to

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redistribution and macroeconomic stabilization. Summarizing this view, Oates reports that: The literature went on to recognize the constraints which exist on both redistributive and macroeconomic stabilization policies at decentralized levels of government. Without access to ­monetary prerogatives and with highly open local economies, ­decentralized governments have only a very limited capacity to influence local levels of employment and prices … Likewise, the mobility of households and firms limits the redistributive potential of decentralized governments. An aggressive local ­government program, for example, to redistribute income from rich to poor establishes undesired incentives for outmigration by the well-to-do and inmigration of low-income households.47 The solution to these problems was to have the federal government directly responsible for macroeconomic stabilization and redistribution, or, again, to at least pay for them through grants to subnational governments. Implicit in the rationales for expenditure and regulatory centralization outlined above is a concern with which revenue capabilities should be assigned to which levels of government – what is commonly referred to as the “tax assignment problem.” Again, the default for classical fiscal federalism is to assign tax capabilities to the lowest level possible so that governments will be made more accountable by having to match their revenues and expenditures. However, as with redistribution, inter-jurisdictional competition can lead to “tax competition,” where subnational governments may seek to attract firms and individuals through excessive tax cuts. The solution proffered by classical fiscal federalism is that subnational governments should rely more heavily on “benefit taxes,” such as property taxes and user fees. Benefit taxes represent the “price” that firms and households pay for their consumption of public goods, and are thus less subject to tax competition. At the same time, non-benefit taxes, such as the income tax, which play a greater role in redistribution and are more subject to tax competition, should be more centralized.48 Important to note here is that the centralization of certain tax, spending, and regulatory capabilities, as outlined above and as examined in much greater detail in the literature, allows for but does not mandate any specific level of government intervention in the economy.

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Thus, while classical fiscal federalism argues in favour of these forms of centralization as providing the greatest policy flexibility, it does not (generally) advocate for a specific level of intervention. This position reflects classical fiscal federalism’s normative emphasis on policy efficiency and the notion that the desired level of government intervention in the economy should be determined through the democratic process. As Boadway and Shah note: “Ultimately, the assignment of powers in a federation and the optimal policies undertaken by each level of government depend on the same efficiency and equity considerations that determine the rationale for government intervention in the first place.”49 However, as outlined below, this more politically neutral position is not found in the neoliberal approach to federalism. Where classical fiscal federalism prioritizes policy efficiency in terms of matching the supply of public policies with the demand for them, neoliberal fiscal federalism seeks to lock in free-market policies irrespective of public demand (see Table 1.4). In other words, even if citizens prefer a greater degree of government intervention to redistribute wealth and correct market failures, neoliberal fiscal federalism seeks to prevent this through the creation of “a secure political foundation” that imposes constraints on social democratic forms of intervention. It does so based on the foundational belief that these forms of intervention threaten property rights and individual freedom, and, at the same time, that constitutional constraints may not be sufficient in preventing them. As Buchanan argues, “enforceable constitutional restrictions may constrain the domain of politics to some extent, but these restrictions may not offer sufficient protection against the exploitation of citizens through the agencies of governance.”50 Thus, neoliberal fiscal federalism seeks to reinforce neoliberal constitutionalism by creating an “exit option” in the realm of politics that will subject social democratic policies to the constraint of policy competition. The well-known logic here, as outlined in classical fiscal federalism, is that local policies designed to redistribute wealth and correct market failures can be constrained by the outmigration of wealthy individuals and firms seeking lower taxes and regulatory burdens.51 However, where classical fiscal federalism advocates centralization to limit the resulting tax and regulatory competition, neoliberal fiscal federalism seeks to promote this competition as a self-enforcing constraint on social democratic forms of intervention.52 It does so by outlining two key principles for determining which policy capabilities should be assigned to which level of government.

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The first principle is to centralize those policy capabilities that relate to protecting property rights, enforcing contracts, and creating / maintaining markets. Of particular importance here is that subnational governments should not have the ability to limit the right to exit (or enter) their jurisdictions. This ensures a national economy based on internal free trade and capital mobility, and, in turn, that individuals and firms have the ability to move themselves and / or their assets across subnational jurisdictions. The second principle of neoliberal fiscal federalism is to decentralize the policy capabilities that neoliberals do not support, including those which relate to wealth redistribution and the correction of many market failures. This includes the assignment of redistributive taxing powers related to income, capital gains, and corporate taxes to the subnational level, along with jurisdiction over redistributive social programs such as public education, health care, and social security.53 It also includes a similar decentralization of regulatory powers related to, for example, environmental and labour policy. In each case, the intent is to prevent national policies on issues related to wealth redistribution and market failures, and to confine as many of the undesired tax and regulatory powers as possible to the subnational level, where they will be constrained by the need of governments to compete for mobile citizens and firms. The neoliberal approach to fiscal federalism finds its most prominent origins in the work of Hayek, who, in the Great Depression context of growing limits on trade and capital mobility, viewed federalism as a mechanism for creating an exit option and policy competition within individual countries. Moreover, rather than promoting policy efficiency, he is explicit that the purpose of such policy competition was to impose constraints on government intervention in the economy. As Hayek notes: “Not only would the greater mobility between the states make it necessary to avoid all sorts of taxation that would drive capital or labour elsewhere, but there would also be considerable difficulties with many kinds of indirect taxation [i.e. regulation].”54 Further, Hayek believed that excessive government intervention in the economy would become “altogether impracticable under a federal organization” owing to the ability of firms to move to other jurisdictions.55 In his 1960 work, The Constitution of Liberty, Hayek expanded on this view by explaining: The reason why a division of powers between different authorities always reduces the power that anybody can exercise is not always

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Table 1.4 Neoliberalism and market-preserving federalism Neoliberalism

Market-preserving federalism

Hayek, Friedman, Buchanan

Hayek, Buchanan, Weingast

Normative priority is individual ­freedom, particularly from government intervention to redistribute wealth and correct market failures

Normative priority is individual freedom (lock in free-market policies regardless of demand)

Market, due to exit option, as best ­promoting individual freedom

Federalism and decentralization, due to exit option, as best promoting individual freedom

Need for government intervention to protect property rights, enforce contracts, and create markets

Need for centralization of capabilities related to protecting property rights, enforcing contracts, and maintaining internal common market

Lock in free-market policies through constitutional and institutional mechanisms

Lock in free-market policies through policy competition

well understood. It is not merely that the separate authorities will, through mutual jealousy, prevent one another from exceeding their authority. More important is the fact that certain types of coercion require the joint and coordinated use of different powers or the employment of several means, and, if these means are in separate hands, nobody can exercise those types of coercion. The most familiar illustration is provided by many kinds of economic control which can be effective only if the authority exercising them can also control the movement of men and goods across the frontiers of its territory. If it lacks that power, though it has the power to control internal events, it cannot pursue policies that require the joint use of both. Federal government is thus in a very definite sense limited government.56 In this sense, Hayek’s argument draws on both the traditional separation of powers argument as well as the need for this separation to be specifically designed to promote an exit option and policy competition. A similar argument in favour of using decentralization to create an exit option is made by Milton Friedman in his seminal Capitalism and Freedom:

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If government is to exercise power, better in the county than in the state, better in the state than in Washington. If I do not like what my local community does, be it in sewage disposal, or ­zoning, or schools, I can move to another local community, and though few make take this step, the mere possibility acts as a check. If I do not like what my state does, I can move to another. If I do not like what Washington imposes, I have few alternatives in this world of jealous nations … The preservation of freedom is the protective reason for limiting and decentralizing government power.57 More recently, Barry Weingast has sought to develop and formalize the neoliberal approach to fiscal federalism through his notion of “market-preserving federalism.” Specifically, following William Riker, Weingast views federal systems as having two main characteristics: “(F1 ) a hierarchy of governments, that is, at least ‘two levels of government rule the same land and people,’ each with a delineated scope of authority so that each level of government is autonomous in its own, well-defined sphere of political authority; and (F2) the autonomy of each government is institutionalized in a manner that makes federalism’s restrictions self-enforcing.”58 In addition to these general characteristics, Weingast argues that: A federal system is market-preserving if it ha[s] three additional characteristics: (F 3 ) subnational governments have primary regulatory responsibility over the economy; (F 4) a common market is ensured, preventing the lower governments from using their regulatory authority to erect trade barriers against the goods and services from other political units; and (F 5) the lower governments face a hard budget constraint, that is, they have neither the ability to print money nor access to unlimited credit. This condition is not met if the central government bails out the lower one whenever the latter faces fiscal problems.59 Emphasized in Weingast’s version, therefore, is the need to have the private economy, in the form of free trade and capital mobility, operate at a level above that of tax and regulatory capabilities related to wealth redistribution and the correction of market failures. This, he believes, will have the effect of constraining the ability of governments

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to implement policies that negatively affect the interests of mobile firms and individuals. Also emphasized in Weingast’s version is the notion of “hard budget constraints,” which implies that central governments should not bail out subnational governments on a discretionary basis. It also implies that central governments avoid funding local public goods through various grants and transfers. As Jonathan Rodden argues, “if decentralization is to have a constraining effect on the growth of government, it must occur on both the expenditure and revenue sides … Expenditure decentralization without corresponding local tax powers will not engender the tax competition that drives the Leviathan model … On the contrary, decentralization funded by ‘common pool’ resources such as grants and revenue-sharing might have the opposite effect.”60 In other words, based on its desire to constrain social democratic forms of intervention through policy competition, the neoliberal approach to federalism is opposed to any measures, such as transfers to subnational governments, which might offset policy competition. As Brennan and Buchanan note, “revenue sharing is undesirable because it subverts the primary purpose of federalism, which is to create competition between jurisdictions.”61 For similar reasons, neoliberals would also be likely to oppose any forms of cooperation among subnational governments that sought to increase tax and regulatory burdens through cross-jurisdictional harmonization. Such harmonization would effectively reduce the constraining effect of policy competition by creating a tax or regulatory “floor” below which no jurisdiction would be allowed to go as it competes for mobile citizens and firms. Applied at the local level, the principles of market-preserving federalism lead to a neoliberal approach to local governance and urbanism that emphasizes increasing devolution to municipalities, combined with an opposition to transfers from higher levels of government. As Boadway and Shaw observe, in the public choice view, “for local governments to serve the interests of the people, they must have complete local autonomy in taxing and spending and be subject to competition within and beyond government.”62 Beyond Weingast, one of the strongest and most explicitly normative arguments in favour of the neoliberal approach to fiscal federalism (what he calls “competitive federalism”) comes from James Buchanan. In his 1995 article “Federalism as an Ideal Political Order and an

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Table 1.5 Classical fiscal federalism versus market-preserving federalism Classical fiscal federalism

Market-preserving federalism

Tiebout, Oates

Hayek, Buchanan, Weingast

Normative priority is policy efficiency (supply of public policies matches demand)

Normative priority is individual freedom (lock in free-market policies regardless of demand)

Government is benevolent

Government is coercive rent-seeker

Federalism as most policy efficient

Federalism as best protecting individual freedom and property rights

Decentralization as default

Decentralization as default

Centralize redistribution to counter ­policy competition

Decentralize redistribution to constrain with policy competition

Centralize provision of public goods with spillover effects

Decentralize provision of most public goods to constrain with policy competition

Centralize macroeconomic stabilization

Centralize macroeconomic stabilization Centralize protection of property rights and creation/maintenance of internal common market

Prohibition on discretionary bailouts but Prohibition on discretionary bailouts not on all federal-subnational transfers and federal-subnational transfers Prohibition on subnational cooperation to harmonize tax and regulatory policies

Objective for Constitutional Reform,” Buchanan builds on his earlier work on constitutional economics and the need for lock-in mechanisms to preserve property rights and free markets. As Buchanan notes: The principle of federalism emerges directly from the market analogy. The politicized sphere of activity, in itself, may be arranged or organized so as to allow for the workings of competition, which is the flip side of the availability of exit, to become operative. The domain of authority for the central government, which we assume here is coincident in territory and membership with the economic exchange nexus, may be severely limited, while remaining political authority is residually assigned to the several “state” units, each of which is smaller in territory and membership than the economy. Under such a federalized political structure, persons, singly and / or in groups, would be guaranteed

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the liberties of trade, investment, and migration across the inclusive area of the economy. Analogously to the market, persons retain an exit option.63 Buchanan’s point about the necessity of federalism as a self-enforcing backup to constitutional protections for property rights and free markets is a significant one. It serves to demonstrate the coherence of neoliberal thought on federalism and to emphasize the importance of multilevel governance within the broader neoliberal approach. The neoliberal approach to federalism has also been explicitly promoted in the policy sphere by the American Enterprise Institute (AEI), one of the most influential neoliberal think tanks in the United States. In early 2000, the Institute set up its AE I Federalism Project, which “conducts and sponsors original research on American federalism, with particular emphasis on federal and state business regulation, legal developments and the role of the courts, and the prospects for rehabilitating a constitutional federalism that puts states in competition for productive citizens and businesses.”64 The Project publishes various books and commentaries, runs a website, and holds numerous conferences attended by business and political leaders. Its explicit aim is to promote a “competitive federalism,” which, in the view of project director Michael Greve, “does not seek to empower states; rather, it seeks to discipline governments by forcing them to compete for citizens’ business.”65 The A E I project is thus fully consistent with the market-preserving federalism advocated by Hayek, Weingast, and Buchanan, and it helps to highlight the overall coherence of neoliberal thought in this area. Further demonstrating this coherence is the fact that the AEI has also sought to make links between market-preserving federalism and the need to ensure an exit option at both the regional and global levels.66 As Greve observes: “The benefits of jurisdictional choice and competition are visible at all levels of government … At the international level, the free flow of capital (and to some extent labour) has rewarded America’s comparatively freewheeling economy, while punishing countries whose governments insist on pursuing collectivist experiments.”67 market-preserving regionalism and globalism

Drawing on Smith’s and Ricardo’s respective concepts of absolute and comparative advantage, classical economic liberals support free

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trade and international capital mobility for reasons of allocative efficiency and mutual gains. Neoliberals, in contrast, support them primarily for their ability to promote individual freedom through the creation of an exit option and policy competition at the international level. Illustrating this view in the case of capital mobility, Christopher Hartwell of the neoliberal Cato Institute notes that, “the case against capital controls rests on sound economic reasoning. More fundamentally, attempts to restrict capital movements are an assault on individual liberty.”68 Echoing this emphasis on freedom rather than efficiency, Hayek argues that: The extent of the control over all life that economic control ­confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape – not merely for the rich but for everybody.69 Equally important is that the policy competition created by capital mobility is viewed as specifically constraining social democratic forms of intervention designed to redistribute wealth and correct market failures. In the former case, for example, Chris Edwards and Veronique de Rugy of the Cato Institute note that, “international tax competition may indeed hamper income redistribution, but that is a beneficial outcome because redistribution has progressed to a remarkably high degree in most industrial countries.”70 Therefore, whether implemented at the regional or global levels, the neoliberal case for internationalism is consistent with Weingast’s key criteria for market-preserving federalism (see Table 1.6). Most important here is the criterion that: “(F 4 ) a common market is ensured, preventing the lower governments from using their regulatory authority to erect trade barriers against the goods and services from other political units.”71 In practical terms, this implies either a de facto or de jure centralization of those policy capabilities related to the promotion of free markets, capital mobility, and property rights.

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Table 1.6 Market-preserving federalism and market-preserving internationalism Market-preserving federalism

Market-preserving regionalism / globalism

Federalism, due to exit option, as best promoting individual freedom

International capital mobility, due to exit option, as best promoting individual freedom

Need for centralization of marketenabling policy capabilities to ensure capital mobility

Need for trade and investment agreements to ensure international capital mobility and cross-border protection of property rights

Lock in free-market policies through decentralization of market-inhibiting policy capabilities and inter-­ jurisdictional competition

Lock in free-market policies through ­inter-jurisdictional competition between national governments

Federal government should avoid ­creating national standards to offset inter-jurisdictional competition

National governments should avoid creating harmonized multilateral standards to offset inter-jurisdictional competition

It is for this reason that neoliberal actors have supported free-trade agreements such as the WT O, NA F T A, and the Single European Act, as well as the incorporation of various investor and intellectualproperty-rights regimes within them. Noting this consistency between market-preserving federalism and the neoliberal case for internationalism, Buchanan argues that, “the relationship between federalism, as an organizing principle for political structure, and the freedom of trade across political boundaries must be noted. An inclusive political territory, say, the United States or Western Europe, necessarily places limits on its own ability to interfere politically with its own internal market structure to the extent that this structure is, itself, opened up to the free workings of international trade, including the movement of capital.”72 While free trade and capital mobility ensure an exit option, they do not – on their own – ensure policy competition. This is why the neoliberal visions for regionalization and globalization are also consistent with the further criterion of market-preserving federalism – that “(F3) subnational governments have primary regulatory responsibility over the economy.”73 In general terms, this implies the decentralization (at least to the national level) of those policy capabilities that relate to wealth redistribution and the correction of market failures. At the regional and global levels, this requires more than simply

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avoiding the creation of supranational institutions with these policy capabilities. It also requires that governments avoid entering into multilateral agreements – such as the O E C D Initiative on Harmful Tax Competition and the Kyoto Protocol – that would aim to increase tax and regulatory burdens through cross-national harmonization. Such harmonization would effectively reduce the disciplinary effect of policy competition by creating a tax or regulatory “floor” below which no country would be allowed to go. It is for this reason that neoliberals have opposed the centralization of many policy capabilities in supranational institutions, as well as any efforts to increase tax and regulatory burdens through multilateral harmonization. Making this point in the case of European regionalization, Buchanan has argued: The opportunity has existed, and still exists, to organize European politics so as to put in place a genuine federal structure with many elements of the ideal set out earlier. The Europe-wide economy has been substantially integrated, with historically unprecedented liberties of resources flows and trade across traditional national boundaries. Reform requires the establishment of a strong but limited central authority, empowered to enforce the openness of the economy, along with other minimal state functions. In this way, and only in this way, can the vulnerability of the individual European to exploitation by national political units be reduced. At the same time, however, the extension of the central authority’s powers beyond such minimal limits must be rigidly opposed. The separated nation-states, as members of the federal union, must zealously protect the whole range of ­subminimal political activities.74 Therefore, based on this desire to ensure policy competition, we can expect neoliberal actors to oppose many international regimes, and instead to advocate in favour of national fiscal and regulatory sovereignty. Finally, even though market-preserving internationalism might seem to make market-preserving federalism less necessary, neoliberals still advocate for both simultaneously. They do so to provide nontransnational firms and individuals with an exit option (thus amplifying the effectiveness of policy competition) and as a form of political insurance against policy changes at either level.

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the neoliberal approach t o m u lt i l e v e l g o v e r n a n c e

This chapter has argued that neoliberal theory contains an explicit and self-conscious normative project for multilevel governance that is fully consistent across the federal, regional, and global levels. This project was shown to be evident in the normative work of neoliberal intellectuals on “market-preserving federalism” and the more recent extrapolation of these ideas to the regional and global levels. In all cases, the aim of market-preserving federalism (or regionalism or globalism) is to impose constraints on social democratic forms of government intervention through the creation of an exit option and inter-jurisdictional policy competition. This means that, at all levels, neoliberals seek to have the private economy, in the form of free trade and capital mobility, operate at least one level above that of tax and regulatory capabilities related to wealth redistribution and the correction of market failures. This is achieved by centralizing policy capabilities related to protecting property rights, enforcing contracts, and creating markets, and decentralizing those that relate to redistributing wealth and correcting market failures. Moreover, when we recognize that neoliberal theory contains this explicit and self-­ conscious project for multilevel governance, it can provide us with a model for explaining the policies advocated by neoliberal actors and interest groups on a wide variety of issues related to federal, regional, and global governance. In particular, it can help us to understand why neoliberal actors cannot be accurately described as either “pro-globalization” or “prodecentralization.” Instead, they are best described as being pro-policycompetition. This means that, while we can expect them to support economic globalization, we can also expect them to oppose any forms of social globalization that undermine policy competition by internationally harmonizing social democratic forms of intervention. We can also expect neoliberal actors to be in favour of a more decentralized form of federalism, except on issues related to protecting property rights, enforcing contracts, and maintaining markets. Finally, to the extent that some neoliberal actors are driven more by material interests than philosophy, we can understand why exceptions to this model will occur, but under predictable conditions. Such conditions include the desire to locate a particular policy capability

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at a specific level to bypass an uncooperative and entrenched political party or to “venue shop” to those levels where the group is able to bring more relative influence to bear.

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2 The Social Democratic Approach to ­Multilevel Governance

This chapter examines social democratic ideas related to multilevel governance, and, in particular, to the question of which policy capabilities should be assigned to which levels of governance. Following the format of Chapter 1, it makes two main arguments. The first argument is that social democratic theory contains an identifiable normative project for multilevel governance that is fully consistent across the federal, regional, and global levels. While less explicit and unified than the neoliberal project for multilevel governance, the social democratic project is shown to be evident in the normative work of Keynesian-welfare and public finance intellectuals, including John Maynard Keynes, Paul Samuelson, Richard Musgrave, and Wallace Oates, and the more recent extrapolation of their ideas to the regional and global levels. In direct contrast to the neoliberal approach, the aim of social democratic federalism (or regionalism or globalism) is to promote the policy autonomy of governments by limiting “harmful” forms of policy competition. This means that, at all levels, social democrats seek to have the private economy, in the form of trade and capital mobility, operate at the same level as that of tax and regulatory capabilities related to wealth redistribution and the correction of market failures. The second argument made is that these social democratic ideas work to define and reveal the specific interests and policy preferences of the social democratic movement. Therefore, when we recognize that Keynesian-welfare theory contains an identifiable normative project for multilevel governance, it can provide us with a model for explaining the policies advocated by social democratic actors and interest groups – such as trade unions and social and

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environmental activists – on a wide variety of issues related to federal, regional, and global governance. Moreover, it can also help to explain why the social democratic approaches to federalism, regionalism, and globalism overlap with, but are distinct from, those of classical economic liberals. social democracy a n d k e y n e s i a n - w e l fa r e e c o n o m i c s

While originally conceived as a political strategy for evolving to socialism, social democracy today tends to sit on the left side of economic liberalism in that it draws on the “embedded liberalism” of Keynesian-welfare economics and the normative priorities of efficiency and social justice.1 These priorities, in turn, lead to an emphasis on a market economy combined with policies of macroeconomic stabilization, wealth redistribution, and the correction of market failures. In the latter case, the correction of market failures is often viewed as much as a social justice issue as an efficiency issue in that many of them – such as monopolies and externalities – are seen as reflecting and reinforcing existing structures of inequality. In economic theory, the concern with market failures originates most prominently with the development of “welfare economics,” a branch of economics inspired by the 1920 publication of Arthur Pigou’s influential text The Economics of Welfare.2 Pigou’s focus was on how government intervention could complement the free market in a way that would better maximize individual welfare. In this sense, as Michael Howlett, Alex Netherton, and Michael Ramesh observe, Pigou’s welfare economics had “nothing to do with social welfare programs per se but, rather, refers to the study of the conditions under which the welfare of the society as a whole can be improved.”3 Central to the thinking of early welfare economics was the concept of “diminishing marginal utility” – which assumed that individual welfare could be both measured and compared – and the way that it was used to create a utilitarian, rather than moral, argument for greater social justice. Specifically, by assuming that all individuals had similar “utility functions,” in that they would derive the same pleasure from consuming the same goods, welfare economists argued that, for each individual, consumption of additional units of the same commodity would yield diminishing increases in utility or welfare. Applied to incomes, this meant that a dollar given to a rich

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person would produce less pleasure than if that same dollar was given to a poor person. This, in turn, provided a utilitarian argument for wealth redistribution. More important, in terms of intellectual legacy, was Pigou’s analysis of market failures based on the distinction between “marginal private products” and “marginal social products.” According to Pigou, if the benefits of a specific economic activity for an individual (the marginal private product) were less than the costs that the activity produced for society (the marginal social product), then overall welfare was unlikely to be maximized. Moreover, it was this insight that formed the basis for Pigou’s most significant theoretical contribution to the understanding of market failures and how they create a rationale for government intervention. This was the idea that many forms of economic activity produce social benefits and costs that are not incorporated into the price of a product. As a result, some products that benefitted society would be undersupplied because producers could not fully recoup their costs, while some products that created costs for society would be oversupplied because consumers would not have to pay for the full costs of the product. Known today as positive and negative externalities, Pigou’s notion of social benefits and costs identified situations where the invisible hand, expressed through price signals, would fail to produce an efficient outcome in terms of matching supply and demand. It thus created a rationale for government intervention to correct these market failures in order to improve the efficiency of markets. Applied concretely, Pigou believed that governments could use taxes (now referred to as “Pigovian taxes”) to force producers to incorporate social costs into the price of their products in a way that would reduce demand for them and prevent them from being oversupplied. In a similar fashion, governments could subsidize products with social benefits (now referred to as “Pigovian subsidies”) to lower their price and prevent them from being undersupplied. As Roger Backhouse notes, “using this approach, Pigou offered a detailed programme for economic policy, virtually providing a blueprint for the welfare state.”4 What Pigou and welfare economics did for microeconomics, John Maynard Keynes did for macroeconomics with his General Theory, published in 1936.5 At its heart, Keynes’s approach provided a theory of market failures at the macroeconomic level and a rationale for government intervention, through monetary and fiscal policy, to correct them. The most important market failure identified by Keynes

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was the way that recessions and other instances of negative growth and high unemployment will fail to self-correct as neoclassical economic liberalism predicted. For neoclassical economic liberals, unemployment is simply a problem of supply and demand; too much supply of labour relative to the demand for it. Thus, high unemployment will self-correct, because unemployed workers eventually lower their “price” – by accepting lower wages and benefits – to the point where employers are willing to hire them. The only thing that can prevent unemployment from self-correcting is government policies that reduce the incentive for workers to accept lower wages. This includes policies such as minimum wage laws, generous social welfare programs, and pro-union labour policies. During the Great Depression of the 1930s, however, high unemployment did not self-correct as neoclassical theory predicted despite the minimal government intervention that existed at the time. For Keynes, the main problem with neoclassical theory was its belief that the laws of supply and demand would apply to labour in the same way as to other products.6 In contrast, he believed that people would always resist cuts to nominal wages, meaning that wages would not fall even when labour markets were flexible. While Keynes conceded that wages would eventually fall over the long run, he believed the time this would take was not politically sustainable, thus giving rise to his famous quote that: “In the long run, we’re all dead.” Thus, in a free-market economy, Keynesian economics asserts that wages (along with prices and interest rates)7 will fail to self-adjust, which leads to a vicious circle of: falling confidence; more saving, less lending, spending, and investment; more bankruptcies, layoffs, and higher unemployment; and even less confidence. The Keynesian solution to this form of market failure was for the government to boost aggregate demand through lower interest rates and increased spending, as well as by bailing out too-big-to-fail financial institutions. Moreover, while Keynes’s approach was primarily directed toward macroeconomic stabilization, it provided a broader efficiency rationale for redistribution based on the need to maintain aggregate demand. As Adam Przeworski argues, “the Keynesian revolution … provided social democrats with a goal and hence the justification of their governmental role, and simultaneously transformed the ideological significance of distributive policies that favoured the working class.”8 Taken together, the welfare approach to microeconomics and the Keynesian approach to macroeconomics provided an efficiency

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rationale for a much greater degree of government intervention to stabilize the macro economy, redistribute wealth, and correct market failures. In this sense, Keynesian and welfare economics were both compatible with social democrats’ normative priority of social justice and served, in political terms, to universalize the interests of workers and greater government intervention. Pointing to the reinforcing nature of Pigou and Keynes’s work, Alessandro Vercelli notes that “these two fundamental contributions were in a sense complementary and were later on merged in a model of updated liberal regulation … that spread after the second world war.”9 This merger between welfare and Keynesian economics was formalized in the 1950s by Paul Samuelson through his notion of the “neoclassical synthesis.” In the political science literature, “neoclassical economics” is often used as a synonym for neoliberalism. However, in the economics literature, “neoclassical economic liberalism” refers to the way that Adam Smith’s notion of the invisible hand was formalized in the late 1800s through the work of Alfred Marshall and others, who argued that it was the laws of supply and demand, expressed through price signals, that constituted the invisible hand of market forces. Thus, Samuelson’s notion of the “neoclassical synthesis” starts with the classical / neoclassical belief in the general allocative efficiency of markets. It then synthesizes it with the view of Keynesian and welfare economics that, in specific situations, market failures can occur at the macro and micro levels. In the political science literature, this synthesis is generally referred to as the “Keynesianwelfare approach,” which, while lacking the more numerous and nuanced subdivisions found in the economics literature, is used to connote the more interventionist and centre-left form of economic liberalism that competes politically with neoliberalism on the centreright, and, as argued in Chapter 1 and below, with classical economic liberalism in the centre. As Howlett et al. note: Keynesian-welfare analysts fully accept neoclassical assumptions regarding the operation of the market and its general superiority over the state as a mechanism for allocating and distributing ­economic resources. Yet they argue that there are specific circumstances in which the state might be more efficient than the market. They concede, following Keynes, that the operation of the market generates macroeconomic instabilities, which the state can and should balance. They also generally accept the principles

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of welfare economics as a guide for correcting microeconomic market failures.10 In terms of macroeconomic instabilities, Samuelson’s neoclassical synthesis argued that market failures prevented the achievement of full employment and, thus, that the use of Keynesian monetary and fiscal policies should not be limited simply to fighting recessions. As Kenneth Arrow observes, Samuelson argued that the “achievement of full employment requires Keynesian intervention, but that neoclassical theory is valid when full employment is reached.”11 At the micro level, Samuelson further developed the Keynesian-welfare approach by introducing the notion of “pure public goods” to formalize and build upon Pigou’s understanding of market failures.12 In doing so, he argued that “pure public goods” – goods that governments have to provide because a free market will tend to undersupply them – are distinguished by two main characteristics. The first characteristic of pure public goods is that they are “non-rival.” Non-rival means that when one person consumes the good or service, it has no effect on the amount of that good or service that remains available to others. If someone purchases a piece of cake and eats it, that piece of cake is no longer available for others to eat and would, thus, be classified as a “rival good.” In contrast, if a person’s walk home is made easier and safer by the presence of a streetlight, their use of the streetlight does not take away from the ability of others also to have a safer walk home. A streetlight is, therefore, a non-rival good. The second characteristic of pure public goods is that they produce positive externalities, or benefits, which are “non-excludable,” which means that there is no effective way to prevent people from benefitting from the good or service even if they have not paid for it. Again, the streetlight example is illustrative. Imagine a street that had no streetlights, yet everyone in the neighbourhood thought that putting in lights would be a good idea. In welfare terms, demand for the streetlights clearly exists. But for the private sector, there is no incentive to meet the demand because there is no practical way to limit the streetlights’ benefits to those who would be willing to pay for them. If a private company put up the lights and then tried to collect money from people in the neighbourhood, few would pay, because they know that they would get the benefits anyway. This is the classic “free rider” problem associated with positive externalities, and it means that when goods and services are non-rival and non-excludable, it is very difficult

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to make a profit from providing them. The result is that the free market will tend to undersupply these goods and services, or not to provide them at all. From a social-welfare perspective, therefore, pure public goods represent an instance of market failure that creates an efficiency rationale for government intervention. Related to the concept of positive externalities and pure public goods is the notion of negative externalities and public bads. In a free-market system, most economic transactions only involve two parties – the producer and the consumer. But in many cases, a third party may also be affected, and affected negatively. The most common example of a negative externality (or “negative third party effect”) is when a firm’s manufacturing process results in pollution. Pollution constitutes a negative externality because it creates costs that are external to the production process. In other words, pollution creates costs, in the form of damage to human health and property, which are not primarily borne by the company that produces it and the consumers who purchase its products. At the same time, negative externalities such as pollution are often highly inefficient because the costs created by the pollution are often far greater than what it would cost the company simply to prevent the pollution in the first place. However, because the costs of the pollution are not paid for by the company, but the costs of preventing it would be, the company has no incentive to take any action, meaning that the pollution will be oversupplied. As a form of market failure, a negative externality creates a rationale for government intervention to force firms and consumers to internalize the costs of their pollution. When this occurs, firms and consumers will have an economic incentive to prevent their pollution, meaning that market forces will then work to correct the problem. In the case of climate change, for example, this is the rationale behind a carbon tax or a cap on emissions (enforced by appropriate fines) in that they would put a price on carbon and force companies and their consumers to internalize the costs of climate change by paying for the emissions they produce. The result is that carbon-emitting firms and individuals would have a real financial incentive to reduce their emissions by developing and adopting more climate-friendly technologies and processes. Based on these insights, Samuelson’s neoclassical synthesis created the formal merger between Keynesian and welfare economics that became the economic foundation for modern social democracy. Applied to government policy, it also contributed to what become

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known in the economics literature as the “public finance” approach. As Wallace Oates observes: Three major figures played a key role in defining this perspective on the public sector: Kenneth Arrow, Richard Musgrave and Paul Samuelson. In particular, Samuelson’s famous two papers (1954, 1955) on the nature of public goods, Arrow’s conceptualization (e.g. 1970) of the roles of the private and public sectors, and Musgrave’s monumental volume (1959) on public finance set forth an active and positive role for the government sector in terms of correcting various forms of market failure, establishing an equitable distribution of income, and stabilizing the macroeconomy at high levels of employment with stable prices (within a basically Keynesian framework) … The implicit assumption was that government agencies, as “custodians of the public interest,” would seek to maximize social welfare, either because of some kind of benevolence or, perhaps more realistically, because of electoral pressures in a democratic system.13 Based on this more positive view of government and its role in the economy, the “public finance” approach is the chief rival to, and in many ways the instigator of, the “public choice” approach discussed in Chapter 1. Thus, in the economics literature, the ongoing centreright / centre-left debate over economic policy is generally viewed as a competition of ideas, and is described as that between the “public choice” and “public finance” approaches. As Nancy Neiman Auerbach observes: “Neoliberalism has always been more of a political label than an economic label. Mainstream economists have never been comfortable using this term … [and] … the hesitancy of economists to use the term neoliberalism can be traced back even further to include an avoidance of paradigmatic labels at all … Rather, it is political scientists who have more commonly used the term economic liberalism and later neoliberalism as a paradigmatic model.”14 The same hesitancy applies to notions of “Keynesian-welfare economics” and “social democracy.” As a result, in the political science literature, where the focus is also on the interests and institutions that promote specific ideas, the centre-right / centre-left debate is described more broadly as that between neoliberalism and social democracy. Reflecting this broader description, modern social democracy also drew upon the ideas of various “post-Keynesian” thinkers who viewed

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the rise of large corporations and trade unions as a form of monopolytype market failure that posed an increasing challenge to the precepts of neoclassical economics. As Howlett et al. note: Post-Keynesians … argue that neoclassical economic theory was designed to account for an economy consisting of small firms and unorganized workers, which enabled market forces to operate efficiently without state intervention. With the rise of large corporations and trade unions, a self-correcting market is no longer possible. Given the changed circumstances, postKeynesians say the market power of producer and labour, and not the competitive forces of demand and supply, determine prices and wages.15 Drawing on these ideas, modern social democrats emphasize the need for trade unions to act as a counterweight to corporations, but recognize the need for limits on their influence. In fact, many modern social democrats have accepted Milton Friedman’s explanation of the stagflation of the 1970s and his argument against using monetary policy to pursue full employment. The logic here is that there is no stable trade-off between inflation and unemployment, and that, when inflation rises above a certain point, it can snowball into a wage-price spiral and stagflation, as unions incorporate the inflation rate into their wage demands.16 Based on this logic, many social democrats now believe that monetary policy should be limited to maintaining low inflation and providing counter-cyclical stimulus to fight recessions. As Helleiner reports, following the stagflation of the 1970s, “the pursuit of price stability was then accepted reluctantly as a means to restore a more stable macroeconomic environment by providing an external discipline on wage demands.”17 Thus, rather than full-employment monetary policies, many social democrats today tend to emphasize the need for more “corporatist” arrangements – involving tripartite negotiations between government, management, and labour – to ensure that wage gains are non-inflationary. Along these lines, many social democrats also support the use of some state-run enterprises, as well as active labour and industrial policies, to pursue full employment. Taken as a whole, therefore, and in contrast to the nightwatchman state of classical economic liberalism, social democrats favour the mixed economy and / or corporatist state.

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Finally, in contrast to neoliberalism, social democracy has not placed as strong an emphasis on constitutionalism as a way to lock in their preferred policies. However, to the extent that social democracy does have a constitutional project, it generally focuses on enshrining positive economic rights – such as the right to health care, social security, and a guaranteed annual income – into national bills of rights and international declarations. Examples of this social-democratic constitutionalism include the positive economic rights included in the 1948 Universal Declaration of Human Rights and the 1966 International Covenant on Economic, Social, and Cultural Rights, as well as the 1996 South African constitution and the 1944 proposals by US president Franklin D. Roosevelt for an “economic bill of rights.” Today, while a number of groups still promote notions of positive economic rights, the main priority of social-democratic constitutionalism is a defensive one, which seeks to maintain the policy autonomy of governments by opposing neoliberal constitutionalism. actors and interest groups supporting social democracy

To the extent that social democracy advocates for full employment, greater wealth redistribution, the correction of market failures, and more active labour policies, it has been traditionally supported by many trade unions and labour associations, as well as various environmental and social activist groups. It has also been supported by left-of-centre think tanks, media, and academics, as well as individual reporters, judges, civil servants, and officials in international organizations who support more interventionist policies. Moreover, in a similar fashion to the neoliberal movement, the social democratic movement is a network of actors and interests rather than a unified organization. Therefore, to track shifts in its preferences and behaviour over time, the political economy literature has generally used the larger and / or more longstanding actors as proxies for the broader social democratic movement, while also looking for consistency across the different types of actors.18 As outlined in Table 2.1, this includes national labour associations such as the American Federation of Labor and Congress of Industrial Organizations (AF L -CI O ), the Trades Union Congress (T UC ), and the Canadian Labour Congress (CL C). It also includes: some of the larger and more politically active unions; prominent social democratic think tanks and advocacy groups; academics,

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Table 2.1 Prominent actors and interest groups supporting social democracy US Labour associations and lobby groups



Progressive ­economic think tanks and ­advocacy groups

American Federation of Labor and Congress of Industrial Organizations (AFL–CIO)

UK

Canada



Trades Union Congress (T U C ) • Unite





Brookings Institute Levy Institute • Center for American Progress • MoveOn.org



Fabian Society Institute for Public Policy Research • Centre for Social Justice







Politicians and party factions



“democratic wing” of the Democratic Party • Green Party





Media commentators and outlets





• Canadian





Broadcasting Corporation • Toronto Star

New York Times Washington Post • Huffington Post

“old Labour” within the Labour Party

The Guardian The Independent • British Broadcasting Corporation (B B C )

Canadian Labour Congress (C L C ) • Unifor

Canadian Centre for Policy Alternatives • Council of Canadians • Oxfam Canada • Broadbent Institute New Democratic Party • “social liberals” within the Liberal Party of Canada

media commentators, and news outlets that support more interventionist policies; and social democratic politicians, party factions, and political parties. In terms of the latter, proponents of more interventionist economic policies are found on the left side of many small-l liberal parties in the Anglo-American countries, including the so-called “democratic wing” of the US Democratic Party, the “social liberals” within the Liberal Party of Canada, and “old Labour” within the U K Labour Party. They are also found within more exclusively socialdemocratic / leftist parties, such as the Canadian New Democratic Party and the US Green Party. However, to further theorize the social democratic movement, it is useful to distinguish them from the more centrist classical economic liberals with whom they often form political coalitions. Today, the closest adherents to classical economic liberalism’s normative priorities of allocative efficiency and mutual gains are arguably those who implicitly or explicitly support the “third way” doctrine as exemplified by Tony Blair in the UK and Bill Clinton in the US, and as outlined

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most prominently by Anthony Giddens. Proponents of the third way often describe it as an updated form of social democracy, while its critics on the left refer to it as “neoliberalism with a human face.”19 However, by examining both its policies and supporting actors, it seems reasonable to view the third way as representing a political middle ground between neoliberalism and social democracy. As such, it arguably constitutes the closest approximation, in political terms, to the normative priorities of classical economic liberalism. Recognizing this fact helps us to identify and understand the policy differences that do exist between Margaret Thatcher, Tony Blair, and “old Labour,” or between the Canadian Conservative, Liberal, and New Democratic parties, or, similarly, between the Republican Party and the “moderate” and “progressive” wings of the Democratic Party. In terms of policies, the third way position on wealth redistribution is one that emphasizes targeted (means-tested) programs to promote poverty alleviation and equality of opportunity rather than the social democratic emphasis on more universal social programs aimed at reducing a broader inequality of outcomes. Social democrats also support more universal social programs as they view them as more politically sustainable than targeted programs, which are more easily portrayed by opponents as simply benefiting “special interests.” On the correction of market failures, the third way is less concerned with monopolies and oligopolies, and tends to prefer privatization with regulation rather than state-run enterprises. In a similar fashion, the third way focuses on the provision of more pure public goods and subjects government intervention to a greater cost-benefit analysis, which takes into account notions of government failure. It also advocates a greater role for the private sector in the provision of public goods through the contracting-out of their provision and the use of public-private partnerships (including funding partnerships) to build infrastructure. Based on the principles of welfare economics, social democrats could support privatization with regulation, as it would deal with the problem of monopolies. They could also support the private provision of public goods, in that having governments pay for them is sufficient to overcome the free-rider problem. In practice, however, social democrats generally prefer to keep monopolies and the provision of public goods mainly in public hands. In the former case, the concern is that privatization can create a powerful constituency that will then lobby for deregulation. In the latter case, social democrats often prefer the

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public provision of public goods to the extent that the public sector tends to have a higher rate of unionization, as it is less subject to policy competition. On macroeconomic policy, the third way – along with most modern social democrats – eschews the use of Keynesian policies to achieve full employment and focuses instead on fighting inflation and limiting demand management to the combatting of recessions. Instead of prounion labour laws and industrial policy, the third way emphasizes policies to stimulate human capital development, innovation, productivity, and international competitiveness. In terms of competitiveness, a key difference between social democracy and the third way is that, where the former views neoliberal globalization and policy competition as a structural threat to social democratic policies, the latter views it as a structural given within which (more limited) social democratic goals must be promoted.20 As Dickson Eyoh and Richard Sandbrook report, the third way advocates a more forceful role for government, but that “this forceful role is largely limited to supplyside activities, especially honing the capacity of citizens, firms, and the national economy as a whole, to compete within an inexorably advancing global market economy.”21 In terms of actors and interest groups, the third way reflects a more centrist position, which draws support from elements of both the business and activist communities, as well as a range of more “centrist” media outlets, think tanks, and academics. In terms of AngloAmerican political parties, implicit supporters of the third way are found co-mingling with neoliberal pragmatists on the right side of many small-l liberal parties, and, to a lesser extent, on the left side of small-c conservative parties. Key examples include members of the pro-business “New Democrat Coalition” within the US Democratic Party, “new Labour” in the UK Labour Party, “business liberals” in the Liberal Party of Canada, and “red Tories” in the Conservative Party of Canada and the UK Conservative Party. Of course, it is important to recognize that the political spectrum is a spectrum, and that not all actors, interest groups, and policy ideas will fit neatly into these specific categories. Nevertheless, by focusing on normative priorities, the policy positions they give rise to, and the actors that promote them, it does seem reasonable and useful to make an analytical distinction between populist conservatives, neoconservatives, neoliberals, classical / third way liberals, social democrats, and socialists. It is these social movements and party factions, and the shifting

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coalitions between them, that are the building blocks for understanding political party preferences and national policy outcomes. Thus, identifying and clarifying these key groups and their views can help us to understand the primary debates and political competition over economic policy in general and fiscal federalism, regionalism, and globalism in particular. social democracy and federalism

In contrast to the neoliberal “market-preserving” or “competitive” federalism, the social democratic approach to federalism is somewhat less explicit. However, as this section argues, its key principles can be identified by drawing upon both the classical fiscal federalism literature, as well as the descriptive political science model of “cooperative federalism.” In the former case, the key difference between classical fiscal federalism and the social democratic approach is mainly one of normative priorities. The normative priority of classical fiscal federalism is policy efficiency, where the design of federal systems is oriented toward best matching the supply of public policies with the demand for them. The normative priority of social democratic federalism, in contrast, is a federal system that will best allow for and promote social justice through macroeconomic demand management, wealth redistribution, and the correction of market failures. However, to the extent that the key principles of classical fiscal federalism allow for – even if they do not mandate the extent of – macroeconomic demand management, wealth redistribution, and the correction of market failures, they are compatible with social democratic aims. It is for this reason that the social democratic approach to federalism largely mirrors the principles of classical fiscal federalism and, in particular, those which seek to prevent the “harmful” forms of policy competition that can limit the ability of governments to redistribute wealth and correct market failures (see Table 2.2). As outlined in Chapter 1, classical fiscal federalism views federalism – with its emphasis on decentralized decision-making – as the political equivalent to a market system that will best promote policy efficiency. Federalism will thus best match the supply of public policies with the demand for them in that: federalism allows for a greater diversity of policies within a single country; subnational governments are “closer” to and better able to know the preferences of their citizens; federalism creates policy competition between subnational jurisdictions, which

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Table 2.2 Keynesian-welfare economics and social democratic federalism Keynesian-welfare economics

Social democratic federalism

Pigou, Keynes, Samuelson

Keynes, Musgrave, Oates

Market as default due to being most efficient

Market in public policies with decentralization as default due to being most efficient (the decentralization theorem)

Government intervention to correct market failures

Centralization to correct market failures and take advantage of economies of scale

Use of monetary and fiscal policy to ­stabilize macroeconomy and prevent recessions

Centralization of macroeconomic stabilization

Redistribution to maintain aggregate demand and achieve social goals

Centralization of redistribution to overcome inter-jurisdictional competition

Use of tax and regulatory policy to deal with microeconomic market failures arising from positive and negative externalities

“Perfect mapping” to match tax and regulatory capabilities with the spatial extent of externalities and to overcome inter-jurisdictional competition

better reveals the preferences of citizens as they vote with their feet; federalism allows for policy experimentation and innovation by subnational governments; and federalism decentralizes and disentangles state power and thus makes governments more accountable to their citizens.22 Therefore, for the same reasons that classical economic liberalism supports a free-market system, classical fiscal federalism supports federalism in general, and policy decentralization in particular, as the most efficient political system. With the free market as the default position, classical economic liberalism does allow for government intervention, for reasons of allocative efficiency, to provide public goods and correct market failures. In a similar fashion, classical fiscal federalism views policy decentralization as the default position (the “subsidiarity principle”), but allows for centralization in specific cases for reasons of policy efficiency. In doing so, classical fiscal federalism draws on Samuelson’s neoclassical synthesis and Musgrave’s public finance approach by assuming benevolent governments and the need for (at least some) macroeconomic stabilization, correction of market failures, and redistribution.23 The result is an approach to federalism that allows for, but does not mandate the extent of, these forms of government intervention.

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In terms of macroeconomic policy, Boadway and Shah note that, in the classical fiscal federalism literature, “macroeconomic management – especially stabilization policy – was seen as clearly a central function.”24 For monetary policy, the case for centralization stems from the need to maintain stable prices and the way that decentralization would create incentives for irresponsibility. As Oates argued: At the outset, it is obvious that there must exist a central agency to control the size of the money supply. If, in contrast, each level of government was able to create and destroy money, there would exist an irresistible incentive to rapid monetary expansion. By simply using a printing press, any local government could ­create paper with which to purchase real goods and services from neighboring communities. It would clearly be in the interest of each municipality to finance its expenditures by creating money rather than by burdening its own constituents with taxation. The likely outcome would be rampant price inflation.25 Centralization of monetary policy is also justified to the extent that national economic unions, even where business-cycle shocks are not fully symmetrical, do meet the broad criteria of “optimum currency areas” based on their labour and capital mobility and ability to implement interregional fiscal redistribution.26 In other words, in most countries, economic shocks will affect the whole country in a similar (or symmetrical) way and thus require a similar monetary response (whether expansionary or contractionary). In those countries where economic shocks affect different regions in ways that would require opposing monetary policies, the policy can be offset through the movement of labour and capital, and through interregional fiscal transfers facilitated by the national government. For similar reasons, classical fiscal federalism also argued for the centralization of macroeconomic stabilization through fiscal policy. Centralization is required both to coordinate fiscal stabilization with monetary policy and due to the “leakage problem” associated with subnational fiscal stimulus. As Boadway and Shah note, “raising debt at the local level would entail higher regional costs but benefits for such stabilization would spill beyond regional borders, and as a result too little stabilization would be provided.”27 For these reasons, classical fiscal federalism advocates the centralization of policy capabilities related to macroeconomic stabilization. Moreover, to the extent that

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this allows for, even if it does not mandate, the use of Keynesian demand management to pursue full employment, this approach is fully compatible with social democratic goals related to macroeconomic policy. Classical fiscal federalism’s approach to redistribution is also compatible with the social democratic approach. As Boadway and Shah observe, classical fiscal federalism is premised on the minimal normative judgement that, “one need not agree upon the exact degree of redistribution that governments should undertake to agree that some should be undertaken.”28 As a result, classical fiscal federalism seeks to design a federal system that allows for redistribution, even if it does not mandate its extent. In doing so, it advocates for a centralization of redistributive capabilities in order to overcome the problem of inter-jurisdictional policy competition. As Oates argues, “the mobility of households and firms limits the redistributive potential of decentralized governments. An aggressive local government program, for example, to redistribute income from rich to poor establishes undesired incentives for outmigration by the well-to-do and inmigration of low-income households.”29 To offset this, classical fiscal federalism argues that non-benefit taxes, such as progressive income taxes, corporate taxes, and capital-gains taxes, which play a greater role in redistribution and are more subject to tax competition, should be more centralized. Again, to the extent that this approach allows for redistribution, it is fully compatible with social democratic goals. In addition to macroeconomic stabilization and redistribution, classical fiscal federalism’s approach to the correction of market failures is also compatible with social democracy. This approach starts with Tiebout’s notion that some public goods are of a purely local nature and that decentralizing their supply will better match the demand for them. This default position was formalized in Oates’s “decentralization theorem,” which argues that “each public service should be provided by the jurisdiction having control over the minimum geographic area that would internalize benefits and costs of such provision.”30 However, this proviso about geographically internalizing the benefits and costs of public goods raised the issue of inter-jurisdictional externalities (or spillovers), which, in turn, opened the door to a significant degree of centralization. As outlined earlier, a public good is one that produces non-­excludable benefits (or positive externalities), which make it difficult for a private supplier to fully recoup their costs and thus leads to an underprovision

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of the good. This then creates a rationale for governments to provide the good, or at least to pay for it, as they can recoup the costs from free riders through taxation. A “local public good,” in contrast, is one where the positive externalities are mostly contained within a geographical region that roughly corresponds to a subnational political jurisdiction (whether a state / province or municipality). This means that a local government can provide the public good and then fully recoup its costs, as those who benefit from the good are within its taxing jurisdiction. In some cases, however, a public good will have spillover effects in that its positive externalities will not be contained within a single jurisdiction. When this occurs, it is difficult for the government to recoup its costs from all beneficiaries, and this can cause the good to be underprovided. The same applies to negative externalities with inter-jurisdictional spillover effects, such as water pollution. If many of the costs of the pollution are “downstream,” the originating jurisdiction may have little incentive to deal with the pollution. As Robert Hahn et al. note, “local regulators may choose to ignore the costs generated in their jurisdiction that damage another.”31 In both cases, therefore, a rationale is created for greater centralization of the policy capabilities necessary for correcting market failures. Thus, when positive or negative externalities transcend the boundaries of a municipality, it makes sense for state or provincial governments to deal with them. If the externalities transcend state or provincial boundaries, it then makes sense for the federal government to step in. Moreover, as will be discussed in the following section, the same applies to externalities that transcend national and regional boundaries. Addressing what is often referred to as “perfect mapping,”32 Oates reports that classical fiscal federalism “envisioned a setting in which governments at different levels provided efficient levels of outputs of public goods for those goods whose spatial pattern of benefits were encompassed by the geographical scope of their jurisdictions.”33 In addition to inter-jurisdictional externalities, a further rationale for centralizing policy capabilities related to the correction of market failures stems from the issue of policy competition. Specifically, in a similar fashion to redistribution, policy competition is seen as constraining the ability of subnational governments to correct market failures, including many of those of a more local nature. As John Wilson reports, “researchers and policymakers have found that Oates’s (1972) description of tax competition can be applied more broadly to a host of important policy concerns, such as competition for

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investment through weaker environmental standards or reductions in welfare payments by states trying to avoid attracting poor households.”34 Therefore, even if a market failure is of a purely local nature, it can be difficult for governments to correct it with regulations or Pigouvian taxes due to the potential for an outmigration of business investment. As Hahn et al. observe: “Regulation typically produces losers as well as winners. If the potential losers are mobile, they can change jurisdictions in a decentralized system and either avoid the consequences of regulation or deter its imposition in the first place.”35 While this rationale for centralization is not uniformly accepted within the classical fiscal federalism literature, it does reflect the social democratic approach to federalism. As Finn Poschmann and William Robson observe, “many subscribers to this view see inter-jurisdictional competition as a bad thing, leading to under-provision of public services, a degraded environment, and so on. Their natural focus when it comes to policy, therefore, is coordination of taxes and publicly funded goods and services across jurisdictions to avoid that harmful ‘race.’”36 In other words, while social democratic federalism starts from the default position of the subsidiarity principle, its desire to prevent policy competition leads to a much greater degree of centralization than that of the neoliberal approach. A further contrast with the neoliberal approach relates to the issue of national-to-subnational fiscal transfers, with social democrats being in favour and neoliberals opposed. For social democrats, fiscal transfers are a mechanism for retaining the benefits of decentralized public goods provision while avoiding the costs of harmful tax competition. As Musgrave notes, “taxation in its more progressive form may be retained at the federal level, while devolution is applied to the expenditure side of the budget.”37 In other words, the tax-competition rationale for centralizing the provision of public goods only requires that they be paid for by the central government. The provision of the good itself, including tailoring it to the local constituency, can be done by the more local government funded by transfers from the federal government. To the extent that such transfers offset tax competition, they are thus opposed by neoliberals. Illustrating this view, Brennan and Buchanan argue that, “revenue sharing is undesirable because it subverts the primary purpose of federalism, which is to create competition between jurisdictions.”38 In addition to favouring transfers in general, the social democratic approach also believes that such transfers should come with

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conditions. Conditional (or categorical) transfers are those that require subnational governments to spend funds received on the program designated by the national government. Again, this is done to overcome tax competition. It is also done to allow the national government to provide public goods in areas that may lie outside its constitutional jurisdiction. If no conditions were attached, and the national government simply transferred general funds to subnational governments, the subnational governments would remain under pressure to use the money to finance tax cuts. Known as “block grants,” these unconditional transfers are still not preferred by neoliberals, but, to the extent that they promote some tax competition, they are viewed as a second-best solution. In addition to conditional transfers, social democrats also generally prefer transfers that contain an element of inter-­jurisdictional equalization, where some jurisdictions may receive more in transfers than their contribution to federal revenues would justify. This is done to equalize fiscal capacities across subnational jurisdictions so that broadly similar levels of public goods may be provided across the country. Again, this is in keeping with the social democratic focus on redistribution and social justice, and is generally opposed by neoliberals. As mentioned earlier, to the extent that the key principles of classical fiscal federalism allow for, even if they do not mandate the extent of, macroeconomic stabilization, wealth redistribution, and the correction of market failures, they are compatible with social democratic goals. It is for this reason that the key principles of social democratic federalism largely mirror those of classical fiscal federalism, which is often referred to as “first generation” fiscal federalism in the economics literature.39 Moreover, even though this literature is framed in the economists’ language of policy efficiency, it is apparent that many of its proponents, such as Oates and Musgrave, do lean toward a social democratic approach. In this sense, the distinction between classical fiscal federalism and social democratic federalism is partly an analytical one based on different normative goals. In practical political terms, however, this distinction often disappears in that classical fiscal federalism emerged in the context of, and worked to support, the growth of the welfare state following the Second World War. As Oates observed, “the ‘mainline’ theory of fiscal federalism was solidly embedded in the view of public finance that prevailed in the 1950s and 1960s.”40 Thus, while classical fiscal federalism allowed for macroeconomic demand management, wealth redistribution, and the

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correction of market failures, its practical application in the context of growing welfare states led to an approach to federalism that was strongly social democratic and became described, in the political science literature, as “cooperative federalism.”41 It is important to recognize that the term “cooperative federalism” has two interrelated but distinct meanings. As originally outlined by Morton Grodzins, it refers to an institutional relationship between different levels of government that is characterized by overlapping spheres of authority and has nothing to do with social democracy per se. Thus, Daniel Elazar reports that cooperative federalism “refers to the fact that governments must co-operate, that is, work and function together … [it] is not a theory that, ipso facto, endorses big government.”42 Used in this sense, cooperative federalism stands in contrast to “dual federalism,” which “held that a proper federal system is one constructed on the basis of two separate spheres of authority – federal and state – that overlap only minimally.”43 To distinguish between these two forms of federalism, Grodzins developed his “now famous metaphor in which he described the federal system according to dual federalist theory as a layer cake and according to the cooperative federalist theory as a marble cake. In the former, the separate layers are clearly distinct, linked by the frosting; in the latter, everything is swirled together.”44 In addition to this more institutionalist meaning, “cooperative federalism” has also been used less formally as shorthand for social democratic federalism. In part, this is due to the fact that cooperative federalism, in the institutionalist sense, is necessary (but not sufficient) for social democratic federalism. It is also due to the fact that, in historical terms, cooperative federalism corresponds to the rise of the welfare state and was seen as replacing the dual federalism that characterized the pre-welfare-state period. Finally, the very term “cooperative federalism” does intuitively seem to reflect social democracy’s normative emphasis on social justice and collective responsibility, and, in doing so, provides an easy discursive contrast with “competitive federalism.” Noting these links between the different terms, Michael Greve argues that, while dual federalism refers to the vertical relationship between federal and state governments, “in its horizontal, state-to-state perspective, the arrangement may also be called a ‘competitive federalism.’”45 Thus, he explicitly links the terms by referring to an all-encompassing “dual, competitive (or, in modern public choice parlance, ‘market-preserving’) federalism.”46

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Greve makes a similar link between cooperative and social democratic federalism by noting that, “in its horizontal dimension, cooperative federalism replaces dual federalism’s competition with state policy cartels and uniform regulatory baselines.”47 Echoing this use of the term, Robert Inman and Daniel Rubinfeld note that “cooperative federalism views the primary function of the central government as encouraging and enforcing inter-jurisdictional contracts to provide pure public goods and to correct the failings of lower-tier fiscal competition.”48 Therefore, despite its more institutionalist origins, the term “cooperative federalism” has also become shorthand for the social democratic approach to federalism, which emerged in historical conjunction with the welfare state and within a framework based on the key principles of classical fiscal federalism. s o c i a l d e m o c r at i c r e g i o n a l i s m a n d g l o b a l i s m

Historically, the social democratic approach to regionalism and globalism has often been defined by its opposition to policy competition and, in turn, to international capital mobility and free trade (see Table 2.3). Empirically, social democrats agree with neoliberals that free trade and capital mobility creates policy competition and imposes constraints on social democratic forms of intervention. Normatively, however, they view this as preventing many of the taxes they deem necessary for funding redistributive social programs, as well as the regulations they believe are required to correct market failures and improve labour, environmental, and other social standards. This opposition to policy competition began most prominently with John Maynard Keynes and Harry Dexter White in their design of the 1944 Bretton Woods Agreement. As Eric Helleiner reports, “both Keynes and White argued that the new welfare state had to be protected from capital flight initiated for ‘political reasons’ or induced by a desire to evade ‘the burdens of social legislation.’”49 Consequently, the Bretton Woods Agreement was defined by its opposition to capital mobility, and it served to create an international framework for the “embedded liberalism” and welfare states of the postwar era. As John Ruggie notes, the restrictions on capital mobility associated with the postwar Bretton Woods Agreement were “the essence of the embedded liberal compromise.”50 As neoliberalism gained prominence in the 1980s, the social democratic concern with policy competition led to a continued opposition

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to trade and investment agreements at both the regional and global levels. This concern was evident in critiques that emphasized the harmful effects of international policy competition through concepts such as “social dumping,” “competitive deregulation,” “harmful tax competition,” the “structural power of capital,” and the “race to the bottom.”51 At the same time, social democratic opposition was also driven by concerns over the “constitutionalist” aspects of international trade agreements such as the investor and intellectual property rights provisions, which they believed went too far and worked to further lock in a neoliberal bias in domestic policy.52 Also an issue was the way that economic regionalization and globalization would lead to ever-larger and more influential corporations, as well as promote “wage competition” between workers. For many social democrats, however, this opposition to regionalization and globalization was viewed as a “second-best” position that did not fully reflect the key tenets of social democratic theory. First, drawing on the broader neoclassical synthesis, many social democrats did believe in the efficiency benefits of international trade. Second, drawing on the precepts of liberal internationalism, they also believed in the ability of trade and capital mobility to play a role in the promotion of democracy, human rights, and peace through economic development and interdependence. Third, they also recognized that the emergence of an increasing number of global problems, such as climate change and financial crises, could only be dealt with through international cooperation. Finally, international cooperation was also seen as an alternative method for countering harmful policy competition through various forms of policy harmonization. Described by David Held as “social democratic multilateralism,” the broad contours of this approach have been outlined in various academic blueprints, including the titles Our Global Neighbourhood, Taming Globalization, Civilizing Globalization, Global Covenant, and Making Globalization Work.53 Moreover, while not drawing on the fiscal federalism literature, this approach did have much in common with the key principles of social democratic federalism. For example, in addition to incorporating the principle of subsidiarity, Held argues that “social democratic multilateralism … ought to view certain issues – such as housing, education and policing – as appropriate for spatially delimited political spheres (the city, region or state), while seeing others – such as the environment, world health

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and global economic regulation – as requiring new, more extensive institutions to address them.”54 At the same time, and particularly with the development of the European Union, a growing number of scholars began to more explicitly apply the principles of fiscal and social democratic federalism to the regional and global levels.55 Most prominent in the latter case were the efforts of the United Nations Development Programme (UNDP) to synthesize work from the economics, fiscal federalism, and international relations literatures.56 Initially, the UNDP sought to build on the concept of “international public goods” developed by Nobel laureate Joseph Stiglitz to refer to those public goods whose benefits crossed international borders.57 They did so through the publication of two volumes on “global public goods” (GPGs) titled Global Public Goods: International Cooperation in the 21st Century and Providing Global Public Goods: Managing Globalization.58 Shortly thereafter, the UNDP published a new volume, titled The New Public Finance: Responding to Global Challenges, which went beyond public goods to provide detailed recommendations more explicitly based on the principles of classical and social democratic fiscal federalism.59 Drawing on these principles, the social democratic approach to regionalism and globalism starts with the subsidiarity principle, but then qualifies it with various rationales for “centralization” based on the desire to correct market failures, redistribute wealth, and stabilize the macro-economy. In the former case, the subsidiarity principle continued to mean that public goods should be provided by the lowest level of government that can geographically internalize the benefits and costs of the good.60 Thus, as outlined earlier, when the benefits of a public good or the effects of a negative externality are confined to a local geographical area, it makes sense for the municipal government to provide the good or correct the externality. However, when the positive or negative externalities spill over the boundaries of one level of government, it makes sense for the next level up to deal with them, and this leads to a distinction between local, subnational, and national public goods. For social democrats, the same logic applies when externalities cross international boundaries and give rise to either regional or global public goods that must be provided through multilateral cooperation. This includes efforts to correct global-level market failures, such as climate change and international financial crises, as well as problems with national-level causes but international spillover effects, such as infectious diseases and terrorism.

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Table 2.3 Social democratic federalism and social democratic internationalism Social democratic fiscal federalism

Social democratic internationalism

Market in public policies with decentral- Market in public policies with decentralization as default due to being most ization as default due to being most ­efficient (subsidiarity) ­efficient (the decentralization theorem) Centralization of redistribution to overcome inter-jurisdictional competition

Prevent policy competition with economy and democratic control at the same level (economic nationalism or social democratic multilateralism)

Centralization to correct market failures Global and regional public goods and take advantage of economies of scale

Important to note here is that, in its earlier work on global public goods, the U N D P adopted a broad definition of public goods that went beyond the promotion of allocative efficiency and also included a strong redistributive element. Thus, the UNDP defined global public goods as “public goods with benefits – or costs, in the case of such ‘bads’ as crime and violence – that extend across countries and regions, across rich and poor population groups, and even across generations.”61 This broader definition seemed to reflect the desire to create an interest-based, rather than values-based, case for international redistribution. Illustrating this point, the UNDP notes that, “a poverty alleviation programme for Sub-Saharan Africa could be a global public good if, by meeting the needs of local populations, it was to also contribute to conflict prevention and international peace.”62 However, as outlined below, the UNDP later sought to disaggregate global public goods from international redistribution in a manner more consistent with the fiscal federalism literature. In addition to dealing with cross-border externalities, the social democratic approach to regionalism and globalism also advocates multilateral cooperation to correct market failures that are more national in scope. The already-discussed logic here is that, even though the costs and benefits of such policies would be contained within a single country, the ability of governments to implement them may be constrained by policy competition. For example, if a government sought to impose a new regulation or tax to deal with a national-level environmental problem, it could provoke an outmigration of business

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investment. This, in turn, creates a rationale for multilateral cooperation to harmonize such regulations and thus neutralize any potential for capital flight. It is for this reason that many social democrats are in favour of social charters and various labour and environmental side agreements to international trade agreements. The idea is to create a “floor” of social, labour, and environmental standards below which no country would be allowed to go in trying to attract internationally mobile investment. For similar reasons, the social democratic approach is also in favour of multilateral cooperation to promote redistribution within and between countries. In the former case, international tax competition is seen as constraining the ability of governments to implement redistributive polices (as well as some public goods) and this creates a rationale for tax harmonization. As Peggy Musgrave notes in the U N DP volume: Tax competition tends to be self-defeating … As any one jurisdiction offers a tax incentive, others follow suit. Successive moves are followed by further diversion of capital to the haven with the highest net return, eventually leading to a “race to the bottom” or zero taxation of capital income. The resulting shrinkage of the tax base will increase the cost of taxation and, as the literature on tax competition concludes, will lead to a suboptimal budget size and an inequitable distribution of the tax burden. As tax competition expands to include high-skilled labour, now increasingly mobile, the tax base shrinks further, leaving only unskilled labour and rental income to be taxed. The race to the very bottom, to be sure, rests on some unrealistic assumptions, such as large numbers, perfect markets, and balanced budgets, but the extensive literature on tax competition generally agrees that a suboptimal budget size will result.63 To overcome the problem of tax competition, social democratic proposals range from tax harmonization to the creation of a World Tax Organization.64 In terms of redistribution between countries, the social democratic approach favours foreign aid as a form of interregional transfer, and the U N D P has sought to justify it through an explicit application of the principles of classical and social democratic fiscal federalism. As the U N D P observes: “Official development assistance, or aid,

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constitutes the international component of the distribution branch of public finance. Its stated purpose is to help developing countries because they are poor. By analogy, the financing of international cooperation on global public goods constitutes the international component of the allocation branch of public finance.”65 Moreover, such financing is based on a more explicit application of social democratic federalism, according to which the U N D P seeks to disaggregate global public goods from international redistribution. Argued specifically is that “nearly 30 percent of aid is spent on purposes related to global public goods. But aid is supposed to fight poverty – not enhance the provision of global public goods, especially when such goods mainly benefit rich people.”66 Therefore, the U N D P ’s main policy recommendation “is to disentangle aid and financing for global public goods and to establish a distinct international component for each: the distribution branch and the allocation branch of public finance.”67 In addition to allocation and redistribution, the social democratic approach to regionalism and globalism also advances a position related to macroeconomic stabilization. However, despite viewing stabilization policy as a “central” function within individual countries, the social democratic approach is generally (but not always) opposed to centralizing monetary policy at the regional or global levels. This is the case, as fixed exchange rates and common currencies are seen to lock in a deflationary bias and other free-market policies.68 This, in turn, is why some (but not all) proponents of neoliberalism are in favour of fixed exchange rates and common currencies. As Helleiner explains, “monetary union was seen as a project to reinforce various goals associated with neoliberal thought: the acceleration of international economic integration, the imposition of greater market discipline within the domestic economy, and the introduction of ‘neo-­constitutionalist’ measures that lock in fiscal restraint and the promotion of price stability as the primary goal of monetary policy.”69 Despite these general predispositions for and against fixed exchange rates and common currencies, strong (but philosophically consistent) exceptions exist within both the neoliberal and social democratic approaches. In the former case, Milton Friedman has generally argued in favour of floating exchange rates.70 His logic is that, owing to their deflationary bias, fixed exchange rates can often be politically difficult to maintain and can result in the greater evil of a government imposing restrictions on capital mobility. Thus, Friedman prefers floating

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exchange rates and money supply or inflation targeting as the most sustainable ways to maintain both price stability and capital mobility. For Friedman, the exception is those cases, such as in certain developing countries, that lack central banks with a sufficient commitment to price stability. In a similar fashion, James Buchanan has also argued against monetary union. As Boadway and Shah report, “Buchanan (1997) argues against the establishment of a confederal central bank such as the European Union Central Bank as it negates the spirit of competitive federalism.”71 In a similar fashion, some social democrats, particularly in the European Union, have supported monetary union if it is seen to meet the criteria of optimum currency area theory and / or as reinforcing a broader form of social democratic multilateralism. The key example here was the creation of the Eurozone, which, despite containing countries that may experience economic shocks in an asymmetrical manner (and thus require opposing monetary policies), and lacking a common fiscal policy, was supported by many social democrats.72 In addition to reinforcing the hope for a more socially democratic European Union, many social democrats supported the euro for some of its policy competition effects. Specifically, having learned the lessons of stagflation in the 1970s, a number of social democrats now believe that monetary policy should be limited to maintaining low inflation and providing counter-cyclical stimulus to fight recessions. From this perspective, monetary union has been viewed as a useful mechanism for depoliticizing monetary policy. As Ton Notermans argues, “far from being a threat, E MU [the Economic and Monetary Union] has provided European social democrats with a favourable institutional set-up from which to avoid the main problem that brought down its post-war model, namely the inability to prevent inflation in tight labour markets.”73 Beyond the issue of monetary policy, social democrats advocate for greater multilateral cooperation on two other aspects of macroeconomic stabilization. The first is the need for a “centralization” of counter-cyclical fiscal stimulus through macroeconomic policy harmonization. Specifically, to the extent that a globalized economy leads to increasingly globalized recessions, and that national fiscal stimulus produces spillover benefits, policy harmonization is seen as necessary to avoid the free-rider problem and an under-provision of stimulus. Social democrats also support the need for an international lender-of-last-resort function (mirroring the domestic role played by national central banks) to provide liquidity to governments

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during financial crises – a function that has long rested with the International Monetary Fund (I M F ). However, this support in principle has often been clouded by social democratic opposition to the more neoliberal conditions that the IMF has attached to its sovereign bailouts. Thus, while social democrats support the function of the I M F , they sometimes disagree with how this function has been specifically executed.74 t h e s o c i a l d e m o c r at i c a p p r o a c h t o m u lt i l e v e l g o v e r n a n c e

This chapter has argued that social democratic theory contains an identifiable normative project for multilevel governance, which is fully consistent across the federal, regional, and global levels. While less explicit and unified than the neoliberal project for multilevel governance, the social democratic project is shown to be evident in the normative work of Keynesian-welfare and public finance intellectuals, including John Maynard Keynes, Paul Samuelson, Richard Musgrave, and Wallace Oates, and the more recent extrapolation of their ideas to the regional and global levels. In direct contrast to the neoliberal approach, the aim of social democratic federalism (or regionalism or globalism) is to promote the policy autonomy of governments by limiting “harmful” forms of policy competition (see Table 2.4). This means that, at all levels, social democrats seek to have the private economy, in the form of trade and capital mobility, operate at the same level as that of tax and regulatory capabilities related to wealth redistribution and the correction of market failures. The second argument made in this chapter is that, when we recognize that social democratic theory contains an identifiable normative project for multilevel governance, it can provide us with a model for explaining the policies advocated by social democratic actors and interest groups on a wide variety of issues related to federal, regional, and global governance. Therefore, rather than being anti-globalization, anti-regionalization, or anti-decentralization, social democrats are best described as anti-policy-competition, and this, in turn, can explain their recent shift from advocating a program of economic nationalism to one in favour of social democratic multilateralism. It can also help us to recognize that, while exceptions to this model will occur, they will do so under the same predictable conditions that affect neoliberal actors, such as the desire to bypass levels of government and governance that may be dominated by opponents.

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Table 2.4 Market-preserving federalism versus social democratic federalism Market-preserving federalism

Social democratic fiscal federalism

Federalism, due to exit option, as best promoting individual freedom

Keynes, Musgrave, Oates Market in public policies’ decentralization as default due to being most efficient (the decentralization theorem)

Need for centralization of marketenabling policy capabilities to ensure capital mobility

Centralization to correct market failures and take advantage of economies of scale Centralization of macroeconomic stabilization

Lock in free-market policies through decentralization of market-inhibiting policy capabilities and inter-­ jurisdictional competition

Centralization of redistribution to overcome inter-jurisdictional competition

Federal government should avoid ­creating national standards to offset inter-jurisdictional competition

“Perfect mapping” to match tax and regulatory capabilities with the spatial extent of externalities and to overcome inter-jurisdictional competition

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3 The Politics of Fiscal Globalism

This chapter examines the competition between neoliberal and social democratic actors and interest groups over the multilevel aspects of globalism. In doing so, it makes two main arguments. The first is that the neoliberal and social democratic projects for multilevel governance do help to explain the policies advocated by their respective social movements and why these movements are best viewed as “pro-” and “anti-policy-competition” rather than “pro-” and “anti-globalization.” Recognizing this fact is significant as it helps us to more precisely understand the policy positions of different actors and interest groups, as well as the areas of unity and division among them. In the international relations (IR) and political economy literatures, for example, neoliberalism is often viewed simply as a more recent revival of classical economic liberalism. The result is that it is often conflated with the other political and economic strands of liberalism into a broadly pro-globalization whole. However, as outlined below, while the other strands of liberalism support free trade and international capital mobility for reasons of mutual gains and international peace, neoliberalism supports them primarily for creating the interjurisdictional policy competition that its advocates believe will lock in free-market policies at the domestic level. Therefore, in contrast to the other strands of liberalism, neoliberalism is much more opposed to forms of international cooperation, such as the harmonization of tax and regulatory policies related to wealth redistribution and the correction of market failures, which might undermine this policy competition among governments. As a result, rather than being broadly internationalist or “pro-globalization” in a manner similar to the other strands of liberalism, neoliberalism is shown to advocate

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fiscal and regulatory sovereignty within the context of international capital mobility. Thus, even though the I R and political economy literatures tend to view neoliberalism and nationalism as antithetical, the neoliberal project for multilevel governance provides a theoretical rationale for what can be termed “neoliberal nationalism.” It also demonstrates why this form of nationalism is distinct from the nationalism advocated by populist conservatives and neoconservatives. The analytical focus on policy competition rather than globalization also helps us to understand the theoretical consistency between seemingly contradictory positions advocated by different social democratic actors. Specifically, rather than being “anti-globalization,” most social democratic actors are simply opposed to inter-jurisdictional policy competition. To prevent it, they seek to have the economy, in the form of free trade and capital mobility, operate at the same level as that of tax and regulatory capabilities. In the present context of neoliberal globalization, this can be realized in one of two main ways. The first is by “bringing the economy back down” to the level of national democratic control through economic nationalism and an end to free trade and capital mobility. The second is by “bringing democratic control up” to the level of the global or regional economy through the harmonization of tax and regulatory policies related to wealth redistribution and the correction of market failures – key components of what has been termed “social democratic multilateralism.”1 Thus, rather than being inconsistent, the “anti-globalization” and “social democratic multilateralism” approaches advocated by social democratic actors should be viewed simply as different strategies for achieving the same goal of limiting policy competition. The second argument made in this chapter is that the competition between the neoliberal and social democratic movements over multilevel governance can add to existing explanations of globalization, anti-globalization, and recent trends in global governance. It does so through an analytical narrative that seeks to disaggregate the ideas and interests of neoliberals, populist conservatives, neoconservatives, classical economic liberals, and social democrats. In doing so, it identifies a historical sequence, which, as outlined in the next chapter, seems to also occur in the contexts of both European and North American integration. Specifically, when liberal and neoliberal actors initially promoted free trade and capital mobility, they employed an internationalist and cosmopolitan discourse that worked to mask the differences between them. It also revealed a split

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within the broader “conservative movement,” as populist conservatives adopted a more nationalistic and anti-globalization position. At the same time, while more concerned with policy competition than national sovereignty, social democratic (and other progressive) actors also responded by advocating a protectionist form of economic nationalism or “anti-globalization.” However, as free trade and capital mobility became more entrenched, many social democrats shifted from a general strategy of economic nationalism to one of social democratic multilateralism. The result is that many neoliberals have increasingly shifted to a more nationalistic discourse in order to counteract them, one that is more compatible with the views of populist conservatives and neoconservatives. Therefore, the rise of this neoliberal nationalism can help to explain the surge of populist conservatism in the US and U K . It can also help to explain the potential for a split in the economically liberal coalition, as a growing number of classical liberals express support for some of the key policies associated with social democratic multilateralism. liberal and neoliberal support f o r g l o b a l i z at i o n

Economic globalization, in the form of capital mobility and free trade, has been most strongly supported by classical liberal and neoliberal actors and interest groups. This includes large corporations, businesssponsored lobby groups and think tanks, the business media, many academic economists, as well as many centre and centre-right political parties. While partially about gaining access to new markets, the push for economic globalization was also a deliberate political project that emerged in response to the perceived excesses of the post-Second World War welfare state. In particular, it was a response to the international aspects of the welfare state, which were deliberately constructed to prevent policy competition from imposing constraints on social democratic forms of government intervention. As noted in Chapter 2, this prevention of policy competition was most evident in how John Maynard Keynes and Harry Dexter White’s design of the 1944 Bretton Woods Agreement included controls on the movement of capital. As Eric Helleiner reports, “both Keynes and White argued that the new welfare state had to be protected from capital flight initiated for ‘political reasons’ or induced by a desire to evade ‘the burdens of social legislation.’”2 Accordingly, the Bretton

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Woods Agreement was defined by an absence of capital mobility, and this helped to create the policy autonomy necessary for the “embedded liberalism” and welfare states of the postwar era. As John Ruggie notes, the restrictions on capital mobility associated with the postwar Bretton Woods Agreement were “the essence of the embedded liberal compromise.”3 Reinforcing this lack of mobility for financial capital was the fact that, while free trade was being slowly promoted through the General Agreement on Tariffs and Trade, most countries remained quite protectionist, with many pursuing a strategy of import substitution industrialization (high tariffs and open investment) to attract the branch plants of multinational corporations. As Jeffry Frieden notes, the “industrialized countries turned away from economic nationalism and conflict. But they did not return to the laissez-faire of the years before World War One.”4 With an international framework that limited policy competition, postwar governments had the policy autonomy necessary for building Keynesian welfare states. This included a social democratic focus on correcting market failures and redistributing income through the regulation of business, pro-union labour laws, progressive taxes, and the creation and expansion of various entitlement programs. Moreover, based on the way that the Great Depression had caused unemployment to be viewed as the greatest economic evil, and the view that there was a stable tradeoff between inflation and unemployment (the Phillips curve), postwar monetary and fiscal policies sought to achieve full employment at the expense of slightly higher inflation.5 In the 1960s, however, price and wage inflation began to grow as the stimulus of full-employment policies was reinforced by increased spending on President Johnson’s “Great Society” program and the escalation of the Vietnam War. A number of businesses responded to the growing welfare state and rising inflation through increased transnationalization. For manufacturers, rising wages, inflation, and regulations began to offset the benefits of being inside tariff walls, and this led to a growing relocation of production facilities, including to developing countries. Thus, many multinational corporations (MN Cs) became transnational corporations (TNCs) as, instead of locating a branch plant inside a tariff wall to sell to the host country, they would locate factories where labour and other costs were cheaper and then sell to a world market.6 In a similar fashion, rising inflation and regulations motivated a number of financial institutions to take advantage of technological

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and market developments, such as the growth of computerized transactions and the “offshore” Euromarkets, to skirt capital controls and move their money abroad. The Euromarkets were a lightly regulated “offshore” financial market located in London, which represented the first step toward financial globalization. They were created based on a rule that allowed all transactions in nonlocal currencies to occur free of any government regulation. For foreign banks, the Euromarkets provided a place to go once domestic capital controls had been circumvented. Within the US and British governments, politicians and civil servants sympathetic to the financial community directly supported the development of the Euromarkets. In the US, Helleiner notes that, “divisions of the federal government traditionally sympathetic to the bankers’ interests, such as the Federal Reserve and the Treasury Department, actively encouraged the banks’ offshore activities and imposed few regulations on the establishment of new bank branches abroad.”7 Moreover, he further notes that, “just as Keynes and White had predicted, the growth of private international financial activity in the 1960s encouraged large speculative capital flows that proved increasingly disruptive of the Bretton Woods stable exchange rate system by the end of the decade.”8 In the United States, this growing capital flight, combined with President Nixon’s unwillingness to enforce capital controls, resulted in downward pressure on the dollar. By 1971, Nixon had to choose between enforcing capital controls (which the business community had lobbied against),9 raising interest rates (which would fight inflation and defend the US dollar, but also cause politically unacceptable high unemployment), or abandoning the Bretton Woods dollar-gold system of fixed exchange rates.10 In the end, Nixon chose to avoid the wrath of the business community and the trade unions by ending the dollar’s peg to the price of gold. Thus, with capital mobility increasing and the dollar-gold system of fixed exchange rates being abandoned, the postwar Bretton Woods international monetary order was effectively ended. Moreover, throughout the 1970s, capital mobility and financial globalization increased based on the growing influence of neoliberal ideas and their promotion by the business community. For example, a number of key officials in the Nixon and Ford administrations, including Treasury Secretary George Shultz and, later, Federal Reserve Chairman Paul Volcker, strongly promoted the neoliberal position against capital controls.11 They did so with growing support from the financial and business communities, including the

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Council for Economic Development, a lobby group sponsored by the so-called “New Deal industrialists,” who originally supported capital controls and the welfare state.12 Thus, as Helleiner reports, “the support of neoliberal advocates by private financial firms and multinational corporations encouraged states to turn away from the restrictive Bretton Woods financial order.”13 During the 1970s, rising inflation began to snowball as Milton Friedman had predicted. In part, this was due to the power of trade unions and their ability to successfully incorporate the inflation rate into their wage demands in a way that contributed to a wage-price spiral. It was also due, as J. Bradford De Long notes, to the legacy of the Great Depression and the continued unwillingness of politicians to fight inflation by raising interest rates based on their political fear of the high unemployment it would cause.14 Combined with the 1973 OPEC oil-price shock, which further raised inflation, many economies in the industrialized world became consumed by the problem of “stagflation” – a situation of low-growth stagnation and high inflation that Keynesian theory believed was impossible.15 Many countries also turned to a growing use of non-tariff barriers, which became known as the “new protectionism.” As Robert Gilpin notes, “in the mid-1970s, global stagflation and other developments caused New Protectionism to surface in one country after another.”16 Intellectually, stagflation was to the welfare state what the Great Depression had been to the free-market capitalism of the late nineteenth century and early twentieth century in that both were crises that undermined the dominant economic ideas of their time. As David Frum observes, “depressions strengthen the state; inflations discredit it.”17 Thus, by the late 1970s, stagflation created an intellectual crisis for the postwar welfare state and the Keynesian economics on which it was based. Most important in the latter case was that Milton Friedman had predicted stagflation when most Keynesian economists were at a loss to even explain it. Specifically, Friedman argued that there is no stable tradeoff between inflation and unemployment, as Keynesians assumed, and that when inflation rises above a certain point, it can snowball into a wage-price spiral and stagflation as unions incorporate the inflation rate into their wage demands. Thus, as Keynesian economist Paul Krugman argues, “Friedman was right, on a very big issue. His insights deservedly raised his prestige and that of the new ‘Chicago school’ of economics to new heights.”18

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Politically, stagflation and the new protectionism were the final straws for a business community that was already unhappy with the growing tax and regulatory burden of the welfare state. As Mark Blyth argues: “The combined effect of these policy failures was to signal to business that the state had expanded its role well beyond the limits established as reasonable in the 1940s and 1950s. Consequently, business reacted against these infringements on what it saw as its fundamental rights and sought to replace the embedded liberal order with one more attuned to its interests.”19 It did so by mobilizing politically through the creation and expansion of a number of lobby groups and think tanks, which began to lobby governments, donate to more free-market-oriented political parties, and promote a freemarket outlook among the public more generally, including the need to rein in inflation. Moreover, while this trend occurred throughout the Anglo-American countries, as well as in a number of other OECD countries, it was most prominent in the United States. In the case of lobby groups, for example, the 1970s saw a large increase in the membership and lobbying of the American Chamber of Commerce, the refocusing of the National Association of Manufacturers toward government lobbying, and the creation of the highly influential Business Roundtable. Also important in the United States was the creation of numerous pro-business Political Action Committees (P A Cs) to channel political donations to free-market-oriented politicians and, in particular, the Republican Party. The 1970s also saw the creation and expansion of numerous free-market think tanks, including the American Enterprise Institute, the Heritage Foundation, and the Cato Institute.20 Together, these lobby groups and think tanks sought to promote a more neoliberal approach among politicians and the public. By 1978, US inflation was approaching 10 percent and, combined with the efforts of business-sponsored lobby groups and think tanks, President Carter and the broader US public became convinced that inflation was now a greater problem than unemployment. In response, Paul Volcker, the Carter-appointed chair of the Federal Reserve, began to substantially raise interest rates: to 10.5 percent, in mid-August 1979, and then to almost 12 percent the following month.21 However, the real turning point came just a short time later with the second OPEC oil-price shock, which caused inflation to rise to almost 17 percent. This provided Volcker with the justification he needed to initiate a further significant rise in interest rates, which became known as the

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“Volcker shock.” In many ways, the Volcker shock represents the turning point toward more neoliberal policies. In developing countries, the sharp increase in interest rates triggered the 1982 debt crisis and the resulting shift to more market-oriented policies under I M F Structural Adjustment Programs. In the industrialized countries, the Volcker shock led to a deep recession, which led to rising unemployment, but it did end the problem of stagflation. In the US, UK, and Canada, it also reinforced the political efforts of the business community and contributed to the election of the more free-market-oriented governments of Ronald Reagan, Margaret Thatcher, and Brian Mulroney. These governments, along with the business-sponsored lobby groups and think tanks, worked to strongly promote more neoliberal policies, including various free-trade agreements. As outlined in the next chapter, the push for free-trade agreements began at the more regional level, with the Canada-US Free Trade Agreement (C U F T A ), the North American Free Trade Agreement (N A F T A ), and the Single European Act (S E A ). All of these agreements were strongly supported by the business community, as well as by liberal and neoliberal actors and interest groups more generally, and they represented the start of the political debate over economic globalization. However, at the more “global” level, the efforts to promote free trade manifested themselves most prominently in the business community’s strong support for the conclusion of the Uruguay Round of G A T T negotiations and the creation of the World Trade Organization (W T O ). As Mark Rupert argues, “ratification of G A T T was advocated by the same coalition of social forces which had successfully promoted N A F T A in the US, and in substantially similar terms.”22 For example, the business community formed an issue-specific coalition, the “Alliance for G A T T N O W ,” to lobby Congress and promote the deal among the broader public.23 In the latter case, this included a campaign of advocacy advertisements, getting the endorsement of 450 leading economists, issuing press releases and op-ed pieces, and the lobbying of journalists and newspaper editorial boards. The agreement was also strongly supported by the business and conservative media, as well as by more liberal outlets such as the New York Times and Washington Post. In December 1994, the agreement was ratified in the US Congress and, with similar support from the business community and ratification in other countries, the W T O came into existence in 1995.

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At the global level, therefore, few would disagree that much of the business community, as well as classical liberal and neoliberal interests more generally, were and are the strongest supporters of the financial capital mobility and free trade that characterizes contemporary economic globalization. However, to understand subsequent developments, it is important to recognize that classical liberal and neoliberal actors support economic globalization for different reasons based on their broader normative priorities. Specifically, where classical liberals emphasize new markets, mutual gains, and cosmopolitan internationalism, neoliberals emphasize individual freedom and a shift away from the social democratic policies of the Keynesian welfare state. In particular, they emphasize the shift from an international economy characterized by national policy autonomy to one characterized by the policy competition that helps to promote and lock in more free-market policies at the domestic level. To demonstrate this point, the next section examines the differences between liberal and neoliberal support for economic globalization, beginning with why these differences have often been ignored in the International Relations (I R ) and political economy literatures. differences between liberal and neoliberal s u p p o r t f o r g l o b a l i z at i o n

In the I R and political economy literatures, neoliberalism is often viewed simply as a more recent revival of classical economic liberalism. The result is that it is often implicitly conflated with the other political and economic strands of liberalism into a coherent and broadly pro-globalization whole. Reinforcing the view that neoliberalism is broadly pro-globalization is that, while many scholars agree that free-market globalization is merely one possible type of globalization,24 the fact that the neoliberal variant is currently dominant has caused it to be equated with globalization in general.25 Also important is that, when initially promoting capital mobility and free trade, neoliberals tended to employ the same efficiency and internationalist discourse used by classical liberals rather than to defend the benefits of policy competition.26 However, to demonstrate why neoliberalism is not broadly pro-globalization, it is necessary to disaggregate the different strands of liberalism and identify which aspects of globalization they actually support and why. In doing so, this

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section builds on the argument made in Chapter 1, about the value and policy differences between classical economic liberalism and neoliberalism, by arguing that the latter’s support for globalization, and for economic internationalism more generally, is based on a different set of normative priorities. Mutual Gains and International Peace: The Liberal Case for Internationalism The first and possibly most broadly internationalist strand of liberalism is “liberal internationalism.” Emerging in the aftermath of the First World War, the primary normative goal of liberal internationalism is the promotion of international peace. As David Held and Anthony McGrew note, to achieve this goal, “liberal internationalists consider that political necessity requires, and will help bring about, a more cooperative world order. Three factors are central to this position: growing interdependence, democracy, and global institutions.”27 Thus, from President Woodrow Wilson onward, liberal internationalists have been in favour of free trade and international capital mobility for their ability to promote both democratization and interdependence. They have also supported the expansion of a broad array of international regimes and institutions to promote greater cooperation and to manage increasing interdependence. In the latter case, liberal internationalists assert that “in an increasingly interdependent world the political authority and jurisdiction of these international institutions has a natural tendency to expand.”28 Neoliberal institutionalism is another strand of liberalism, which, while emphasizing international cooperation and mutual gains as its normative priorities, can also be regarded as broadly internationalist. As Joshua Goldstein and Sandra Whitworth argue, neoliberal institutionalism is “an approach that stresses the importance of international institutions in reducing the inherent conflict that realists assume in an international system.”29 More precisely, neoliberal institutionalism seeks to challenge the realist notion that the international system is characterized by a zero-sum game by emphasizing the potential for mutual gains. In terms of economic policy, this view leads to a natural support for free trade and international capital mobility, which are seen as positive-sum games in which all participants achieve mutual benefits. Neoliberal institutionalism does advocate limited protectionism, but only as a negotiating tool to promote reciprocity.30 Beyond

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free trade and capital mobility, neoliberal institutionalism also supports the expansion of various international regimes and institutions to promote greater cooperation and to manage economic interdependence. Highlighting this point, Jill Steans and Lloyd Pettiford note that, “neoliberalism is built upon the assumption that states need to develop strategies and forums for cooperation over a whole set of new issues and areas.”31 Thus, neoliberal institutionalism can also be regarded as being broadly internationalist. Classical economic liberalism is a further strand of liberalism that may be deemed to be broadly internationalist in that its proponents are generally supportive of free trade and international capital mobility, as well as the expansion of international regimes and institutions. Some classical economic liberals, such as John Stuart Mill and Richard Cobden, held views that foreshadowed liberal internationalism in that they supported free trade and capital mobility mainly for their ability to promote a more interdependent and peaceful world. As Helleiner argues, “economic liberals such as Mill and Cobden saw free trade primarily as a tool to strengthen a peaceful cosmopolitan world society. Free trade would foster peace, they argued, by creating ties of interdependence and spreading ‘civilization.’”32 In contrast, economic liberals such as Adam Smith and David Ricardo supported free trade and capital mobility on the grounds of classical economic liberalism’s main normative priorities of economic efficiency and mutual gains. In fact, contemporary liberals employed both sets of arguments in their support for the G A T T and W T O. For example, Rupert reports that “in the mainstream media liberalized trade was repeatedly linked to both increased export opportunities and enhanced consumption possibilities in a world of increasing efficiency and growth.”33 In a similar fashion, President Clinton argued that “this new fabric of commerce will also shape global prosperity or the lack of it, and with it the prospects of people around the world for democracy, freedom and peace.”34 Taken as a whole, it is apparent that there are many overlaps between liberal internationalism, neoliberal institutionalism, and classical economic liberalism, which provide coherence to the broader liberal approach within international relations. In terms of policy, all of them are broadly internationalist in that they support free trade and capital mobility, as well as the expansion of many international regimes and institutions. In terms of motivations, while they each emphasize different normative priorities, all of them favour globalization for its

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stated ability to promote international peace and stability, as well as greater economic efficiency and mutual gains. However, the same cannot be said for economic neoliberalism. In contrast to the other liberal strands, economic neoliberalism is supportive of free trade and capital mobility, but is firmly opposed to the expansion of many international regimes and institutions. This is the case because, rather than emphasizing economic efficiency or international peace and stability, the normative priority of economic neoliberalism is individual freedom and, in particular, freedom from social democratic forms of government intervention designed to redistribute wealth and correct market failures. Despite these differences, much of the IR literature tends to view economic neoliberalism simply as a more recent revival of classical economic liberalism, with the resulting implication that it can also be viewed as similarly and broadly internationalist. To understand why this is not the case, it is useful to build on the value and policy differences between classical economic liberalism and neoliberalism outlined in Chapter 1 by examining how they specifically apply to free trade and capital mobility. Policy Competition and Individual Freedom: The Neoliberal Case for Internationalism The value and policy differences between classical economic liberalism and neoliberalism are mirrored in similar differences between classical fiscal federalism and market-preserving federalism, as well as in different approaches to free trade and capital mobility. As outlined in Chapter 1, whereas classical fiscal federalism seeks policy efficiency by having the supply of public policies match the demand for them, market-preserving federalism emphasizes the “locking in” of free-market policies through the creation of an exit option and policy competition. In a similar fashion, whereas classical economic liberals support free trade and international capital mobility for reasons of economic efficiency and mutual gains, neoliberals support them primarily for their ability to promote individual freedom through the creation of an exit option and policy competition at the international level. Thus, even though neoliberal actors often emphasize the efficiency rationales for free trade and capital mobility when trying to influence policymakers or public opinion,35 their focus on individual freedom and the locking-in of free-market policies is evident in the writings of numerous neoliberal intellectuals. It is for this reason that

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neoliberal ideas related to multilevel governance can help to reveal the specific motivations of different economic actors. In the case of capital mobility, for example, Helleiner notes that “American neoliberals strongly opposed capital controls partly on the grounds that they represented a coercive ‘police power’ by the state that was incompatible with individual liberty and a ‘free’ form of government … Unlike Keynes and White, they were not committed to the policy autonomy of the interventionist welfare state but instead applauded international financial markets because they would discipline government policy and prompt states to adopt more ‘sound’ fiscal and monetary programs.”36 Illustrating this emphasis on freedom rather than efficiency, Friedrich von Hayek argues: The extent of the control over all life that economic control ­confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape – not merely for the rich but for everybody.37 In a similar fashion, Milton Friedman noted that capital controls were “the most effective way to convert a market economy into an authoritarian economic society.”38 More recently, Christopher Hartwell of the neoliberal Cato Institute argues that, “the case against capital controls rests on sound economic reasoning. More fundamentally, attempts to restrict capital movements are an assault on individual liberty.”39 Finally, equally important for neoliberals is that the policy competition created by capital mobility is viewed as specifically constraining social democratic forms of intervention designed to redistribute wealth and correct market failures. For example, Chris Edwards and Veronique de Rugy of the Cato Institute note: “According to the public choice view, international tax competition enhances welfare because it constrains government from growing inefficiently large.”40 Therefore, whether implemented at the regional or global level, the neoliberal case for international capital mobility, as well as free trade,

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is based on the same logic as that of market-preserving federalism. As Michael Greve of the American Enterprise Institute’s Federalism Project observes: “The benefits of jurisdictional choice and competition are visible at all levels of government … At the international level, the free flow of capital (and to some extent labour) has rewarded America’s comparatively freewheeling economy, while punishing countries whose governments insist on pursuing collectivist experiments.”41 Making a similar point, James Buchanan argues that, “the relationship between federalism, as an organizing principle for political structure, and the freedom of trade across political boundaries must be noted. An inclusive political territory, say, the United States or Western Europe, necessarily places limits on its own ability to interfere politically with its own internal market structure to the extent that this structure is, itself, opened up to the free workings of international trade, including the movement of capital.”42 Thus, it is apparent that neoliberalism differs significantly from the other strands of liberalism, including classical economic liberalism, in that its support for internationalism is based on a fundamentally different set of normative priorities. f r o m a n t i - g l o b a l i z at i o n t o s o c i a l d e m o c r at i c m u lt i l at e r a l i s m

As outlined in Chapter 2, for all the reasons that neoliberal actors support policy competition, social democratic actors oppose it. Empirically, they agree with neoliberals that policy competition imposes some constraints on the ability of governments to implement social democratic forms of intervention. Normatively, however, they view this as preventing many of the taxes they deem necessary for funding redistributive social programs, as well as the regulations that they believe are required to correct market failures and to improve labour, environmental, and other social standards. The centrality of this concern was evident in numerous critiques by activists and academics that emphasized the constraining effects of international policy competition through concepts such as “social dumping,” “competitive deregulation,” “harmful tax competition,” the “structural power of capital,” and, most prominently (if somewhat overstated), the “race to the bottom.”43 As Aseem Prakash notes: These groups believe that because globalization favours mobile capital over (relatively) non-mobile resources, it empowers few

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but impoverishes many, both in developing and developed countries. They allege that capital mobility, both portfolio and foreign direct investment, abet races-to-the-bottom, forcing governments to lower labour and environmental standards. Unrestricted ­capital flows increase the frequency and severity of financial ­crises … that impose significant hardships on citizens. Further, they believe that … supranational organizations are laying out a nonmarket architecture of globalization that favours M N E s [multinational enterprises].44 In the latter case, concerns over policy competition were supplemented with concerns over the “constitutionalist” aspects of international trade agreements, such as the investor and intellectual-­ property-rights provisions, which they believed went too far and worked to further lock in a neoliberal bias in domestic policy.45 Also an issue was the way that economic regionalization and globalization would lead to ever-larger and more influential corporations, as well as to promote “wage competition” and declining unionization among workers. A final key concern was over the perceived neoliberal policy bias of the International Monetary Fund and World Bank, and the way that this was imposed through loan conditionality and structural adjustment programs.46 Based on these concerns over policy and wage competition, as well as the international economic architecture more broadly, many social democratic actors worked with more socialist, localist, and anarchist groups to oppose the implementation of various trade and investment agreements at both the regional and global levels. This opposition began in the 1980s, as trade unions, left-of-centre political parties, and social, environmental, and development N G O s worked against the Canada-US Free Trade Agreement, the North American Free Trade Agreement, and the Single European Act. In the 1990s, these actors became more globally linked through their opposition to the creation of the W T O in 1995 and the O E C D Multilateral Agreement on Investment (M A I ) in 1997. In terms of public profile, the growing opposition to economic globalization reached a tipping point in 1999 with the so-called “battle of Seattle,” where 50,000 protestors caught security forces off guard in their protest against the W T O ’s latest trade negotiations. It was due to this opposition to international trade and investment agreements, as well as the international financial institutions, that

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many commentators described these groups as being inherently “antiglobalization.”47 In fact, the term “anti-globalization” caught on to such an extent that many activists also used it self-referentially.48 However, as with neoliberalism and “pro-globalization,” it is apparent that “anti-globalization” is not an accurate term. As Michael Hardt and Antonio Negri argue, “anti-globalization is not an adequate characterization of the protestors … The protestors are indeed united against the present form of capitalist globalization, but the vast majority of them are not against globalizing currents and forces as such; they are not isolationist, separatist or even nationalists.”49 Thus, it is important to distinguish between the different components of the global protest movement to understand what aspects of globalization they actually oppose and why. The heterogenous nature of the different groups within the global protest movement means that they can be difficult to categorize. Among the activists themselves, the movement is generally described as containing “one no, many yeses.” As prominent activists Maude Barlow and Tony Clark report: “The civil society movement is unified in its understanding that the global trade free-for-all will damage all nations of the world. However, activist groups within the movement are proposing many different solutions to the problem.”50 Based on these solutions, Duncan Green and Matthew Griffith argue that three main camps within the global protest movement can be identified, including “statist,” “alternative,” and “reformist.”51 In the former case, they note that “the statists believe the current process of globalization has been a disaster, and seek to defend and re-build the role of the state in economic management after the neo-liberal assault of the last twenty years. This group is dominated by the traditional [socialist] left, some sections of the labour movement and a large proportion of Southern activists.”52 The “alternatives” also reject globalization, but do so in favour of more local self-sufficiency, grassroots democracy, and the smallest possible ecological footprint. “Alternatives” include groups that draw heavily from the spiritual side of the environmental movement, including organic farmers, ecologists, the local food movement, and Indigenous groups, such as the Zapatistas in Chiapas, Mexico. They also include a variety of anarchists, the most visible of whom are those adopting the more confrontational “black bloc” protest tactics.53 To the extent that many in the statist and alternative camps are strongly anti-capitalist, they tend to view the current form of neoliberal

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globalization as not reformable in that it is based on both capitalism and the dominance of developed countries. As a result, they advocate “anti-globalization” in terms of ending current trade and investment agreements, as well as the existing international economic institutions, as a first step toward rebuilding a new, more socialist and / or localist order. A prominent example of this view is found in the book Deglobalization by prominent development activist Walden Bello.54 The final and largest strand of the global protest movement is the “reformists,” who are more social democratic in nature. As Duncan Green and Matthew Griffith note: The reformists make up the majority of formally structured groups involved in the movement, or at least dominate their leaderships … Most accept a role for the market, but believe it must be better regulated and managed in order to achieve socially just and sustainable outcomes. This group includes some trade unions, faith groups, charities and development organizations (like CA F OD and Oxfam), and most mainstream environmental groups (including Friends of the Earth), as well as issue-specific campaigns like “Drop the Debt” or the call for the Tobin Tax.55 Given their more social democratic orientation, reformists are generally anti-policy-competition rather than anti-capitalism. Thus, rather than being anti-globalization, many labour and social activists are opposed to having the economy, in the form of free trade and capital mobility, operate at a level above tax and regulatory capabilities related to wealth redistribution and the correction of market failures. Instead, they seek to have these tax and regulatory capabilities operate at the same level as the economy in order to limit the constraints imposed by policy competition. However, in the present context of neoliberal globalization, it is important to recall that this can be realized in one of two main ways. The first is by “bringing the economy back down” to the level of national democratic control through economic nationalism and an end to free trade and capital mobility. The second is by “bringing democratic control up” to the level of the global or regional economy through the harmonization of tax and regulatory policies related to wealth redistribution and the correction of market failures – key components of what has been termed “social democratic multilateralism,” or, more broadly, “cosmopolitan social democracy.”56 As David Levy and Aseem Prakash report, “the

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preferences of NGO s are frequently the inverse of M N Cs; they tend to oppose the expansion of international market enabling regimes, but support international-level governance for regulatory regimes such as ozone depletion or labour rights.”57 In fact, each of these approaches has been advocated by social democratic actors at different times, although there has been a gradual and uneven evolution toward the latter. Specifically, when faced with policies of economic globalization or regionalization, social democratic actors initially responded by advocating economic nationalism to bring the economy back down to the level of national democratic control. This was evident in their opposition to various trade and investment agreements in the 1980s and 1990s, as outlined above. However, as free trade and capital mobility became more entrenched in each context, social democratic actors increasingly shifted from a strategy of economic nationalism to one of social democratic multilateralism.58 In other words, because it was proving more difficult to “bring the economy back down” due to the entrenchment of free trade and capital mobility, many social democrats sought to “bring democratic control up” as an alternate strategy for limiting policy competition. It also fit better with their general belief in the efficiency and interdependence benefits of free trade and the need to correct market failures at the regional and global levels. In practical terms, this has involved the promotion of various multilateral agreements and side agreements designed to upwardly harmonize various taxes, regulations, and social standards, and thus limit the constraints imposed by policy competition. Examples include the OECD Initiative on Harmful Tax Competition and the various international climatechange agreements, as well as the E U Social Charter and the labour and environmental side accords to NAF T A. Methodologically, this shift in strategy among social democratic actors is difficult to demonstrate given the sheer number and heterogeneous nature of the different groups involved, as well as the uneven nature in which it occurred. However, certain proxies do provide some initial evidence. As outlined in detail in the next chapter, one early and formative example occurred when the British Trades Union Congress (T U C ), as well as the U K Labour Party, abandoned their longstanding opposition to the European Community and its subsequent extension through the Single European Act. They did so in response to Jacques Delors’s announcement that the Single European Act would have a social dimension in the form of the Social Charter.

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The Charter was designed to harmonize various labour and social standards in order to prevent the policy competition and “social dumping” that critics believed would accompany the Single European Act. Thus, while social democratic actors in Britain retained their key goal of preventing policy competition by having the economy operate at the same level as that of democratic control, they now saw a different way to pursue it. Rather than “bringing the economy back down” to the level of national democratic control through economic nationalism, the TUC and the Labour Party began to advocate “bringing democratic control up” to the level of the regional economy through the Social Charter. As one study noted: “The enthusiastic reception given to the Charter by trade unions suggests that it will assist them. It is noteworthy, in this connection, that the British Trades Union Congress (T UC ) abruptly changed its anti-community stance in 1988 in response to the advantages it perceived as emanating from the establishment of a Community-wide plinth of social rights.”59 At the more “global” level, another representative example of the shift among social democratic actors occurred in 2002, when Oxfam International, a well-known development NGO and prominent member of the global protest movement, issued a report titled Rigged Rules and Double Standards.60 In the report, Oxfam announced its support for greater free trade, including an end to the developed-country subsidies, which hurt developing-country exporters. At the same time, the report also advocated more multilateral rules and side agreements to govern international trade, such as higher labour standards and more effective social programs for displaced workers. A similar example occurred in 2003, when the well-known British columnist and activist George Monbiot wrote a column in the Guardian (UK) titled “I Was Wrong about Trade.”61 In the column, Monbiot noted that he had come to accept the efficiency and peaceful internationalism arguments in favour of free trade. He also noted that, rather than being against trade and globalization, activists should advocate for a more rules-based international economy. Beyond the issue of trade, a further indicator of the broad shift among social democratic actors away from economic nationalism and toward a strategy of social democratic multilateralism is in the publication of various blueprints for a more socially democratic form of globalization. Among academics, a number of blueprints have emerged, with titles such as Taming Globalization, Civilizing Globalization, Global Covenant, and Making Globalization Work.62

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At the same time, the United Nations Development Program has been promoting a similar approach through its concepts of “global public goods” and “global public finance.”63 Among activists, one of the most prominent blueprints was produced by the International Forum on Globalization, an international coalition of high-profile intellectuals and activists who together account for much of the “leadership” of the global protest movement. In early 2002, the Forum published a report titled A Better World Is Possible: Alternatives to Economic Globalization to respond to criticism that the protest movement lacked any concrete proposals for change.64 While the report outlined the more “anti-globalization” views of the statist and alternative camps, it also contained detailed proposals that corresponded to social democratic multilateralism. Pointing to this latter component, the Financial Times noted that the report “set out an alternative agenda calling for new institutions of global governance under a reformed United Nations” and that it provided “a sense of what is becoming the unifying theme of an inchoate movement: the creation of democratic institutions of global governance.”65 More recently, evidence for this shift can be found in the way that many trade unions, left-of-centre political parties, and environmentalists have essentially given up on trying to repeal N AF T A, the S E A, and the W T O , or to significantly mobilize against new agreements such as the Trans-Pacific Partnership (TPP). Instead, they have focused more on promoting the inclusion of labour and environmental standards within these agreements as a way to offset policy competition. For example, rather than opposing new bilateral trade agreements, the American Federation of Labor and Congress of Industrial Organizations (A F L - C I O) position is that a “new approach to trade is needed” and that “negotiators need to go back to the table.”66 However, their critique of the existing trade model and the policy competition it creates remains the same: For too long, our nation’s trade and investment policies have reflected the influence of powerful corporate interests. They protect what’s important to corporate America but do little or nothing to safeguard the rights of workers and the environment here and around the world. They fuel a race to the bottom in living standards. That needs to change. We need policies that support good jobs at home and sustainable development abroad.67

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To offset policy competition, many trade unions advocate for the inclusion of the International Labour Organization’s (ILO) core labour standards into existing trade agreements. Moreover, they do so in a manner modelled on existing investor and intellectual-property-rights provisions, such as NA F T A ’s Chapter 11 or the W T O ’s agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Unlike more “aspirational” side agreements, Chapter 11 and T R I P S have teeth, as they are enforced through non-governmental parties initiating complaints and the use of trade sanctions. As the British Trades Union Congress notes, “we are calling for labour standards, in particular the I L O’s core labour standards, to be included in all agreements with the same level of enforcement and support for their implementation as commercial clauses such as those that defend companies’ intellectual property rights. This position is supported by the entire international trade union movement including unions in both developed and developing countries.”68 Taken together, these examples do provide support for the view that a shift has occurred in the approach of many social democratic actors away from economic nationalism and toward a broad strategy of social democratic multilateralism. As the activist / scholar Ruth Reitan observes, “what began nearly two decades ago as anti-­globalization morphed for a time into alter-globalization and global peace and justice or simply the movement of movements, and now seems to be congealing into a counter-hegemonic project of and for global democratization.”69 As this has occurred, there has been a similar shift in the discourse of neoliberal actors. Specifically, when social democratic actors advocated anti-globalization, neoliberals responded with an internationalist discourse that emphasized efficiency and mutual gains rather than defending the benefits of policy competition.70 This, in turn, served to paper over the differences between neoliberals and classical liberals. However, as social democratic actors increasingly shifted to the promotion of social democratic multilateralism, neoliberals began to employ a nationalist discourse, what can be termed “neoliberal nationalism,” in order to counteract them. t h e o r i z i n g n e o l i b e r a l n at i o n a l i s m

The relationship between neoliberalism and nationalism is a complex one and, to theorize it, it is useful to make a distinction between

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neoliberal theory and neoliberalism in practice. In terms of practice, neoliberal actors have often made philosophical compromises and promoted their desired policies through the formation of political coalitions with populist conservatives. As Andrew Gamble observes, “a number of politicians have been adroit either at combining the neo-liberal economic programme with conservative policies which do appeal to particular interests and groups, or at recasting the neoliberal economic policies in ways that resonate as popular commonsense. The authoritarian populism of Thatcher and Reagan were two such successful employments of neo-liberalism by politicians on the right.”71 Moreover, to the extent that nationalism is often the foreign policy of populism, right-of-centre politicians have also sought to strengthen their coalitions through the use of nationalist discourses and policies, including military actions. Thus, while populism and nationalism can be employed by both left and right actors, David Harvey argues that “the neoliberal state needs nationalism of a certain sort to survive. Forced to operate as a competitive agent in the world market and seeking to establish the best possible business climate, it mobilizes nationalism in its effort to succeed.”72 Important to note here is that this use of nationalist discourses is seen as being an instrumentalist and politically expedient attempt to universalize neoliberals’ own interests rather than actually being compatible with neoliberal values and theory.73 As Harvey argues: “Nationalism … is profoundly antagonistic to the neoliberal agenda. This was Margaret Thatcher’s dilemma, for it was only through playing the nationalism card in the Falklands / Malvinas war and, even more significantly, in the campaign against economic integration with Europe, that she could win re-election and promote further neoliberal reforms internally.”74 However, while the link between neoliberalism and nationalism can often be one of political expediency and theoretical incompatibility, this is not always the case. Thus, as argued below, it is important to recognize that, in various situations, certain nationalist policies are not only compatible with neoliberal values, but that these values may actually be dependent on certain nationalist policies. Market-Preserving Federalism and Neoliberal Nationalism The theoretical rationale for neoliberal nationalism is simply an extension of the neoliberal case for internationalism, and it stems from the desire to constrain social democratic forms of government intervention

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by creating an exit option and policy competition. This is why the neoliberal vision for both regionalization and globalization is consistent with Barry Weingast’s key criteria for market-preserving federalism. In terms of creating an exit option, most important is the criterion that: “(F 4 ) a common market is ensured, preventing the lower governments from using their regulatory authority to erect trade barriers against the goods and services from other political units.”75 As outlined in Chapter 1, this implies either a de facto or de jure centralization of those policy capabilities related to the promotion of free trade, capital mobility, and property rights. Moreover, it is for this reason that neoliberal actors supported free-trade agreements such as the WTO, N A F T A , and the SE A , as well as the incorporation of various investor and intellectual-property-rights regimes within them. However, while free trade and capital mobility ensure an exit option, they do not, on their own, ensure policy competition. As a result, the neoliberal vision for regionalization and globalization is also consistent with the further criterion of market-preserving federalism – that “(F3) subnational governments have primary regulatory responsibility over the economy.”76 In general terms, this implies the decentralization (to at least the national level) of those policy capabilities that relate to wealth redistribution and the correction of market failures. At the regional and global levels, this requires more than simply avoiding the creation of supranational institutions with these policy capabilities. It also requires that governments avoid entering into multilateral agreements – such as the O E CD Initiative on Harmful Tax Competition and the various international climate agreements – which would aim to increase tax and regulatory burdens through cross-national harmonization. Such harmonization would effectively reduce the disciplinary effect of policy competition by creating a tax or regulatory “floor” below which no country would be allowed to go. Therefore, in contrast to the other strands of liberalism, neoliberalism is much more opposed to a broader form of internationalism and to the expansion of international regimes and institutions designed to offset the competitive pressures associated with free trade and capital mobility. Making this point in the case of European regionalization, Buchanan has argued: The opportunity has existed, and still exists, to organize European politics so as to put in place a genuine federal structure

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with many elements of the ideal set out earlier. The Europe-wide economy has been substantially integrated, with historically unprecedented liberties of resource flows and trade across traditional national boundaries. Reform requires the establishment of a strong but limited central authority, empowered to enforce the openness of the economy, along with other minimal state functions. In this way, and only in this way, can the vulnerability of the individual European to exploitation by national political units be reduced. At the same time, however, the extension of the central authority’s powers beyond such minimal limits must be rigidly opposed. The separated nation-states, as members of the federal union, must zealously protect the whole range of ­subminimal political activities.77 Therefore, based on this desire to lock in free-market policies, we can expect neoliberal actors to oppose many international regimes and, instead, to advocate in favour of national fiscal and regulatory sovereignty. It for this reason that certain nationalist policies and discourses can be genuinely compatible with, and even essential for, neoliberal values. differences between neoliberal a n d c o n s e r vat i v e n at i o n a l i s m

To further distinguish neoliberal nationalism from other forms of liberalism and nationalism, it is useful to disaggregate various rightof-centre actors in the Anglo-American countries. Here, despite the many possible subdivisions and labels, there are three main positions that are useful to differentiate from neoliberal nationalism in terms of their views on free trade and capital mobility, as well as the expansion of international institutions and regimes. Furthest to the right are populist conservatives, examples of which include Patrick Buchanan, the Tea Party movement, and the ascendancy of Donald Trump in the United States, the United Kingdom Independence Party (U K IP), and the former Reform Party in Canada. Populist conservatives tend to be socially conservative, nationalistic, xenophobic, isolationist, and opposed to most forms of internationalism.78 While sometimes pro-free-market at the domestic level, their populist roots often lead to views that are opposed to big business and free trade, both of which are seen as hurting the interests of working

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families. They are also opposed to most other international institutions and regimes, which they view as threats to national sovereignty and identity. As Owen Worth reports, American populist conservatives “pledge to defend the US constitution against big global corporations and global institutions, which, they claim, are eroding both the freedoms and the sovereignty of the country. Thus, institutions such as the World Bank, WT O , NA F T A and G AT T are condemned as unpatriotic, as is the United Nations.”79 Based on these views, populist conservatives tend to be the most nationalistic of the right-of-centre actors in that they oppose both free trade and capital mobility, as well as the broad expansion of international institutions and regimes. Next in from the right are neoconservatives, who can also be called elitist, Straussian, or “national greatness” conservatives. Neoconservatism is most prominent in the United States and is associated with public intellectuals such as Irving and William Kristol, David Brooks, and Robert Kagan, as well as various think tanks and media outlets.80 Moreover, while some observers group neoconservatives in with populist conservatives based on their nationalism and social conservatism, or with neoliberals based on their support for free markets and free trade, it is important to emphasize that neoconservatism differs from both. At the heart of neoconservatism is a critique of liberalism’s emphasis on individual self-interest. As Michael Williams observes, for neoconservatives, “the reduction of action to nothing more than the pursuit of self-interest gives rise to a destructive combination of hedonism and despair.”81 In its place, neoconservatives advocate individual and civic “virtue,” which, at the international level, leads to a specific form of nationalism that is self-consciously different from that of populist conservatism. As Kristol and Brooks argue, “American nationalism … has never been European blood-and-soil nationalism. It’s true that in an absence of a real appeal to national greatness, some conservatives are tempted, à la Pat Buchanan, to turn to this European tradition. But this can’t and shouldn’t work in America. Our nationalism is that of an exceptional nation founded on a universal principle.”82 Thus, while neoconservatives tend to be socially conservative and nationalistic, they are critical of the isolationism of populist conservatives and, instead, advocate a “muscular patriotism” and “benevolent hegemony” to promote democracy and “virtue” around the world. In terms of free trade and capital mobility, as well as the expansion of international institutions and regimes, the nationalism of

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neoconservatives leads to very similar policy positions as that of neoliberals. This is one reason why neoliberalism and neoconservativism are frequently conflated and the terms are often used interchangeably. However, while appearing to have similar policies on these specific issues, it is important to recognize that they do so based on fundamentally different normative priorities and with the support of different actors and interest groups. First, while neoconservatives generally support free trade and capital mobility, they do so for more nationalistic reasons. Specifically, they support free trade because, in the context of continued US hegemony and economic dominance, free trade is seen as enhancing US power. This is why, for neoconservatives, support for free trade and free markets is always conditional; security trumps trade in the same way that virtue trumps laissez-faire. Thus, neoconservatives are more supportive of the economic liberalism of Adam Smith, which also saw a role for moral sentiments, than of contemporary neoliberalism, which seeks to subordinate everything to the free market and individual self-interest. As Williams notes, neoconservatives believe that, “for all modern economics’ lauding of Smith, it provides a ‘vulgarization’ of his thought that lacks an awareness of the importance of ‘moral and political philosophy’ and the central role that culture and virtuous conduct play in his account of stable and viable modern societies and even in economic growth.”83 Therefore, while neoconservatives generally support free trade and free markets, they do so for different reasons than neoliberals. The same applies to neoconservative opposition to the expansion of many international institutions and regimes. Specifically, where neoliberals oppose many of them based on their potential to limit policy competition, neoconservatives oppose them because they are seen as diluting the “moral clarity” of US foreign policy and imposing constraints on the exercise of US power. t h e r i s e o f n e o l i b e r a l n at i o n a l i s m

In his 2000 article in Foreign Affairs titled “The New Sovereigntists: American Exceptionalism and Its False Prophets,” Peter Spiro identifies the rise of right-of-centre nationalism among a number of US policy elites, many of whom are associated with prominent conservative think tanks and, like John Bolton, went on to prominent positions in the George W. Bush administration. While Spiro provides a strong

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outline of the new right-of-centre nationalism, he treats its proponents as a homogeneous group that draws upon realism’s normative suspicion of international law. As Spiro argues, the approach of the new sovereigntists “echoes the realist conception of international relations as a matter of might, not right – a sticks-and-stones view of international law.”84 However, in addition to these more neoconservative anti-internationalists, it seems apparent that the new sovereigntism also includes those who are nationalist for more neoliberal reasons. As Spiro recognizes, “only the free-trade agreements – provided they are limited to trade and do not include the environment, labour issues, or human rights – pass muster under New Sovereigntism because they are thought to serve American interests.”85 Further reinforcing the idea that the new sovereigntism is as much about neoliberal nationalism as it is about neoconservative antiinternationalism is the way that Spiro points to the work of Cornell political scientist Jeremy Rabkin. Interestingly, Rabkin has published his two main anti-internationalist works – Why Sovereignty Matters and The Case for Sovereignty – under the auspices of the American Enterprise Institute’s Federalism Project, which, as outlined in Chapter 1, is explicitly based on promoting Buchanan’s neoliberal “competitive federalism.”86 This institutional location for Rabkin’s work is understandable given that both books draw directly and explicitly on the key principles of competitive federalism in order to make a detailed case against regional and global forms of tax and regulatory cooperation. In the case of the Kyoto Protocol, for example, Rabkin argues: “It is, by almost every criterion, a disturbing challenge to constitutional limitations on the treaty power.”87 In contrast, he argues that “the trading system is fundamentally compatible with traditional notions of sovereignty.”88 In this way, we see how the discourse of the neoliberal American Enterprise Institute has taken on a decidedly nationalist character. While fully internationalist when it comes to free trade and capital mobility, the AEI becomes a staunch defender of national sovereignty in the face of international agreements seeking to achieve the upward harmonization in social standards associated with social democratic multilateralism. Moreover, as the principles of market-preserving federalism indicate, the aim is to have the economy operate one level above that of fiscal and regulatory capability in order to lock-in a free market approach through policy competition. It is for this reason that the AEI and other neoliberal actors have staunchly opposed any

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attempts at multilateral tax and regulatory cooperation. Noting this trend, David Levy and Aseem Prakash have argued that multinational corporations “tend to support the creation of market enabling regimes at the international level, and prefer to keep social or environmental regulation under national or private authority.”89 They further note that “[a]rguably, M N C s will oppose the formation of international regulatory regimes precisely because they solve international collective action problems and enable regulation.”90 In fact, given the recent shift in strategy among social democratic actors, it seems that multilateral harmonization has recently become as important a target for neoliberal intellectuals as anti-globalization precisely because it threatens to disrupt the benefits of policy competition. Demonstrating this point, A E I fellow Roger Bate argues that: there has been a slow and now accelerating push for global governance, and away from the sovereignty of nation-states … The global governance institutions that pressure groups, bureaucrats and politicians promote include international treaties on numerous issues such as climate change, chemicals, and tobacco. There are also proposals pushed by powerful and respected international bodies for agreements on labour standards, environmental protection, and tax harmonization. These entail an entirely different form of globalization – one that is beginning to have a ­significant, and deleterious, effect.91 Echoing these points, Ronald Bailey cautions the readers of the neoliberal National Review magazine that a “small cadre of obscure international bureaucrats are hard at work devising a system of ‘global governance’ that is slowly gaining control over Americans’ lives.”92 Of particular concern for neoliberal actors has been the issue of multilateral tax harmonization, such as the O E C D ’s Harmful Tax Competition Initiative and the U N ’s proposals for the creation of an International Tax Organization. As Bate notes: “It’s tax harmonization that can lead to the greatest loss of national sovereignty.”93 This is the case to the extent that neoliberals regard policy competition as having been particularly effective in the realm of fiscal policy. The Cato Institute, for example, recently came to this conclusion in a study titled “International Tax Competition: A 21st-Century Restraint on Government.” As the study notes, “high tax rates are more difficult to sustain in the new economic environment. That is particularly

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true for taxes on capital, which include taxes on business profits and taxes on individual receipts of dividends, interest, and capital gains … In our view, international tax competition may indeed hamper income redistribution, but that is a beneficial outcome because redistribution has progressed to a remarkably high degree in most industrial countries.”94 Tax harmonization, in contrast, would threaten these already obtained benefits of policy competition. As a result, the study goes on to provide detailed critiques of recent proposals for tax harmonization, such as those put forward by the European Parliament and the O E C D .95 Similar arguments against tax harmonization have been made by the American Enterprise Institute and the Heritage Foundation. In the former case, Allan Meltzer argues that, when it comes to international agreements, the US “should give up only the amount of sovereignty that we want to give up! Do we want the tax laws for the United States to be made in Europe by a non-elected government in Brussels, or by the W T O , rather than by the Congress of the United States or the state legislatures?”96 In the latter case, Daniel Mitchell refers to the O E C D proposal as “An Attack on Sovereignty.”97 Beyond the issue of tax harmonization, neoliberal nationalism was particularly evident in the opposition to the Kyoto Protocol. For example, beyond the US examples mentioned above, neoliberal actors in Canada – including business-sponsored lobby groups and think tanks, federal and provincial Conservative parties, and various conservative media – opposed Canada’s participation in Kyoto through direct appeals to national sovereignty. This was most evident in the way that these groups promoted a “made-in-Canada” solution to climate change. Created by a public relations firm for the businesssponsored Canadian Coalition for Responsible Environmental Solutions, the “made-in-Canada” phrase was widely used among business leaders, as well as conservative pundits and politicians. In the latter case, the premier of the oil-rich province of Alberta argued that the Kyoto Protocol was “not a Canadian plan” but, rather, was dreamed up by “international theorists.”98 In response to the arrival of the Obama Administration, Jack Mintz, a prominent neoliberal economist, argued: “With a newly found exuberance for carbon pricing in the United States, Canada faces a conundrum. Either it harmonizes its policies with those of the US which reflects the politics there, or adopts a made-in-Canada plan to reduce carbon emissions with a better approach.”99 Similar appeals to nationalism were found

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amongst US opponents to Kyoto, including Republican Senator Chuck Hagel, who argued that the Protocol is “one of the clearest examples of how a nation can lose much of its sovereignty through a wellintentioned relationship with other nations.”100 Neoliberal actors have also expressed strong opposition to the inclusion of enforceable labour and environmental standards in trade agreements.101 The most prominent “global-level” example here occurred at the 1999 W T O negotiations in Seattle. 102 As Brian Burgoon reports, the “World Trade Organization (W T O ) Seattle Ministerial in 1999 was a water-shed in this controversy: human rights N G O s, unions and their US government champions supported labor linkage in future W T O discussions, while business groups and developing-country governments staunchly opposed it.”103 Specifically, when President Clinton proposed including labour and environmental standards, enforced by the threat of sanctions, it was strongly opposed by developing countries such as India and Mexico, neoliberal economists such as Jagdish Bhagwati, as well as business-sponsored lobby groups and think tanks.104 For example, the US Business Roundtable argued: “The W T O is not the right forum to negotiate international environmental policy and attempting to do so would distract trade ministers from their primary objective.”105 It made similar points on side agreements for labour standards and competition policy as being trade-unrelated, but simultaneously argued for a strengthening of the Trade Related Aspects of Intellectual Property Rights (T R I P S ) agreement.106 Since Seattle, business lobby groups and think tanks, along with neoliberal actors more generally, have consistently opposed the inclusion of enforceable labour and environmental standards in trade agreements.107 c l a s s i c a l l i b e r a l s a n d s o c i a l d e m o c r at i c m u lt i l at e r a l i s m

The shift to social democratic multilateralism helps to reveal the differences between the internationalism of classical economic liberals and neoliberals, and, in turn, the potential for a split in the economically liberal coalition. Specifically, when arguing in favour of free trade and capital mobility, and against the “anti-globalization” arguments of the global protest movement, all economic liberals employed a cosmopolitan discourse emphasizing mutual gains and international peace. The result was that there often seemed to be no difference

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between the views of classical economic liberals and neoliberals. However, to the extent that social democratic multilateralism is explicitly designed to offset policy competition, it is incompatible with the normative priorities of neoliberal actors, and, as outlined above, helps to explain the rise of neoliberal nationalism. The fact that it is not incompatible with the more broadly internationalist approach of classical economic liberalism also helps to explain why these actors have tended to be more supportive. One prominent example here was the shift in discourse by President Clinton – a key proponent of “third way” (or classical) liberalism – and his supporters. In the early 1990s, Clintonite “New Democrats” were staunch supporters of NAFTA and the Uruguay Round, and they joined with neoliberals in condemning the opposition of trade unions and other social activists. In the case of N AF T A, for example, Rupert reports that “labor’s opposition was portrayed as disrupting the Democratic coalition in order to protect its own narrowly selfish interests.”108 For example, he cites a spokesperson for the Progressive Policy Institute, a third-way “New Democrat” think tank, who argued: “Support for free trade constitutes one of the [Democratic] party’s most venerable and progressive principles … Today, however, organized labor and other party constituency groups are demanding that Democrats junk that principle.”109 In a similar fashion, President Clinton himself strongly denounced the anti-N AF T A stance of trade unions in a television address, and similar arguments were made in the New York Times and Washington Post, traditionally viewed as more centre-left media outlets. Half a decade later, President Clinton acknowledged the policy-competition concerns of social democratic actors in a 1998 speech to the WT O. He stated: “We must do more to make sure that this new economy lifts living standards around the world and that spirited economic competition among nations never becomes a race to the bottom in environmental protections, consumer protections and labor standards.”110 He followed this up a year later at the Seattle meeting of the W T O by calling for the inclusion of enforceable labour and environmental standards. Since that time, classical liberals have continued to move in the direction of social democratic multilateralism and away from the more orthodox position of the neoliberal idealists. For example, when the Democrats regained control of the US Congress in the 2006 midterms, and then returned to power under President Barack Obama in 2008, they brought with them a renewed focus on promoting “fair

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trade” rather than simply “free trade.” This began with the 10 May 2007 bipartisan deal to include more enforceable labour and environmental standards in bilateral trade deals.111 It then continued under President Obama, with the most prominent example being the labour and environmental standards included in the Trans-Pacific Partnership (TPP) agreement. While still a long way from what many social democratic groups were advocating, the T P P did bring labour and environmental standards into the main text of the agreement and did lean more in the direction of enforceable standards than any previous multilateral agreement.112 In 2016, the push for “fair trade” took on an added urgency among classical economic liberals as a response to the growing strength of populism and anti-internationalism. For example, with the U K ’s “Brexit” vote to leave to the European Union, and Donald Trump campaigning on a strongly anti-trade message, international institutions such as the W T O , the G 2 0 , and the World Economic Forum began to advocate for a new form of “inclusive trade” that had much in common with the provisions included in the T P P .113 However, as classical liberals began to move more in the direction of social democratic multilateralism, many neoliberal idealists moved in the opposite direction toward the nationalism of the conservative populists. Thus, when Donald Trump was elected president and subsequently pulled the US out of the T P P , one columnist illustrated the neoliberal view by arguing: Under T P P , the trade advantages developing countries now offer in the form of lower wages and informal work environments would have been undercut by their need to conform to I L O [International Labour Organization] requirements on minimum wages, hours of work and unionization … In cancelling T P P , Trump cancelled the T P P ’s ability to undermine the free market and the sovereignty of countries representing 40 per cent of the world’s GD P . That’s a blow against the regulatory state and for economic freedom, one no free marketer should lament.114 With President Obama gone, the US out of the T P P , and President Trump wanting to renegotiate the North American Free Trade Agreement and other trade relationships, Prime Minister Justin Trudeau of Canada continued the push for an inclusive trade agenda.115 Rebranded as the “progressive trade” agenda, Trudeau

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pushed for the inclusion of labour, environmental, gender, and Indigenous standards in a renegotiated T P P and in the N AF T A renegotiation. As Canada’s minister of foreign affairs, Chrystia Freeland, noted: “For Canada, the progressive trade agenda translates into strong provisions in trade agreements in important areas such as worker’s rights, environment protection, gender equality and reinforcing the continued right of governments to regulate in the public interest.”116 In line with this view, the somewhat renegotiated T P P was renamed the “Comprehensive and Progressive Agreement for TransPacific Partnership.” For the first time, it contained provisions to make labour standards somewhat more enforceable by subjecting them to the agreement’s dispute-settlement mechanism, backed up by the possibility of trade sanctions. Moreover, as with the provisions in the original TPP, these provisions were also strongly opposed by neoliberals. As one Canadian commentator argued: “The prime minister and his advisors are obsessed with issues that have no relation to the principles of free trade. Labour rules, culture, gender and environmental laws have no place in agreements that aim to open up trade.”117 Overall then, these moves toward social democratic multilateralism among classical liberals, and the opposition to it among neoliberal idealists, helps to further reveal the differences between them and to explain why a political realignment has been occurring in respect to global trade and governance. conclusion

This chapter examined the competition between neoliberal and social democratic actors and interest groups over the multilevel aspects of globalism. In doing so, it argued that the neoliberal and social democratic projects for multilevel governance do help to explain the policies advocated by their respective actors, and why these actors are best viewed as “pro-” and “anti-policy-competition” rather than “pro-” and “anti-globalization.” Recognizing this fact was shown to be significant in terms of more precisely understanding the policy differences and shifting political alliances between neoliberal, conservative, classical liberal, and social democratic actors. To further demonstrate the consistency between the neoliberal and social democratic projects for multilevel governance and the policies advocated by their respective actors, the next chapter examines the competition between them in the regional contexts of North America and the European Union.

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4 The Politics of Fiscal Regionalism

This chapter examines the competition between the neoliberal and social democratic social movements over the multilevel aspects of regional integration. It does so through a detailed case study of the UK in Europe and a less detailed case study of the US and Canada in North America. It argues that the neoliberal and social democratic projects for multilevel governance, including the “neoliberal nationalism” and “social democratic multilateralism” outlined in the last chapter, do help to explain the policies advocated by their respective social movements and why these movements are best viewed as “pro-” and “antipolicy-competition” rather than “pro-” and “anti-regionalization.” As in the last chapter, recognizing this fact is significant as it helps to better explain the interests and motivations behind specific policy preferences and how they can differ from other factions within broader conservative and progressive political parties. It also helps to explain how these preferences have evolved over time in a manner consistent with the historical sequence identified in the previous chapter. In the European case, this sequence includes: neoliberal support for, and social democratic opposition to, economic integration; the shift among social democrats from anti-regionalization to social democratic multilateralism based on the notion of a social Europe; the rise of neoliberal nationalism in the form of Thatcherite euroscepticism; the fanning of populist conservative nationalism by neoliberal actors and media; and the split within the free-market coalition over monetary integration and “Brexit” (British exit from the EU). Thus, rather than being a solely populist conservative phenomenon, this chapter shows that contemporary British euroscepticism is best viewed as part of a broader and more neoliberal-driven form of conservative

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anti-internationalism that is emerging across the Anglo-American countries. A similar historical sequence is then identified in the case of North American integration in terms of support for and opposition to N A F T A , support for and opposition to the environmental and labour side agreements, and more recent developments related to President Trump’s anti-NAFTA populism. Also included in this chapter is a detailed theorization of the politics of the “impossible trinity” (of capital mobility, fixed exchange rates, and monetary policy autonomy) based on the normative projects for multilevel governance. This is used to disentangle the complex politics of regional monetary integration and the seemingly contradictory positions within both the neoliberal and social democratic social movements. theorizing british euroscepticism

In much of the international relations literature, state preferences related to European integration, including British euroscepticism, are viewed on a pro- and anti-regionalization continuum. They are also seen as being determined by either national interests (realism), producer interests (liberal inter-governmentalism), or functional pressures (neofunctionalism). As Marco Steenbergen and Gary Marks note: “International relations approaches imply that European integration, and contestation about European integration, are independent from the left / right dimension of domestic contestation. This assumption is shared by realism, intergovernmentalism, and neofunctionalism.”1 Many comparative approaches, in contrast, have generally portrayed British euroscepticism, culminating in the 2016 Brexit vote, as a populist revolt against the forces of globalization. This is the case for two reasons. First, as elsewhere in Europe, British euroscepticism is populist and conservative on the surface in that it is framed in terms of British nationalism, identity, and sovereignty.2 Thus, many comparative studies have viewed euroscepticism as populist opposition politics that is also unrelated to right / left debates over economic and social policy.3 Second, to the extent that today’s free-market ideas are viewed as being a revival of classical economic liberalism, neoliberal actors are assumed to be pro-international and thus opposed to such forms of nationalism. Illustrating this view, and as stated in the previous chapter, David Harvey argues that “nationalism … is profoundly antagonistic to the neoliberal agenda. This was Margaret Thatcher’s dilemma, for it was only through playing the nationalism card in the

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Falklands / Malvinas war and, even more significantly, in the campaign against economic integration with Europe, that she could win reelection and promote further neoliberal reforms internally.”4 In addition to being perceived as similarly populist as elsewhere in Europe, British euroscepticism has also been viewed as being uniquely strong. Thus, as one observer notes, “a key question surrounds the extent to which there is something distinctive and exceptional about British Euroscepticism.”5 In much of the comparative literature, this strength has been explained based on the U K ’s unique institutional factors that either strengthened conservative populism or allowed it to go mainstream. For example, Charles Grant has highlighted Britain’s more unique history, geography, and media as important explanatory factors.6 Also significant has been a focus on the U K ’s first-past-the-post electoral system, which meant that mainstream parties were often under greater pressure to cater to their more populist and fringe elements. This contrasted with the proportional representation systems of continental Europe, which tended to produce more centrist coalitions that filtered out eurosceptic voices.7 From this perspective, therefore, British euroscepticism is unique because of how the UK’s distinct electoral system and party politics interacted with populist conservatism. Chris Gifford also emphasizes the role of populist conservatism and British identity in explaining the strength of British euroscepticism. However, rather than focusing on the electoral system, he argues that Britain is more eurosceptic because of its unique imperial culture and history, and the way that a “post-imperial crisis in British politics has embedded a structural susceptibility to populist politics.”8 Moreover, he further argues that, “it is the populist manifestation of Euroscepticism in Britain that is significant in explaining its rise and influence.”9 At the same time, Gifford does recognize that British euroscepticism contains a neoliberal component that has helped to fan the concerns of populist conservatives.10 However, for Gifford, neoliberal ideology is viewed as part of Britain’s unique national identity rather than as an independent driver of euroscepticism that could occur elsewhere. From this perspective, neoliberalism is structural (path dependent) rather than ideological, and is promoted by all parties. This means that the Brexit debate was one that occurred between neoliberals – that is, “between those who consider that British power, and its neo-liberal political economy, is augmented by opposition from within the EU or those who advocate complete withdrawal”

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to preserve neoliberal policies.11 This, in turn, implies little difference between the Conservative and Labour parties and little role for social democratic ideology or interests. Seeking to challenge these more institutionalist approaches, other scholars have placed a greater emphasis on ideology, interests, and the competition between different factions within the Conservative and Labour Parties.12 For example, David Baker, Andrew Gamble, and David Seawright argue that the comparative literature “overemphasises the significance of the British party system” and, while it “correctly identifies the deeply nationalist nature of much British Conservative Euroscepticism, it misses the extent to which British Eurosceptics advance a globalist rather than an isolationist or protectionist argument in objecting to further European integration.”13 Therefore, rather than being a structural part of British identity, Baker, Gamble, and Seawright view neoliberalism as a set of ideas and interests that have come to dominate the Conservative Party and much of the national media. They note that “it has been the ascendency of the neo-liberal idealists which has most coloured British Conservative politics in recent times.”14 In terms of Britain’s uniquely strong euroscepticism, they further note that “what makes Britain stand out so sharply is the presence of the [neoliberal] hyperglobalists as a significant factor in the national debate and in particular in the ranks of the Conservative party and media.”15 Implicit in this argument, therefore, is that there exists a more neoliberal form of euroscepticism that has been allied with, and often drives, its more populist conservative counterpart. As Baker, Gamble, and Seawright note, this neoliberal form of euroscepticism is a response to the more social democratic aspects of the European Union. It wants Britain to “regain parliamentary sovereignty in order to seek to become a deregulated, privatised, low-tax, low-welfare, low-union, low-public spending, offshore island.”16 Making a similar observation, Liesbet Hooghe and Gary Marks note: Neoliberals have skillfully combined economic internationalism and political nationalism in an effort to create national governance and international market competition. They have linked their cause to nationalism to block the development of a Europolity capable of regulating the European economy … Yet, unlike nationalists, neoliberals have goals that stretch beyond defending the sovereignty of national states. They have sought to limit the

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capacity of any political actor – including national states themselves – to regulate economic activity.17 Finally, Owen Worth has made a similar argument about the role of a neoliberal form of euroscepticism in the 2016 Brexit vote. He argues that “the major driving force behind Brexit was ideological, rather than the result of any ‘anti-establishment’ backlash and was drawn from economic neoliberal ideals.”18 This neoliberal form of euroscepticism is thus fully consistent with the neoliberal project for multilevel governance and, in particular, the concept of “neoliberal nationalism” outlined in the last chapter. As that chapter noted, while the other strands of liberal ideology support free trade and international capital mobility for reasons of mutual gains and international peace, neoliberalism supports them primarily for creating the inter-jurisdictional policy competition that they believe will lock in free-market policies at the domestic level. Therefore, in contrast to the other strands of liberalism, neoliberalism is much more opposed to forms of international cooperation, such as the harmonization of tax and regulatory policies related to wealth redistribution and the correction of market failures, which might undermine this policy competition among governments. As a result, rather than being broadly internationalist or “pro-regionalization,” neoliberalism advocates fiscal and regulatory sovereignty within the context of international capital mobility. As cited in Chapter 1, neoliberal intellectual James Buchanan illustrates this point by specifically arguing for an application of his “competitive federalism” to the European context: The opportunity has existed, and still exists, to organize European politics so as to put in place a genuine federal structure with many elements of the ideal set out earlier. The Europe-wide economy has been substantially integrated, with historically unprecedented liberties of resource flows and trade across traditional national boundaries. Reform requires the establishment of a strong but limited central authority, empowered to enforce the openness of the economy, along with other minimal state functions. In this way, and only in this way, can the vulnerability of the individual European to exploitation by national political units be reduced. At the same time, however, the extension of the central authority’s powers beyond such minimal limits must

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be rigidly opposed. The separated nation-states, as members of the federal union, must zealously protect the whole range of ­subminimal political activities.19 In this way, the neoliberal project for multilevel governance provides the theoretical rationale for a neoliberal form of euroscepticism that is distinct from the nationalism advocated by populist conservatives and neoconservatives. This reinforces the explanatory approaches outlined above, which emphasize the role of economic ideas and interests, and the competition between them. It does so by revealing the full motivations behind the neoliberal form of euroscepticism and by situating it within the broader context of an emerging neoliberal nationalism, one that is not unique to the United Kingdom. To demonstrate these points, the next few sections outline the policy preferences of different factions within the Conservative and Labour parties as they relate to European integration. They also outline how these preferences have evolved over time in a manner consistent with the normative projects for multilevel governance and the broader sequence of left / right politics identified in this book. The empirical argument made is that contemporary British euroscepticism is more neoliberal than conservative in origin – that is, less about preserving national sovereignty and identity and more about preserving free markets in a manner consistent with the neoliberal project for multilevel governance. neoliberal support f o r e u r o p e a n e c o n o m i c r e g i o n a l i z at i o n

In 1957, the Treaty of Rome created the European Economic Community (E E C ) or “Common Market.” Britain remained outside the EEC over a variety of concerns, particularly among Prime Minister Harold Macmillan’s governing Conservative Party. Free-market conservatives, for example, viewed the E E C as a mercantilist customs union. They thought it would lead to regional trading blocs that would undermine the more multilateral General Agreement on Tariffs and Trade (G A T T ).20 Populist conservatives were more concerned about national sovereignty and identity. They were also concerned, given their often-rural backgrounds, about the potential impact of the E E C ’s Common Agricultural Policy (C A P ) on Britain’s system of agricultural preferences with the Commonwealth.21 Pro-American

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security conservatives (neoconservatives or “Atlanticists”) feared that joining the E E C would hurt Britain’s “special relationship” with the United States. By the early 1960s, however, Prime Minister Macmillan began to view the Common Market as a mechanism for boosting a sagging economy and for maintaining influence at a time when the British Empire was coming to an end. Macmillan then set about persuading his party by emphasizing how Britain could change the E E C . Accordingly, free-market conservatives came to view British membership in the EEC as a way to prevent any shift toward socialism under a seemingly resurgent Labour Party. As Martin Holmes notes, “Conservatives feared that the return to power of the Labour Party would push British society further to the left … They saw in the Treaty of Rome a capitalist club … [and] a barrier to Socialism.”22 At the same time, “there were also important security arguments which swayed many Conservatives, concerned as they were to strengthen Western Europe against communism.”23 Important here, according to Macmillan’s memoirs, was the idea, supported by President Kennedy, that Britain’s membership in the EEC could bring European foreign policy more in line with Anglo-American preferences.24 Therefore, in 1961, Britain applied for membership but was vetoed by the French president, General Charles de Gaulle. Britain applied again under the subsequent Labour government of Harold Wilson, but was again vetoed by de Gaulle. A few years later, de Gaulle had been replaced in France, and Britain’s third application was successful. In 1973, Britain became a member of the E E C under the Conservative government of Edward Heath. However, while much of the Conservative Party had come to support the E E C , populist conservatives remained strongly opposed. Most prominent here was Conservative M P Enoch Powell. As Andrew Gamble notes, in the choice between the nation and the market, “Powell had no doubt about his choice. The nation came first. Its preservation was ultimately much more important to him than the particular economic and social arrangements that were instituted by government.”25 Many on the left side of the Labour Party, such as Tony Benn, secretary of state for industry, were also opposed. In addition to British agriculture, they were concerned about the impact of the Common Market on Britain’s ability to implement more interventionist industrial policies. As the BBC reported, the Labour Party was “hopelessly split” on the EEC.26

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The result was that Labour leader Harold Wilson ran in the next election on a promise to renegotiate the terms of British membership and to put the results to a referendum. Wilson was returned to power in 1974 and a referendum was held in June 1975. During the referendum, the Conservative Party, now under Margaret Thatcher, strongly supported the “Yes” campaign to remain in the EEC. As Thatcher noted in a speech opening the Conservative pro-EEC campaign, “I … give my wholehearted support to this campaign.”27 In terms of interest groups, “big business in Britain was overwhelmingly pro-European.”28 For example, in a 1975 poll of its 12,000 members, the Confederation of British Industry – the U K’s foremost business lobby group – found that only seven firms felt that E E C membership had been bad for business.29 Reflecting this support, “business mobilised for the campaign on an unprecedented scale.”30 As historian Robert Saunders reported: Commercial giants like I B M, I C I , Ford, Rolls Royce, Barclay’s, Rio Tinto, Imperial Tobacco, W.H. Smith and British Steel campaigned vigorously for British membership, canvassing not just their workforce but their shareholders, customers, employees’ families and those on company pensions … supermarket chains like Sainsbury’s and Marks & Spencer, published articles in their customer magazines, showing the quantity of goods sourced from the Continent. Tesco printed carrier bags, urging shoppers to say “Yes to Europe!” Companies set up displays in the workplace, distributed literature to the workforce or published ­material in the weekly pay-packet … At the nerve-centre of the campaign sat the Confederation of British Industry, which was celebrating its tenth anniversary. The CBI had been proEuropean from the outset: at its inaugural meeting, in 1965, the Director General had identified a closer relationship with Europe as the “first task of the new organization.”31 The business community also provided strong financial support to the “Yes” campaign. As “Yes” campaign treasurer Alastair McAlpine commented, “the banks and big industrial companies put in very large sums of money.”32 For example, this included £26,000 from the Stock Exchange, over £100,000 from the big insurance companies, £200,000 from the clearing banks, and numerous other donations.33 In addition

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to the business community, almost all of the British media, with the exception of the conservative Spectator magazine and the left-leaning newspaper Morning Star, supported the Yes campaign.34 In the end, the Yes side won a resounding two-to-one victory, and Britain remained in the EEC. A decade later, support for the Common Market remained high among neoliberal actors. Therefore, when Jacques Delors became president of the European Commission in 1985, neoliberals strongly supported his proposal for a Single European Act (S E A ) to further expand economic regionalization. This is not surprising given that the European business community played a key role in drafting the Single European Act. In 1983, for example, two years before Delors’s proposal, the C E O of Volvo gathered the chief executives of fifteen other large European corporations to form the European Roundtable of Industrialists (E R T ), Europe’s premier business lobby group. As Guardian columnist George Monbiot observed: “The European Roundtable is no ordinary lobby group … it has been the principal architect of European integration and expansion.”35 The E R T was formed in 1983 with the express purpose of promoting a freer and more harmonized set of trade rules for Europe. Toward this end, the Roundtable drew up a list of proposals that became the basis for the SEA . As Delors would later remark, the Roundtable was “one of the main driving forces behind the Single Market.”36 Support for the Single European Act was also high in the British business community and among free-market Conservatives. As a report by the House of Lords Library notes, “Mrs Thatcher’s Government were leading advocates of the creation of the single market, passing the Single European Act in 1986.”37 Before doing so, however, Thatcher attempted to push her European partners even further in the direction of the neoliberal approach. In 1986, during negotiations over the SE A , “the United Kingdom proposed a radical redirection of Community policy toward labour market flexibility and deregulation.”38 These proposals were rejected by the European Commission, which felt that the S E A already contained sufficient measures along the lines of the British proposal. Despite this, it is clear that from Britain’s entry into the EEC in 1973, through the 1975 referendum, and up to the Single European Act in 1986, neoliberal actors in the United Kingdom are justifiably described as being “proregionalization” or “pro-Europe.”

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f r o m a n t i - r e g i o n a l i z at i o n t o s o c i a l d e m o c r at i c m u lt i l at e r a l i s m

As noted above, when Britain joined the E E C in 1973, the Labour Party was “hopelessly split” on the issue. This was why Labour leader Harold Wilson campaigned, in the two elections held in 1974, on a promise to renegotiate British membership and to put the results to a referendum. Key concerns, according to the Party’s February 1974 manifesto, included how the Common Agricultural Policy was raising food prices and the amount Britain had to contribute to the E E C budget.39 Even more important, however, were concerns over the impact of capital mobility, including any future monetary union, on the ability of Britain to pursue interventionist policies. For example, in terms of renegotiating British membership, the Labour manifesto argued for “the retention by PARLIAMENT of those powers over the British economy needed to pursue effective regional, industrial and fiscal policies. Equally, we need an agreement on capital movements which protects our balance of payments and full employment policies.”40 When Wilson was elected with a majority government, a renegotiation took place, which he then portrayed as successful. The left wing of the Labour Party, however, viewed the concessions obtained from the E E C as falling far short of what their manifesto had promised. To keep his party together, Wilson scheduled the 1975 referendum and allowed his ministers and MPs to campaign on either side. The prime minister and about two thirds of his cabinet supported the Yes campaign to remain in the E E C, while seven of twenty-three ministers, and many MP s, supported the No side. This left-of-centre opposition was based in large measure on the views of the British labour movement, which had long opposed E E C membership based on its concerns over capital mobility and policy competition. As Stephen Silvia notes, “the British Trades Union Congress (TUC) officially opposed British membership in the European Community altogether, arguing that it restricted British economic autonomy to a degree that rendered impossible the implementation of the TUC’s economic program. Informally referred to as ‘Keynesianism in one country,’ this program called for expansionary government spending and increased trade restrictions to restore full employment.”41 Reflecting this view, the T UC – Britain’s largest trade-union association – as well as many individual unions, supported the No

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campaign during the 1975 referendum. Explaining this position during the campaign, the Trades Union Congress noted: The development of the Community since its inception has been largely directed to business rather than social goals, to the elimination of obstacles to free competition and harmonization of the commercial environment. The effect has been to increase the mobility of capital … enabling business to avoid more easily its obligations to employees, and undermining the countervailing influences which the trade union movement might be able to bring to bear … there is no denying that the operations of the Community in elevating freedom of competition as the ideal in the determination of economic and social objectives has made the task of the European trade union movement in securing equity more difficult.42 Also of note is how the TUC framed many of these concerns in terms of national sovereignty: “so long as Britain remains within the Community the sovereignty of Parliament is undeniably circumscribed over a whole range of policies in the economic and social fields.”43 Five years later, following their defeat in the referendum, the labour movement remained opposed to the E E C . What had changed, however, was their influence within the Labour Party. In 1980, Michael Foot, who represented the left wing of the Party and who supported withdrawal from the E E C , was elected leader. That same year, the party formally adopted the view that, “the socialist transformation of the economy cannot be carried out unless we first leave the EEC.”44 This position was then reiterated in the 1983 Labour Party manifesto.45 Two years later, when Jacques Delors first proposed the Single European Act, little had changed, and the labour movement continued to oppose economic regionalization based on their fears related to policy competition. As Silvia notes, “many labour officials feared that [the S E A ] would undermine the position of unions in Europe and could trigger an outbreak of competitive ‘social dumping’ (a contest among Member States to gain an economic edge by offering businesses low wage costs, weak labour laws, and minimal government regulation) that would deteriorate into a relentless downward spiral in the level of wages, benefits, and workers rights throughout Europe.”46 At this time, therefore, most social democratic actors in Britain could justifiably be described as “anti-Europe” or eurosceptical.47 This was

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the case as they sought to prevent policy competition by “bringing the economy back down” to the level of national democratic control. This would be achieved through a policy of economic nationalism that involved pulling out of the European Economic Community and / or resisting its expansion through the Single European Act. However, as the neoliberal and social democratic projects for multilevel governance would predict, notions of pro- and anti-­­regionalization are inaccurate terms. Social democratic actors in Britain were not against regionalization itself, in the same way that neoliberal actors were not simply in favour of it. Rather, what neoliberals were for, and social democratic actors were against, was a type of economic regionalization that allowed the economy to operate at a level above that of national democratic control. The issue was not regionalization per se but, rather, the type of regionalization being pursued. This is why the views of both sides toward Europe seemed to change instantly when Delors announced that the S E A would also be accompanied by a kind of social democratic multilateralism in the form of the European Social Charter. In a speech to the British Trades Union Congress in September 1988, Delors noted that “it is impossible to build Europe only by deregulation … the social dimension is a vital element.”48 Therefore, to prevent the social dumping that could result from policy competition, Delors called for member governments to make an explicit commitment to strong welfare states, full employment, and a set of guaranteed social rights. This explicit commitment would later take the form of the 1989 Community Charter of the Fundamental Social Rights of Workers, known more simply as the “Social Charter.”49 For the members of the TUC and other social democratic actors, Delors’s speech led to a sharp change in preferences toward Europe. They now seemed to accept that economic regionalization was going to occur, and that their best hope was to get on board and attempt to prod it in a more social democratic direction. The idea that the European project should contain a social dimension had emerged as early as 1985. Specifically, in the same way that the European Roundtable of Industrialists played a key role in drafting the Single European Act, so too did its union counterpart, the European Trade Union Confederation (E T UC ), play a key role in drafting the Social Charter. As Silvia notes, “public suggestions that the European Community should add a ‘social dimension’ to its plan to create a single European market first arose from labour and center-left circles

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at the continental level in the latter half of 1985.”50 At the time, however, progress on drafting such a charter moved slowly, because one of ET UC ’s largest members, the British Trades Union Congress, wanted to have nothing to do with the E E C and, thus, nothing to do with any social dimension. But as the British unions began to come around following Delors’s speech, the E T U C started to put together a number of specific proposals. Then, as Silvia reports, “in early December 1988, the Executive Committee of the E T U C adopted a ‘Community Charter on Social Rights’ in the hope of spurring the [European] Commission into action.”51 Therefore, while the T U C retained their key goal of preventing policy competition by having the economy operate at the same level as that of democratic control, they now saw a different way to pursue it. Rather than “bringing the economy back down” to the level of national democratic control through economic nationalism, the unions began to advocate “bringing democratic control up” to the level of the regional economy through the “social democratic multilateralism” embodied in the Social Charter. As one study noted, “the enthusiastic reception given to the Charter by trade unions suggests that it will assist them. It is noteworthy, in this connection, that the British Trades Union Congress (T UC ) abruptly changed its anti-community stance in 1988 in response to the advantages it perceived as emanating from the establishment of a Community-wide plinth of social rights.”52 The Labour Party also switched its position on European integration in response to Delors’s speech on adding a social dimension to the SEA . As the B B C reported: “This fact, which Mr Delors expressed to the TU C in 1988 more explicitly than had been done before, played no small role in effecting [the British Labour Party’s] full conversion from its early antipathy to broad support for Europe.”53 In this way, social democratic actors in Britain quickly shifted from an anti-Europe to a pro-Europe position in a manner fully consistent with the social democratic project for multilevel governance. the rise of neoliberal euroscepticism

A similar shift occurred among neoliberal actors. As the BBC noted, in addition to causing the British Labour Party to switch its views on Europe, Delors’s speech on the need for a social charter “also helped propel the Tories in the opposite direction.”54 Most notable here was the now-famous speech given by Margaret Thatcher shortly afterward

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in Bruges, Belgium. In the speech, Thatcher was explicit about her opposition to a social dimension for Europe. She argued: “We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at the European level.”55 In the rest of her remarks, Thatcher outlined her vision of a free-market Europe and her intent to fight against any implementation of the Social Charter. “Our aim should not be more and more detailed regulation from the centre,” she argued, “it should be to deregulate and to remove the constraints on trade.” Moreover, even though the 1989 Community Charter of the Fundamental Social Rights of Workers was declaratory rather than legally binding, the Thatcher government was the only one of the E E C ’s twelve member states not to sign it. The growing euroscepticism of Thatcher and the Conservative Party was enhanced by those holding pro-American Atlanticist views. Specifically, when the Soviet Union collapsed in 1989, it took with it some of the security arguments in favour of European integration. Moreover, important to note here is the connection between the neoliberalism and Atlanticism of the Thatcherites. As Matthew Sowemimo notes, Thatcher’s “commitment to Atlanticism was reinforced by her instinctive trust in America’s free trade instincts and her fear that Europeans were inclined towards protectionism.”56 Beyond the Conservative Party, Thatcher’s Bruges speech became a rallying cry for British neoliberals. It led to the formation, in 1989, of the Bruges Group, a prominent free-market think tank specifically created “to promote the idea of a less centralised European structure.”57 Other neoliberal think tanks were also against the Social Charter proposed by Delors. As The Times reported: “The think tank industry has not been slow to take up the challenge of providing a free market alternative to the corporatist view of Europe’s future presented in the Delors report.”58 The Adam Smith Institute, for example, created its “Euromega” project to focus specifically on European integration. Similarly, the Institute of Economic Affairs (IEA) published various reports and books against the Social Charter such as “Social Engineering in the European Community: The Social Charter, Maastricht and Beyond” and Europe’s Constitutional Future, which included a chapter by James Buchanan.59 As outlined in Chapter 1, Buchanan is a key intellectual proponent of “competitive federalism” and, in the IEA volume, he explicitly argued for its application to the European context. This included an attack on the idea of a “social Europe.” As Buchanan argued:

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If the proponents of federal union have not themselves fully escaped from residual socialist failures to understand the efficiency-generating forces of competition, both in markets for goods and among separately existing units in a federal system, they may advance nightmare versions of a regulatory “Brusselsisation” that would prove totally unacceptable to those who are reluctant to surrender any shares in national sovereignty … Excessive Europe-wide regulations, controls, fiscal harmonisation, fiat-issue monopoly, and so on, would, of course, destroy much of the gain that economic integration might promise.60 Important in the latter part of this quote is the view that social democratic forms of multilateralism can remove many of the gains of trade. This reveals that the neoliberal conception of European integration is as much about policy competition and locking in free-market policies as it is about access to markets, comparative advantage, and mutual gains. The business community was also strongly opposed to the Social Charter. For example, in a September 1989 op-ed piece, the Confederation of British Industry director-general John Banham argued: “Legislating an improved standard of living is not a feasible proposition … That is why employers across Europe oppose what is on offer in the draft European Community Charter of Fundamental Social Rights.”61 Two years later, the European Commission sought to expand the Social Charter into a more legally binding “social chapter” during negotiations over the Maastricht Treaty on Economic and Monetary Union (E M U ). When it did so, business opposition grew stronger and the language it employed became sharper and more anti-Europe. On different occasions, for example, the C B I referred to the social chapter as a “dangerous sham,” “nonsense,” and “halfbaked social engineering that is earning the Brussels bureaucrats the gratitude of our competitors.”62 It was particularly concerned about the power a social chapter would give to trade unions and the potential for collective bargaining at the European level.63 Instead, it advocated for “the principle of subsidiarity” to keep labour regulations and bargaining at the national level.64 The Institute of Directors, another key U K business association, was also opposed to the social chapter and the potential for any European-level collective bargaining. Its director-general, Peter Morgan, stated that “this is reminiscent of the corporatist approach which was pursued in Britain in the Sixties and Seventies, and which failed.”65

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Most important in terms of public opinion, however, was the shift that occurred among the more neoliberal-oriented media and, in particular, the newspapers of the Rupert Murdoch and Conrad Black organizations.66 As George Wilkes and Dominic Wring note, “dramatic changes in Conservative and Labour positions over the U K’s role in Europe in the mid-1980s meant the right-wing press would now gain a domestic political premium from attacking the Community.”67 Amplifying this political premium was the strongly neoliberal views of Rupert Murdoch and the way that he used his growing UK media holdings – including The Sun, The Times, and The Sunday Times – to advance his personal ideological beliefs. As David McKnight argues, Murdoch’s News Corporation is a “media institution with a mission,” as much about advocating for free-market policies as it is about either journalism or even making a profit.68 Murdoch himself, and his News Corporation, maintained strong links with various free-market think tanks, such as the Cato Institute in the US and the Institute of Economic Affairs (I E A ) in the UK. In fact, the former founder of the I E A , Lord Harris of High Cross, was even the director of the Times Holding Company between 1988 and 2001. In terms of his specific message on Britain’s place in Europe, Oliver Daddow argues that, “the medium might change from broadsheets to tabloids, but the Murdoch message has been the same: deregulated free markets are under threat from the existence of a powerful EU .”69 Also significant is that Murdoch’s specific approach has been described as one of “market populism” in that it advocates neoliberal policies through the use of more populist conservative language.70 Thus, just as the business associations began using sharper language against the Social Charter and Brussels, so too did the neoliberal press. As Daddow reports: “Tabloid coverage of European affairs took on a qualitatively different tone in Britain during the 1980s. It became more bombastic, injected a greater sense of urgency into the debates by presenting treaty reforms as existential threats to British sovereignty and identity.”71 This included the use of increasingly nationalist language by the tabloids and by the Rupert Murdoch and Conrad Black broadsheets, such as The Times and The Daily Telegraph, respectively.72 Therefore, while British euroscepticism often appears to be populist and conservative on the surface, it is important to recognize that, in many cases, such views have been fanned based on an underlying neoliberal motivation. Moreover, to the extent that populist conservatives were always opposed to European integration, it is clear that

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the shift to euroscepticism in the Conservative Party and the media was driven primarily by the shift among neoliberals in response to the Social Charter. Had Thatcher and other Conservatives been more concerned about sovereignty than free-market policies, they would not have supported the Single European Act, which included the “qualified majority voting” that put an end to national vetoes. However, while neoliberals were united in their opposition to the Social Charter, they split over the issue of monetary integration. As Sowemimo notes, “the single-currency issue split the previously united Thatcherite free-market grouping.”73 To understand why, the next section uses the neoliberal and social democratic projects for multilevel governance to theorize the complex politics of the “impossible trinity” (of capital mobility, fixed exchange rates, and monetary policy autonomy). the politics of the impossible trinity a n d   m o n e ta r y u n i o n

To theorize neoliberal and social democratic views on monetary integration, it is necessary to start with a key concept known as the “impossible trinity,” which has also been referred to as the “unholy trinity,” the “policy trilemma,” or more formally, in the economics literature, the “Mundell-Fleming thesis.”74 According to this widely accepted thesis, a government can pursue only two of the following three policy goals at any one time: capital mobility, a fixed exchange rate, and autonomy in monetary policy (i.e. to stimulate out of a recession). For example, if a government had capital mobility and a fixed exchange rate, it would be unable to lower interest rates to fight a recession, as this would lead to an outflow of capital and a depreciation of the currency out of the fixed rate. The only way that the government could have both monetary policy autonomy and a fixed exchange rate is to prevent investors from taking their money abroad through capital and exchange controls. The impossible trinity thus gives rise to the three main policy options: 1. capital mobility, a fixed exchange rate, and no autonomy in monetary policy; 2. capital mobility, a floating exchange rate, and monetary policy autonomy; or 3. capital controls, a fixed exchange rate, and monetary policy autonomy. To understand why different options are chosen, it is useful to outline neoliberal and social democratic preferences on the impossible trinity. It is also important to note that, in terms of the impossible trinity, a common currency represents the ultimate form of fixed exchange rate.

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The Politics of the Impossible Trinity Of the three policy goals within the policy trilemma, neoliberals place their normative priority on ensuring capital mobility. As outlined in detail in Chapters 1 and 3, it is capital mobility and free trade that creates an exit option and promotes policy competition. For neoliberals, creating an exit option in the political sphere is the ultimate protection for individual freedom as it applies market principles and competition to the realm of public policy.75 Therefore, whereas classical economic liberals support international capital mobility for reasons of economic efficiency and mutual gains, neoliberals support it primarily for its ability to promote economic freedom through the creation of an exit option and policy competition at the international level. Finally, equally important for neoliberals is that the policy competition created by capital mobility is viewed as helping to promote “sound” fiscal and monetary policies and thus constraining social democratic forms of intervention.76 With capital mobility as the priority, neoliberals must then choose between either fixed exchange rates or monetary policy autonomy. In neoliberal theory, the primary goal of monetary policy is always very low inflation. This is because inflation – a rise in the general level of prices – erodes the purchasing power of a currency, and thus wealth, over time. It also allows governments to pursue more interventionist policies in that they can inflate their way out of debt and cushion the blow of any tax increases. For all these reasons, neoliberals view inflation as an infringement on property rights and a type of tax on wealth. To maintain low inflation, Hayek advocated for a true free market in money.77 Therefore, rather than national currencies issued by governments, currencies would be created by private banks and anchored to gold through a 100 percent reserve requirement. Private currencies would then compete based on how “sound” (non-­ inflationary) they were, and this would lead to very low inflation. However, recognizing that the privatization of money would be politically difficult, Buchanan proposed a mechanism based on policy competition. He did so in a 1990 volume on European integration put together by the Institute of Economic Affairs, the British neoliberal think tank mentioned earlier. Specifically, Buchanan argued that: The monetary arrangements for effective economic integration that must be constitutionally established are those that closely resemble the competing-currency scheme, advanced earlier by

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F.A. Hayek … Citizens of Europe … must be legally-constitutionally allowed to transact affairs, to make contracts enforceable in their own courts, in the monetary unit issued by the central bank of any of the nation-states of the union … The potential competition among the central banks of the separate nation-states provides the disciplinary pressure that will offset the inflationary proclivity of fiat-issue authorities.78 Therefore, in a similar fashion to Hayek’s private money, Buchanan’s approach would see national currencies competing based on how “sound” they were. Low inflation would thus be locked in through policy competition rather than private competition. To the extent that Buchanan’s approach was also viewed as too politically difficult, many neoliberals emphasized quasi-constitutionalism, rather than policy competition, as a way to lock in a low inflation policy. As Stephen Gill argues through his concept of new constitutionalism, this was achieved through neoliberal support for fixed exchange rates, including the shift to a single currency.79 In terms of the impossible trinity, when capital mobility is combined with a fixed exchange rate / common currency, it eliminates monetary policy autonomy among the individual countries and thus locks in a low-inflation policy. As neoliberal economist Jesus Huerto de Soto argues, fixed exchange rates have been strongly supported by “Austrian school” (Hayek and von Mises) neoliberals. This is because they: believe that until central banks are abolished and the classic gold standard is reestablished along with a 100 percent reserve requirement in banking, we must make every attempt to bring the existing monetary system closer to the ideal, both in terms of its operation and its results. This means limiting monetary nationalism as far as possible, eliminating the possibility that each country could develop its own monetary policy, and restricting inflationary policies of credit expansion as much as we can, by creating a monetary framework that disciplines as far as possible economic, political, and social agents, and especially labor unions and other pressure groups, politicians, and central banks.80 Making a similar observation of fixed exchange rates as a secondbest option, Hayek noted: “I do not believe we shall regain a system of international stability without returning to a system of fixed

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exchange rates, which imposes on the national central banks the restraint essential for successfully resisting the pressure of the advocates of inflation.”81 Buchanan also came around to the idea of fixed exchange rates as a politically viable alternative for locking in a low-inflation policy.82 In terms of the impossible trinity, this is why Austrian-school neoliberals generally support the option of capital mobility, a fixed exchange rate, and no autonomy in monetary policy. Moreover, it is this option that, on the surface at least, appears consistent with the centralization of monetary policy inherent to the “market-preserving federalism” approach. In particular, it is consistent with Weingast’s final criterion that: “(F 5 ) the lower governments face a hard budget constraint, that is, they have neither the ability to print money nor access to unlimited credit.”83 This is why, in much of the literature, European monetary integration has often been viewed as a neoliberal policy.84 As Helleiner explains, “monetary union was seen as a project to reinforce various goals associated with neoliberal thought: the acceleration of international economic integration, the imposition of greater market discipline within the domestic economy, and the introduction of ‘neo-constitutionalist’ measures that lock in fiscal restraint and the promotion of price stability as the primary goal of monetary policy.”85 This is also why right-of-centre opposition to European monetary integration has sometimes been portrayed as populist and nationalist rather than neoliberal in origin. However, to understand the split that occurred among British neoliberals over European monetary integration, it is important to recognize that there also exists a strong neoliberal argument against fixed exchange rates and common currencies. This argument is provided by Milton Friedman and his “Chicago-school” neoliberals. Specifically, Friedman’s logic is that the deflationary bias imposed by the capital-mobility / fixed-exchange-rate (or common currency) policy combination can be too severe, and thus poses a threat to the primary goal of maintaining capital mobility. For example, in times of recession, a lack of monetary policy autonomy can require politically unsustainable levels of austerity and, in turn, create demands for restrictions on capital mobility. Making this point on common currencies, Friedman argued: There is no historical precedent for such an arrangement. It involves each country’s giving up power over its internal

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monetary policy to an entity not under its political control. Such a system has economic advantages and disadvantages, but I believe that its real Achilles heel will prove to be political; that a system under which the political and currency boundaries do not match is bound to prove unstable.86 Thus, as a strategic matter, Friedman prefers floating exchange rates to retain some monetary policy autonomy. However, because he shares the sound money goals of all neoliberals, he also advocates for money supply or inflation targeting as a more politically sustainable alternative to fixed exchange rates.87 As outlined in the next section, it is a variation of this more strategically oriented argument that explains why Margaret Thatcher’s opposition to European monetary integration also has its origins in neoliberalism rather than populist nationalism. Turning to social democrats, we see that they can have equally complicated preferences in terms of the impossible trinity. First, and reflecting the broader social democratic project for multilevel governance, these preferences start with the normative priority of maintaining policy autonomy. In the monetary realm, this is seen as necessary to allow for Keynesian macroeconomic management, particularly for stimulating out of a recession. It is for this reason that social democrats are generally most opposed to the capital-mobility / fixed-exchangerate option preferred by Austrian-school neoliberals. In addition to monetary policy autonomy, social democrats have also historically preferred fixed exchange rates to capital mobility. First, fixed exchange rates without capital mobility can help to promote international trade. Second, and more important, social democrats have generally sought to avoid the policy competition created by capital mobility as it can undermine the broader Keynesian-welfare state. This opposition to policy competition began most prominently with John Maynard Keynes and Harry Dexter White in their design of the 1944 Bretton Woods Agreement. As cited in Chapter 2, Helleiner notes that “both Keynes and White argued that the new welfare state had to be protected from capital flight initiated for ‘political reasons’ or induced by a desire to evade ‘the burdens of social legislation.’”88 More recently, while viewing the monetary-policy-autonomy / fixedexchange-rate option as the ideal, some social democrats have accepted the capital-mobility / floating-exchange-rate option as an acceptable second choice, as it preserves the primary goal of monetary policy autonomy. This option is seen as both a practical political compromise

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and, having learned the lessons of stagflation in the 1970s, as a tool for preventing runaway inflation by limiting monetary policy to counter-cyclical stimulus only.89 Finally, some social democrats in Europe have supported the capitalmobility / fixed-exchange-rate / common-currency option. However, they have done so primarily as a strategic stepping-stone toward more comprehensive European integration. As Helleiner notes, “some social democrats and unions have embraced [the Economic and Monetary Union] because they have seen it as a necessary step in the construction of a stronger EU in which social democratic goals have a prominent place.”90 From this perspective, the neoliberal effects of monetary integration are seen as being offset by further integration based on the insights of Robert Mundell’s “optimum currency area” (OCA) theory. OCA theory essentially outlines a number of conditions, which, if met, will offset the loss of monetary policy autonomy associated with a common currency. The main condition is that the countries involved experience external economic shocks in a symmetrical way so that they will all require the same monetary policy at the same time. However, if the countries experience economic shocks in an asymmetrical manner, and thus require opposing monetary policies, the loss of monetary policy autonomy associated with a common currency can be offset instead by labour mobility and a common fiscal policy. Thus, when one region does not receive the monetary stimulus it requires, it would receive fiscal transfers as compensation and its workers could move to other regions for employment. This type of integration is in line with the social democratic approach to fiscal federalism in that it aims to have monetary and fiscal policies at the same level in a way that approximates monetary policy in a single country. In many ways, therefore, social democratic views on the impossible trinity and monetary integration are similar to their views on free trade and social democratic multilateralism, and, in turn, their broader views on fiscal federalism. Specifically, like free trade, monetary integration by itself is opposed because it is seen as bringing the economy up to the regional level in a way that limits policy autonomy and locks in free-market policies. However, when combined with a form of social democratic multilateralism – in this case the labour mobility and common fiscal policy that can offset the loss of monetary policy autonomy – they can support it. This support is reinforced in situations where monetary integration is viewed as part of broader and more socially democratic project of regional integration.

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The Neoliberal Split over Monetary Union Since its inception in 1979, Margaret Thatcher had been opposed to Britain joining the European Exchange Rate Mechanism (E R M ), a system of fixed exchange rates designed to promote low inflation and act as a precursor to eventual monetary union. Given that one of her first acts in office was to remove capital and exchange controls, entering the E R M would have put Britain into the impossible trinity’s capital-mobility / fixed-exchange-rate option. Thatcher was opposed to this option based on her strong adherence to Friedman’s monetarist approach. As Ryan Bourne, the former head of economic research at the neoliberal Centre for Policy Studies, notes, “Thatcher’s government never embraced a Hayekian outlook on macroeconomics, with policies more closely resembling the Friedmanite monetarist approach.”91 Despite this, key members of Thatcher’s cabinet did support joining the E R M, as they viewed it as a more effective way to lock in a low-inflation policy and to promote trade with Europe. As Sowemimo notes, this group viewed “European integration and especially EMU as an opportunity to enhance the free-market project rather than as a threat to it.”92 Moreover, it was this line of division that would eventually lead to the split among British neoliberals over monetary integration and Europe more broadly. In doing so, it demonstrates the importance of ideas in terms of defining interests in complex policy situations. This split among neoliberals became apparent in the late 1980s, when Chancellor of the Exchequer Nigel Lawson and Foreign Secretary Geoffrey Howe began rallying other cabinet ministers to support Britain joining the E R M. This also reflected the views of the business community, which now supported joining the ERM to reduce exchange-rate volatility and promote trade.93 However, Thatcher’s growing euroscepticism over the Social Charter only reinforced her opposition to the E R M and to the Economic and Monetary Union. She viewed all of it as a “conveyor belt to a single currency,” and, in turn, to a more politically integrated Europe that would derail her neoliberal policy agenda.94 In many ways, this argument was similar to Milton Friedman’s concern that fixed exchange rates would eventually lead to economic nationalism and the end of capital mobility. Instead of economic nationalism, however, Thatcher was concerned that a single currency would eventually require social democratic multilateralism in the form of a fiscal union and even greater

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integration. Therefore, like Friedman, Thatcher’s divergence from other neoliberals was strategic rather than ideological. Matters came to a head in 1989, when Lawson resigned over the ERM issue and was replaced by John Major as chancellor. Major was also a strong believer in the E R M, arguing that “the most precious gift you could offer British business over the medium term was a stable exchange rate and a stable inflation rate. And what was the best mechanism to achieve this … an Exchange Rate Mechanism.”95 Then, using the prospect of a cabinet revolt as leverage, Major pressured Thatcher into joining the E R M , which Britain did in 1990.96 Later that year, Thatcher gave a strongly anti-Europe speech – her famous “No, No, No” speech – in response to a call by Jacques Delors for a greater centralization of power in Brussels.97 This, along with declining poll numbers, led to a cabinet revolt that began with the resignation of Foreign Secretary Howe and ended with Thatcher’s own resignation in November 1990. Shortly thereafter, Thatcher was replaced by John Major as prime minister. However, this did not end the split among neoliberals in the Conservative Party, many of whom now sided with the anti-Europe populists. As a result, one year later, during the December 1991 negotiations over the Maastricht Treaty on Economic and Monetary Union, Major negotiated an opt-out for Britain on the social chapter, which all neoliberals supported, and on the single currency, to appease the eurosceptics. This latter move was strongly opposed by the Confederation of British Industry, which supported the single currency and disagreed with Thatcher’s view that it would lead to evergreater integration. As John Banham, the C B I ’s director-general, argued: “Accepting a single currency does not mean accepting a federal union, the Social Charter, a European industrial policy or a Fortress Europe.”98 Despite these divisions, Major was able to hold the Conservative Party together and win the April 1992 election. A few months later, however, the September 1992 E R M crisis hit and Britain was forced to take sterling out of the Exchange Rate Mechanism. The crisis was due to the impossible trinity situation of capital mobility, a fixed exchange rate, and a recession. With no monetary policy autonomy, Britain was unable to lower interest rates to stimulate the economy and this led to politically unsustainable levels of austerity.99 After speculative attacks against the pound, Britain was forced to give up the ERM system of fixed exchange rates in order to regain monetary policy autonomy.

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Politically, the E R M crisis reinforced the position of Thatcherite neoliberals and further emboldened them against monetary union. This manifested itself a few months later, in 1993, when a large number of Conservative MP s rebelled against Major’s attempt to ratify the Maastricht Treaty. As Gifford notes, the Maastricht rebels “had become a separate organized faction within the party with their own offices, unofficial whips and briefing books,” and that, by the time of the ratification vote, “the Eurosceptics had in effect become a significant right-wing national movement.”100 This movement was strongly supported by the Murdoch and Black media outlets, which campaigned against Maastricht and attacked Major’s leadership.101 Moreover, as mentioned earlier, they did so using increasingly nationalist and xenophobic language and this worked to move public opinion in a more anti-European direction. Despite the populist language, however, it is important to emphasize that the split in the Conservative Party was primarily driven by the split among neoliberals (which was new) rather than one between neoliberals and populists (which had existed for some time). This, in turn, reinforces the view that Conservative Party opposition to the single currency, and further European integration, was more neoliberal than nationalist in its origin. In the end, Major was able to push ratification through, including the opt-outs on both the social chapter and the single currency.102 Nevertheless, the Conservative Party remained strongly divided and, from the 1993 ratification of Maastricht onward, right-of-centre euroscepticism in Britain became stronger, more organized and more influential in shaping public opinion. As Gifford observes, “While the exact influence of Euroscepticism on public opinion is open to debate, by the mid-1990s it was noticeable that public attitudes towards membership of the E U had moved in a more negative and sceptical direction.”103 Labour, Monetary Union, and the Hardening of Conservative Euroscepticism Right-of-centre euroscepticism continued to harden over time in response to the 1997 election of Labour prime minister Tony Blair and his more pro-European agenda. As outlined earlier, the Labour Party had shifted from anti- to pro-regionalization following Jacques Delors’s promise to promote the idea of a “social Europe.” This shift was also reflected in the Labour Party’s changing views on the

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Exchange Rate Mechanism and monetary union. As Andrew Gamble and Gavin Kelly reported, “after 1987 … following Labour’s conversion to Europe, the party leadership became enthusiasts for Britain’s membership of the E R M and supported the Conservative government when it entered in 1990.”104 The Labour Party also supported the Maastricht Treaty, pushed for Major to adopt the social chapter, and promised a referendum on monetary union. Therefore, when Tony Blair was elected prime minister in 1997, he quickly signed on to the social chapter through the Treaty of Amsterdam and signalled support for eventually joining the single currency. At this time, therefore, Britain’s relationship with the E U was moving more in the direction of social democratic multilateralism. That it did so lends support to the idea that Tony Blair’s “third way” approach was different from both the neoliberal idealism of the Thatcherites and the neoliberal pragmatism of the business community and the pro-E R M Conservatives. Within the Labour Party itself, support for the single currency was uneven, with different factions supporting or opposing it for different reasons. The Labour leadership, including many proponents of “third way” social democracy / classical liberalism, supported a single currency for its ability to promote trade and low inflation. This fit with their more centrist ideology and their electoral interest in changing the Labour brand to one of more competent economic management.105 More socially democratic members of the Party either grudgingly accepted a single currency as inevitable or, even if they were opposed, thought it might be acceptable if it were part of a broader and more socially democratic form of integration. In the latter case, Gamble and Kelly draw on survey material to note that “this group is strongly opposed to E M U and to the Maastricht Treaty because they see them as creating a ‘bankers’ Europe and the reinforcement of a laissez-faire economic regime.” However, they “would support the introduction of a single currency if it were linked to the creation of a European state and a European government.”106 In fact, this seemed to be the position of the Trades Union Congress. Specifically, “the TUC’s shift to a strongly pro-integrationist (and pro-EMU) position in the 1990s was premised (at least partially) on the belief that E M U would assist the labour movement in campaigning for better employment rights and workplace conditions through action at the E U level.”107 In other words, consistent with the social democratic project for multilevel governance, social democratic actors were

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willing to support monetary union as a stepping stone to a more integrated and socially democratic Europe. By mid-1999, and despite growing pressure from the TUC and much of the business community to join the recently launched euro, the Labour Party became colder on joining the new single currency. This was largely due to electoral considerations rather than a change in ideology. The Murdoch newspapers were campaigning strongly against joining the euro, as was the Conservative Party under the more eurosceptical leadership of William Hague. The result was that, by the time of the June 1999 elections to the European Parliament (EP), public opinion polls were running two-to-one against Britain joining the euro.108 When the Conservatives came out on top in the EP elections – and largely due to their campaign to keep the pound – the Labour Party was spooked. Over the next decade, under Tony Blair and then Gordon Brown, Labour remained pro-European in ideology, but it kept Britain out of the euro and tried to downplay EU issues as much as possible.109 The Conservative Party was also becoming somewhat spooked by the public’s growing euroscepticism, particularly as it was manifested in the growing strength of the United Kingdom Independence Party (U K I P ). Where the Conservative Party wanted to avoid monetary union and the more social democratic aspects of the EU, UKIP wanted to pull out of the E U entirely. Moreover, despite its ever-increasing nationalism and xenophobia, U K I P did begin from more neoliberal origins and still claim to be the “true inheritors” of Margaret Thatcher’s legacy.110 Originally named the Anti-Federalist League, UKIP was founded in 1991 by historian Alan Sked. Sked was a former member of the Bruges Group, the think tank founded after Thatcher’s famous “Bruges speech” in opposition to the Social Charter. Nigel Farage, UKIP’s leader during the Brexit campaign, was also a member of the Bruges Group and pointed to Thatcher’s Bruges speech as having “precisely encapsulated my personal feelings.”111 This neoliberal component was further demonstrated in UKIP’s consistent advocacy of free-market policies, such as deregulation, tax cuts, public sector cuts, the use of vouchers for health care and education, and opposition to climate-change policies.112 Over time, however, UKIP began to focus more and more on the issue of immigration as a way to frame its anti-EU positions and build public support. As Karine Tournier-Sol notes, “the party has successfully connected its core policy on Europe, which is a low salience issue for British voters, to immigration – which on the contrary is a high salience issue for the electorate.”113

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“brexit”

As with British euroscepticism, Brexit – the British exit from the European Union – is often portrayed as a populist revolt against the forces of globalization. On the one hand, the arguments in favour of Brexit were often populist and conservative on the surface, in that they were framed in terms of British nationalism, identity, and sovereignty. On the other, most of the “establishment” – including the leadership of all parties, the C B I , the T U C , and much of the business community – supported remaining in the E U . However, as the previous sections have argued, British euroscepticism has been driven by a neoliberal form of nationalism, which employed nationalistic discourses to mobilize populist conservatives and public opinion against the socially democratic aspects of the E U . British euroscepticism and Brexit are, therefore, fully consistent with the neoliberal approach to multilevel governance. Moreover, when combined with the growing split within the free-market coalition and the rise of U K I P , these trends meant that, by the late 2000s, all the underlying conditions for Brexit were now in place. The conjunctural conditions for Brexit then began, arguably, in 2008, with the onset of the Great Recession and the euro crisis. The Euro Crisis and the Slide toward Fiscal Union The Great Recession started with the bursting of the housing bubble in the US and then quickly spread to Europe. Those countries that had adopted the euro were now in the impossible-trinity situation of capital mobility, a common currency, and no autonomy in monetary policy. The result was a level of austerity that pleased some neoliberals by forcing the adoption of more free-market policies. As a report from the Austrian-school Ludwig von Mises Institute argued, the arrival of the Great Recession of 2008 has even further revealed to everyone the disciplinary nature of the euro: for the first time, the countries of the monetary union have had to face a deep economic recession without monetary-policy autonomy. Up until the adoption of the euro, when a crisis hit, governments and central banks invariably acted in the same way: they injected all the necessary liquidity, allowed the local currency to float downward and depreciated it, and indefinitely postponed the painful structural reforms that were needed and that involve

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economic liberalization, deregulation, increased flexibility in prices and markets (especially the labor market), a reduction in public spending, and the withdrawal and dismantling of union power and the welfare state. With the euro … this type of irresponsible behavior and forward escape has no longer been possible.114 While Austrian-school neoliberals were pleased, others recognized that the high levels of austerity resulting from the euro crisis could lead to either economic nationalism or even further social democratic multilateralism, as Margaret Thatcher had predicted. In fact, this is precisely what many European social democrats and unions advocated. For example, prominent social democratic scholars, including Jürgen Habermas, argued that: There are only two coherent strategies for dealing with the current crisis: a return to national currencies across the E U … or the institutional underpinning of a collective fiscal, economic and social policy within the eurozone, with the further aim of restoring to policymakers their lost capacity for action in the face of market imperatives at a transnational level. And looking beyond the current crisis, the promise of a “social Europe” also depends on this … the peoples of Europe could regain, at a European level, the sovereignty that was stolen from them by “the markets” a long time ago.115 Social democratic views on the eurozone crisis have thus been consistent with the social democratic approach to multilevel governance. Moreover, while the European Union initially pursued a more neoliberal approach focused on low inflation and austerity, it also began to move in the direction of a fiscal union. This process began in May 2010, with the bailout of Greece. Specifically, the Council of the European Union agreed to create a common bailout fund – the European Financial Stability Facility – to provide loans to Greece and other countries experiencing sovereign debt crises. The intent was to provide limited bailouts with strong conditionality, meaning that, in exchange for loans, Greece would have to undertake harsh austerity measures and structural economic reforms. That same year, David Cameron was elected prime minister of Britain in a coalition between his Conservative Party and the Liberal

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Democrat Party. In terms of Europe, Cameron had run on a platform that again reflected an attempt to hold together a divided party. In particular, his party’s 2010 manifesto stated: “We believe Britain’s interests are best served by membership of a European Union that is an association of its member states. We will never allow Britain to slide into a federal Europe.”116 The next year, in February 2011, the E U established a more permanent bailout fund in the form of the European Stability Mechanism, and this was followed in December by negotiations over the creation of a European Fiscal Compact. At this point, the E U was moving more and more in the direction of a fiscal union, which, while neoliberal on the surface, was more structurally social democratic in terms of creating the framework for a more centralized fiscal policy. Moreover, when Cameron failed to secure certain concessions during these negotiations, including the City of London being exempted from new financial regulations, Britain stayed out of the Fiscal Compact. More important, the push toward fiscal union ramped up the process of Britain more fundamentally rethinking its position within the European Union. As a report by the House of Commons Library noted, “the eurozone crisis and E U moves towards closer fiscal, as well as economic and political, union, have given rise to renewed questioning of the U K’s relationship with the EU .”117 This questioning was evident among populist conservatives and neoliberal idealists in terms of the growing strength of UKIP and a number of Conservative backbench motions to hold an in-out referendum.118 It was also evident among neoliberal pragmatists, with the creation of the Fresh Start Project by over a hundred Conservative MPs. In July 2012, this organization published a report titled Options for Change, which proposed renegotiating Britain’s relationship with the EU , including the need to repatriate a variety of powers.119 In response to this growing pressure, the government launched its own “Review of the Balance of Competences” to audit the impact of EU policies on Britain, and, in November of that year, Prime Minister Cameron told a European Council meeting that Britain wanted a “new settlement.”120 Two months later, in January 2013, Cameron gave his now-famous “Bloomberg speech,” which outlined his vision for a more free-market, decentralized Europe. He also announced his intent, if reelected, to renegotiate Britain’s relationship with the E U and hold a referendum on Britain’s membership. In the May 2015 election, Cameron’s Conservatives were reelected with a majority government, and the prime minister followed through on his promise

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to renegotiate and hold a referendum. Moreover, as the neoliberal and social democratic projects for multilevel governance would predict, the business community supported, and the trades unions opposed, Cameron’s goal to retain the single market but repatriate powers related to social and labour laws. In the former case, for example, Confederation of British Industry’s director-general, John Cridland, issued a press release stating: “The EU single market is fundamental to Britain’s future economic success, but the closer union of the Eurozone is not for us. The Prime Minister rightly recognizes the benefits of retaining membership of what must be a reformed E U and the C B I will work closely with government to get the best deal for Britain.”121 In contrast, the Trades Union Congress argued that “the Conservatives want a free market Europe without workers’ rights, controls on the financial sector, equality laws, human rights and so on.”122 Similar views were also presented in testimony before the House of Lords European Union Committee. This testimony included strong support for renegotiation and repatriation from TheCityUK, a key financial services lobby group.123 In February 2016, the prime minister presented the results of the renegotiations and then announced that the in-out referendum would occur on 23 June 2016. The Neoliberal Split over Brexit On the surface, the Brexit referendum appeared to be a contest between the populist conservatives, supporting the “Leave” campaign, and the establishment, endorsing “Remain.” For example, the Leave campaign was supported most prominently by the United Kingdom Independence Party and its leader Nigel Farage, a large number of Conservative Party M P s, the tabloid press, various populist fringe parties on the right and left, and the populist former mayor of London, Boris Johnson. The Remain campaign, in contrast, was supported by Prime Minister Cameron and most of his cabinet, the Labour Party, the Liberal Democrat Party, much of the business and elite media, many C E O s and business leaders, the Confederation of British Industry, TheCityUK financial services lobby group, the Trades Union Congress, and most environmental groups. The Remain camp was also strongly endorsed outside of the U K by numerous international figures and international organizations, such as the G7, the G20, the W T O , the World Bank, the I M F , the O E C D , and N A T O . Given this breakdown of support, it is understandable why Brexit does appear,

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on the surface at least, to be a populist revolt against globalization and the establishment. However, to fully theorize the Brexit vote, it is important to explain why the Remain campaign was supported by both neoliberal and social democratic actors and why many other neoliberal actors supported the Leave campaign. For those companies and trade unions supporting the Remain side, the EU was viewed as imperfect – albeit for opposing reasons – but far better than the alternative. For example, in a key report entitled “Better Off In: Working People and the Case for Remaining in the EU ,” the Trades Union Congress was critical of E U austerity during the euro crisis but viewed the EU as very important for the protection of workers’ rights.124 As T U C General-Secretary Frances O’Grady argued in a letter to The Times, “if the Brexit camp get their way many vital workplace benefits that the E U has given us – paid holidays, extra maternity rights, and better conditions for part-time workers – could be for the chop. That may prove attractive to unenlightened business leaders but it will not win the hearts and minds of working people buckling under the strain of insecurity and reduced living standards.”125 Therefore, in terms of supporting the E U based on its structural framework of social democratic multilateralism, this position is fully consistent with the social democratic approach to multilevel governance. Consistent with the neoliberal approach to multilevel governance, and in contrast to the labour movement, the business community remained critical of the EU’s labour and social regulations, and wanted to see them repatriated to the national level. However, given the choice between E U regulations and Brexit, most businesses continued to prefer access to the E U market. For example, in a survey of its members, the Confederation of British Industry found that 80 percent, including 71 percent of small- and medium-sized enterprises (SMEs), thought that remaining in the E U would be best for their business, with 15 percent unsure and only 5 percent in favour of Brexit.126 Similarly, almost 200 business leaders signed an open letter arguing strongly in favour of the Remain side based on the need for continued market access and the disruption that a Brexit would cause.127 For many of these companies, the preference for Remain, in spite of the EU regulations they disliked, can be explained in terms of both institutions and ideas. In the former case, many years in the single market has embedded many UK firms – particularly the larger, exporting firms – into European markets and supply chains, and created a path

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dependence in favour of the status quo. Similarly, companies listed on the stock exchange and subject to the short-term pressures of shareholder value, were more likely to support the Remain side due to concerns over Brexit’s short-term costs. At the same time, ideas about the future direction of the EU, and the significance of the existing regulations, also matter in terms of explaining the split that occurred among neoliberal actors and why a number of neoliberals supported Brexit as the more free-market option. The free-market case for Brexit was made most explicitly by a group of neoliberal economists who organized themselves as the “Economists for Brexit.” Most prominent among them were Gerard Lyons, the chief economic advisor to London mayor Boris Johnson; Ryan Bourne, of the free-market think tank the Institute of Economic Affairs, and previously at the Centre for Policy Studies; and Patrick Minford, a former advisor to Margaret Thatcher. The group issued numerous press releases and gave extensive media commentary on the freemarket case for Brexit. For example, in one article, Minford argued: “The whole point of leaving the E U is to free ourselves of E U protectionism and EU regulationism.”128 In a similar fashion, Bourne wrote a number of pieces with titles such as “Would Brexit Help or Hinder Economic Freedom?,” “Free-Marketeers Should Oppose Britain’s Membership in the EU,” and “Let’s Hear the Positive Economic Case for Brexit.”129 In these and other articles, Bourne argues that “the simple truth is that the EU is not fundamentally a free market institution … The E U is a one-way ratchet for more centralised power. It has as its driving ideology, not a vision which embraces diversity and competition between member states and real subsidiarity, but rather a top-down centralizing agenda.”130 These arguments are clearly consistent with the neoliberal approach to multilevel governance and were outlined in more detail in key reports such as Setting Business Free: Into the Global Economy and The Economy after Brexit.131 Also outlined was a pro-free-market and pro-free-trade vision for Britain outside of the EU, and, after the Brexit vote, the group renamed itself as the “Economists for Free Trade.”132 Free-market arguments in favour of Brexit were also made by other neoliberal think tanks, including the Bruges Group, the Bow Group, and the TaxPayers’ Alliance, as well as by the Murdoch newspapers and Rupert Murdoch personally.133 In the business community, Brexit had support among a number of small- and mediumsized enterprises, private companies not subject to short-term pressures

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from shareholders, hedge funds, and entrepreneurs who were strongly concerned about the E U’s labour and financial regulations.134 John Longford, the head of the British Chambers of Commerce, also strongly endorsed Brexit but was then forced to resign given the BCC’s officially neutral stance.135 Support for Brexit also included a newly formed lobby group, Business for Britain, which worked to coordinate pro-Brexit advocacy by business.136 The head of Business for Britain, Matthew Elliot, was one of the original founders of the TaxPayers’ Alliance, one of Britain’s most influential free-market advocacy groups. Elliot then went on to become the chief executive of the official Vote Leave campaign during the Brexit referendum. In an interview in March 2016, Elliot confirmed that the Leave campaign contained a strong free-market component, which sought to promote an open and pro-trade form of Brexit.137 Similarly, while some prominent members of the Leave forces – including the United Kingdom Independence Party and Boris Johnson – focused heavily on the immigration issue, it is important to note that, in contrast to Donald Trump, they were not at all anti-trade.138 Finally, Brexit was also endorsed by a number of neoliberals outside of Britain. For example, in an article titled “The Parallel between Brexit and US Federalism,” the neoliberal American Enterprise Institute think tank argued: “The European Union, like the federal government after the New Deal, is just starting its ascent … UK citizens have a unique opportunity to regain their sovereignty simply by voting to Leave the E U .”139 Examples of other non-UK neoliberals who supported Brexit included: Doug Bandow at the Cato Institute, James Roberts at the Heritage Foundation, and, in Canada, Livio Di Matteo at the Fraser Institute.140 Taken as a whole, this case study of the UK-in-Europe reinforces explanatory approaches that emphasize the role of economic ideas and interests, and the competition between them. It does so, first, by demonstrating that the preferences of neoliberal and social democratic actors did reflect their respective projects for multilevel governance. In particular, the neoliberal approach to multilevel governance provided the theoretical rationale for the neoliberal form of euroscepticism that came to drive Britain’s relationship with the EU. Thus, rather than being pro-regionalization, neoliberal actors consistently supported economic regionalization and opposed social regionalization. Where exceptions occurred, as in the neoliberal splits over monetary union and Brexit, it reflected differences in strategy and the path dependence of the business community’s ties to the single market. In

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a similar fashion, the preferences of social democratic actors also reflected the social democratic approach to multilevel governance. This was particularly evident in their switch from anti- to pro-Europe as the EU moved in the direction of social democratic multilateralism. Moreover, it was this switch – and the switch in the opposite direction among neoliberals – that best explains the shifting preferences of both the Conservative and Labour parties, and, through them, of the British state. Therefore, rather than being driven primarily by populism and institutional factors unique to Britain, it supports approaches emphasizing the broader contestation between left / right economic ideas and interests. Finally, as outlined in the next section, further support for this broader approach is found in the N AF T A case where the preferences of neoliberal and social democratic actors evolved along very similar lines. the politics of north american regionalism

This short case study of Canada and the US in North America examines the competition between the neoliberal and social democratic social movements over the multilevel aspects of North American integration. It argues that the neoliberal and social democratic projects for multilevel governance again help to explain the policy preferences of their respective social movements in Canada and the United States. It further argues that these preferences have evolved in a manner consistent with the historical sequence identified in both the globalization and UK -in-Europe cases. Neoliberal Support for Economic Regionalization North American economic regionalization began with the Canadian business community’s lobbying for the Canada-US Free Trade Agreement (CUFTA) in the early 1980s. As outlined in Chapter 3, the stagflation of the 1970s had led to growing concerns among business over the power of trade unions and the growth of government economic intervention, including the so-called “new protectionism.” This caused more firms to transnationalize to lower their costs, and, together with the high interest rates and recession, which began in late 1979, these trends caused a shift within the business community from an anti- to a pro-free-trade stance.141 This pro-trade view was then promoted through submissions to the newly appointed Royal

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Commission on the Economic Union and Development Prospects for Canada, known more simply as the “Macdonald Commission” after its chair, Donald Macdonald, a former MP for Canada’s Liberal Party. As Alan Rugman notes, “the private sector pushed the federal government into the negotiations in the first place. In 1983 the Canadian Manufacturers’ Association reversed is century-old support of tariffs and made a submission to the Macdonald commission arguing for a bilateral trade agreement. Other business groups, large and small, endorsed this concept in many submissions to Ottawa over the 1984– 86 period.”142 The Canadian business community came to support free trade both to counter growing US protectionism and to create the policy competition necessary to constrain both unions and government intervention. However, in terms of political strategy, both the business associations and the Commission framed free trade in terms of ensuring market access rather than increasing policy competition. As Bruce Doern and Brian Tomlin observe, “had the problem been defined primarily in terms of an uncompetitive manufacturing sector, however, then it is likely that a proposal for an industrial policy to subject the economy to a sudden cold shower through free trade would have been viewed as a considerably more risky venture.”143 By 1987, the Canada-US Free Trade Agreement had moved from a proposal to a preliminary agreement, which Ronald Reagan described as an “economic constitution for North America.”144 The US business community, particularly the American Coalition for Trade Expansion, which grew out of the US Business Roundtable’s committee on trade, had supported the agreement. It was signed by President Reagan and Prime Minister Mulroney, of the Republican and Conservative parties, respectively, on 2 January 1988. The 1988 Canadian election that soon followed was fought over the free-trade issue, with the business community campaigning strongly in support. Most prominent here was the Canadian Alliance for Trade and Job Opportunities founded by Canada’s main business associations, including the Business Council on National Issues, the Canadian Chamber of Commerce, the Canadian Exporters’ Association, the Canadian Federation of Independent Business, and the Canadian Manufacturers’ Association. The Alliance’s membership eventually grew to include thirty-five business associations,145 and the Toronto Star newspaper noted that its actions represented an “unprecedented involvement by business in an election.”146 This involvement included:

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the Alliance running a series of full-page ads in major newspapers;147 individual businesses and local chambers of commerce spending significant money and time;148 and individual members writing op-eds, giving speeches, and lobbying their employees. Finally, the pro-freetrade side was also strongly supported by free-market think tanks, such as the C.D. Howe Institute and the Fraser Institute. With C U F T A in place, the US and Canadian business communities also came to be in favour of a trade deal with Mexico. To promote such a deal, Mexican president Carlos Salinas de Gortari met with US business leaders in December 1989, when, as Frederick Mayer reports, he “found great enthusiasm for further trade and investment liberalization.”149 Salinas then urged the CE O s of American Express and Eastman Kodak to create a task force on US-Mexican trade within the Business Roundtable lobby group.150 A few months later, Salinas formally proposed a trade deal with the US, and, shortly thereafter, Republican president George H.W. Bush announced the start of negotiations in June 1990. At the time, Mayer reports that, “there was very strong support from such major business associations as the Chamber of Commerce, the Business Roundtable, and the National Association of Manufacturers.”151 A spokesperson for the Business Roundtable noted that its member companies supported N AF T A for both access to Mexico’s growing market and also for “co-production” opportunities between US and Mexican firms that would “keep costs down.”152 The Canadian business community, as well as Canada’s Conservative Party government, also strongly supported the N AF T A negotiations.153 Therefore, it seems clear that neoliberal actors – including business associations, free-market think tanks, and rightof-centre political parties – all supported economic regionalization in North America in the form of both the Canada-US Free Trade Agreement and the North American Free Trade Agreement. Social Democratic Opposition As with the UK in Europe, social democratic actors in North America were also initially opposed to economic regionalization. This opposition began in 1985 with proposals for the Canada-US Free Trade Agreement and the creation of the anti-trade advocacy group, the Council of Canadians (C OC ). Two years later, the CO C created the broader Pro-Canada Network (P C N), an anti-CU F T A coalition that included trade unions, environmental groups, church groups, women’s

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organizations, and Indigenous groups.154 Also opposed were the more centrist and socially democratic Liberal and New Democratic parties, respectively, as well as the left-leaning think tank, the Canadian Centre for Policy Alternatives. The anti-C U F T A groups often framed their concerns in terms of Canadian sovereignty155 and, as a result, many observers described these forces as nationalist.156 However, while rhetorically nationalist, Canada’s anti-free-trade groups were primarily concerned with protecting Canada’s more social democratic political economy from the policy competition that they believed free trade would initiate. As Mel Hurtig and Duncan Cameron of the ProCanada Network argued: “In the great debate about the future of our country, probably the most important single question is where new investment will locate if the trade agreement is implemented.”157 Of particular concern was that investment would shift to the more free-market United States in a way that would create competitive pressures for Canada to adopt more free-market policies, including lower corporate taxes and less stringent labour and environmental standards. In Canada’s 1988 “free-trade election,” these were the arguments outlined in the P C N ’s twenty-two-page anti-free-trade booklet titled “What’s the Big Deal?”158 In the United States, much of the opposition to NAFTA took a similar form, emphasizing social democratic concerns related to policy competition. Moreover, to the extent that Mexico was a developing country with much lower labour and environmental standards, the concerns over policy competition were even more acute. For example, when negotiations were announced in June 1990, a spokesperson for the American Federation of Labor and Congress of Industrial Organizations (A F L - C I O ) told a House of Representatives hearing: “A free trade agreement with Mexico, a country where wages and social protections are almost nonexistent when compared with our own, simply invites disaster for US workers.”159 In a similar fashion, environmentalists feared that Mexico would be used by companies as a “pollution haven” to avoid US environmental regulations, which would, in turn, create competitive pressures for the US to lower these regulations.160 The battle over NAFTA began in 1991, when President Bush sought to obtain “fast track” negotiating authority from Congress. At the time, an anti-free-trade coalition had begun to emerge, including trade unions and environmentalists, as well as consumer, farm, religious, and human-rights groups. Significant here in terms of the emphasis on policy competition was that this opposition “came not

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from the traditional source – protectionist producers – but rather from a new coalition of labor unions, environmentalists, and grassroots groups.”161 Initially, these groups were successful in putting pressure on Democratic Party politicians to oppose the granting of fast-track authority. However, the business community soon mobilized to support fast track. This included a massive lobbying and public relations campaign coordinated by the Business Roundtable and its newly created National Foreign Trade Council. In the end, business pressure and institutional advantages allowed President Bush to obtain the fast-track negotiating authority. However, as Mayer observes, “the critics had not entirely lost. Their efforts linked new issues to the trade agenda and forced Bush to agree to address the labor and environment issues they had raised.”162 As outlined below, this led to a new political battle over the labour and environmental side agreements that largely mirrored the politics of the European Social Charter in Britain. The Politics of the Labour and Environmental Side Agreements To obtain support among Democrats for fast-track negotiating authority, the Bush Administration announced an “action plan” on labour and environmental issues. While the plan was strongly denounced by many of the anti-NAFTA groups, it did receive enough support from moderate environmental groups and Democrats to allow for the passage of fast track.163 However, during the negotiations themselves, concerns grew over the lack of progress on the action plan. Then, in late 1991, a GA T T panel ruled that provisions in the US Marine Mammal Protection Act violated GATT trading rules. This served to further increase concerns over the environmental implications of N A F T A and, along with similar concerns over labour standards, created renewed pressure to address these issues. Pressure to address labour and environmental standards increased even further as N A F T A became a key issue in the 1992 presidential primaries and election. Moreover, in addition to pressure from social democratic groups on Democratic candidates, it was at this point that populist conservatives voiced their own strong opposition to N A F T A . This began with Pat Buchanan’s run against George Bush for the Republican Party nomination, during which he argued for a “new nationalism” that would put “America first.” 164 Buchanan

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opposed N A F T A for its potential impact on American sovereignty, immigration, identity, and jobs. Instead, he advocated for “free markets at home protected by a high tariff wall.”165 Similar arguments were then made during the presidential election, where independent candidate Ross Perot famously argued that N A F T A would create “a giant sucking sound” as US jobs were relocated to Mexico.166 In the end, Perot took 19 percent of the vote and indirectly contributed to Democrat Bill Clinton’s election victory. Moreover, it was Clinton’s victory that led to the negotiation of the labour and environmental side agreements based on his middle-ground position to support, but renegotiate, N A F T A . With Clinton taking office, a number of social democratic actors tentatively shifted from economic nationalism to social democratic multilateralism by advocating for a European-style social charter. As Mayer notes, “The prospect of side agreements raised hope among some US labor and environmental activists that Clinton might push for new international standards in these areas, something of a ‘social charter’ along the lines of standards established by the European Union.”167 For example, social democratic think tanks such as the US Economic Policy Institute (E P I ) and the Canadian Centre for Policy Alternatives specifically called for a social charter to offset policy competition.168 As the E P I noted, N A F T A should include a “Social Charter which establishes the principle that trade should not be based on ‘social dumping,’ where poorer countries follow lowwage, low regulation strategies in order to increase exports.”169 Similarly, many unions also supported a social charter to ensure that the “harmonization of workers’ rights and labor, health, safety, and environmental standards would be upward, not downward.”170 This is, of course, fully consistent with the social democratic project for multilevel governance and demonstrates that left-of-centre opposition to NAFTA was about policy competition rather than sovereignty or nationalism. The position of the business community and other neoliberal actors also reflects the importance of policy competition. This is because, in a similar fashion to Europe, these actors were strongly opposed to a social charter or any side agreements that contained specific and enforceable standards. In the United States, the Business Roundtable created “blue” and “green” teams to deal with the labour and environmental negotiations, and to lobby against any enforceable

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standards.171 At the same time, Republicans were also strongly opposed to any enforceable side deals and warned that their inclusion could cause them to pull their support from N A F T A . Senate Republicans, for example, sent a letter to President Clinton stating: “We are concerned that the supplemental agreements may undermine the benefits of NAFTA if they place significant new regulatory burdens on the US economy. NA F T A is first and foremost a trade agreement. It cannot and should not be viewed as a means of solving all environmental and labor problems in North America.”172 A similar letter was sent by House Republicans stating: “We believe the side agreements should neither infringe on US sovereignty nor create trade sanctions for supposed environmental or labor non-compliance.”173 In Canada, the business community also threatened to pull out of NAFTA if it included enforceable labour and environmental standards. For example, the Canadian Chamber of Commerce asserted that, “if trade sanctions or monetary fines are part of the final side agreement texts, the chamber could not support Canada being a party to those agreements.”174 Overall, what these views demonstrate is that neoliberal and business support for free trade was motivated as much by policy competition as it was by market access. They are thus fully consistent with the neoliberal approach to multilevel governance. In the end, the opposition of Canada, Mexico, and the business community ensured that the side agreements only focused on national enforcement of existing national laws. They did not include any minimum standards or the use of sanctions.175 As a result, the side agreements were supported by business but condemned by trade unions and most consumer and environmental groups. In the latter case, the Citizens Trade Campaign – the key US anti-N A F T A coalition – responded to the side agreements by noting: “These side deals aren’t half a loaf. In fact, they aren’t even half a slice. NAFTA is fundamentally an agreement to protect investors, to encourage them to go to Mexico to take advantage of low wages and lax environmental standards and enforcement. And nothing in the side agreements announced this morning will fundamentally change that.”176 Based on this outcome, the anti-NAFTA coalition mounted a strong lobbying and public relations campaign to block NAFTA’s ratification in the House of Representatives. Opposing them was the business-sponsored USA*NAFTA coalition, which ultimately prevailed and set the stage for the return of antiNAFTA sentiments with the election of Donald Trump.177

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The Politics of Monetary Union and Deep Integration N A F T A came into effect on 1 January 1994. Five years later, some economists from Canadian free-market think tanks began suggesting a North American Monetary Union (NAMU) as a logical next step.178 This included Herbert Grubel’s 1999 book The Case for the Amero: The Economics and Politics of a North American Monetary Union, published by the Fraser Institute, and Thomas Courchene and Richard Harris’s report for the C.D. Howe Institute, From Fixing to Monetary Union: Options for North American Currency Integration.179 In proposing a monetary union, these proposals were consistent with the neoliberal approach to multilevel governance and its goal of limiting the policy autonomy of governments and unions. Specifically, in addition to the efficiency arguments related to reducing currency risk, these publications highlighted the role that a common currency would play in promoting and locking in more free-market policies. As Grubel argued, monetary union would “increase incentives to lower taxes, which is welcomed by many who hope it will lead to a smaller government.” It would also lead to “increased labour market discipline,” which would limit the wage demands of unions.180 While the proposals for a North American Monetary Union had clear neoliberal origins, they were not supported by all neoliberal actors. As Helleiner reports, “Canadian neoliberals as a whole found themselves much more divided internally on the question of N AM U than they were on the F T A .”181 For example, some neoliberal economists followed Milton Friedman in worrying about the political costs that N A M U-imposed austerity could create during a recession.182 At the same time, “they argued that NAMU would not bring any greater price stability than Canada already had,” given that Canada had been pursuing a formal inflation target of less than 2 percent since the early 1990s.183 This contrasted with the US’s somewhat higher inflation and prompted Milton Friedman himself to state that, “if I were a Canadian, I would not regard that record as an adequate basis for committing the country to US monetary policy.”184 Therefore, as in Europe, the split among neoliberal intellectuals over monetary union was more strategic than ideological. More important, in terms of N A M U ’s political prospects, was that the business community was also divided on NAMU, with many of the business associations being unwilling to advocate for it. For Canadian firms, high levels of

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intra-firm trade meant that currency risk was not an issue and that N A MU was simply not a priority. On the Canadian left, the fact that N A F T A did not contain an equivalent to the European Social Charter meant that there was no strategic split over monetary union. Instead, views among these actors were fully consistent with the social democratic approach to multilevel governance in that they opposed the loss of monetary policy autonomy that N A M U would create.185 As Helleiner notes, “In the absence of European-style social corporatism, [social democrats] anticipate that the need for greater wage flexibility under N A M U will strengthen neoliberal initiatives to deregulate labour markets and cut entitlements to employment compensation.”186 Illustrating this point, labour economist Andrew Jackson argued that, “we need to control our currency if we are to achieve full employment on the basis of a different social model than that which exists in the US.”187 With insufficient support, particularly from the business community, the NAMU debate soon fizzled out. However, a different set of proposals for further North American integration quickly took their place in the aftermath of the 9/11 terrorist attacks in 2001. As Christina Gabriel and Laura Macdonald argued, “in the wake of 11 September, Canadian business groups have positioned themselves to advance a neoliberal-inspired project of greater continental economic integration.”188 The immediate concern for Canadian business was the way that 9/11 led to a thickening of the Canada-US border as the US prioritized security over trade. In response, the business associations formed the Coalition for Secure and Trade-Efficient Borders to advocate for improved security cooperation and border infrastructure to maintain the flow of trade.189 Initially, this led to the signing of the Canada-US Smart Border Declaration. However, within a year, Canadian neoliberals began advocating for a deeper form of North American integration. This began with a report by economist Wendy Dobson titled Shaping the Future of the North American Economic Space, published with the business-sponsored think tank, the C.D. Howe Institute.190 The report argued that Canada-US relations needed to shift from incrementalism to a “big idea” that would link US security and Canadian market access in a single “strategic bargain.” This was ­followed, in January 2003, with the Canadian Council of Chief Executives (C C C E ) launching a similar report titled Security and Prosperity: The Dynamics of a New Canada-United States Partnership

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in North America.191 Together, these proposals sought to move Canada-US integration in the direction of a common security perimeter and customs union, which would, as C C C E president Thomas D’Aquino noted, “transform the internal border into a shared checkpoint within the Canada-United States economic space.”192 While supported by free-market-oriented politicians, think tanks, media, and business associations, these proposals for deep integration were strongly opposed by social democratic actors.193 Moreover, as the social democratic approach to multilevel governance highlights, this opposition was driven more by concerns over policy autonomy than over sovereignty and nationalism. For example, Hassan Yussuff of the Canadian Labour Congress noted: Labour is not against trade, but against one-sided trade and investment deals which tie the hands of governments in terms of social policy, and tilt the scales against workers when it comes to bargaining with giant transnational corporations … Workers soon learned that the greater ability of manufacturing businesses to move production or new investment to the United States or Mexico increased their power at the bargaining table … The same is true of social programs and public services. The ink wasn’t dry on the F T A when business began to demand tax cuts for competitiveness … I think it is a profound mistake for us to deepen an already one-sided economic relationship through some kind of NA F T A -plus arrangement.194 This opposition, and, more significantly, the unpopularity within Canada of the US decision to invade Iraq, led the Liberal Party government to reject any notions of a “big idea” and instead pursue more incremental and technocratic measures to deal with Canada-US border issues. Donald Trump and the Renegotiation of

n a f ta

The election of Donald Trump represented the ascendancy of populist conservatives in the United States, but also a continuation of neoliberal, social democratic, and populist views on North American integration. In the latter case, Donald Trump’s campaign revived Pat Buchanan’s “America first” nationalism, with its strong concerns over immigration and trade, and with Trump continuously referring

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to N A F T A as “a disaster.”195 His chief strategist, Steve Bannon, was the executive chair of the populist conservative (or “alt-right”) news website, Breitbart News. Bannon describes himself as an “economic nationalist,” who strongly opposes the “globalist” agenda of freetrade and pro-immigration policies because of their negative impact on the American working class and on US sovereignty and identity. As Bannon noted, “the globalists gutted the American working class and created a middle class in Asia.”196 Moreover, for Bannon, the globalists include both the liberal and conservative establishments. As one interviewer noted: “It is not just the liberal establishment that Bannon feels he has triumphed over, but the conservative one too – not least of all Fox News and its owners the Murdoch’s. ‘They got it more wrong than anybody,’ he says. ‘Rupert [Murdoch] is a globalist and never understood Trump.’”197 To counter this globalist agenda, Bannon and other Trump advisors advocate for restrictions on trade and immigration, and favour government programs that benefit the middle class. On trade, this includes either pulling out of existing agreements or renegotiating them to include stronger rules of origin, provisions to allow for “buy American” government procurement, and more use of countervailing duties against trade practices deemed “unfair.” When President Trump first took office, this more economically nationalist position manifested itself in the administration’s withdrawal of the US from the Trans-Pacific Partnership (T P P ) and in their notifying Canada and Mexico of their intent to renegotiate N A F T A . For social democratic groups in Canada and the US, the reopening of N A FTA , combined with President Trump’s specific concerns over US jobs, was viewed as an opportunity to deal with the problem of policy competition and the flight of US and Canadian jobs to Mexico.198 Consistent with the social democratic approach to multilevel governance, this could occur either through economic nationalism and an end to NAFTA, or through social democratic multilateralism and a renegotiated NA F T A that imposed higher labour standards on Mexico. Illustrating this view among US trade unions, the president of the International Association of Machinists argued that, “N AF T A should be dissolved immediately. If policymakers insist on renegotiating it, real and enforceable labor standards based on ILO Conventions must be included in the core of the agreement, investor to state dispute mechanisms must be deleted and rules of origin must be strong.”199 In a similar fashion, the Canadian Labour Congress proposed that,

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“labour and environmental side agreements in N AF T A must be fundamentally strengthened by bringing them into the main agreement and making them subject to trade sanctions.”200 As with other groups, they also called for abolishing or changing NAFTA’s investor propertyrights provisions and the enforcement of them through investor-tostate lawsuits. As noted in Chapter 3, many of these proposals were then brought to the NAFTA renegotiations by Canada’s Liberal Party prime minister, Justin Trudeau, through the so-called “progressive trade” agenda.201 Opposing this view, neoliberal idealists from various free-market think tanks were strongly opposed to any strengthening of labour and environmental standards within NAFTA.202 For example, a trade analyst with the US Heritage Foundation argued: The US should seek to keep the parts of N AF T A that work, modernize NA F T A to take advantage of new technologies, expand N A FTA to encompass sectors that were excluded from the original agreement, and eliminate counterproductive environmental and labor regulations … The biggest flaw in N AF T A was the inclusion of non-trade issues such as environmental and labor regulations in politically motivated “side agreements” … US trade agreements should be designed to increase economic freedom, not government control. Inclusion of environmental and labor mandates risks turning trade agreements into supranational regulatory arrangements that restrict trade flows instead of freeing them.203 Taken as a whole, the populist conservative, social democratic, classical liberal, and neoliberal positions on North American integration have remained consistent over time and consistent with the neoliberal and social democratic projects for multilevel governance. At the same time, the historical sequence of North American integration has also remained consistent with the pattern observed in both the U K -inEurope and the more global-level cases. conclusion

This chapter examined the competition between neoliberal and social democratic actors and interest groups over the multilevel aspects of regionalism. In doing so, it argued that the neoliberal and social

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democratic projects for multilevel governance do help to explain the policies advocated by their respective actors and why these actors are best viewed as “pro-” and “anti-policy-competition” rather than “pro-” and “anti-regionalization.” Recognizing this fact was shown to be significant in terms of more precisely understanding the policy differences and shifting political alliances between neoliberal, populist conservative, classical liberal, and social democratic actors. To further demonstrate the consistency between the neoliberal and social democratic projects for multilevel governance and the policies advocated by their respective actors, the next chapter examines the competition between them in the federal contexts of Canadian and US federalism.

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5 The Politics of Fiscal Federalism

This chapter examines the competition between the neoliberal and social democratic social movements over fiscal federalism. It does so through a detailed case study of Canadian federalism and a less detailed case study of US federalism. It argues that the neoliberal and social democratic projects for fiscal federalism do again help to explain the policies advocated by their respective social movements and why these movements are best viewed as “pro-” and “antipolicy-competition” rather than “pro-” and “anti-centralization.” Thus, the neoliberal approach to federalism (i.e., “competitive” or “market-­preserving” federalism) seeks to impose constraints on social democratic forms of government intervention through the creation of an exit option and inter-jurisdictional policy competition. This is achieved by centralizing policy capabilities related to protecting property rights, enforcing contracts, and creating markets and decentralizing those that relate to redistributing wealth and correcting market failures. The well-known result is that governments are forced to compete for investment by providing more free-market-oriented policies. The social democratic approach, in contrast, seeks to promote the policy autonomy of governments by limiting “harmful” forms of policy competition. This is achieved by having the tax and regulatory capabilities related to wealth redistribution and the correction of market failures operate at the same (national) level as that of the private economy. Recognizing the role played by these approaches is significant, as it helps to better reveal the interests and motivations behind specific policy preferences and how they can differ from the centralization / decentralization preferences of social conservatives and social progressives.

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This chapter also argues that the left / right contestation over fiscal federalism can add to existing explanations of political party preferences and national policy outcomes. This is particularly important in the case of Canadian federalism, which can be viewed, methodologically, as a “critical” case study. Specifically, by showing how the political competition between right / left economic actors and interest groups has constituted a significant “subplot” in Canadian federalism, this chapter seeks to demonstrate the relevance of a political economy explanation even in a case that has clearly been dominated by linguistic and regional cleavages (related to Quebec separatism and alienation among the western provinces). At the same time, the US case helps to confirm the preferences of neoliberal and social democratic actors on fiscal federalism and, in turn, the impact they have had, in both cases, on the evolution of federalism through the rise of the welfare state and the subsequent rise of neoliberalism. As outlined below, this is despite the fact that the Canadian and US constitutions started with very different approaches to federalism. federalism in the canadian constitution

The Canadian federation was created through the British North America Act 1867, later renamed the Constitution Act 1867. At this time, as Herman Bakvis, Douglas Brown, and Gerald Baier note, Canada “was intended to be a highly centralized federation, with provinces representing little more than overgrown municipalities, at least in the eyes of [Canada’s first prime minister] John A. Macdonald.”1 Macdonald’s vision reflected his belief that decentralized federalism had led to the American Civil War. It also reflected the desire of conservative politicians and nationally oriented business interests to promote free trade between the provinces to offset US protectionism and to use the federal government to underwrite the large public debt required to build the railroads and expedite western expansion.2 This centralized vision was achieved through Sections 91 and 92 of the Constitution, which outlines the federal and provincial division of powers, and section 121, which prohibits the provinces from imposing tariffs. In terms of the economy, the federal government was given enumerated powers such as the regulation of trade and commerce, raising revenue through any type of taxation, monetary policy, commercial standards, the incorporation of companies with national objectives,

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and the ability to construct public works of national interest. In contrast, the provincial governments had enumerated powers related to raising money through direct taxation only, property and civil rights, education, natural resources, incorporating companies with provincial objectives, municipalities, and carrying out provincial public works. Overall, the powers assigned to the federal government were those viewed as the most important, including the exclusive power of indirect taxation. Also significant is that the federal government was given all residual powers. Therefore, as Smith notes, “what finally did emerge in 1867 very much represents a fulfilment of the historical Tory desire for a strong, united commercial state.”3 Over the next few decades, however, the Canadian federation became much more decentralized through a series of court decisions by the Judicial Committee of the Privy Council (JCPC), the British forerunner to the Supreme Court of Canada. As Hugh Mackenzie notes: “Judicial interpretation of the British North America Act tended towards a decentralist construction of [Canada’s] formal constitutional arrangements.”4 This occurred through a generous reading of provincial powers over property and civil rights and a more restrictive reading of the federal government’s residual powers. As Barry Cooper notes, this began with the Citizens Insurance Co. v. Parsons case, which pitted federal control over trade and commerce against provincial control over property and civil rights. This case, along with fifteen more out of the next eighteen, favoured the provinces and contributed to the growing decentralization of Canadian federalism.5 While the business community played an important role in this decentralization, it was not based on a desire to promote competitive federalism or any specific division of powers. Trade unions, agrarian collectivism, and leftist political parties remained in their infancy, meaning that the political competition over Canadian federalism was not left / right in orientation.6 Instead, it reflected “the clash of business interests” between federally and provincially oriented companies, as well as the more general desire of business to limit the growth of government intervention.7 As Stephen Brooks and Andrew Stritch observe, “in addition to a government acting on businesses’ behalf to challenge the constitutionality of another government’s actions … A very large number of these cases, and most of the landmark ones in defining the federal balance of power, have resulted from actions brought by companies and business associations against forms of regulation that they have perceived as harmful to their economic

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interests.”8 In particular, companies made use of the federal division of powers to have laws struck down as ultra vires, or outside a specific government’s jurisdiction. Both federal and provincial laws were struck down.9 However, given the earlier assertiveness of the federal government, the result was that limiting government power in general created precedents that limited the federal government’s power in particular. t h e w e l fa r e s tat e a n d s o c i a l d e m o c r at i c f e d e r a l i s m

The left / right aspects of Canadian fiscal federalism began to emerge in the run-up to the First World War. The growth of industry, urbanization, and concerns over pay and working conditions fuelled the development of the Canadian labour movement. Trade union membership grew from 20,000 in 1890 to over 120,000 in 1910, and then to almost 400,000 by 1920.10 Farmers’ cooperatives also grew in size and number. The First World War then worked to increase the expectations of Canadian workers and led to heightened demands for better wages, working conditions, and social programs. The former led to a growing number of strikes, including the Winnipeg General Strike in 1919. The latter led to an emerging welfare state, including provincial programs such as workers’ compensation (in Ontario), mothers’ allowances, and minimum wages. At the federal level, the government slowly, “grudgingly,” began to intervene in areas of provincial jurisdiction through ad hoc grants-in-aid to assist with unemployment relief and then conditional grants for meanstested old-age pensions.11 While not deliberate, the decentralized character of Canadian fiscal federalism at this time did have a market-preserving aspect, which slowed the creation of a welfare state. As Keith Banting argues, the interwar period highlighted “major obstacles confronting provincial innovations in income security, the most important of which were fiscal imbalance, and the mobility of capital and labour.”12 Fiscal imbalance referred to the fact that, while the federal government had most of the powers to collect revenue, the provinces had most of the responsibility for the growing areas of income security, health, and education. The resulting mismatch meant that the provinces did not have the revenues required to fund social programs and the federal government did not have the jurisdiction. Of course, this issue became most apparent with the onset of the Great Depression, as provincial

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expenditures on social assistance and other programs increased substantially and put some provinces on the verge of bankruptcy. Also important, as Banting reports, is that “interwar provincial leaders were concerned about the mobility of labour and capital in a federal state.”13 To illustrate this concern, he points to a number of examples, including: in 1924, the government of Saskatchewan highlighting the mobility issue in its comments to a House of Commons committee on pensions; in 1927, the premier of Manitoba raising similar points in a letter to the prime minister on unemployment insurance; and, in 1933, the Quebec Social Insurance Commission noting that the introduction of family allowances “would perhaps place our manufacturers in a disadvantageous position with reference to other provinces.”14 At this time, therefore, policy competition began to emerge as a key concern in terms of the relationship between federalism and the creation of a welfare state. Moreover, when combined with the fiscal imbalance issue, it led to a growing focus on federalism and the assignment problem among social democratic actors. Important here was the creation, in 1932, of the social democratic Cooperative Commonwealth Federation (CCF) party and the League for Social Reconstruction, a related think tank.15 Together they produced the C C F ’s founding policy document, the Regina Manifesto, which outlined a detailed program of social democracy and technocratic planning for Canada. Also important was that the Regina Manifesto specifically addressed the issue of federalism and the BN A Act by calling for: The amendment of the Canadian Constitution … so as to give the Dominion Government adequate powers to deal effectively with urgent economic problems which are essentially national in scope … What is chiefly needed today is the placing in the hands of the national government of more power to control national economic development … The present division of powers between Dominion and provinces reflects the conditions of a ­pioneer, mainly agricultural community in 1867. Our constitution must be brought into line with the increasing industrialization of the country and the consequent centralization of economic and financial power.16 The Regina Manifesto, along with other writings by the League for Social Reconstruction, thus demonstrates the emergence of a social

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democratic approach to fiscal federalism in Canada.17 It does so based on a commitment to a greater centralization of powers related to redistributing wealth and correcting market failures. Moreover, this commitment was also evident among a growing number of more technocratically oriented intellectuals within both academia and the federal civil service. As Doug Owram notes, “by 1935 much of the intellectual community had come to see development of social and economic planning as inseparable from alterations to the constitution.”18 This focus on federalism as an obstacle to the welfare state was then further reinforced in 1937, when “federal policies modelled on the American ‘New Deal’ were ruled ‘ultra vires’ by the courts.”19 In the early years of the Depression, both the Liberal and Conservative parties maintained a laissez-faire approach. However, during the 1935 federal election, with unemployment and economic hardship continuing to rise, Conservative Prime Minister R.B. Bennett introduced a Canadian version of US President Roosevelt’s interventionist New Deal, including a national social insurance program. Bennett was defeated by Liberal Mackenzie King, who returned to power and immediately referred the New Deal package to the courts to determine its constitutionality. In three separate cases, in 1937, the Judicial Committee of the Privy Council ruled five of eight proposed measures as ultra vires.20 Therefore, by preventing more interventionist measures to deal with the Depression, these rulings had a strong impact on the growing number of actors in favour of creating a welfare state. First, as Banting argues, “certainly, the 1937 decision of the courts convinced an entire generation of social planners, labour leaders and social reformers, at least in English-speaking Canada, that decentralisation was a roadblock on the way to social justice.”21 Second, the ruling also led to the creation, later that year, of the Royal Commission on Dominion-Provincial Relations, known as the Rowell-Sirois commission after its chairs. The Rowell-Sirois Commission served to highlight further the emerging left / right debate over Canadian fiscal federalism, including the issue of policy competition, and “became the focus for a fierce debate about economics.”22 In the latter case, the Commission heard from a large number of lobby groups from across the political spectrum. Moreover, seeking to categorize the views of these groups, Jessica Squires identifies five distinct economic approaches, including their position on federalism.23 These include: a “classical” laissezfaire approach, which opposes intervention and centralization; a

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“technical” approach, which supports a technocratic form of Keynesian intervention and centralization; a “social” approach, which supports a social form of Keynesian intervention and centralization; a “socialist” approach, which supports government planning and centralization; and an “alternative” (and heterogeneous), faith-based approach, which has various positions on intervention and centralization.24 Taken as a whole, Squires’s typology demonstrates the growing left / right division over the issue of centralization that existed at this time. The Commission itself was dominated by academics who reflected a technocratic Keynesian position, what was fast becoming the dominant view among economists.25 As a result, its recommendations called for a high degree of centralization including the federal government taking over unemployment insurance, assuming all provincial debts, collecting all income taxes, and using equalization transfers to redistribute across provinces. In justifying these recommendations, the Commission emphasized the problems of fiscal imbalance and capital mobility. In the latter case, for example, it justified federal jurisdiction over unemployment insurance as follows: The principal reason … lies in the readiness of industry in one province to complain if it is taxed for social services which are provided out of general taxation in other provinces or are not provided at all in other provinces … the employer is placed in a position of competitive disadvantage in comparison with employers in provinces where there are not contributory social services.26 Banting notes that similar arguments were used to justify federal jurisdiction over old-age pensions, again demonstrating the concerns over capital mobility and policy competition. Moreover, while the Commission’s recommendations were rejected by a number of provinces, they did reflect the now-dominant view among economists. As Owram argues, “the report of the Rowell-Sirois Commission was the full-blown statement of a generation as to what it saw as the proper future of Canadian federalism.”27 This manifested itself in both constitutional amendments, which gave the federal government jurisdiction over unemployment insurance and pensions, as well as the many nonconstitutional changes that occurred in Canadian fiscal federalism.28 This began during the Second World War. Specifically, “the 1940s ushered in a period of unparalleled political dominance by the federal

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government. The war centralised power dramatically, bequeathing federal authorities with a highly professional bureaucracy and – most importantly – dominance of the primary tax fields.”29 Also important during the war was the growing expert consensus around Keynesian economics and the increasing strength of the left. In the former case, the governing Liberals commissioned a number of studies, which all recommended greater government intervention and centralization. These included: the 1943 Report on Social Security in Canada, known as the “Marsh Report”; the 1943 Heagerty Report on medical care; the 1944 Curtis Report on Housing and Community Planning; and the 1944 White Paper on Employment and Income. In terms of the political left, membership in the CCF party grew from 20,000 in 1942 to 100,000 in 1944, while union membership increased to over 700,000. The CCF was also rising in the polls, won a series of federal and provincial by-elections, formed the government in the province of Saskatchewan, and became the official opposition in the province of Ontario.30 The result was that Liberal Prime Minister Mackenzie King shifted to the left in the 1945 federal election and promised a “new Liberalism” based on Keynesian full-employment policies, an expanded welfare state, and stronger labour rights. While centralization declined from its wartime high, the growth of the Canadian welfare state did go hand-in-hand with greater fiscal centralization. On the one hand, the constitutional amendments stemming from the Rowell-Sirois Commission allowed the federal government to create national social programs, paid directly to individuals, including Unemployment Insurance (1940), Old Age Security (1951), the Canada Pension Plan (1965), and the Guaranteed Income Supplement (1966). At the same time, federal spending in areas of provincial jurisdiction increased substantially through the use of shared-cost programs and conditional grants to the provinces.31 Most significant here was Canada’s single-payer medicare system, as well as funding for social assistance and post-secondary education. The federal government also provided equalization grants to assist poorer provinces in providing similar levels of social services at similar levels of taxation. Shared-cost programs and equalization payments were possible through the so-called “spending power,” which the federal government has viewed as stemming from its constitutional power to raise revenue by any system of taxation, as well as its powers over public debt and property. As Banting argues, “a vast edifice of public spending has been constructed largely on the basis of the spending

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power.”32 In this way, much of the centralization that accompanied the building of the Canadian welfare state occurred without further constitutional amendments. Taken as a whole, the period from the First World War until the 1970s was an important one in terms of the left / right politics of Canadian fiscal federalism. It saw the emergence and expansion of the social democratic approach to fiscal federalism in Canada, including the specific concerns related to fiscal imbalance and policy competition. As a result, it led to a growing focus on federalism and the assignment problem among social democratic actors, including both technocratic and social Keynesians. This period also saw the rise of the welfare state, leading to a greater degree of centralization in a way that moved Canada more in the direction of the social democratic approach to fiscal federalism. Also important at this time was that, as Neil Bradford notes, “both business and labour interests in the Canadian political system in the decade following the war deferred to the expertise of the techno-bureaucrats in economic policy-making.”33 The postwar period was one of economic boom, redistribution, and muted regional tensions. Accordingly, economic interest groups were accepting of the existing system and “neither business nor labour was particularly motivated to enhance its own weak policy development capabilities.”34 However, by the end of the 1970s, this began to change as the stagflation crisis of the welfare state led to the political mobilization of business and, with it, the rise of neoliberalism in Canada. neoliberalism and the push for market-preserving federalism

For the Canadian business community, the crisis of stagflation that occurred in the 1970s discredited the postwar welfare state and the Keynesian-welfare economics upon which it was based.35 In response, business interests followed their US counterparts and began to mobilize politically through the creation of business-sponsored lobby groups and think tanks whose aim was to promote a variety of neoliberal policies among politicians and the broader public.36 This included, in 1976, the creation of the Business Council on National Issues (B C N I ), Canada’s most prominent business association (later renamed the Canadian Council of Chief Executives and then the Business Council of Canada). It also included the creation of

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free-market think tanks and advocacy groups, such as the Canada West Foundation in 1970, the C.D. Howe Institute in 1973, the Fraser Institute in 1974, and the National Citizens Coalition in 1975. These groups were later joined by the Canadian Taxpayers Federation in 1990 and the Atlantic Institute for Market Studies in 1994. On the left, the most prominent think tank is the union- and activist-­ sponsored Canadian Centre for Policy Alternatives, which was created in 1980. It was at this time that the neoliberal approach to fiscal federalism began to emerge in Canada. It did so as business associations and free-market think tanks consistently promoted this approach as part of a broader strategy, including free-trade agreements, to impose constraints on more social democratic forms of government intervention. As Bradford notes, the B C NI and related groups “proposed a strategy for restraining both the federal and provincial states. A Canadian common market would limit provincial state intervention, while further North American economic integration would confine the federal government to market-reinforcing reforms.”37 Also, while neoliberal actors were focused more on free trade, and the politics of Canadian federalism was driven more by regional concerns, right / left political competition did constitute a significant subplot in Canadian federalism in the 1980s and 1990s. As outlined below, this was evident in some key moments dealing with the federal / provincial division of powers, including: the 1982 Constitution Act; the 1987 Meech Lake Accord; the 1991–92 Charlottetown Accord; and the 1994 Agreement on Internal Trade, and the 1999 Social Union Framework Agreement. The 1982 Constitution Act Canada’s contemporary period of constitutional reform began with Prime Minister Trudeau’s 1982 Constitution Act. This Act patriated the constitution from Great Britain and amended it in a number of areas, the most significant being the inclusion of the Charter of Rights and Freedoms. Moreover, as with most constitutional matters in Canada, the primary lines of contestation involved regional and linguistic cleavages, with the opposition of the separatist government in Quebec being at the forefront. Notwithstanding these primary cleavages, it is at this time that we find one of the earliest neoliberal interventions in terms of the constitution and the federal / provincial division of powers. In 1978, only four years after its founding, the

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business-sponsored Fraser Institute produced an edited volume titled Canadian Confederation at the Crossroads: The Search for a FederalProvincial Balance.38 The volume sought to contribute to the upcoming constitutional debate, and, as Fraser Institute director Michael Walker noted, “the central thrust of the book is an assessment of whether decentralization of government might improve our ability to retain our dedication to a unified destiny, while at the same time reduce the considerable and increasing cost of this commitment.”39 Consistent with the neoliberal approach, however, the volume advocates decentralization primarily in those areas of fiscal and regulatory policy that relate to redistribution and the correction of market failures, while at the same time advocating centralization in areas related to protecting property rights and creating markets. Examples of the former include the proposals that: “Provinces should be allowed greater scope to tailor the institutional and economic fabric of their economies to their own development needs but they should also be made to assume the full costs of such decisions,”40 and: “Education is essentially a local concern and should be financed, at all levels, by the provinces. The federal government should relinquish the tax room necessary to fund education programs at their existing levels.”41 Examples of the book’s more centralizing initiatives include the proposal that, “in the renegotiation of the constitutional arrangements the objective of establishing a Canadian common market be a guiding principle,” and that, “the principle of budget balance be enshrined in the constitution.”42 Interesting in terms of this latter proposal is a direct reference to the constitutional economics of James Buchanan and, in turn, to the need to lock in market-oriented policies through institutional reforms. As Walker observed: “Professor Buchanan, who is a member of the Fraser Institute’s Editorial Advisory Board, has recently suggested that governments be constitutionally prohibited from deficit financing.”43 Also important in terms of the emergence of market-preserving federalism was the Conservative Party proposal to include property rights in the Charter of Rights and Freedoms. This proposal was strongly opposed by the social democratic New Democratic Party (NDP, the successor to the CCF).44 In fact, NDP leader Ed Broadbent threatened to withdraw his support from the whole constitutional package unless the property rights proposal was removed. Overall, neither property rights nor balanced-budget clauses nor the decentralizing suggestions made by the Fraser Institute made it into the 1982

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Constitution Act. They do, however, demonstrate the emergence of the neoliberal approach to fiscal federalism in Canada. The 1987 Meech Lake Accord By the mid-1980s, the election of Brian Mulroney’s Progressive Conservatives in Ottawa and Robert Bourassa’s Liberals in Quebec City had set the stage for new constitutional negotiations aimed at better satisfying the province of Quebec. The 1987 Meech Lake Accord was the outcome of this “Quebec Round” of negotiations, and, as was the case before the 1982 Constitution Act, the primary fault lines centred on Canada’s regional and linguistic cleavages. Through these cleavages, Quebec’s demand for greater autonomy combined with provincial demands for an equality of provinces to give the resulting Meech Lake Accord a strong decentralizing thrust. Significant here in terms of fiscal federalism was a provision – the proposed Section 106A – to limit the federal spending power by allowing provinces to opt out, with full compensation, of any new federal programs in areas of exclusive provincial jurisdiction. For critics of the Accord, such as constitutional lawyer Deborah Coyne, this decentralization would be “at odds with [Canada’s] commitment to promoting greater social justice and a fairer, more compassionate society.”45 Echoing this point, Bryan Schwartz argued that the Meech Lake Accord was “very much in an anti-regulatory free market model … in the sense that it works against the possibility of national social welfare programs.”46 However, despite these possible implications, and despite support for the Accord by the Business Council on National Issues,47 it seems clear that the politics surrounding the 1987 Meech Lake Accord were primarily regional and linguistic, rather than left / right, in nature. As McBride and Shields argue, “Meech was for the most part the product of the Mulroney government’s constitutional inheritance, its own political agenda for consolidating support in various parts of the country, and the traditional demands of most provincial governments for greater power. Within that context, though, there is an obvious consistency, if not an absolute one, between the accord and elements of the neo-liberal agenda.”48 The 1991–92 Charlottetown Accord After the failure of the Meech Lake Accord, the Mulroney government attempted a second round of constitutional negotiations, known as

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the “Canada Round” to reflect its incorporation of a wider range of issues. While designed to overcome some of the obstacles that plagued Meech Lake, the broader mandate of the Canada Round created greater opportunities for interventions that were more political-­ economic in nature. Important here were the efforts of the Business Council on National Issues. In August 1990, the Council sponsored a number of independent studies “to examine from a private sector perspective viable constitutional options open to Canadians in the post-Meech Lake environment.”49 The results of these studies were published collectively as Options for a New Canada and contained a diverse range of opinions, including those that reflected a more social democratic approach.50 However, the Council later narrowed these options to its own preferred vision for Canadian federalism, which was published in a report titled Canada and the 21st Century: Towards a More Effective Federalism and a Stronger Economy, as well as in the Council’s response to the constitutional proposals released by the federal government.51 Taken as a whole, McBride and Shields argue that the BCNI’s vision of Canadian federalism “required both centralization (as in the case of the Canadian Economic Union) and decentralization (primarily in non-economic areas).”52 More specifically, the B C NI ’s main points on fiscal federalism and the division of powers included the need for “a strong common market … with an unimpeded flow of labour, capital, goods and services protected under the Constitution,” as well as “a more effective federal system with an appropriate balance of power and influence between the central government and the governments of the provinces.”53 In the former case, the Council also supported the Conservative government’s proposal to entrench property rights in the Charter of Rights and Freedoms and to give firms and individuals the constitutional right to challenge, through the courts, government measures that might contravene the principle of free mobility within an internal market.54 In the latter case, the BCNI supported the right of provinces to opt out, with full compensation, of any new federal spending programs in areas of exclusive provincial jurisdiction.55 This neoliberal approach was also advanced by business-sponsored think tanks such as the Fraser Institute and the C.D. Howe Institute. In an edited volume titled Federalism in Peril: National Unity, Individualism, Free Markets, and the Emerging Global Economy, Fraser Institute director Michael Walker argued in favour of a constitutional protection for property rights, as well as provisions that would limit both budget deficits and tax increases.56 In terms of the

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federal / provincial division of powers, William Robson’s 1992 policy review for the C.D. Howe Institute, Dynamic Tensions: Markets, Federalism, and Canada’s Economic Future, explicitly advocated a Canadian version of competitive federalism. For Robson, decentralization within the context of a liberalized national economy would mean that “the ability of citizens to ‘vote with their feet’ – even if they do not actually do it – introduces forces into the provision of local government services comparable to those that produce efficient resource allocation in markets where firms compete on the basis of price and quality.”57 To the extent that the Conservative government’s constitutional proposals were largely consistent with the views of the Business Council on National Issues and the neoliberal approach to federalism more generally, they were opposed by critics on the Canadian left. Illustrating this opposition is the union- and activist-sponsored Canadian Centre for Policy Alternatives, which argued that “the proposals feature property rights, substantial devolution of federal power and a sort of social charter for big business cloaked as economic union proposals which include a free market clause. In all likelihood none of this will prove acceptable to labour [or other social activists].”58 It was also not acceptable to the New Democratic Party and its constitution critic Lorne Nystrom. As party insider Ian McLeod reported: Armed with the proxy votes of three N D P provincial premiers, Nystrom beat the government back on the pro-business agenda put forward by Constitutional Affairs Minister Joe Clark. The Conservatives withdrew their property rights proposal, eliminated a reactionary definition of the Bank of Canada … and ­gutted some potentially anti-public ownership language on ­inter-provincial trade.59 Also, beyond simply opposing these neoliberal proposals, the N D P made its own more socially democratic proposals. Most significant in terms of fiscal federalism was the proposal to include a European-style social charter in the Accord. As McLeod notes, “the social charter concept had attracted favourable comment from party members, social activists and the media,” and it was also championed by Bob Rae, the NDP premier of Ontario.60 The proposal was also strongly supported by advocacy groups such as the Council of Canadians and the National Anti-Poverty Organization.61 In the

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end, the social-charter proposal was included but watered down to a declaratory statement, as were many of the more neoliberal proposals related to the economic union. As BCN I chief Thomas d’Aquino later commented: “I readily acknowledge that the Charlottetown Agreement is not perfect. We in the B CN I , for example, were disappointed that the economic union provisions were not stronger.”62 Nevertheless, given their overriding concern with political stability, many business groups, unions, and advocacy groups did support the Accord and expressed sincere regret when it failed to pass in the referendum of October 1992.63 The Economic and Social Union in the 1990s With formal constitutional negotiations having been deferred indefinitely, political activity related to reforming the federal / provincial division of powers occurred primarily through the forum of intergovernmental negotiations. A key development here was the signing of the Agreement on Internal Trade (AI T ) on 18 July 1994. The AI T was  an attempt to revive the economic union provisions of the Charlottetown Accord through non-constitutional means. As Bruce Doern and Mark MacDonald argue, “pressure from national business lobbies increased in concert with the larger free trade agenda. One form of this pressure came through studies of the economic costs of internal-trade barriers to the Canadian economy as a whole.”64 For example, in November of 1992, the Canadian Chamber of Commerce published a detailed study on the costs of interprovincial trade barriers to Canadian business.65 Less than two years later, the Fraser Institute published two books that sought to further promote the neoliberal approach to federalism, including the need for a more liberalized economic union. The first book, The New Federalist, by American public-choice luminary Gordon Tullock, argued in favour of decentralization within a liberalized national economy in order specifically to create greater competition between governments.66 Summarizing the argument, Fraser Institute staffer Filip Palda noted: “The book … explains that power is too centralized in Canada. If spending and taxes were decided at lower levels of government and if resources could move freely around the country, Canadians would get more efficient and responsive government.”67 The second book, an edited volume titled Provincial Trade Wars: Why the Blockade Must End, made the case for strengthening the

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Canadian economic union by removing barriers to the free movement of goods, capital, and labour across interprovincial boundaries.68 Overall, while framed in the language of economic efficiency and national unity, Doern and MacDonald argue that, “the debate about the AIT was precipitated by a view that the Canadian internal market had too many barriers (read: excessively interventionist government policies, especially provincial policies).”69 It is for this reason that the primary fault lines in the debate over the AI T did tend to reflect the left / right contestation within Canadian politics. Among provincial governments, for example, strongest support for the Agreement came from the Conservative governments in Alberta and Manitoba, while the greatest scepticism came from the social democratic New Democratic Party governments in Ontario, British Columbia, and Saskatchewan. Among interest groups, a similar breakdown occurred, with the greatest support for liberalization coming from the business community and the greatest opposition from trade unions and social activists.70 In the end, the political-economic cleavages surrounding the AIT led to a watering-down of many of its more neoliberal provisions, while, at the same time, concerns over national unity led to its eventual signing in 1994. Since that time, however, internal trade and the federal spending power continued to be policy priorities for Canada’s business associations and free-market think tanks. This has included numerous studies on the impact of internal trade barriers, as well as various reports, speeches, and op-eds advocating for a more competitive form of federalism. Examples of these reports and commentaries include: The Agreement on Internal Trade and Inter-provincial Trade Flows: Building a Strong United Canada (1996) and Obstacles to Free Trade in Canada: A Study on Internal Trade Barriers (2004), by the Canadian Chamber of Commerce; “Drawing on Our Inner Strength: Canada’s Economic Citizenship in an Era of Evolving Federalism” (1996), “Disentangled Federalism Key to Avoiding Future Fiscal Excesses” (2000), and Reflections on the Political Economy of Fiscal Federalism in Canada (2005), by the C.D. Howe Institute; and “The Forgotten Trade Agreement: Should We Care about Canada’s Agreement on Internal Trade?” (2001) and “Rebalancing the Federation by Reducing the Federal Spending Power” (2004), by the Fraser Institute.71 More significant in terms of the federal-provincial division of powers was the historic deficit-fighting budget brought down by Liberal finance minister Paul Martin and Prime Minister Jean Chretien in

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1995. The budget made strong cuts to unemployment insurance and also introduced the Canada Health and Social Transfer (C H S T ), a block-funded transfer that combined funds for health care, postsecondary education, and social assistance. The CHST transferred tax points to the provinces, reduced overall funding for shared-cost programs, and provided the provinces with greater flexibility through less conditionality (with health care being a key exception). In terms of impact, Susan Phillips argued that “the new transfer represents a significant retraction of the federal spending power and marks the end of the postwar era of an activist federal stance towards intervention in social programs.”72 Echoing this point, historian Ken Dewar argues that “the decentralizing impact of Mr Martin’s reform of Canada’s fiscal structure goes far beyond the constitutional changes proposed in the Meech Lake Accord.”73 Important to note here, however, is that while the Liberals did pursue a neoliberal approach to deficit reduction (focused on spending cuts rather than tax increases), they did not deliberately pursue a neoliberal approach to federalism. The loosening of conditionality was done primarily to appease the provinces in the face of transfer cuts – in particular, the province of Quebec, which was about to have a referendum on possible independence. As Phillips argues, “the CH S T is born of deficitcutting … the C H ST is not the product of a careful reconception of federalism by the Chretien government.”74 Reminiscent of the pre-welfare-state era, these cuts caused a fiscal imbalance where the federal government moved into a budget surplus and many of the provinces moved into deficit. In the late 1990s, this led the provinces to demand a new set of rules to govern the Canadian social union, a set of rules that would come to be called the Social Union Framework Agreement (S U F A ). As John Richards notes, “the core rationale for the Social Union Framework Agreement lies in principles advanced by the provinces: circumscribing the federal spending power; codetermination of national standards; recognition of the constitutional division of powers; and the importance of normalizing Quebec’s role in intergovernmental relations.”75 Taken as a whole, the provincial position implied a greater decentralization of social policy in Canada, while the federal response to it sought measures to strengthen the Canadian economic union. Together, this particular combination of decentralization and centralization fit well with the neoliberal approach to federalism, and, as a result, was supported by business-sponsored think tanks and opposed by social

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activists.76 In the final agreement, however, these positions were reversed to the extent that the provinces abandoned their decentralizing demands in exchange for increased federal transfers.77 The result was that the Liberal government began to reinvest somewhat in social spending. This also included a 2004 health accord where the federal government guaranteed to increase the annual health-care transfer to the provinces by 6 percent per year for ten years. In exchange, the Canada Health and Social Transfer was split into the Canada Health Transfer and the Canada Social Transfer to ensure that provinces were accountable for the health-care funding they received. Overall, while some funding was restored, “the new trajectory established in the 1990s has proven reasonably durable.”78 the harper government’s

“open

federalism”

The next big moment in the contestation over Canadian fiscal federalism began in 2004 when Stephen Harper became leader of the newly formed Conservative Party of Canada. The Conservative Party reflected Harper’s achievement of merging the more conservative Canadian Alliance party (formerly the Reform Party) and the old Progressive Conservative Party. Harper’s own background was in the Reform Party and later with the National Citizens Coalition, a freemarket advocacy group. The result was that many of his early pronouncements leaned in the direction of neoliberal idealism. This was particularly the case in the area of fiscal federalism, where, in the first year of his leadership, he outlined a very specific vision, one that reflected the key principles of market-preserving federalism. The Harper Government’s Vision for Canadian Federalism In outlining this vision in a 2004 op-ed piece, Harper pledged that a Conservative government would introduce a new approach to Canadian federalism. He described this approach as an “open federalism” that would involve a “renewed respect for the division of powers between the federal and provincial governments” – one based on the reestablishment of “a strong central government that focuses on genuine national priorities like national defence and the economic union, while fully respecting the exclusive jurisdiction of the provinces.”79 The rationale for this open federalism, according to Harper, was based on the populist tradition “that stresses democratic reform and the

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accountability of government to the people,” as well as the national unity need for “new ideas that address Quebec’s unique demands in ways that strengthen its place in Canada.”80 In other words, open federalism was to be about democratic reform and national unity, and, as such, was meant to address issues arising out of the Canadian federation’s regional and linguistic cleavages. A further, unstated rationale for open federalism, according to many political commentators, was the understandable partisan interest of the Conservative Party in reassembling the old Progressive Conservative Party coalition between populists in the west, soft nationalists in Quebec, and fiscal conservatives in Ontario. While democratic reform, national unity, and partisan interests no doubt played a key role in the Conservative Party’s new approach to federalism, the details of the approach were fully consistent with the neoliberal approach to federalism. For example, the promise to renew respect for the constitutional division of powers, and to address demands for greater autonomy within Quebec, both implied the need for a more decentralized federation to reverse years of federal encroachment into areas of provincial jurisdiction and to satisfy the aspirations of Quebec nationalists. At the same time, Harper’s op-ed also called for a stronger central government in constitutionally mandated areas of federal responsibility, such as defence and the maintenance of the economic union. In the latter case, this implied that the federal government should have the ability to prevent provinces from creating barriers to the free movement of goods, labour, and capital across their borders. The next iteration of open federalism came in the Policy Declaration adopted by the Conservative Party of Canada at its national policy convention in March 2005. The fourth section of the declaration was dedicated to open federalism, and it opened with the promise: “A Conservative Government will restore the constitutional balance between the federal and provincial and territorial governments.”81 Here, as elsewhere in the document, there was an emphasis on the constitutional division of powers between the federal and provincial governments. There was also a reference to “strong provinces” and the need to “ensure that the use of the federal spending power in provincial jurisdictions is limited.”82 As Robert Young observed, when these points are taken together, “The general impression is of ‘strict constructionism’: that is, attentiveness to the original distribution of powers in the Constitution Act and support for disentangling the

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activities of the orders of government.”83 Somewhat more ambiguous in the Declaration was the reference to a “fiscal imbalance” between Ottawa and the provinces, and the need to fix it by “increasing the amounts allocated to provincial transfers, by reducing taxes, or by transferring tax points to the provinces.”84 In the Conservative Party’s federal and Quebec platforms for the 2006 federal election, open federalism was again mentioned with reference to many of the themes noted above, particularly respect for the constitutional division of powers. Also mentioned in the party’s federal election platform, titled “Stand Up for Canada,” was a promise to create a Charter of Open Federalism to “facilitate provincial involvement in areas of federal jurisdiction where provincial jurisdiction is affected” and to “propose an amendment to the Constitution to include the right to own property.”85 The federal platform also defined the fiscal imbalance by noting: “In the last eight years, the federal government has amassed enormous surpluses. Meanwhile, many provinces have seen reduced revenues and have had to run deficits in order to pay for education, health, and other social programs.”86 Turning to the Quebec platform, what was new was the call for an explicit “recognition of provincial autonomy and of the special cultural and institutional responsibilities of the Quebec government.”87 Also new here was the tone with which Stephen Harper announced the Quebec platform in his 19 December 2005 speech to the Quebec City Chamber of Commerce. In this speech, Harper promised to “monitor” the federal spending power, which he said had become “outrageous” and which “gave rise to domineering and paternalistic federalism.”88 Following the election of a Conservative minority government in early 2006, the notion of open federalism was further refined and concretized. For example, in an interview with L. Ian MacDonald published in the March 2006 issue of Policy Options, Prime Minister Harper expanded on his seemingly “strict constructionism” view of the federal / provincial division of powers. He noted that the federal government “has gotten into everything in recent years, not just provincial jurisdiction but now municipal jurisdiction,” and that, instead, he would prefer to “see Ottawa do what the federal government is supposed to do.”89 In a similar fashion, Prime Minister Harper expanded on his view of the fiscal imbalance during a post-election speech to the Board of Trade of Metropolitan Montreal. In it, he argued that, “probably the most important fiscal imbalance in this

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country is between all levels of government and the citizens and businesses of this country who are all overtaxed.”90 While clearly a rhetorical device rather than an actual redefinition of the fiscal imbalance idea, this statement does highlight why the concept of open federalism was as much about left / right politics as it was about federal / provincial or partisan politics. Beyond the fiscal imbalance, Harper used this speech to further refine the concept of open federalism by noting that: Open federalism means respecting areas of provincial jurisdiction. Open federalism means limiting the use of the federal spending power … Open federalism means establishing a formal mechanism for provincial input into the development of the Canadian position in international negotiations or organizations where provincial jurisdiction is affected. Open federalism r­ epresents an opportunity to free Quebec from the trap of polarization.91 While this speech did much to refine the Conservative Party’s notion of open federalism, the most comprehensive statement was found in the companion discussion paper to the 2006 federal budget, titled Focusing on Priorities: Restoring Fiscal Balance in Canada.92 This document built on the 2006 Speech from the Throne and federal budget, both of which contained only limited references to open federalism. The discussion paper, in contrast, was devoted to a detailed examination of what it calls “the four major sets of concerns that are the focus of the current debate.” These included: 1. “unplanned federal surpluses”; 2. “how the federal government, since recording surpluses, has undertaken significant new spending initiatives in areas of provincial jurisdiction – while it has neglected some of its core areas of responsibility – leading to concerns about blurred accountability”; 3. “Some transfers have not yet been put on a principle-based, predictable, long-term track”; and 4. “The need for both orders of government – separately and working together – to do more to enhance the efficiency and competitiveness of the economic union.”93 Each of these four concerns was then expanded upon in separate chapters, as was the “The Government’s Approach.” In the latter case, the chapter began by noting that the government’s approach to open federalism would be guided by five principles: 1. “Accountability through clarity of roles and responsibilities”; 2. “Fiscal responsibility and budget transparency”; 3. “Predictable long-term fiscal arrangements”; 4. “A

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competitive and efficient economic union”; and 5. “Effective collaborative management of the federation.”94 The first of these principles built on earlier statements about respect for the constitutional division of powers and the need for greater democratic accountability by clarifying the roles and responsibilities of each level of government. While the chapter later stated that the government was committed to continued transfer payments in the provincial areas of health care, post-secondary education, and infrastructure, it promised to “limit the federal spending power in areas of provincial responsibility” by ensuring that “new shared-cost programs in areas of provincial responsibility have the consent of the majority of provinces” and that “provinces and territories have the right to opt out of shared-cost federal programs with compensation if they offer similar programs with comparable accountability structures.”95 In practice, when combined with the statements on respecting the constitutional division of powers, this implied an ultimate desire to limit or reduce federal spending in areas of provincial jurisdiction. The principle of clarity in roles and responsibilities also required “that each order of government has access to the revenues required to fulfill its roles and responsibilities,” which referred to earlier promises to deal with the fiscal imbalance.96 Moreover, while previous statements were ambiguous about whether the fiscal imbalance would be addressed through increasing transfers, cutting taxes to create room for provincial tax hikes, or transferring tax points to the provinces, the discussion paper was more clear. Specifically, in addition to the statements on limiting the federal spending power, it also noted that clarity in government revenues “requires that excess federal revenues be used primarily to reduce federal taxes rather than to launch new policies in areas where the federal government is not best placed to design or deliver programs.” It also states that transferring tax points will also be considered.97 In both cases, the aim is to create an “appropriate matching of revenues to expenditure responsibilities.”98 In contrast to these decentralizing tendencies, the discussion paper’s fourth principle of open federalism – a competitive and efficient economic union – was more centralizing in its orientation. For example, in addition to the creation of a new federal securities regulator to replace provincial regulators, it sought to “reduce barriers to internal trade and labour mobility by collaboratively strengthening and following through on commitments in the Agreement on Internal Trade.”99 For some observers, such as Globe and Mail national

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columnist Norman Spector, the fact that the Conservatives were advocating decentralization in some areas and centralization in others appeared to be either a contradiction or a deliberate attempt at political misdirection. As Spector notes: The fiscal imbalance document released by the Conservatives has spawned widely divergent views of what they are up to. Some pundits predict they’re setting the stage for a massive withdrawal in favour of the provinces … Others foresee a stiff negotiation in which Ottawa, as a quid pro quo, will demand increased powers to strengthen the economic union. To me, the length of the document and its comprehensiveness suggest Mr Harper, normally a master strategist and an astute tactician, doesn’t know where he’s going.100 However, the specific combination of centralization and decentralization contained within the Harper government’s open federalism is fully consistent with the neoliberal approach to federalism and demonstrates why it should not simply be evaluated in terms of centralization vs decentralization. Recognizing this fact, one neoliberal columnist argued that “Mr Harper’s most important liberal initiative … is his plan to download taxing powers to the provinces, accompanied by a pledge to keep Ottawa out of areas of provincial jurisdiction … [a pledge that will return] … the federal government to something closer to the role of the night watchman state (a government that focuses on security, defence and the criminal code and not much else).”101 Federalism in the Harper Years In an assessment of federalism during the Harper years, Christopher Dunn argues that “Harper left a legacy of smaller government and greater provincial self-reliance.” However, he also notes that, “in intergovernmental relations, prime ministers seldom end up where they intended. Harper is only the latest in a long list of prime ministers to experience this.”102 As is usually the case, philosophy was tempered by events, opposition, and political calculations. These were particularly significant over the Conservatives’ three mandates, which included: a minority government (2006–08); a second minority government (2008–11), in which the great recession began; and a majority

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government (2011–15). Nevertheless, federalism in the Harper years continued to be characterized by a significant degree of left / right contestation and the preferences of neoliberal and social democratic actors remained consistent throughout. When the Harper government was first elected in 2006, its approach to federalism received immediate support from the business community. For example, the Canadian Council of Chief Executives (C C C E, formerly the Business Council on National Issues) issued a report in the month following the Conservatives’ election victory that supported and expanded upon the government’s position. In it, the CCCE argued for a greater decentralization of tax and social spending capabilities, further liberalization of the internal economic union, and centralization of certain market-enabling capabilities, including the call for a national securities regulator to replace the existing provincial ones.103 In all cases, the C C C E ’s proposals were consistent with the principles of market-preserving federalism and the Harper government’s approach. Also consistent, if more ambitious, was the proposal to eliminate all health and social transfers to the provinces, combined with the creation of tax room for the provinces by eliminating the federal Goods and Services Tax. As the report notes, this would “encourage the federal government to focus on its core responsibilities instead of continuously looking for ways to intrude in provincial jurisdiction.” It also meant that provinces and municipalities would “take responsibility for creating the conditions that would attract particular companies to particular places.”104 Of course, for all the market-preserving reasons that business interests were in favour of the Conservative Party’s open federalism, activist groups opposed it. The Canadian Centre for Policy Alternatives, for example, argued that “the likely consequence of decentralization as advocated [by the Conservative Party and the C C C E ] is a further reduction in the size of government, directly at the federal level, and indirectly through tax competition at the provincial level.”105 Echoing this point, Shelagh Day, a director of the Vancouver-based Poverty and Human Rights Centre, argued that this type of decentralization “will balkanize Canadian social policy, putting in place the conditions for a race to the bottom and a further shredding of the social safety net.”106 While the Conservatives’ first mandate was a minority government, they did make a real effort to implement their new approach to federalism. This began in their first budget with the discussion

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paper noted above, which sought to outline their open federalism approach in more detail. The 2007 budget then began to implement the approach through changes to the Canada Health Transfer and the Canada Social Transfer. While funding for both transfers was increased due to preexisting escalator clauses, their underlying formulae were changed to a per capita basis. This had the effect of removing the interprovincial equalization components of these programs. At the same time, Thomas Courchene, a prominent supporter of a more neoliberal approach to federalism, argued that, “although the CST funds are notionally allocated to [post-secondary education], to social programs and to support for children, they are effectively unconditional grants, another way in which the budget implementation respects the division of powers.”107 The budget also decentralized labour-market training to the provinces and enshrined in legislation the government’s commitment to limit the use of the federal spending power. Thus, any new shared-cost programs would require the consent of a majority of provinces and would also include the ability to opt out with compensation. Overall, as Courchene argues, “Finance Minister James Flaherty’s 2007 budget was fundamentally and rather incredibly an exercise in the fiscal implementation of a principled political philosophy of federalism … the underlying philosophy in the budget is to respect the constitutional division of power.”108 The Harper government’s first mandate was also characterized by a continued push among neoliberal actors for a stronger agreement on the economic union. In April 2006, Conservative governments in the provinces of Alberta and British Columbia signed the Trade, Investment and Labour Mobility Agreement (T I L M A ). The agreement was strongly promoted by the Canada West Foundation think tank, as well as actors such as the Fraser Institute, the B C Business Council, and the Canadian Chamber of Commerce.109 The Harper Conservatives also supported the agreement and Industry Minister Maxime Bernier told the Senate’s banking committee that T I L M A would put governments “in competition” with each other to attract business.110 Moreover, while only enacted between two provinces, T I L M A went beyond the Agreement on Internal Trade (A I T ) by including much stronger enforcement mechanisms and much broader definitions of trade barriers. Specifically, it allowed private actors to initiate challenges to provincial and municipal regulations that they viewed as simply restricting or impairing investment. For this reason, the agreement was opposed by social democratic critics, who argued

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that, “T I L M A ’s real purpose” is as “a tool for far-reaching, businessinitiated, deregulation at the provincial and municipal levels.”111 With T I L M A in place, a campaign was then launched to have the agreement adopted by all provinces. As one critic argued: “The election of a new deregulation-minded conservative government in Ottawa and the signing of the B C -Alberta agreement have reinvigorated these corporate-led calls to transform the A I T .”112 These calls included the governments of Alberta and B C , backed by the federal Conservatives, lobbying the other provinces in the run-up to their August 2007 meeting. In the end, there was not enough support for adopting T I L M A and, instead, the premiers agreed to work toward strengthening the A I T . The second Conservative mandate, from 2008 to 2011, was a minority government that coincided with the onset of the Great Recession. Therefore, based on events and pressure from the opposition parties, the focus of the Harper government was primarily on fighting the recession. This included a temporary Infrastructure Stimulus Fund, which provided funding to provinces and municipalities. In terms of open federalism, it also included a five-year ceiling on equalization payments.113 Moreover, while the government focused on the recession, other neoliberal actors ramped up their campaigns on the economic union. Key here was the new free-market think tank, the Macdonald-Laurier Institute, which would become one of the most ardent promoters of a market-preserving federalism model for Canada. The Institute produced a detailed report on the need to strengthen Canada’s economic union, titled Citizen of One, Citizen of the Whole: How Ottawa Can Strengthen Our Nation by Eliminating Provincial Trade Barriers with a Charter of Economic Rights. As the title indicates, the Institute advocated for an economic charter of rights that would be reinforced by an “Economic Freedom Commission with the power to investigate breaches of the Economic Charter of Rights on its own initiative as well as in response to complaints.”114 The idea was highly centralizing and represented a new approach to interprovincial trade. First, rather than negotiating with the provinces, the Institute wanted the federal government to use its constitutional power over trade and commerce to unilaterally impose an economic charter on the provinces. Second, once implemented, the charter would take interprovincial trade and regulation out of the hands of the provinces and municipalities. It would do so by allowing the Economic Freedom Commission to strike down any laws deemed

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to be a barrier to trade. These ideas were strongly promoted by the Institute through op-eds and media interviews, and the idea was given coverage and / or endorsed by a number of media outlets.115 While the Conservative government’s second mandate proved not to be the right time for such a move, it did create renewed pressure for action on the economic union in the Conservatives’ next mandate. In Prime Minister Harper’s third mandate, a majority government from 2011 to 2015, the government was able to pay greater attention to its fiscal federalism agenda. Most significant here were the changes made to the Canada Health Transfer. Since 2004, Paul Martin’s tenyear health accord, which guaranteed the provinces annual 6 percent C HT increases, had been in effect. In 2012, the Harper government announced that, when the accord expired in 2014, the 6 percent annual increase would be replaced with much smaller increases based on G DP growth, although with a floor of 3 percent. This was a significant move to reduce the federal government’s role in Canada’s key shared-cost program and, thus, to promote a much greater decentralization of health care. In describing the new policy, former Harper chief-of-staff Tom Flanagan argued: “Classical federalism is back … Classical federalism and classical liberalism are philosophical siblings … In the Canadian context, the revival of classical federalism is an essential part of the revival of classical liberalism, with its emphasis on smaller government, lower taxes and balanced budgets.”116 A similar point was made by former Harper communications director Geoff Norquay, who observed that the new health-care policy is “about a Prime Minister with a very different federal-provincial agenda, based on a view that seriously respects the Constitution.”117 Also important in this mandate were a number of more centralizing initiatives designed to promote markets and the economic union.118 While some commentators viewed these efforts as contradictions in the Harper government’s broader focus on decentralization, they were fully consistent with the neoliberal approach to federalism in that they sought to centralize capabilities that were market-promoting. First, with the support of the business community, the government attempted to create a national securities regulator, but this was ruled ultra vires by the Supreme Court. Second, also with the support of business, the government sought to recentralize its control over labourmarket retraining to better address skills shortages identified by the Canadian Chamber of Commerce. Third, the government renewed efforts to obtain a deal on interprovincial trade. Specifically, in 2014,

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Industry Minister James Moore announced that his top priority would be to negotiate a new internal trade deal, a move that was once again endorsed by various business associations and free-market think tanks and columnists.119 However, the Conservatives were defeated in the 2015 election before a new deal could be reached. the ongoing politics of canadian fiscal federalism

Following the transition from the Harper Conservatives to the Trudeau Liberals, neoliberal and social democratic actors have continued to promote their respective projects for fiscal federalism. For example, the lack of a deal on the economic union meant that internal trade remained a key issue for many neoliberal actors. This was the case even when the new Liberal government announced a Canada Free Trade Agreement (C F T A ) in the spring of 2017. While business associations expressed support, neoliberal idealists criticized the agreement for not going at all far enough. For example, Brian Lee Crowley of the Macdonald-Laurier Institute argued that the C F T A “betrays the promise of Confederation.”120 He recognized that the agreement would work to lower some barriers to interprovincial trade, but what he really wanted to see was the federal government acting much more unilaterally to impose free trade on the provinces. This desire for the federal government to make greater use of its power over trade and commerce was also beginning to be felt on the issue of oil pipelines. Specifically, some commentators wanted the federal government to “stare down” environmental concerns in some provinces by imposing pipelines in “the name of the national interest.” Such a centralizing move was also seen as a useful precedent “that could set a new tone that leads to falling barriers to interprovincial trade, as tolerance with interprovincial game-playing wears thin, and the spirit of Section 121 of Canada’s Constitution Act is revivified.”121 The push for market-preserving federalism was given a further boost in the Conservative Party’s leadership campaign, which ventured beyond the vision first laid out by Stephen Harper. The secondplace finisher, Maxime Bernier, had a background with the free-market think tank, the Montreal Economic Institute. He has long been one of the party’s strongest promoters of neoliberalism and marketpreserving federalism.122 His leadership platform and campaign had four main headings related to federalism: “End Interprovincial trade

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barriers”; “Get Ottawa out of health care, and transfer tax points to the provinces”; “Equalization payments are unfair”; and “Maxime Bernier’s Government will respect the Constitution.”123 Together, this mix of centralization and decentralization represented a vision of Canadian fiscal federalism that was perfectly in line with the principles of market-preserving federalism, and it demonstrates the continuing commitment of fiscal conservatives to this project. Among social democrats, some bold proposals were also being promoted. For example, the Liberal premier of Ontario called on the federal government to create an annual federal-provincial infrastructure transfer payment modelled on the existing health and social transfers. Prominent environmentalist David Suzuki launched a campaign to have environmental rights included in the Canadian Charter of Rights and Freedoms.124 A similar proposal, to include economic and social rights in the Charter, was published by the progressive think tank, the Mowat Centre.125 Overall, these examples, and the broader case study of Canadian fiscal federalism, provide strong support for the main arguments of this book. First, it is apparent that, from the Great Depression onward, the preferences of neoliberal and social democratic actors have reflected their respective normative projects for fiscal federalism. Thus, social democratic actors have almost always supported a greater degree of centralization specifically to prevent the policy competition that they believe imposes constraints on the implementation of social democratic polices. Similarly, rather than being pro-decentralization, pro-constitution, or favouring provincial rights in general, neoliberal actors have consistently supported economic centralization and social decentralization. This, in turn, supports the relevance of studying ideas in order to better understand the “true” or full motivation behind specific policy preferences. Second, the Canadian case would also seem to support the argument that a political-economy approach is relevant to the study of federalism and can add to existing explanations of political party preferences and national policy outcomes. Thus, even in the “critical case” of Canadian federalism, where political competition is clearly dominated by regional and linguistic cleavages, the competition between neoliberal and social democratic actors was shown to constitute a significant “subplot,” one that seems to have become more relevant over time. At the same time, whatever their degree of success, it is clear that neoliberal and social democratic actors have devoted

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meaningful resources toward promoting their respective projects for fiscal federalism. This would therefore seem to demonstrate why fiscal federalism should be a significant area of study for political economists. As outlined below, further support for this view is found in the case of US federalism where the preferences of neoliberal and social democratic actors have progressed along very similar lines. neoliberalism versus social democracy in american federalism

This short case study examines the political competition between the neoliberal and social democratic social movements over US fiscal federalism. It argues that the neoliberal and social democratic projects for fiscal federalism do again help to explain the policies advocated by their respective social movements and why these movements are more concerned with policy competition than centralization / decentralization per se. Recognizing this fact is significant as it helps to better explain the interests and motivations behind specific policy preferences. It also helps to explain political party preferences, and why, like Canada, the evolution of US fiscal federalism has been strongly influenced by the rise of the welfare state and the subsequent shift to neoliberalism. Federalism in the US Constitution Reflecting the greater prominence of left / right political competition in US federalism, there has been a longstanding debate over the motivation behind some of the provisions in the 1789 US Constitution. Critical scholars, for example, have argued that the separation of powers inherent to the US Constitution reflected John Locke’s approach to locking in property rights against democratic pressures for redistribution. As Stephen Gill highlights, the desire to protect property against any “tyranny of the majority” was formalized most prominently in Locke’s Two Treatises on Government in 1689.126 For Locke, the specific rights and freedoms that he identified as being “natural” included the rights to “life, liberty and property.”127 Based on these views, C.B. Macpherson argued that “Locke’s constitutionalism is thus essentially a defense of the supremacy of property.”128 This emphasis in Locke’s constitutionalism on protecting property from democracy, combined with various positive references to him made

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by the American founding fathers, has led to a number of critical interpretations of the US Constitution. Most prominent is Charles A. Beard’s seminal 1913 book, An Economic Interpretation of the Constitution of the United States, which argues that the specific aim of the American founding fathers was to limit the democratic impulses unleashed during the American Revolution and to protect property from a potential tyranny of the majority.129 It did so, he argued, through a strong separation of powers, the creation of an unelected Senate, and through making property ownership a requirement for voting. Echoing Beard’s view, Karl Polanyi has argued: “The separation of powers … was now used to separate the people from power over their own economic life. The American constitution … isolated the economic sphere entirely from the jurisdiction of the Constitution, put private property thereby under the highest conceivable protection, and created the only legally grounded market society in the world. In spite of universal suffrage, American voters were powerless against owners.”130 While the protection of property rights no doubt played a role in the creation of the US Constitution, it is important not to overstate its significance given that competing visions were at work. Thus, many historians have argued that the American Constitution reflected the tensions between a Lockean focus on protecting property rights and the emphasis among Jeffersonian republicans on broader civil and political rights.131 Moreover, in contrast to earlier views that Thomas Jefferson simply “copied Locke”132 in his writing of the Declaration of Independence, many historians now believe that Jefferson and his followers placed much less emphasis on property rights. This was particularly evident in his seemingly deliberate substitution of Locke’s “life, liberty, and estate” with “life, liberty, and the pursuit of happiness.” As historian David Post argues, “Jeffersonians thought rights inalienable precisely because they had roots inherent in the human being. That property right was not similarly viewed by Jefferson to have such inherent roots is also clear from his substitution of ‘pursuit of happiness’ for Locke’s ‘property.’”133 Thus, while protecting property against the tyranny of the majority was a clear concern of some of the American founding fathers, particularly those following James Madison, it may not have been the central concern. In either case, it does at least demonstrate the early desire, among some, to lock in protection for private property through constitutional provisions including the use of federalism.

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Whatever the underlying motivations, scholars agree that the vertical separation of powers in the US Constitution did provide for a decentralized form of federalism. As Thomas Hueglin and Alan Fenna argue, “there is little doubt that Congress was being limited to what was effectively the minimal range of powers that would be necessary to make the federation work as a coherent military and economic force.”134 This was evident in the Constitution’s “single list approach,” in which there is a very limited list of enumerated powers for the Congress and no list for the states. More specifically, Article I, Section 8 gave the federal government the power to collect tax for the common defence and general welfare, to coin money, to regulate commerce with foreign nations, and, among the states, to create a post office, to sign treaties, raise a military, and declare war. In this way, “the single list approach of enumeration signalled that the list of congressional powers was to be exhaustive and limiting. The silence on state powers indicated that it was they who should retain the plenary power. The states were thus granted an implicit and open-ended residual power of everything that was not explicitly taken away from them.”135 This residual power for the states was then made explicit through the Tenth Amendment, adopted as part of the Bill of Rights in 1791. The Welfare State and Social Democratic Federalism As in Canada, the decentralized nature of the US Constitution imposed constraints on the implementation of social democratic policies. In the Progressive Era (1890s to 1920s), when social reformers began to demand greater regulation of business, Congress attempted to regulate in areas such as anti-trust and labour relations. However, the Supreme Court found many of these laws to be beyond the powers of Congress. It did so through a narrow reading of the Commerce Clause, which made a sharp distinction between “interstate commerce” and matters that were purely state and local in nature such as manufacturing. One key case here was United States v. E.C. Knight Co. in 1895. In it, the Supreme Court prevented Congress from breaking up a sugar monopoly whose activities had a national impact because the company still refined the sugar solely within one state.136 Another key case was Hammer v. Dagenhart in 1918, where the Court ruled as unconstitutional a federal law to prohibit the interstate shipment of products produced in factories that employed child labour. Also important in this case was that the federal government specifically

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raised the issue of policy competition in order to justify the need for federal regulation.137 With the onset of the Great Depression, however, things began to change. Franklin Delano Roosevelt became president in early 1933 having won against the Republican incumbent, Herbert Hoover. Roosevelt had campaigned on the benefits of government intervention and the need for a “New Deal” for the American people. Once in office, he implemented a wide-ranging agenda of new regulations, social-welfare programs, and public-works projects. This included the creation of new government agencies, such as the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Federal Communications Commission. It also included the 1935 Social Security Act, which established a national system of oldage pensions, unemployment insurance, and income support for the disabled, as well as the National Labor Relations Act, which greatly strengthened the power of trade unions. Initially, however, US federalism and the Supreme Court remained an obstacle to Roosevelt’s more social democratic agenda. In the mid-1930s, seven of the nine justices were Republican appointees who seemed to find any reason to rule against Roosevelt’s policies. As Paul Peterson observes, “by declaring many New Deal programs in violation of the commerce clause, the Supreme Court seemed to be substituting its political views for those of elected officials.” The result, he notes, was that “the Roosevelt Democrats were furious at decisions that seemed to deny the country’s elected officials the right to govern.”138 In response, the president threatened to expand the number of justices on the Court and then pack it with new appointees. This had an immediate effect, as two judges changed their mind on whether relations between employers and employees were only a local matter. They did so by voting in favour of the National Labor Relations Act, which would facilitate the formation of unions.139 With their switch, and Roosevelt’s subsequent appointments to the Court, the definition of interstate commerce and, thus, the federal government’s jurisdiction, began to be significantly expanded. In two key cases in 1937, National Labor Relations Board v. Jones & Laughlin Steel Corp. and Steward Machine Co. v. Davis, the Court effectively removed the distinction between commerce and manufacturing that had prevented the federal government from using the Commerce Clause more broadly. Similarly, in the 1937 Hilvering v. Davis case, the Court reinforced and expanded on a 1923 decision

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(Massachusetts v. Mellon) in favour of the federal government’s ability to spend in areas of state jurisdiction. This, along with subsequent decisions, has allowed Congress to spend in areas of state and municipal jurisdiction, and to attach virtually any condition to the spending through what are known as “categorical grants.”140 As John Wallis and Wallace Oates argue, this was significant because “the New Deal irrevocably altered the evolution of American federalism and did this largely through the widespread introduction of a fiscal instrument that had only seen modest use earlier: intergovernmental grants.”141 Also important at this time was that the issue of policy competition between states became a key rationale for expanding the federal government’s powers under the Commerce Clause. For example, it was used in the 1941 case, United States v. Darby, to overturn the findings of the Hammer v. Dagenhart case on child labour (noted above), which had explicitly rejected the policy-competition argument. Specifically, the Supreme Court stated: “No state, acting alone, could require labor standards substantially higher than those obtaining in other States … Employers with lower labor standards possess an unfair advantage in interstate competition, and only the national government can deal with the problems.” 142 One year later, the Wickard v. Filburn case further expanded the Commerce Clause by effectively altering the notion of enumerated powers so that all powers not expressly prohibited in the Constitution would be allowed. From this point on, Supreme Court decisions generally worked to expand the powers of the federal government in the economic, social, and cultural realms. As in Canada, therefore, the US welfare state led to a greater degree of centralization and also to the emergence of concerns over the issue of policy competition. This continued in the 1960s with Democratic president Lyndon B. Johnson’s “Great Society” agenda and, in particular, the so-called “creative federalism” that helped to facilitate it.143 As Timothy Conlan observes, “The Great Society programs gave the federal government a new and powerful role extending far beyond that accepted in the 1930s.”144 This included key legislation, such as the Food Stamps Act in 1964 and the Medicare Act of 1965. The latter created the federally run Medicare program for the elderly and disabled, as well as the state-run Medicaid, based on federal conditions and matching funds (categorical grants) to provide health insurance to the poor. It also included a tripling of new federal grant programs between 1960 and 1968, including a growing number that

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went directly to municipalities.145 Also significant at this time, as outlined in Chapter 2, was the more formal emergence of a social democratic approach to fiscal federalism based on Musgrave’s public finance approach and Oates’s classical fiscal federalism.146 Neoliberalism and the Push for Market-Preserving Federalism The stagflation crisis of the 1970s, as elsewhere, led to a backlash against the Keynesian-welfare state and the more centralized form of federalism that had emerged with it. In the United States, this backlash included the political mobilization of business through the creation and expansion of business-sponsored lobby groups and think tanks.147 It also included the election of Ronald Reagan as president and the emergence of his more neoliberal “New Federalism” approach. As Richard Williamson, Reagan’s senior aide for the federalism agenda, observed: “Reagan’s federalism goals were an integral part of his internally coherent conservative political ideology. His desire to decentralize government generally was reinforced by other aspects of his conservative agenda such as reducing government interference in the marketplace, lowering federal taxes and cutting domestic expenditures.”148 Reagan’s approach was, therefore, based more on the neoliberal approach to federalism than on a populist or socially conservative “states rights” approach (although the two were often compatible). Reagan began to outline the New Federalism agenda in his 17 July 1980 acceptance speech for the Republican nomination. Specifically, he stated: “Everything that can be run more efficiently by state and local governments we shall turn over to local governments, along with the funding sources to pay for it.”149 Reagan then restated this view in his 20 January 1981 inaugural address: “It is my intention to curb the size and influence of the federal establishment and to demand recognition of the distinction between the powers granted to the federal government and those reserved to the states or to the people.”150 Important to note here is that, rather than simply promoting policies that had an impact on intergovernmental relations, Reagan had an explicit federalism agenda that was central to his overall approach. A few months into his presidency, Reagan was able to pass the 1981 Omnibus Budget Reconciliation Act. This Act made significant cuts to social spending and consolidated seventy-seven categorical

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grants into nine block grants in what would become his most significant victory in terms of the New Federalism agenda.151 In contrast to categorical grants, block grants have much fewer conditions and can thus be redirected toward other purposes, including tax cuts. As a result, they are also far more subject to the pressures of tax competition than categorical grants. This is why, as Conley notes, block grants were “a popular mechanism in the arsenal of Reagan federalism” and “were proposed as a stepping-stone to the ultimate elimination of federal involvement in the affected program areas, rather than a means of rationalizing an accepted federal role in a given field.”152 It is for this reason that block grants became increasingly politicized and became seen in the US as synonymous with a neoliberal approach to federalism. As a result, when President Reagan proposed even more sweeping changes to US fiscal federalism in his 1982 State of the Union address, there was growing opposition from social democratic actors. As Conlan notes, “initial congressional and interest group responses to the block grant proposals were sharply negative.”153 For example, in Congressional testimony, the A F L - C I O criticized Reagan’s New Federalism proposals, stating that they would “cripple facilities and services on which all Americans depend and jeopardize the health and welfare of millions of the poor.”154 Similarly, a group called the Ad Hoc Coalition on Block Grants, representing over a hundred interest groups, was formed to oppose Reagan’s proposals. Further highlighting the emerging left / right debate over federalism was the criticism made by Wallace Oates, who, as outlined in Chapter 2, was one of the key intellectuals behind the social democratic approach to fiscal federalism. In 1982, Oates argued that “the attempt to shift basic responsibility for income-maintenance programs to the state and local level is, I believe, fundamentally misguided and puts in jeopardy the prospects of the nation’s poor.”155 Finally, there was also opposition from state governors and local mayors worried about their budgets.156 The result of all this opposition was that the 1982 proposals were never introduced as legislation in Congress. Symbolically, however, the Reagan Administration made twenty-four additional block grant proposals over the next few years.157 At the same time, his fiscal policies did contribute to a further de facto decentralization. This was because federal aid to state and local governments grew more slowly than in the past, and actually dropped year over year as a percentage

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of state-local expenditures. As Williamson notes: “Fiscal stringency in the federal budget propelled fiscal decentralization.”158 Deregulation was also an important component of Reagan’s New Federalism. This occurred through block grants with fewer conditions, and the greater use of waivers to remove conditions and get around the need for Congressional approval.159 Then, in 1987, Reagan issued Executive Order 12612 on “Federalism,” which, as it stated, was intended “to ensure that the principles of federalism established by the Framers guide the Executive departments and agencies in the formulation and implementation of policies.”160 This was the first executive order to establish the executive branch’s policy on federalism. Overall, while not successful in fully implementing the New Federalism agenda, the Reagan administration did give “concrete expression to the emerging theory of ‘competitive federalism’ being developed by conservative public choice economists.”161 The pursuit of competitive federalism continued in the era of President Bill Clinton and the 104th Congress led by the Republican house speaker Newt Gingrich. In the 1994 midterms, the Republicans took control of the House and Senate, having run on their very conservative “Contract with America” platform. This included a plan to make large cuts to spending, taxes, and regulations, as well as to balance the budget within seven years and push for a balanced-budget amendment to the Constitution. As with Reagan, House Republicans strongly embraced the use of block grants to lock in a more free-market approach. They considered consolidating 349 existing programs into ten broadly defined block grants. This included block grants for Medicaid, food stamps, employment and training, housing, law enforcement, and other expenses.162 In terms of its impact on federalism, the Republican approach was famously dubbed the “devolution revolution” by Richard Nathan, of the Rockefeller Institute of Government, in 1995 testimony before the Senate finance committee.163 As with Reagan’s proposals, the devolution revolution was supported by neoliberal actors and opposed by social democratic actors. In the former case, for example, a representative from the neoliberal Cato Institute testified in favour of the proposals, stating that, “the people and the states no longer trust Washington … because Washington has assumed a vast array of regulative and redistributory powers that were never its to assume.”164 On the opposite side, Daniel Patrick Moynihan, the Democratic senator from New York, outlined the social democratic view when he argued: “The hidden agenda of

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the Devolution Revolution is a large-scale withdrawal of support for social welfare … The result would be a race to the bottom, as states, deprived of Federal matching funds, compete with one another to reduce spending by depriving their own dependent population of help.”165 President Clinton also opposed the Republican proposals, and vetoed them in 1995. He also effectively repealed President ­Reagan’s Executive Order 12612 on “Federalism” via his own Executive Order 13083, a move strongly opposed by neoliberal groups such as the Heritage Foundation.166 The one key success of the devolution revolution was the agreement with President Clinton to undertake the largest welfare reform since the 1930s. This took the form of the 1996 Personal Responsibility and Work Opportunity Reconciliation Act, which replaced the Aid to Families With Dependent Children funding with the Temporary Assistance for Needy Families block grant. It also consolidated four different child-care programs into the Child Care and Development Fund block grant.167 The Ongoing Politics of US Fiscal Federalism While not as prominent as during the Reagan Administration and 104th Congress, the neoliberal approach to fiscal federalism has remained an ongoing goal among neoliberal actors. In the year 2000, for example, the American Enterprise Institute (A E I ), one of the US’s most influential free-market think tanks, set up the A E I Federalism Project, which, as its website states, “conducts and sponsors original research on American federalism, with particular emphasis on federal and state business regulation, legal developments and the role of the courts, and the prospects for rehabilitating a constitutional federalism that puts states in competition for productive citizens and businesses.”168 For a number of years, the Project published various books and commentaries, operated a website, and held numerous conferences attended by business and political leaders. Its explicit aim was to promote a “competitive federalism,” which, in the view of Project director Michael Greve, “does not seek to empower states; rather, it seeks to discipline governments by forcing them to compete for citizens’ business.”169 The A E I Federalism Project is thus fully consistent with the neoliberal approach to fiscal federalism. While the project has run its course, the views of AEI commentators remain fully consistent with the competitive federalism approach.170 In a similar fashion, the Cato Institute, the Heritage Foundation, and

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other free-market proponents have also continued to support a competitive federalism approach.171 More recently, in 2013, a coalition of state-based free-market think tanks, led by the Liberty Foundation, launched a project to specifically promote “competitive federalism.” The coalition produced a detailed report on the benefits of competitive federalism and delivered it to the White House, all state governors, and members of Congress.172 It also sought to have politicians sign this pledge: “I pledge to do all I can as an elected official to enact or to promote legislation that honors our Constitution and returns power and taxing decisions over Medicaid, education, and transportation to the states and to the people.”173 Similarly, in 2016, the Wisconsin Institute for Law and Liberty founded the nationally focused Center for Competitive Federalism. As its website notes: “The Center for Competitive Federalism … will engage in strategic litigation, public education and the development of model legislation to advance the ‘competitive’ federalism established by the Constitution – a system in which the authority of both the states and federal government is carefully delineated and circumscribed and which is informed by the need to protect the liberty of persons and not the prerogatives of government.”174 Equally important is that the Center views itself as being in direct opposition to a more social democratic form of cooperative federalism: It is central to the mission of the Center for Competitive Federalism to promote not “federalism” in general, but the right kind of federalism. Self-styled “progressives” are generally committed to what they call “cooperative federalism,” a new and more flexible form of government control that allegedly permits states some freedom to achieve a broad and overreaching federal mandate in their own way … This “cooperative federalism” was not the federalism of James Madison and it is not the federalism that the Center for Competitive Federalism will seek to advance.175 Despite this continued focus on federalism among neoliberal actors, it is clear that federalism received much less attention under President George W. Bush. As Sidney Milkis and Jesse Rhodes report, “Bush has neither rolled out an explicit federalism agenda nor established any new executive orders on federalism issues.”176 Moreover, to the extent that Bush’s policies did have an impact on federalism, they are

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viewed as being primarily centralizing. As Tim Conlan and John Dinan argue, the Bush administration “has been surprisingly dismissive of federalism concerns and frequently an agent of centralization.”177 This is explained by a number of factors. First and foremost is the role of ideas and interests in determining Republican Party preferences. Specifically, the philosophy of the Bush Administration has been described by many, particularly neoliberals, as “big government conservatism.”178 This reflected the rise of both social and national security neoconservatives within the administration, and the relative decline of the more neoliberal fiscal conservatives. In part, this was based on Bush’s more socially conservative outlook, including his support for “compassionate conservatism,” as well as the key events of 9/11, the “war on terror,” and the war in Iraq, all of which reinforced the influence of national security conservatives. It was also based on the view that the neoliberalism of the 104th Republican Congress had gone too far, particularly in terms of the 1995 government shutdown, which badly damaged the party’s brand.179 The result of this shift is that “the Bush White House’s commitment to big government conservatism … has challenged, if not transformed, the Republican Party’s commitment to federalism.”180 However, this would seem to be mainly in terms of not focusing on federalism rather than abandoning a competitive federalism approach. On the one hand, as demonstrated above, neoliberal actors remain committed to the competitive federalism approach, meaning that the balance of power within the Republican Party will play a strong role in determining the party’s future commitment. On the other hand, some of the government’s key actions in the area of federalism, while centralizing, nevertheless were consistent with market-preserving federalism in that they used federal power to promote pro-market policies among state and municipal governments. This was particularly the case in the Bush Administration’s use of “preemption” – that is, federal regulations to override state laws on based on Article VI of the Constitution, which states that, if in conflict, federal laws take precedence over state laws.181 As Timothy Conlan and Paul Posner argue, “the Bush administration, responding to its business constituency among others, steered preemptions through both the Congress and its own agencies.”182 Examples included regulations that prevented California from enforcing a law to prevent greenhouse-gas emissions and laws that shielded industry, such as gun and drug manufacturers, from state-level liability lawsuits.

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To the extent that President Bush did not have an explicit federalism agenda, this meant that there was less for his successor, Democratic President Barack Obama, to seek to overturn. The main exception here was that Obama, in May 2009, deliberately overturned Bush’s preemption policy, a move strongly opposed by the US Chamber of Commerce.183 Moreover, while the Obama Administration was also without an explicit federalism agenda, some observers have credited him with introducing a “hybrid model of federal policy innovation and leadership, which mixes money, mandates, and flexibility in new and distinctive ways.”184 The essence of this approach seems to be a form of cooperative federalism that places a bit more emphasis on using states as the so-called laboratories of democracy. As the New York Times reported, “the Obama administration seems to be open to a movement known as ‘progressive federalism’ in which governors and activist state attorneys general have been trying to lead the way on environmental initiatives, consumer protection and other issues.”185 However, while this approach allows for a somewhat greater degree of decentralization, it does so in a way that is fully consistent with the social democratic approach to federalism. The idea is that the federal government sets a minimum standard that all states must meet, but then allows progressive states to go beyond that standard in their legislation and litigation. It does not allow conservative states to come in below the standard or to opt out of it altogether. Applied to policy areas such as environmental protection, financial regulation, and consumer protection, this clear social democratic approach has been strongly critiqued by neoliberal actors such as the US Chamber of Commerce and the Center for Competitive Federalism. In the latter case, for example, the Center argued that, rather than empowering states, this progressive federalism views “the states as junior partners helping the federal government wield what is more or less plenary authority … Thus, the federal government often sets a ‘baseline’ – some minimal level of spending or regulation which can only be exceeded.”186 Therefore, when combined with Obama’s other more centralizing policies related to economic stimulus, financial regulation, climate change, and Obamacare, his approach does seem de facto consistent with a broader social democratic approach. Finally, the federalism of the Trump era remains to be seen. Some neoliberal actors have viewed Trump’s first proposed budget as “making good on his promise to send power back to the states.”187 Congressional Republicans have moved in a similar direction with

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their proposals to repeal and replace Obamacare, including their long-held desire to convert Medicaid into a block grant. Similarly, in 2017, House Speaker Paul Ryan created the Speaker’s Task Force on Intergovernmental Affairs.188 In doing so, he highlighted the potential for a renewed focus on competitive federalism by noting that, “in recent years, the principle of federalism has slowly eroded under an overreaching federal government … this Task Force will study ways to restore the proper balance of power between the federal government and states, tribal, and local governments. And it will look at how we can reduce needless regulatory burdens facing communities across the nation.”189 Whether this comes to pass or not, it does indicate a strong degree of continuity in the left / right politics of US fiscal federalism. conclusion

This chapter examined the competition between the neoliberal and social democratic social movements over fiscal federalism. In doing so, it argued that the neoliberal and social democratic projects for fiscal federalism do again help to explain the policies advocated by their respective social movements, including the key concern with the issue of inter-jurisdictional policy competition. This chapter also demonstrated how the left / right contestation over fiscal federalism can add to existing explanations of political party preferences and national policy outcomes. This was shown in both the “critical” case of Canadian federalism and in the broad symmetry between the Canadian and US cases in terms of how both evolved through the rise of the welfare state and the subsequent rise of neoliberalism.

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6 Conclusion: Neoliberalism, Social ­Democracy, and Glocalization

This concluding chapter provides a brief summary of the overall argument, including its limitations, as well as an initial discussion of how it can be applied more broadly to cases beyond the Anglosphere, to the “glocalization” (globalization plus localization) trend and to the politics of fiscal urbanism. neoliberalism versus social democracy i n   m u lt i l e v e l g o v e r n a n c e

The aim of this book was to demonstrate the relevance of a political economy approach to the study of federalism and multilevel governance and, in turn, to demonstrate why federalism and multilevel governance should be a significant area of study for political economists. Traditionally, the comparative federalism literature has emphasized the political competition between different levels of government / governance, as well as between territorially based groups. The result is that the politics of federalism have generally been framed in terms of centralization vs decentralization, and as being driven by forms of political competition other than that between right / left economic ideas and interests. In a similar fashion, much of the international relations literature related to globalization and the European Union has been framed in terms of pro- vs anti-globalization and pro-Europe vs eurosceptic, respectively. What is missing from these literatures, however, is any detailed incorporation of the neoliberal and social democratic approaches to fiscal federalism and how they can better reveal the underlying interests and motivations of their respective social movements. Therefore, to address these gaps in the literature,

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this book made three main arguments over the course of five substantive chapters. Chapters 1 and 2 made the first argument that both neoliberal and social democratic theory each contain specific normative projects for fiscal federalism, which are fully consistent across the federal, regional, and global levels. In doing so, they sought to reframe fiscal federalism theory from the economics literature by drawing on Robert Cox’s critical constructivist insight that “theory is always for someone and for some purpose.”1 The fiscal federalism literature is generally characterized, in apolitical terms, as a single body of theory whose main divisions are viewed chronologically as between “first generation theory” and “second generation theory.”2 However, rather than being apolitical, fiscal federalism theory in economics was shown to contain distinct neoliberal and social democratic approaches, which both reflect and reveal the underlying material interests of their respective actors and interest groups. Chapter 1 outlined the neoliberal approach to fiscal federalism by comparing key writings in fiscal federalism theory, and the views of key neoliberal intellectuals on federalism, with the broader principles of the neoliberal approach. In the latter case, it also sought to outline the value and policy differences between classical economic liberalism and neoliberalism, arguing that, in contrast to much of the political economy literature, the two cannot simply be conflated. These differences were then used to show the policy correspondence between classical economic liberalism and classical fiscal federalism, as well as between neoliberalism and market-preserving federalism. The chapter concluded by outlining how the principles of market-­ preserving federalism correspond with, and have been directly applied to, the neoliberal approach to regionalism and globalism. Moreover, by also outlining the actors and interests that support neoliberalism, the chapter showed how the neoliberal project for multilevel governance better reveals the full motivation of neoliberal actors. It also showed the role that ideas play in the construction of social movements, and why, in addition to self-interested individuals and interest groups, these movements should be viewed as including a broader and more informal network of actors who are also linked by ideas. Chapter 2 followed a similar format and outlined the social democratic approach to fiscal federalism. It did so by comparing key writings in fiscal federalism theory, and the views of key social democratic intellectuals on multilevel governance, with the broader principles of

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the social democratic approach and the interests of social democratic actors. This included a theorization of the relationship between classical fiscal federalism and social democratic fiscal federalism, as well as the policy correspondence between Keynesian-welfare economics, the public finance approach in economics, and the political science notions of “cooperative federalism.” The chapter also showed how the key principles of social democratic fiscal federalism correspond with, and have been directly applied to, the social democratic approach to regionalism and globalism. This included the direct application of public finance economic theory to the international level, as well as the political science notion of “social democratic multilateralism.”3 Finally, as with Chapter 1, this chapter also outlined the actors and interests supporting Keynesian-welfare economics and the social democratic approach to multilevel governance to again reveal the full motivation of these actors. Chapters 3, 4, and 5 were then used to make the second and third main arguments of this book. The second argument was that, when we recognize that neoliberalism and social democracy each contain specific normative projects for fiscal federalism, they can help to explain and predict the multilevel policies advocated by right / left economic actors and interest groups on a wide range of issues related to federal, regional, and global governance. They can do so because, in addition to sometimes constructing interests, ideas can also help to more fully reveal material interests by articulating them more explicitly and in a way that highlights the “true” or full motivation behind them. Moreover, by better revealing the material interests of different economic interest groups, these normative projects can also help to explain why there is a consistency in the multilevel policies advocated by them across different national contexts, levels of governance, and over time. The third argument was that this left / right political competition can then add to existing explanations of party preferences and policy outcomes in a way that demonstrates the relevance of a political economy approach. The argument was not that the political contestation between neoliberal and social democratic actors explains all preferences and outcomes. Rather, it seeks to reinforce the constructivist view that, by revealing and constructing interests, ideas are the building blocks for explaining policy outcomes. Specifically, along with institutions and individual and organizational self-interest, ideas influence the preferences of these actors. Then, through political

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competition and bargaining with other actors, within the context of institutional advantages and constraints, policy outcomes are determined. This, in turn, highlights the relevance of federalism and multilevel governance to political economists by showing how neoliberal and social democratic actors view it as a significant, and structural, terrain of political competition. Chapter 3 examined the competition between the neoliberal and social democratic social movements over the multilevel aspects of globalization and global governance. It argued that the neoliberal and social democratic projects for multilevel governance do help to explain the policies advocated by their respective social movements, and why these movements are best viewed as “pro-” and “anti-policy-­ competition” rather than “pro-” and “anti-globalization.” To demonstrate this point, the chapter began by drawing on the argument made in Chapter 1, about the value and policy differences between classical economic liberalism and neoliberalism, to demonstrate the different motivations behind classical liberal vs neoliberal support for free trade and economic globalization. Specifically, while the other strands of liberalism were shown to support free trade and international capital mobility for reasons of mutual gains and international peace, neoliberalism was shown to support them primarily for creating the inter-jurisdictional policy competition that they believe locks in freemarket policies at the domestic level. In addition to being consistent with the neoliberal project for multilevel governance, this insight provided the theoretical rationale for what was termed “neoliberal nationalism.” This is the idea that, in contrast to the other strands of liberalism, neoliberalism is much more opposed to forms of international cooperation, such as the harmonization of tax and regulatory policies related to wealth redistribution and the correction of market failures, which might undermine policy competition among governments. As a result, rather than being broadly internationalist or “pro-globalization” in a manner similar to the other strands of liberalism, neoliberal actors were shown to advocate fiscal and regulatory sovereignty within the context of international capital mobility. At the same time, this chapter also demonstrated why this form of nationalism is distinct from the nationalisms advocated by both populist conservatives and neoconservatives. This, in turn, further highlights the value of using ideas, rather than simply behaviour, to better reveal and disaggregate the motivations of different actors.

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In a similar fashion, the analytical focus on policy competition within the social democratic approach to multilevel governance helped to explain the underlying consistency between the seemingly contradictory positions advocated by different social democratic actors. Therefore, rather than being “anti-globalization,” most social democratic actors were shown to be anti-policy-competition. This meant they could support either “bringing the economy back down” to the level of national democratic control through economic nationalism, or “bringing democratic control up” to the level of the global economy through “social democratic multilateralism.” To demonstrate these points empirically, the chapter identified a historical sequence that included: classical liberal and neoliberal support for economic globalization; social democratic and populist conservative opposition to economic globalization; the shift among social democrats from anti-globalization to social democratic multilateralism; the rise of neoliberal nationalism to oppose social democratic multilateralism; and the emerging political realignment over globalization, including neoliberal idealists with populist conservatives and classical liberals with social democrats. Moreover, adding to the explanatory power of this historical sequence was that very similar sequences were also identified at the regional level in both the UK-in-Europe and North American integration cases. As Mark Blyth has argued in his own constructivist approach, sometimes the symmetry of outcomes across different cases “is only apparent if these cases are examined sequentially and temporally.”4 Chapter 4 built on these insights by examining the political competition between the neoliberal and social democratic social movements over the multilevel aspects of regional integration. It argued that the neoliberal and social democratic projects for multilevel governance, including the “neoliberal nationalism” and “social democratic multilateralism” outlined in the previous chapter, do again help to explain the policies advocated by their respective social movements and why these movements are best viewed as “pro-” and “anti-policycompetition” rather than “pro-” and “anti-regionalization.” This, in turn, helped to better explain the interests and motivations behind specific policy preferences and how they can differ from other factions within broader conservative and progressive political parties. In the European case, for example, the neoliberal project for multilevel governance, and the related concept of “neoliberal nationalism,” helped to identify a neoliberal form of euroscepticism that best

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accounts for the Conservative Party’s switch from pro-Europe to eurosceptical. Similarly, the opposite switch within the Labour Party was shown to reflect the social democratic project for multilevel governance and the shift from economic nationalism to social democratic multilateralism. Therefore, rather than being a solely populist conservative phenomenon, this chapter used the neoliberal project for multilevel governance to demonstrate that contemporary British euroscepticism is part of a broader and more neoliberal-driven form of conservative anti-internationalism. This argument was further reinforced by the symmetry between the UK-in-Europe’s historical sequence, the more global-level sequence identified in the previous chapter, and the historical sequence of the North American integration case (see Table 6.1). In the UK-in-Europe case, this sequence included: classical liberal and neoliberal support for the Common Market and the Single European Act; social democratic and populist conservative opposition to the Common Market and the Single European Act; the shift among social democrats from anti- to pro-Europe based around the notion of a social Europe; the rise of neoliberal nationalism in the form of Thatcherite euroscepticism; the fanning of populist conservative nationalism by neoliberal actors and media; and political realignment in terms of the split in the free-market coalition over monetary integration and Brexit. In the case of North American integration, this sequence included: classical liberal and neoliberal support for NAFTA; social democratic and populist conservative opposition to NAFTA; social democratic support for enforceable labour and environmental side agreements; neoliberal opposition to enforceable side agreements; and the emerging political realignment over NA F T A based on the election of President Trump. Finally, the neoliberal and social democratic projects for multilevel governance were also used to disentangle the complex politics of regional monetary integration, the “impossible trinity,” and the seemingly contradictory positions about each within the neoliberal and social democratic social movements. Chapter 5 then shifted to the federal level and examined the competition between the neoliberal and social democratic social movements over fiscal federalism. It argued that the neoliberal and social democratic projects for fiscal federalism again helped to explain the policies advocated by their respective social movements, including the key concern with the issue of policy competition. This chapter also demonstrated how the left / right contestation over

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Table 6.1 A political sequence of international integration Generic

Global

UK-in-Europe

North America

Classical liberals and neoliberals support economic integration

Business, free market think tanks, and parties support WTO and capital mobility

Business, free market think tanks, and Conservative Party support Common Market and Single European Act

Business, free market think tanks, and Conservative/ Republican parties support N A F T A

Social democrats oppose economic integration

Unions, social activists, and left political parties oppose WTO and capital mobility

Unions, social activists, and Labour Party oppose Common Market and Single European Act

Unions, social activists, and left political parties oppose NA F T A

Populist Populist conservatives conservatives oppose WTO, UN, and oppose international “globalist” agenda integration

Enoch Powell and populists oppose Common Market and Single European Act

Pat Buchanan and Ross Perot oppose NA F T A

Social democrats shift to prointegration based on social democratic multilateralism

Social democrats shift focus to climate agreements, taxcollection initiatives, and trade side agreements

Unions, social activists, and Labour Party shift to proEurope based on social Europe

Unions, social activists, and left parties support trade with enforceable labour and environmental side agreements

Neoliberals use nationalism to oppose social democratic multilateralism

Neoliberals use nationalism to oppose climate agreements, ­ tax-collection initiatives, and trade side agreements

Business, free market think tanks, and Conservative Party use nationalism to oppose social Europe

Business, free market think tanks, and Conservative/ Republican parties oppose enforceable side agreements

Neoliberal actors and media fan populist conservatism to maintain coalitions

Murdoch and other conservative media critique the “globalist” agenda of social democratic multilateralism and immigration

Conservative Party and Sun News; “Up Yours Delors!”; rise of U K I P

Republican Party, Fox News, and conservative talk radio; rise of the Tea Party and Trump

Political realignments over international integration

Pro-globalization alliance of classical liberals, business, neoliberal pragmatists, and most social democrats; antiglobalization alliance of populist conservatives and neoliberal idealists

Pro-Europe alliance of classical liberals, business, neoliberal pragmatists, and most social democrats; antiEurope (pro-Brexit) alliance of populist conservatives and neoliberal idealists

Pro-NA F T A alliance of classical liberals, business, neoliberals, and some social democrats; anti-N A F T A alliance of populist conservatives, some Republicans, and some social democrats

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fiscal federalism could add to existing explanations of political party preferences and national policy outcomes. This was shown both in the “critical” case of Canadian federalism and in the broad symmetry between the Canadian and US cases in terms of how both evolved through the rise of the welfare state and the subsequent rise of neoliberalism. Specifically, the chapter showed that, from the Great Depression onward, social democratic actors almost always supported a greater degree of centralization to specifically prevent the policy competition that they believe imposes constraints on the welfare state. The main exception here was that social democratic actors opposed some centralizing proposals related to the economic union. Examples include adding property rights to the Charter of Rights and Freedoms, and measures that would allow private actors to challenge subnational policies as trade barriers. Similarly, rather than being pro-­ decentralization or pro-constitution, or favouring provincial rights in general, neoliberal actors were shown to consistently support economic centralization and social decentralization. The consistency of neoliberal and social democratic preferences, as well as their impact on policy outcomes, was then further confirmed through the US case. In particular, the historical evolution of federalism through the rise of the welfare state and the subsequent rise of neoliberalism were shown to have strong symmetry with the Canadian case. Taken as a whole, the totality of the chapters helps to demonstrate the consistency of neoliberal and social democratic preferences on multilevel governance across different national contexts, levels of governance, and over time. They do so, first, through historical process tracing and symmetry in historical sequences. They also do so through case selection, which, within the scope of the Anglosphere, exhibits elements of a “most different” comparative approach by looking at cases across different countries and across the federal, regional, and global levels of governance. As outlined in the Introduction, the intent of the book is to sacrifice scope for depth in terms of illustrating and developing the hypotheses and comparing them across the different levels and time periods. At the same time, however, this represents a key limitation of this book in that there remains a need to test the hypotheses beyond the scope of the Anglosphere. Therefore, in the remaining sections, Chapter 6 provides a brief outline of how, in future work, the argument might be applied to cases beyond the Anglosphere. It also examines how the argument may be applied to

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the politics of fiscal urbanism and to ongoing debates over the causes of the recent glocalization (globalization plus localization) trend. In each case, the points made are intended to be suggestive rather than conclusive in order to highlight areas for potential future research. the politics of fiscal federalism beyond the anglosphere

To the extent that neoliberal ideas and policies have been promoted around the world, we can hypothesize that the neoliberal project for multilevel governance may also help to explain the preferences of neoliberal actors outside of the Anglosphere. The same applies to the social democratic project and the prospects for a similar type of left / right competition over issues of multilevel governance. This book has already demonstrated how these ideas have been applied at the international level through Jacques Delors’s promotion of a social Europe and through the United Nations Development Program’s promotion of global public goods and a global public finance approach. At the same time, there are indicators that the neoliberal and social democratic projects for multilevel governance have travelled beyond the scope of the Anglosphere. In Germany, for example, the country’s “coordinated” rather than liberal market economy has gone hand-in-hand with the dominance of a more cooperative form of federalism – so much so that the American Enterprise Institute’s Federalism Project described it as “big government federalism.”5 In a strong critique, the A E I argued that, “Germany’s ‘cooperative’ federalism” is one that seeks “to ensure fairness and ‘solidarity’ between levels of government and among the Lander (states).”6 Moreover, in a detailed study on how this neoliberal critique became popular in Germany, Daniel Ziblatt argued that, by the late 1990s, “a sea-change in political ideas took place in German political discourse: The doctrine of ‘cooperative federalism’ has been superseded by the fiscally decentralist doctrine of ‘competitive federalism.’”7 Moreover, Ziblatt notes how Weingast’s notion of “market-preserving federalism” had been gaining currency among German academics and how it was then promoted by free-market think tanks and politicians as a solution to various state-level fiscal challenges that emerged in the 1990s. In this way, he notes, “the ideas of fiscal decentralization and competitive federalism have been transformed in Germany from a marginal stream of economic theory to

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the centrepiece of the scholarly and policy worlds among German economists and policy-makers.”8 As a further example here, The Economist magazine reported in 2003 that, at a time when a German legislative commission was looking at ways to modernize German federalism, “Many free market businessmen are calling for a more competitive federalism.”9 Further afield, many developing countries also underwent a shift to greater fiscal decentralization in conjunction with their broader adoption of liberal and neoliberal policies. For example, noting the case of India, one study argued: “Indeed, more than cooperative federalism, it is competitive federalism that is being encouraged as states vie with each other to attract investments.”10 At the same time, fiscal decentralization has also been specifically promoted by international organizations such as the I M F and World Bank based on a neoliberal approach. As Chanchal Kumar Sharma notes, “the Bank supports decentralization through loans for structural adjustment to the central governments and specific projects and state level structural adjustment loans to subnational governments.”11 Echoing this point, Richard Snyder has reported that “the World Bank and other development N G O s exported the devolution revolution to poor countries by fervently promoting the decentralization of policymaking and government services. Combined with the worldwide move toward deregulated, open economies, these decentralizing reforms undercut the capacity of many central governments to coordinate economic activity.”12 g l o c a l i z at i o n a n d t h e d o u b l e m o v e m e n t i n   m u lt i l e v e l g o v e r n a n c e

The trend toward decentralization has been so widespread that it has been viewed by many as comparable to the globalization trend. In fact, the two have been linked through the concept of “glocalization” (globalization plus localization). This refers to the way that power has been diffusing away from national governments, both upward to regional and international organizations, as well as downward to various subnational governments.13 Highlighting this trend, Robin Boadway and Anwar Shah have noted that: Rearrangements taking place in the world today embody diverse features of supranationalization, centralization, provincialization,

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and localization. Nevertheless, the vision of a governance structure that is slowly taking hold indicates a shift from unitary ­constitutional structures in a majority of countries to federal or confederal constitutions. This shift implies the world is gradually moving from a centralized structure to a globalized and localized (glocalized) one.14 Making a similar point, Geoffrey Garrett and Jonathan Rodden have argued: “The decentralization of authority to state and local governments and the international integration of markets are widely perceived as two defining trends of the contemporary era.”15 There are two main literatures that have sought to examine this trend. The first is the literature from critical economic geography and political economy, which has focused on documenting and describing the trend. It has done so through related concepts, such as “multilevel governance,” “multi-tiered governance,” “polycentric governance,” “fragmegration,” “rescaling,” and the “relativization of scale.”16 This literature has tended to explain globalization as the result of the business community’s need for a “spatial fix” to escape postwar welfare states and their crises of stagflation.17 Localization was then viewed primarily as a structurally determined side-effect of globalization rather than a deliberate part of any explicit normative project. The second literature is from a number of economists and political scientists employing a more rationalist approach to examine decentralization and its links to globalization.18 Summarizing this literature, Sharma notes: There is no unanimity among the scholars in this regard and the empirical literature does not provide a universal reply. One set of scholars have shown that globalization is the cause behind decentralization; others argue on the contrary that it is centralization that is the consequence of globalization. There is another set of scholars who argue that globalization has created conditions for both the tendencies to grow up, while still others maintain that the trend for “localization” is independent of and simultaneous to globalization.19 What is missing from both literatures is a greater focus on the role of ideas and agency, and the extent to which, rather than globalization causing decentralization, both trends may, in part, reflect a deliberate political project based on the normative projects for fiscal federalism.

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Therefore, the arguments in this book may, through further research, be able to add to existing explanations of the glocalization trend. First, this trend clearly has similarities to the neoliberal project for multilevel governance and its support for economic globalization and social decentralization. Necessary here, however, would be further research into what specific policy capabilities have been globalized or decentralized, and the extent to which they correspond to the principles of neoliberal multilevel governance. Also useful here would be the construction of an index, which, rather than simply measuring centralization vs decentralization, would aim to situate countries on a left / right spectrum between social democratic and market-­preserving federalism. Second, support for a link between the neoliberal project for multilevel governance and the glocalization trend may also be investigated by situating glocalization in a broader historical context. As outlined in Chapters 1 and 3, it is widely recognized that the global economy has gone through three broad periods since the early nineteenth century.20 The first was the original period of laissez-faire and free-market globalization, from the mid-1800s until the Great Depression. The second period, which ran until the 1970s, was characterized by more interventionist welfare states and greater restrictions on trade and capital flows. The third, current period saw the reemergence of freemarket policies and economic globalization. Superficially, at least, these three periods would appear to have some correspondence to the decentralized “dual federalism” of the pre-Depression era, the more centralized federalism of the New Deal–welfare state era, and the trend toward decentralization in the current neoliberal era. Accordingly, while further research is needed, it may be possible to identify the existence of a Karl Polanyi-style “double movement” in multilevel governance. In his seminal 1944 work, The Great Transformation, Polanyi developed the concept of the double movement to explain the collapse of the nineteenth-century free-market economy.21 The first half of the double movement was the nineteenthcentury attempt to create a free-market system through a grand project of privatization, including the enclosure movement, labour flexibility through reductions in social welfare, and economic globalization through free trade, capital mobility, and the Gold Standard. The second half of the double movement was the way in which the freemarket system produced hardships for both business and labour, and how these hardships led to demands for reform that eventually took

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the form of the New Deal, Keynesian demand management, and the Bretton Woods system of capital controls.22 Mark Blyth then described a second double movement in which the stagflation crisis of the welfare state led to the economic and political mobilization of business, and, in turn, to the shift to neoliberalism.23 Taken together, a double movement in multilevel governance would include: a pre-Great Depression period of economic globalization and fiscal decentralization; the welfare-state period of capital controls, diminished trade, and fiscal centralization; and the more recent shift to glocalization that characterizes the contemporary neoliberal era. As outlined in Chapters 3 and 5, both the Bretton Woods capital controls and the centralized federalism of the welfare-state era were deliberately created to prevent the policy competition that social democratic actors believed would impose constraints on the implementation of more interventionist policies. Similarly, those chapters also demonstrated how neoliberal actors were equally deliberate in their desire to use economic globalization and social decentralization to promote free-market policies through policy competition. In this way, then, the neoliberal and social democratic projects for multilevel governance, and the political-economic evolution of multilevel governance over time, may help to highlight a role for ideas and agency in the current glocalization trend. Highlighting the role of agency in the glocalization trend may also contribute to the critical geography literature and its theorizations of economic and political space, including the relationship between territorial and networked space. For example, in the same way that neoliberalism has been associated with internationalism rather than nationalism, so too has it been seen to promote the networked space of capital and information flows rather than the territorial space of the state.24 However, as the concept of neoliberal nationalism demonstrates, the neoliberal project requires the continued existence of national territories alongside the networked space of capital mobility. Put simply, inter-jurisdictional competition requires jurisdictions. These implications for spatiality can also be framed in more Polanyian terms, which highlight the separation of the “economic” and the “political” in a free-market system. Specifically, the neoliberal project for multilevel governance can be viewed as promoting the vertical separation of the economic and the political through economic centralization and social decentralization across all levels of governance.

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the politics of fiscal urbanism

Finally, just as the left / right competition over multilevel governance may have applicability beyond the Anglosphere, so too may it add to existing explanations of the politics of fiscal urbanism. Specifically, while much has already been written on the shift to neoliberalism in urban policy, the neoliberal and social democratic projects for multilevel governance may help to link these trends to the broader political economy of multilevel governance and reveal the ideas that help drive it. This is the case, as urban politics scholars have already identified neoliberal and social democratic preferences related to the multilevel aspects of urbanism that have a clear consistency with their respective projects for multilevel governance. These include a neoliberal preference for “municipal downloading” and the creation of “interurban competition,” “entrepreneurial cities,” and “special economic zones.” It also includes a social democratic preference for service uploading and federal-to-municipal transfers in areas such as public transit and infrastructure.25 In the United States, Jason Hackworth notes: “Direct outlays to localities were slashed during the 1980s behind the neofederalist rhetoric of returning power to the local. Cities became more entrepreneurial in part to cover the budgetary shortfalls that accompanied this transition.”26 Similarly, in a case study of the Canadian province of Ontario, Larry Savage outlined how the strongly neoliberal Progressive Conservative premier, Mike Harris, promoted social decentralization and policy competition. He did so through the downloading of social assistance, social housing, wastewater treatment, highway and park maintenance, and other services from the province to municipal governments. Premier Harris also cut transfer payments to the municipalities by C$650 million. As Savage notes: The downloading of additional responsibilities and costs to municipalities in Ontario created a financial crunch at the local level, leading to increased competitive pressures between municipalities to attract business and investment in order to widen the property tax base. The logic of the vicious circle of intercity competition, in turn, led to pressures to lower commercial property taxes, thus shifting an increasing portion of the tax burden onto residents as part of a neoliberal economic race to the bottom.27

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In a contrasting fashion, the subsequent Liberal Party government initiated a Provincial-Municipal Fiscal and Service Delivery Review. It then used its findings to undertake a significant, although partial, uploading of responsibility for social assistance, court security, and disability support. In any case, these examples and the existing urban politics literature indicate that the neoliberal and social democratic projects for multilevel governance are likely to apply at the municipal levels as well. If so, they would further support the idea of a unified politics of fiscal federalism, regionalism, and globalism.

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Notes

introduction

  1 Oates, “Toward a Second-Generation Theory”; Weingast, “Second Generation Fiscal Federalism.”   2 As used here, political economy approaches include those that emphasize the role of economic actors, institutions, and ideas rather than simply referring to the public / rational choice approach, which is also often referred to as the “political economy” approach. On the distinction between these different uses of “political economy,” see: Blyth, “An Approach to Comparative Analysis.”   3 This book also contributes to a growing body of work that seeks to overcome the so-called “great divide” between domestic and international theories of political science. As Mark Blyth observes, “we have also recently seen the decay of the boundary that traditionally set socalled international political economy apart from comparative political economy.” Blyth, “An Approach to Comparative Analysis,” 194. See also: Clark, “Beyond the Great Divide”; Hobson, “Comparative Politics and International Relations.”  4 Buchanan, Post-Socialist Political Economy.   5 Gill, “New Constitutionalism, Democratisation and Global Political Economy”; Gill, “Constitutionalizing Inequality.”  6 Tanzi, Governments versus Markets, 188.   7 Oates, “Toward a Second-Generation Theory.” See also Weingast, “Second Generation Fiscal Federalism.”   8 For more details on the empirical trend toward “glocalization” and decentralization (including data on both), see: Swyngedouw, “Neither Global nor Local”; Sharma, “Why Decentralization?”

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Notes to pages 7–8

  9 The term “devolution revolution” seems to have originated in the mid1990s in the context of changes in US federalism involving a decentralization of social programs. See: Daniel Patrick Moynihan, “The Devolution Revolution,” New York Times, 6 August 1995. It has since been applied to decentralization trends in other developed and developing countries. For example, see Snyder, “Scaling Down.” 10 Burgess, Comparative Federalism; Hueglin and Fenna, Comparative Federalism; Wibbels, “Madison in Bagdad?”; Beramendi, “Federalism”; McKay, “Comparative Federalism”; Erk and Swenden, New Directions in Federalism Studies. 11 Erk and Swenden, “The New Wave of Federalism Studies,” 11. 12 Many of the most cited and most recent books on fiscal federalism, including those in political science, take a normative rather than explanatory approach. Also, most of the works on the political economy of federalism reflect a normative public / rational choice approach, rather than a positive / explanatory approach emphasizing economic actors, ideas, or institutions. For example, see: Oates, Fiscal Federalism; Oates, The Political Economy of Fiscal Federalism; Ahmad and Brosio, Handbook of Fiscal Federalism; Rodden, Hamilton’s Paradox; Boadway and Shah, Fiscal Federalism. 13 Oates, “Toward a Second-Generation Theory of Fiscal Federalism,” 349. 14 For example, in his review of the normative and positive public / rational choice literature on federalism, Jonathan Rodden notes the distinction made between the “Leviathan hypothesis” and the “welfare economics” approach, which correspond to the neoliberal and social democratic approaches respectively. He also implicitly notes how the literature has evaluated these approaches apolitically in terms of which best promotes (an undefined) “effective” federalism. In the conclusion, Rodden also observes that the normative literature is slowly beginning to change to recognize that the different approaches might benefit, and thus be preferred by, different societal groups. See: Rodden, “Federalism,” 368. See also: Beramendi, “Federalism.” 15 Broschek, “Federalism and Political Change,” 1. The sources cited in the quote include: Erk, Explaining Federalism; Livingston, Federalism and Constitutional Change; Burgess, The British Tradition of Federalism; Burgess, Comparative Federalism; Filipov, Ordeshook, and Shvetsova, Designing Federalism; Riker, Federalism; Bolleyer, “Federal System Dynamics in Canada, the United States and Switzerland”; Cairns, “The Governments and Societies of Canadian Federalism”;

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Thorlakson, “Comparing Federal Institutions”; Thorlakson, “An Institutional Explanation of Party System Congruence.” 16 Rodden, “Comparative Federalism and Decentralization”; Watts, “Degrees of Decentralization.” 17 Erk and Swenden, “The New Wave of Federalism Studies.” 18 Grodzins, The American System. 19 Riker, Federalism; Filippov, Ordeshook, and Shvetsova, Designing Federalism. 20 Colino, “Understanding Federal Change.” 21 Broschek, “Federalism and Political Change”; Broschek, “Historical Institutionalism and Comparative Federalism.” 22 Watts, Comparing Federal Systems; Erk, Explaining Federalism; Erk and Koning, “New Structuralism and Institutional Change.” 23 Borzel, The State and the Regions; Lazar, Telford, and Watts, “Divergent Trajectories.” 24 Colino, “Understanding Federal Change,” 18. For examples of this approach, see: Painter, Collaborative Federalism; Cameron and Simeon, “Intergovernmental Relations in Canada”; Erk, Explaining Federalism. 25 While sometimes conflated with institutionalist or public choice approaches, state-centric explanatory approaches focus on the state as a unitary actor, rather than on institutional design or rent-seeking politicians, and are generally referred to as “state-centrism” (Dyck, Canadian Politics; Jackson and Jackson, Politics in Canada), “statism” (Brooks and Stritch, Business and Government in Canada; Howlett, Ramesh, and Perl, Studying Public Policy), or “state autonomy theory” (Harder, “The Modern State”). 26 Brooks and Stritch, Business and Government in Canada, 178. For an example of the state-centric approach to federalism, see: Cairns, “The Governments and Societies of Canadian Federalism.” 27 Wallack and Srinivasan, “Conclusions and Lessons for Further Study,” 469. 28 For example, see: Bolton and Roland, “The Breakup of Nations”; Dixit and Londregan, “Fiscal federalism and redistributive politics”; Beramendi, “Political Institutions and Income Inequality”; Wibbels, “Decentralized Governance, Constitution Formation, and Redistribution”; Beramendi, “Inequality and the Territorial Fragmentation of Solidarity.” 29 McKay, “Comparative Federalism,” 419. 30 Wibbels, “Madison in Bagdad?” 180–1.

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Notes to pages 11–14

31 Brooks and Stritch, Business and Government in Canada, 169. 32 Burgess, Comparative Federalism, 146. See also: Stevenson, “Federalism and the Political Economy of the Canadian State”; Hueglin, A Political Economy of Federalism. 33 Brooks and Stritch, Business and Government in Canada, 170. 34 The bulk of the literature on economic interest groups and federalism looks at the impact of federalism on interest group organization and lobbying strategies, including venue shopping. For example, see: Constantelos, “Playing the Field.” 35 McBride and Shields, Dismantling a Nation, 104. 36 Burgess, Comparative Federalism, 141–2. 37 Kincaid, “From Cooperative to Coercive Federalism”; Zimmerman, Contemporary American Federalism; Conlan, From New Federalism to Devolution; Walker, “New Federalism”; Conlan and Dinan, “Federalism, the Bush Administration, and the Transformation of American Conservatism”; Stephens and Wikstrom, American Intergovernmental Relations; Conlan and Posner, “Inflection Point?” 38 Weissert, “Beyond Marble Cakes and Picket Fences,” 966. 39 In the I PE literature, see: Gilpin, The Challenge of Global Capitalism; Gilpin, Global Political Economy. On intergovernmentalism in the European integration literature, see: Van Apeldoorn, Overbeek, and Ryner, “Theories of European Integration”; Wiener and Diez, European Integration Theory. 40 At the international level, rational choice is often employed as a method rather than a theory and is thus associated with a number of approaches. For an example of state-centric use of rational choice, see: McKay, Federalism and European Union. For an example of rational choice theory that, like its domestic counterpart, focuses on electorally self-interested politicians (combined with some functionalism), see: Mattli, “Explaining Regional Integration Outcomes.” 41 Mitrany, The Progress of International Government; Ohmae, The End of the Nation States. 42 Van Apeldoorn, Overbeek, and Ryner, “Theories of European Integration,” 21. See also: Schmitter, “Neo-Neofunctionalism.” 43 Haas, The Uniting of Europe. 44 Van Apeldoorn, Overbeek, and Ryner, “Theories of European Integration,” 21–2. 45 Keohane, “Neoliberal Institutionalism.” To the extent that the primary focus of neoliberal institutionalism remains on unitary states and the role of international rather than domestic institutions, Andrew

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Moravcsik argues that, “judged by their analytical assumptions … such arguments are more properly termed ‘modified structural realism,’ not ‘neoliberal institutionalism.’” Moravcsik, “Liberalism and International Relations Theory,” 34. Making a similar point, David Long argues: “The concession to neorealism of state centrism and the primacy of an international anarchy of states is entirely alien to liberalism, where the state is conceived as relating to a society whose interests it is supposed to represent.” Long, “The Harvard School of Liberal International Theory,” 494. He also notes that Keohane, the key ­proponent of this approach, has himself now dropped the term “neoliberal.” 46 Van Apeldoorn, Overbeek, and Ryner, “Theories of European Integration,” 23. 47 In the European integration literature, see: Scharpf, “The Joint-Decision Trap”; Bulmer, “The Governance of the European Union”; Pierson, “The Path to European Integration”; Scharpf, “Negative and Positive Integration.” In the case of the IPE literature, see: Farrell and Newman, “Making Global Markets.” 48 Pollack, “The New Institutionalisms and European Integration,” 154. 49 Blyth, Great Transformations, 19. 50 Pollack, “The New Institutionalisms and European Integration,” 154–5. 51 Hooghe and Marks, “Unravelling the Central State, but How?” See also: Marks, “Structural Policy and Multilevel Governance in the EC ”; Marks, Hooghe, and Blank, “European Integration from the 1980s”; Hooghe and Marks, Multi-Level Governance and European Integration. 52 Van Apeldoorn, Overbeek, and Ryner, “Theories of European Integration,” 27. 53 Pollack, “International Relations Theory.” 54 See, respectively: Moravcsik, “Taking Preferences Seriously”; Moravcsik, “Preferences and Power.” 55 Van Apeldoorn, Overbeek, and Ryner, “Theories of European Integration,” 25. 56 Ibid., 24. 57 See also: Garrett, “The Causes of Globalization.” 58 Putnam, “Diplomacy and Domestic Politics.” 59 In the globalization literature, see: Helleiner, States and the Reemergence of Global Finance; Rupert, Ideologies of Globalization; Scholte, Globalization; Blyth, Great Transformations; Frieden, Global

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Notes to pages 17–23

Capitalism. In the European integration literature, see: Gill, “European Governance”; McNamara, The Currency of Ideas; Van Apeldoorn, Transnational Capitalism; Balanya, Doherty, Hoedeman, Ma’anit, and Wesselius, Europe Inc.; Cafruny and Ryner, A Ruined Fortress? 60 Hooghe, Marks, and Wilson, “Does Left / Right Structure Party Positions.” 61 See, respectively: Blyth, Great Transformations; Scharpf, “Negative and Positive Integration”; Cerny, Rethinking World Politics; Gill, Gramsci, Historical Materialism and International Relations; Lee, “Politics, Ideology, and the Power of Public Choice”; Broschek, “Historical Institutionalism and Comparative Federalism.” 62 Blyth, Great Transformations, vii. While noting that ideas can construct interests, Blyth further argues that, “in recognizing this fact, the danger is simply to move from a materialist reductionism to an ideational essentialism, which would be a mistake. While many structural models do not accurately specify interests, to go to the other extreme and deny self-interest is equally pointless.” Blyth, Great Transformations, 270. 63 Pierson, “When Effect Becomes Cause,” 599. 64 Hindmoor, “Rational Choice.” 65 Blyth, Great Transformations, 9. 66 Dusso, “Incorrect Voting.” 67 Kendall, “Class in the United States,” 103. 68 Memmi, The Colonizer and the Colonized; Galbraith, The Culture of Contentment. 69 Jost and Hunady, “Antecedents and Consequences.” System justification theory also examines why many individuals in disadvantaged groups can also be prone to support ideas and ideologies that go against their material interests. 70 Lee, “Politics, Ideology, and the Power of Public Choice.” 71 For a more detailed theorization of the way that ideas and culture can construct preferences against interests, see the Gramscian concept of hegemony as outlined in Cox, “Gramsci, Hegemony and International Relations.” 72 On individuals voting against their interests, see: Sears, Lau, Tyler, and Allen, “Self-Interest vs Symbolic Politics.” 73 Blyth, Great Transformations, 254. 74 Rues-Smit, “Constructivism.” 75 Hillman, “Expressive Behavior.” 76 Winter, “Masculine Republicans and Feminist Democrats.”

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77 Tarrow, Power in Movement. See also the Gramscian concept of historic blocs in Cox, “Gramsci, Hegemony and International Relations.” 78 For a more detailed discussion of the neoliberal and social democratic movements, see Chapters 1 and 2 respectively. 79 Cox, “Social Forces, States and World Orders,” 128. 80 Odell, “Case Study Methods,” 163. 81 Bennett and Checkel, Process Tracing, 10. 82 Hopkins, “The Comparative Method,” 293. chapter one

  1 For example, see: Yergin and Stanislaw, The Commanding Heights; Blyth, Great Transformations; and Frieden, Global Capitalism.   2 Gamble, “Neo-Liberalism,” 127.  3 Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, book 4, chapter 2.  4 Ibid.  5 Marshall, Principles of Economics. See also: Howlett, Netherton, and Ramesh, The Political Economy of Canada.   6 Howlett, Netherton, and Ramesh, The Political Economy of Canada, 19–20.   7 On the concepts of “exit” and “voice,” see: Hirschman, Exit, Voice and Loyalty.   8 Howlett, Netherton, and Ramesh, The Political Economy of Canada.   9 Buchanan, “Federalism as an Ideal Political Order,” 20. 10 Brennan and Buchanan, The Power to Tax. 11 McKean, “The Unseen Hand in Government.” 12 Howlett, Netherton, and Ramesh, The Political Economy of Canada, 27. 13 Gamble, “The Free Economy and the Strong State.” 14 Ibid., 5. 15 Ibid., 5. 16 Richardson, Contending Liberalisms in World Politics, 42. 17 Friedman, Capitalism and Freedom. 18 Ibid.; McKean, “The Unseen Hand in Government”; Howlett, Netherton, and Ramesh, The Political Economy of Canada. 19 As Vercelli notes, the “founding fathers of classical liberalism were fully aware of the crucial importance of a thorough analysis of the ­limits of markets in order to understand where they had to be supplemented by the intervention of the state.” See: Vercelli, “Updated Liberalism vs. Neoliberalism,” 9; Viner, “Adam Smith and

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Laissez-Faire”; Brown, “Untitled Review of Capitalism as a Moral System”; Herbert Stein, “Remembering Adam Smith,” Wall Street Journal, 6 April 1994; and Richardson, Contending Liberalisms in World Politics. 20 Cited in Jeet Heer, “Adam Smith and the Left,” National Post, 3 December 2001. 21 Weingast, “The Economic Role of Political Institutions,” 1. 22 See: Gill, “New Constitutionalism”; Gill, “Constitutionalizing Inequality.” 23 Buchanan, Explorations into Constitutional Economics. 24 Gill, “Constitutionalizing Inequality,” 52. 25 See: Smith, “Modern Political Ideologies”; Henderson, The Life and Economics. 26 Cited in Malloy, “Adam Smith and the Modern Discourse,” 119. 27 Baker, Gamble, and Seawright, “Sovereign Nations and Global Markets,” 400. 28 Examples of free-market think tanks in the Anglosphere include: in the US, the American Enterprise Institute, the Cato Institute, and the Heritage Foundation; in Canada, the Fraser Institute, the Atlantic Institute for Market Studies, and the McDonald-Laurier Institute; and in the U K, the Institute of Economic Affairs, the Adam Smith Institute, and the Tax Payers Alliance. 29 Gill, “Globalisation, Market Civilization”; Gamble, “Neo-Liberalism,” 127. 30 Korten, When Corporations Rule the World; Blyth, Great Transformations. 31 Harvey, A Brief History of Neoliberalism. 32 See, for example: Plehwe, Walpen, and Neunhöffer, “Between Network and Complex Organization”; Helleiner, States and the Reemergence of Global Finance; Rupert, Ideologies of Globalization; Blyth, Great Transformations; Gill, “European Governance”; McNamara, The Currency of Ideas; Balanya, Doherty, Hoedeman, Ma’anit, and Wesselius, Europe Inc.; Cafruny and Ryner, A Ruined Fortress?; Korten, When Corporations Rule the World; Harvey, A Brief History of Neoliberalism; McBride and Shields, Dismantling a Nation; Baker, Gamble, and Seawright, “Sovereign Nations and Global Markets.” 33 Gamble, “Neo-Liberalism,” 133. 34 Worth, “The Janus-Like Character of Counter-Hegemony,” 308. 35 Williams, “What Is the National Interest?” 36 Ibid., 312.

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37 Ibid., 315–16. 38 See: Giddens, The Third Way; Giddens, The Third Way and Its Critics. 39 Boadway and Shah, Fiscal Federalism, 6. 40 Oates, “Towards a Second Generation,” 353. 41 Tiebout, “A Pure Theory of Local Expenditures,” 418. 42 Oates, “An Essay on Fiscal Federalism.” 43 Cited in Hayek, The Constitution of Liberty, 184. 44 Boadway and Shah, Fiscal Federalism, 67. 45 Oates, Fiscal Federalism, 55. 46 Oates, “Towards a Second Generation,” 351. 47 Ibid. 48 See: Boadway and Shah, Fiscal Federalism. 49 Ibid., 29. 50 Buchanan, “Federalism as an Ideal,” 20. 51 Oates, Fiscal Federalism. 52 Policy competition is viewed as a “self-enforcing” constraint on social democratic forms of intervention in that the response to social democratic policies will occur automatically through market forces. More precisely, investors will view social democratic policies, in business terms, as a “deteriorating business climate,” and will respond, in a decentralized manner, with capital flight. This stands in contrast to the enforcement of constitutional restrictions, which, taking the form of a legal challenge, must be organized in a more deliberate and centralized way. In political science terms, policy competition represents enforcement by structural power, while a legal challenge represents enforcement by “direct power.” On direct and structural power, see: Gill and Law, The Global Political Economy. 53 The notion that decentralizing tax and expenditure capabilities constrains government intervention through tax competition is argued most strongly in Brennan and Buchanan’s “Leviathan hypothesis.” Specifically, they argue that, “total government intrusion into the economy should be smaller, ceteris paribus, the greater the extent to which taxes and expenditures are decentralized.” See: Brennan and Buchanan, The Power to Tax, 15. 54 Hayek, “The Economic Conditions,” 270. 55 Ibid. 56 Hayek, The Constitution of Liberty, 184–5. 57 Friedman, Capitalism and Freedom, 3. 58 Weingast, “The Economic Role of Political Institutions,” 4. See also: Riker, Federalism.

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Notes to pages 48–60

59 Weingast, “The Economic Role of Political Institutions,” 4. 60 Rodden, “Reviving Leviathan,” 697. 61 Brennan and Buchanan, The Power to Tax, 183. 62 Boadway and Shah, Fiscal Federalism, 255. 63 Buchanan, “Federalism as an Ideal,” 21. 64 American Enterprise Institute, “The AEI Federalism Project.” 65 Greve, “The AEI Federalism Project.” 66 Rabkin, Sovereignty Matters; Rabkin, The Case for Sovereignty. 67 Greve, “The AEI Federalism Project.” 68 Hartwell, “The Case against Capital Controls,” 16. 69 Hayek, The Road to Serfdom, 92. 70 Edwards and de Rugy, “International Tax Competition,” 3. 71 Weingast, “The Economic Role of Political Institutions,” 4. 72 Buchanan, “Federalism as an Ideal,” 27. 73 Weingast, “The Economic Role of Political Institutions,” 4. 74 Buchanan, “Federalism and Individual Sovereignty,” 266. chapter two

  1 See Howlett, Netherton, and Ramesh, The Political Economy of Canada, as well as Held, Global Covenant. As Howlett et al. note: “For early social democrats, the workers would use parliamentary institutions to achieve the transition to socialism through the nationalization of private property by the state. However, over time, social democrats gradually abandoned the proposal for the eventual replacement of the market by the state and instead developed a theory and practice of market-state coexistence based on careful state monitoring and regulation of market activities. Most social democratic parties in Western Europe and North America, as a result, were early adherents to, and remain enthusiastic supporters of, Keynesian welfare state ­policies” (57).  2 Pigou, The Economic of Welfare.   3 Howlett, Netherton, and Ramesh, The Political Economy of Canada, 21.  4 Backhouse, The Penguin History of Economics, 274.  5 Keynes, The General Theory of Employment.   6 This insight is similar to Karl Polanyi’s notion that labour (along with land and capital) was a “fictitious commodity” in that the laws of supply and demand could not be applied to it in the same way as other commodities. See: Polanyi, The Great Transformation.

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  7 Keynesian economics makes similar points related to the neoclassical view that prices and interest rates will also automatically fall in a recession. From the neoclassical perspective, low demand means that prices will eventually fall to the point where consumers will be willing to buy, while interest rates will fall, and discourage saving and further encourage spending. Keynesian economists counter that prices are “sticky” due to “menu costs” (the transaction costs associated with change prices, such as reprinting menus) and long-term contracts, and will fail to drop quickly. They also argue that interest rates will be unlikely to fall quickly due to the “paradox of thrift,” where economic uncertainty and the need to repay debt encourage saving over spending. This uncertainty and lack of credit can be further reinforced by bank failures.  8 Przeworski, Capitalism and Social Democracy, 36.   9 Vercelli, “Updated Liberalism vs. Neoliberalism,” 10. 10 Howlett, Netherton, and Ramesh, The Political Economy of Canada, 26. 11 Arrow, “Samuelson Collected,” 735. 12 Samuelson, “The Pure Theory of Public Expenditure.” 13 Oates, “Toward a Second-Generation,” 350. 14 Nancy, “The Meanings of Neoliberalism,” 27. 15 Howlett, Netherton, and Ramesh, The Political Economy of Canada, 29. Social democrats have a similar critique of free trade where they argue that the mutual gains associated with comparative advantage do not always hold, particularly for developed country workers, when free trade leads to a globalization of production rather than individual countries producing and then trading. 16 For a useful discussion of Friedman’s argument from a social democratic perspective, see: Krugman, Peddling Prosperity. 17 Helleiner, Towards North American Monetary Union?, 175. 18 See, for example: Blyth, Great Transformations; Green and Griffith, “Globalization and Its Discontents”; Held, Global Covenant; Held and McGrew, Globalization / Anti-Globalization; and Helleiner, States and the Reemergence. 19 Giddens, The Third Way; and Giddens, The Third Way and Its Critics. 20 Illustrating this point, Tony Blair noted: “The key to New Labour economics is the recognition that Britain … [has] to compete in an increasingly international market place … Today’s Labour Party, New Labour, is the political embodiment of the changed world.” In a further speech, he also noted that, “we understand that in a global market place, traditional national economic policies – corporatism from the

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old left – no longer have any relevance.” See, respectively: Tony Blair, “Today’s Labour Party, New Labour, is the Political Embodiment of the Changed World,” speech to the BD I Annual Conference, Bonn, Germany, 18 June 1996; and Tony Blair, speech to the C B I Annual Conference, Harrogate, 11 November 1996. Both cited in Hay and Watson, “Diminishing Expectations.” 21 Dickson and Sandbrook, “Pragmatic Neo-Liberalism,” 4. 22 Boadway and Shah, Fiscal Federalism. 23 Oates, “Toward a Second-Generation.” 24 Boadway and Shah, Fiscal Federalism, 466. 25 Oates, Fiscal Federalism. 26 Mundell, “A Theory of Optimum Currency Areas.” 27 Boadway and Shah, Fiscal Federalism, 466. 28 Ibid., 13. 29 Oates, “Toward a Second-Generation,” 351. Important to note here is that, while there exists an ongoing debate over the extent to which tax competition constrains redistribution, both neoliberal and social democratic actors believe that it does, and advocate policies based on this belief. Illustrating this point in the case of neoliberal actors, Chris Edwards and Veronique de Rugy of the free market Cato Institute note that, “tax competition may indeed hamper income redistribution, but that is a beneficial outcome because redistribution has progressed to a remarkably high degree in most industrial countries.” See: Edwards and de Rugy, “International Tax Competition,” 3. 30 Oates, Fiscal Federalism, 55. 31 Hahn, Layne-Farrar, and Passell, “Federalism and Regulation,” 47. 32 Olsen, “The Principle of ‘Fiscal Equivalence.’” 33 Oates, “Toward a Second-Generation,” 351. 34 Wilson, “Theories of Tax Competition,” 270. 35 Hahn, Layne-Farrar, and Passell, “Federalism and Regulation,” 47. 36 Poschmann and Robson, “Interprovincial Fiscal Competition in Canada,” 3. 37 Musgrave, “Devolution, Grants, and Fiscal Competition,” 68. 38 Brennan and Buchanan, The Power to Tax, 183. 39 Oates, “Toward a Second-Generation,” 351; Weingast, “Second Generation.” 40 Oates, “Toward a Second-Generation,” 350. 41 Grodzins, The American System. 42 Elazar, “Cooperative Federalism,” 69. 43 Ibid., 67.

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237

44 Ibid., 67. 45 Greve, “Against Cooperative Federalism,” 558. 46 Ibid., 559. 47 Ibid., 558. 48 Inman and Rubinfeld, “Rethinking Federalism,” 49. 49 Helleiner, States and the Reemergence of Global Finance, 34. For further details on Keynes’s thinking on international capital mobility, see: Horsefield and de Vries, The International Monetary Fund; Keynes, The Collected Writings of J.M. Keynes, vol. 25; and Keynes, The Collected Writings of J.M. Keynes, vol. 26. 50 Ruggie, “International Regimes, Transactions, and Change,” 393. 51 See, for example: Gill and Law, The Global Political Economy; Stanford, Elwell, and Sinclair, “Social Dumping”; Cerny, “Paradoxes of the Competition State”; Rodrik, Has Globalization Gone Too Far?; Barlow and Clarke, Global Showdown; Held, Global Covenant. 52 Gill, “New Constitutionalism, Democratisation”; Gill, “Constitutionalizing Inequality”; Barlow and Clarke, Global Showdown; Clarkson, Uncle Sam and Us. 53 Commission on Global Governance, Our Global Neighbourhood; Held and Koenig-Archibugi, Taming Globalization; Sandbrook, Civilizing Globalization; Held, Global Covenant; Stiglitz, Making Globalization Work. 54 Held, Global Covenant, 107. 55 Oates, Wallace E. “Fiscal Federalism and European Union.” 56 At the international level, the U N DP has been a key source of social democratic thought, having been central to the development of key concepts such as “human development” and “human security.” As such, the U N DP has often been the social democratic counterpart to the more neoliberal International Monetary Fund and World Bank. 57 Stiglitz, “The Theory of International Public Goods.” 58 Kaul, Grunberg, and Stern, Global Public Goods; Kaul, Conceição, Le Goulven, and Mendoza, Providing Global Public Goods. 59 Kaul and Conceição, The New Public Finance. 60 Kaul and Le Goulven, “Financing Global Public Goods,” 338. 61 Kaul, Conceição, Le Goulven, and Mendoza, “Why Do Global Public Goods,” 3. 62 Kaul, Grunberg, and Stern, “Defining Global Public Goods,” 12. 63 Musgrave, “Combining Fiscal Sovereignty and Coordination,” 174. 64 For a summary of these proposals, see: Ibid. 65 Kaul, Conceição, Le Goulven, and Mendoza, “How to Improve,” 39.

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66 Kaul and Le Goulven, “Financing Global Public Goods,” 329–30. 67 Ibid., 330. 68 Fixed exchange rates and monetary union can lock in a free-market bias based on the logic of the Mundell-Fleming thesis or “impossible trinity.” According to this widely accepted thesis, a government can only pursue two of the following three policy goals at any one time: capital mobility, a fixed exchange rate, and discretion in monetary ­policy. For example, if a government had capital mobility and a fixed exchange rate, it would be unable to lower interest rates to fight a recession, as this would lead to an outflow of capital and a depreciation of the currency below the fixed rate. For a full discussion, see Chapter 4. 69 Helleiner, Towards North American Monetary Union, 164–5. 70 Friedman, Capitalism and Freedom; Friedman and Mundell, “One World, One Money.” 71 Boadway and Shah, Fiscal Federalism, 467. For more on Buchanan’s view, see: Buchanan, Post-Socialist Political Economy. 72 However, since the great recession of the late 2000s and the crisis of the Euro, many social democrats have advocated for either a return to national currencies by some countries or the creation of a more unified European fiscal policy. 73 Notermans, “Introduction,” 270. 74 These positions stand in contrast to those of many neoliberals, who tend to oppose both counter-cyclical fiscal stimulus and sovereign bailouts. In the former case, neoliberals view fiscal stimulus as ineffective and as simply leading to deficits. In the latter case, while many neoliberals support the market-oriented conditionality employed by the IMF, they tend to oppose the broader notion of sovereign bailouts, which they view as creating moral hazard and further crises. See: Helleiner, “The Strange Story.” chapter three

 1 Held, Global Covenant.  2 Helleiner, States and the Reemergence of Global Finance, 34.   3 Ruggie, “International Regimes, Transactions, and Change,” 393.  4 Frieden, Global Capitalism, 300.   5 De Long, “America’s Only Peacetime Inflation.”  6 Gilpin, Challenge of Global Capitalism, 165.  7 Helleiner, States and the Reemergence of Global Finance, 89.

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  8 Ibid., 101.   9 Ibid., 120. 10 This is based on the economic logic of the “impossible trinity,” which is known more formally as the Mundell-Fleming Thesis. It asserts that governments can pursue no more than two of the following three policy options at the same time: capital mobility, a fixed exchange rate, and an independent monetary policy. For example, if a government had capital mobility and a fixed exchange rate, it would be unable to stimulate its economy through a monetary expansion. Doing so would cause capital to leave the country and the value of the currency to drop out of its fixed-exchange-rate band. If a government wanted to pursue a monetary stimulus and maintain a fixed exchange rate, it would have to implement capital controls to prevent capital from ­leaving the country. The pre-Depression international monetary system was predominantly characterized by capital mobility (and thus financial globalization), the gold-standard system of fixed exchange rates, and a lack of monetary policy independence. The Bretton Woods order was predominantly characterized by capital controls (and thus no financial globalization), the gold-dollar system of fixed exchange rates, and monetary policy independence. The contemporary, post-Bretton Woods order is predominantly characterized by capital mobility (and thus the return of financial globalization), floating exchange rates, and monetary policy independence. A key exception here is the Eurozone, where the Euro acts as the ultimate form of fixed exchange, rate and thus removes monetary policy independence for its individual members. For a full discussion, see Chapter 4. 11 Helleiner, States and the Reemergence of Global Finance, 115. 12 Ibid., 119. 13 Ibid., 16, n29. 14 De Long, “America’s Only Peacetime Inflation.” 15 In Keynesian theory, and, in particular, the notion of the “Phillips curve,” there was seen to be a stable trade-off between inflation and unemployment, which moved in an inverse relationship. 16 Gilpin, The Challenge of Global Capitalism, 89. 17 Frum, How We Got Here, 292. 18 Krugman, Peddling Prosperity, 45. 19 Blyth, Great Transformations, 139. 20 For a more detailed discussion of the political mobilization of business in the United States, see: Korten, When Corporations Rule the World; Blyth, Great Transformations.

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21 Blyth, Great Transformations, 168. 22 Rupert, Ideologies of Globalization, 63. 23 Led by the US Business Roundtable and included a reported membership of more than 200,000 large and small businesses. Cited in Rupert, Ideologies of Globalization, 63. 24 Scholte, Globalization. 25 Ohmae, The End of Nation-States; Friedman, The Lexus and the Olive Tree; Gilpin, The Challenge of Global Capitalism. 26 Bhagwati, In Defense of Globalization. 27 Held and McGrew, Globalization / Anti-Globalization, 101. 28 Ibid., 102. 29 Goldstein and Whitworth, International Relations, 90. 30 Ibid. 31 Steans and Pettiford, International Relations, 40. 32 Helleiner, “Economic Nationalism,” 313. 33 Rupert, Ideologies of Globalization, 63. 34 Cited in ibid., 64. 35 See Ibid. 36 Helleiner, States and the Reemergence of Global Finance, 116. 37 Hayek, The Road to Serfdom, 92. 38 Friedman, Capitalism and Freedom, 57. 39 Hartwell, Christopher. “The Case Against Capital Controls,” 16. 40 Edwards and de Rugy, “International Tax Competition,” 22. 41 Greve, “The AEI Federalism Project.” 42 Buchanan, “Federalism as an Ideal Political Order,” 27. 43 See, for example: Gill and Law, The Global Political Economy; Stanford, Elwell, and Sinclair, Social Dumping Under North American Free Trade; Cerny, “Paradoxes of the Competition State”; Rokrik, Has Globalization Gone Too Far?; OEC D, Harmful Tax Competition; Barlow and Clarke, Global Showdown; International Forum on Globalization, A Better World Is Possible; Held, Global Covenant. 44 Prakash, “Beyond Seattle,” 2–3. 45 Gill, “New Constitutionalism, Democratisation and Global Political Economy”; Gill, “Constitutionalizing Inequality”; Barlow and Clarke, Global Showdown; Clarkson, Uncle Sam. 46 For a detailed outline of these concerns, see Barlow and Clarke, Global Showdown; International Forum on Globalization, A Better World Is Possible. 47 Gilpin, The Challenge of Global Capitalism; Bhagwati, In Defense of Globalization; Wolf, Why Globalization Works.

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48 Barlow and Clarke, Global Showdown, 28. 49 Michael Hardt and Antonio Negri, “What the Protestors in Genoa Want,” New York Times, 20 July 2001, http://www.nytimes. com/2001/07/20/opinion/what-the-protesters-in-genoa-want.html. 50 Barlow and Clarke, Global Showdown, 27. 51 Green and Griffith, “Globalization and Its Discontents,” 55. A somewhat similar categorization is made in Held and McGrew, Globalization / Anti-Globalization. 52 Green and Griffith, “Globalization and Its Discontents,” 55. 53 While often portrayed as a specific group, the “black bloc” refers to a set of protest tactics where protestors wear all-black clothing and engage in property damage and confrontations with the police. Protestors adopting black bloc tactics tend to be young and often ­self-describe as anarchists. 54 Bello, Deglobalization. 55 Green and Griffith, “Globalization and Its Discontents,” 55–6. 56 Held and McGrew, Globalization / Anti-Globalization; Held, Global Covenant. 57 Levy and Prakash, “Bargains Old and New,” 137. 58 Held and McGrew, Globalization / Anti-Globalization. 59 Addison and Siebert, “The Social Charter of the European Community,” 618. 60 Watkins and Fowler, Rigged Rules and Double Standards. 61 George Monbiot, “I Was Wrong about Trade,” Guardian, 24 June 2003, https://www.theguardian.com/world/2003/jun/24/globalisation.politics. 62 Held and Koenig-Archibugi, Taming Globalization; Sandbrook, Civilizing Globalization; Held, Global Covenant; Stiglitz, Making Globalization Work. 63 See Chapter 2 for a detailed outline of these concepts. Kaul, Grunberg, and Stern, Global Public Goods. 64 International Forum on Globalization, A Better World Is Possible. 65 James Harding, “Capitalism’s Critics Urge New Global Institutions,” Financial Times, 2 February 2002, https://www.business-humanrights. org/en/capitalisms-critics-urge-new-global-institutions. 66 American Federation of Labor and Congress of Industrial Organizations, “Trade Statement, August 10, 2010.” 67 American Federation of Labor and Congress of Industrial Organizations, “Trade.” 68 Trades Union Congress, “Put Labour Standards and Development at the Heart of EU Trade Agreements.”

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69 Reitan, “Theorizing and Engaging the Global Movement,” 323–4. 70 See Larsson, The Race to the Top; Bhagwati, In Defense of Globalization; Wolf, Why Globalization Works. 71 Gamble, “Neo-Liberalism,” 133. 72 Harvey, A Brief History of Neoliberalism, 85. 73 Helleiner, “Economic Nationalism.” 74 Harvey, A Brief History of Neoliberalism, 79. 75 Weingast, “The Economic Role of Political Institutions,” 4. 76 Ibid. 77 Buchanan, “Federalism and Individual Sovereignty.” 78 See Worth, “The Janus-Like Character of Counter-Hegemony.” 79 Ibid., 308. 80 Williams, “What is the National Interest?” 81 Ibid., 312. 82 Cited in ibid., 318. 83 Cited in ibid., 315–16. 84 Spiro, “The New Sovereigntists,” 13. 85 Ibid., 10. 86 Rabkin, Why Sovereignty Matters; Rabkin, The Case for Sovereignty. 87 Ibid., 80. 88 Ibid., 86. 89 Levy and Prakash, “Bargains Old and New,” 131. 90 Ibid., 136. Levy and Prakash also note that: “Despite MNC s’ general antipathy toward international regulatory regimes, specific competitive considerations can mitigate this outlook” (138). Thus, as argued in Chapter 1, while there will be exceptions to the “rule” that neoliberal actors will be guided by the neoliberal project for multilevel governance, they will occur under predictable conditions. 91 Roger Bate, “Taxing Times: The Fight for National Sovereignty in Europe,” National Review Online, 6 May 2004, http://www.­ nationalreview.com/articles/210557/taxing-times/roger-bate. 92 Ronald Bailey, “Who Is Maurice Strong?,” National Review Bristol Connecticut 49 (1997): 32, https://www.bibliotecapleyades.net/­ sociopolitica/sociopol_tavistock04b.htm. 93 Bate, “Taxing Times.” 94 Edwards and de Rugy, “International Tax Competition,” 2, 3. 95 European Parliament, “Personal and Company Taxation”; Organisation for Economic Co-operation and Development, Harmful Tax Competition.

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243

  96 Allan Meltzer, “Global Self-Interest,” American Enterprise Institute Online 14, no. 5 (2003): 49.   97 Mitchell, “An OECD Proposal to Eliminate Tax Competition Would Mean Higher Taxes.”   98 Cited in Cormier, “Blowing Smoke!”   99 Jack Mintz, “A Made-in-Canada Solution?”, Globe and Mail, 22 May 2009, http://www.theglobeandmail.com/news/opinions/ a-made-in-canada-solution/article1150035. 100 Cited in American Enterprise Institute, “US Sovereignty and International Treaties.” 101 Neoliberal actors are also opposed to any attempts by trade unions to offset wage competition through transnational organizing and ­collective bargaining. For example, reporting on the view of the World Bank, Rupert notes that, “the Bank cautions against collective bargaining at the national, sectoral or industrial level. Rather enterprise-level bargaining should be the norm since, under those circumstances, ‘the unions’ ability to effect monopolistic wage increases is tempered by the strong competitive pressures on the firm from the product market.’” See: Rupert, Ideologies of Globalization, 53. 102 As discussed in the next chapter, the inclusion of labour and environmental standards were also significant during the NA FTA negotiations. 103 Burgoom, “The Rise and Stall of Labor Linkage,” 196. 104 See Bhagwati, “Trade Liberalisation.” 105 Business Roundtable, “Preparing for New WTO Trade Negotiations to Boost the Economy,” iii. 106 In contrast to business-sponsored lobby groups and think tanks, Bhagwati argues that intellectual property rights are also trade-unrelated and should not have been included in the WTO. Specifically, he notes that: “The Uruguay Round saw the WTO turn into a tripod, its three legs being the old G ATT, the new GA TS on services, and intellectual property protection. But the last leg really did not belong at all … The labour unions say: you did it for capital, so you must do it for labour. The environmentalists say: you did it for capital, so you must do it for nature.” Bhagwati, “After Seattle,” 25, 26. 107 See Barfield, “The Future of Free Trade.” 108 Rupert, Ideologies of Globalization, 60. 109 Paula Stern, cited in ibid., 60. 110 Cited in Ibid., 143–4.

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111 Doug Palmer, “Democrats, Bush Strike Deal on Trade,” Reuters, 10 May 2007, https://www.reuters.com/article/us-usa-trade/ democrats-bush-strike-deal-on-trade-idUSWBT00695620070511. 112 On the debate over the TPP and its inclusion of labour and environmental standards, see: Cimino-Isaacs, “Labor Standards in the TPP”; Froman, “Trade, Growth, and Jobs”; Citizens Trade Campaign, “1,500 Groups Urge Congress to Oppose the TPP.” 113 Azevado, “Remarks at the Opening Session of 2016 Public Forum.” 114 Lawrence Solomon, “Donald Trump Did Canada (and Millions of Others) a Huge Favour by Killing the Trans-Pacific Partnership,” National Post, 26 January 2017, http://business.financialpost.com/ fp-comment/lawrence-solomon-trump-did-canada-and-millions-ofothers-a-huge-favour-by-killing-the-tpp. For a similar view, see: Murray, “Trump Moves on Trade: TP P and NA FTA .” 115 For a discussion of the Liberal Party’s progressive trade agenda, see: Ciuriak, “Canada’s Progressive Trade Agenda: NA FTA and Beyond.” 116 Chrystia Freeland, “Chrystia Freeland’s Vision for a New NA FTA ,” Maclean’s, 14 August 2017, http://www. macleans.ca/politics/ chrystia-freelands-vision-for-a-new-nafta/. 117 Terence Corcoran, “Trudeau Can’t Land a Trade Deal – Because He’s No Free Trader,” National Post, 5 December 2017, https://­business. financialpost.com/opinion/terence-corcoran-trudeau-cant-landa-trade-deal-because-hes-no-free-trader. chapter four

   1 Steenbergen and Marks, “Introduction,” 5.    2 Stephens, “Britain and Europe,” 12–21; Evans and Butt, “Explaining Change”; Wellings, “Rump Britain.”    3 Hix and Christopher, Political Parties in the European Union; Szczerbiak and Taggart, “Opposing Europe”; Szczerbiak and Taggart, “Theorising Party-Based Euroscepticism”; Sitter, “The Politics of Opposition.”   4 Harvey, A Brief History of Neoliberalism, 79.   5 Gifford, The Making of Eurosceptic Britain, 6.   6 Grant, Why Is Britain Eurosceptic?    7 Aspinwall, “Structuring Europe”; Usherwood, “Opposition to the European Union in the U K.”    8 Gifford, “The Rise of Post-Imperial Populism,” 857.   9 Ibid., 854.

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10 Gifford, “The Rise of Post-Imperial Populism”; Gifford, The Making of Eurosceptic Britain; Gifford, “The UK and the European Union.” 11 Gifford, “The United Kingdom’s Eurosceptic Political Economy,” 785. 12 Gamble, “The Great Divide,” 37; Sowemimo, “The Conservative Party.” 13 Baker, Gamble, and Seawright, “Sovereign Nations and Global Markets,” 421. See also: Gamble, “The Great Divide,” 37. 14 Baker, Gamble, and Seawright, “Sovereign Nations and Global Markets,” 400. 15 Ibid., 422. 16 Ibid., 410. 17 Hooghe and Marks, “The Making of a Polity,” 9. See also: Hooghe, Marks, and Wilson, “Does Left / Right Structure.” 18 Worth, “Reviving Hayek’s Dream,” 105. 19 Buchanan, “Federalism and Individual Sovereignty,” 266. 20 Holmes, “The Conservative Party and Europe.” 21 Butt, “The Common Market.” 22 Holmes, “The Conservative Party and Europe.” 23 Baker, Gamble, and Seawright, “Sovereign Nations and Global Markets,” 401. 24 Cited in Sowemimo, “The “Conservative Party and European Integration.” 25 Gamble, “The Great Divide,” 37. 26 Nyta Mann, “Labour’s Long Euro-conversion,” B B C News Online, 6 November 2002, http://news.bbc.co.uk/2/hi/uk_news/politics/ 1701014.stm. 27 Thatcher, Speech to the Conservative Group for Europe. 28 Michael Cockerell, “How We Were Talked into Joining Europe,” Independent, 4 June 2005, http://www.independent.co.uk/news/uk/­ politics/how-we-were-talked-into-joining-europe-224339.html. 29 Robert Saunders, “Business and Europe: The 1975 Referendum,” The Gladstone Diaries blog, 21 May 2015, http://gladstonediaries. blogspot.ca/2015/05/business-and-europe-1975-referendum.html. See also: Saunders, Yes to Europe! 30 Ibid. 31 Ibid. 32 Cited in Cockerell, “How We Were Talked.” 33 Saunders, “Business and Europe.” 34 Daddow, “The U K Media and ‘Europe.’” 35 George Monbiot, “Stealing Europe,” Guardian, 20 June 2001, http:// www.monbiot.com/2001/06/20/stealing-europe/.

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Notes to pages 128–34

36 Ibid. For a more detailed discussion of the role of the European Roundtable of Industrialists in European integration, see: Van Apeldoorn, Transnational Capitalism. 37 House of Lords, “European Union: Prime Ministers’ Speeches.” 38 Yergin and Stanislaw, The Commanding Heights, 315. 39 Miller, “The 1974–75 U K Renegotiation of EEC Membership and Referendum.” 40 Labour Party [U K], “Let Us Work Together.” See also: Labour Party [UK ], “Britain Will Win with Labour.” 41 Silvia, “The Social Charter,” 631. 42 Trades Union Congress, “European Community: Renegotiation.” 43 Ibid. 44 Cited in Mann, “Labour’s Long Euro-Conversion.” 45 Labour Party [U K], “The New Hope for Britain.” 46 Silvia, “The Social Charter,” 626. 47 The exception here was some of the more centrist members of the Labour Party, who supported EEC membership. 48 Jacques Delors, “1992: The Social Dimension.” 49 Lourie, “The Social Chapter.” 50 Silvia, “The Social Charter,” 631. 51 Ibid., 633. 52 Addison and Siebert, “The Social Charter,” 618. 53 Mann, “Labour’s Long Euro-Conversion.” See also: Heffernan, “Beyond Euro-Scepticism.” 54 Mann, “Labour’s Long Euro-Conversion.” See also: “Labour and Europe: Playing with Fire,” Economist, 10 November 2012, 59. 55 Thatcher, Speech to the College of Europe. 56 Sowemimo, “The Conservative Party,” 90. 57 Bruges Group, “The Bruges Group.” 58 Rodney Lord, “Think Tanks Go into Action against Delors,” The Times (London), 21 August 1989. 59 Addison and Siebert, “Social Engineering”; Buchanan, “The American Perspective.” 60 Buchanan, “The American Perspective,” 18. 61 John Banham, “Building an Open, Free, Competitive Europe: EC Social Charter,” Financial Times, 6 September 1989, 23. 62 Respectively: Philip Bassett, “CBI Head Attacks Brussels’ Social Action Programme,” The Times (London), 15 May 1991; “UK Industry Calls E C Social Charter Plan Nonsense,” Reuters, 5 November 1991; Madeline Drohan, “EC Social Charter Attacked; British Say They Can’t Afford It,” Globe and Mail, 9 December 1991.

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Notes to pages 134–40

247

63 Bassett, “CBI Head Attacks.” 64 John Banham, “Social Charter Will Worsen Dole Queues across Europe,” The Times (London), 29 November 1991. 65 Ross Tieman, “Institute of Directors Condemn Workplace Accord,” The Times (London), 3 December 1991. 66 Anderson, “A Flag of Convenience?” 67 Wilkes and Wring, “The British Press,” 202. 68 McKnight, “Rupert Murdoch’s News Corporation.” See also: McKnight, “A World Hungry.” 69 Daddow, “The U K Media and ‘Europe,’” 1230. 70 McKnight, “A World Hungry.” 71 Daddow, “The U K Media and ‘Europe,’” 1232. 72 Anderson, “A Flag of Convenience.” 73 Sowemimo, “The Conservative Party,” 82. 74 Widmaier, “The Social Construction”; Cohen, “The Triad and the Unholy Trinity”; Obstfeld, Shambaugh, and Taylor, “The Trilemma in History”; Mundell, International Economics. 75 Buchanan, “Federalism as an Ideal Political Order.” 76 Helleiner, States and the Reemergence of Global Finance, 166. 77 Hayek, “Denationalisation of Money.” 78 Buchanan, “The American Perspective,” 13. 79 Gill, “European Governance and New Constitutionalism”; Van Apeldoorn, Transnational Capitalism; Cafruny and Ryner, A Ruined Fortress? 80 De Soto, “An Austrian Defense of the Euro,” 6. 81 Hayek, “Inflation, the Misdirection of Labour, and Unemployment,” 9–10. 82 Buchanan, “Constitutional Efficiency and the European Central Bank,” 13. 83 Weingast, “The Economic Role,” 4. For a detailed discussion of market-­ preserving federalism and monetary policy, see: McKinnon, “MarketPreserving Fiscal Federalism.” 84 Gill, “European Governance and New Constitutionalism.” 85 Helleiner, Towards North American Monetary Union?, 164–5. 86 Friedman and Mundell, “One World, One Money,” 10. 87 Friedman’s main exception to the no-fixed-exchange-rate rule is in those countries, such as some developing countries, where the central bank lacks a sufficient commitment to price stability. 88 Helleiner, States and the Reemergence of Global Finance, 34. For further details on Keynes’s thinking on international capital mobility, see: Horsefield, The International Monetary Fund; Keynes, The Collected

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Notes to pages 141–6

Writings of J.M. Keynes, vol. 25; Keynes, The Collected Writings of J.M. Keynes, vol. 26.  89 Notermans, Social Democracy and Monetary Union; Helleiner, Towards North American Monetary Union?  90 Helleiner, Towards North American Monetary Union?, 176.   91 Bourne, “Hayek and Thatcher.”   92 Sowemimo, “The Conservative Party,” 85.   93 Max Wilkinson, “Parliament and Politics: Britain Should Join EMS, C B I Tells M Ps,” Financial Times, 16 May 1985, 10.   94 Margaret Thatcher, [article title unknown], The European (Maastricht), 8 October 1992, http://www.margaretthatcher.org/ document/108305.  95 Ellis, John Major: A Personal Biography, 336.  96 Connolly, The Rotten Heart of Europe.   97 Delors called for the European Parliament to become the lower house of the European Community, the Council of Ministers to be the Senate, and the European Commission to be the executive.   98 Cited in Ross Tieman, “CBI Chief Backs EMU for Britain,” The Times (London), 19 June 1991.   99 For more detail on the role of the impossible trinity in the ER M crisis, see: Harmes, “Institutional Investors and Polanyi’s Double Movement.” 100 Gifford, “The Rise of Post-Imperial Populism,” 860. 101 Baker, Gamble, and Ludlam, “The Parliamentary Siege of Maastricht,” 46. 102 For a more detailed discussion of the Conservative Party split over ratification of the Maastricht Treaty, see: Baker, Gamble, and Ludlam, “The Parliamentary Siege of Maastricht”; Sowemimo, “The Conservative Party,” 88. 103 Gifford, “The Rise of Post-Imperial Populism,” 864. See also: Northcott, The Future of Britain and Europe. 104 Gamble and Kelly, “The British Labour Party and Monetary Union,” 11. 105 Ibid., 17. 106 Ibid., 12. 107 Ibid., 20. 108 Ibid., 19. 109 Gifford, “The Rise of Post-Imperial Populism”; Gifford, “The UK and the European Union.” 110 Nigel Farage, “What Thatcher Would Do Today about … Europe,” The Times (London), 14 April 2013.

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Notes to pages 146–52

249

111 Farage, Flying Free, 58. Cited in Tournier-Sol, “Reworking the Eurosceptic,” 142. 112 Tournier-Sol, “Reworking the Eurosceptic.” 113 Ibid., 146. 114 De Soto, “An Austrian Defense of the Euro,” 8. 115 Jürgen Habermas, Peter Bofinger, and Julian Nida-Rümelin, “Only Deeper European Unification Can Save the Eurozone,” Guardian, 9 August 2012, https://www.theguardian.com/commentisfree/2012/ aug/09/deeper-european-unification-save-eurozone. 116 Conservative Party [U K], “An Invitation to Join the Government of Britain.” 117 Miller, “The U K and Europe.” 118 Tournier-Sol, “Reworking the Eurosceptic”; Miller, “The UK and Europe.” 119 Fresh Start Project, “Options for Change.” 120 10 Downing Street, Prime Minister Press Conference at End of European Council, 23 November 2012. Cited in House of Lords, “European Union.” 121 Confederation of British Industry, “David Cameron’s Europe Speech.” 122 Cited in Patrick Wintour, “TU C Accuses Tory Eurosceptics of Trying to Undermine Labour Law,” Guardian, 16 January 2013, https:// www.theguardian.com/politics/2013/jan/16/ tuc-accuses-tories-labour-law. 123 House of Lords, “The EU Referendum and EU Reform.” 124 Trades Union Congress, “Better Off In.” 125 Frances O’Grady, “Letter to the Editor,” The Times (London), 23 February 2016. 126 Confederation of British Industry, “C B I to Make Economic Case to Remain in EU .” 127 Francis Elliot and Philip Aldrick, “Brexit Puts Jobs at Risk,” The Times (London), 23 February 2016, https://www.thetimes.co.uk/ article/brexit-puts-jobs-at-risk-say-200-business-chiefs-np5f9k7ch. 128 Cyrus Engineer, “Pro-Brexit Economist Calls on UK to Rid Itself of E U ‘Protectionism,’” Daily Express online, 2 June 2016, https://www. express.co.uk/news/politics/676140/patrick-minford-brexitalistair-darling. 129 Bourne, “Would Brexit Help or Hinder Economic Freedom?”; Bourne, “Free-Marketeers Should Oppose Britain’s Membership of the EU ”; Bourne, “Let’s hear the positive economic case for Brexit.” 130 Bourne, “Free-Marketeers Should Oppose.”

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Notes to pages 152–6

131 Economists for Brexit, “The Economy After Brexit”; Minford, Setting Business Free. 132 See: www.economistsforfreetrade.com. 133 “Brexit Campaigns Receive £8.2m in Donations,” Sky News Politics, 11 May 2016; Adam Payne, “Rupert Murdoch on Brexit: Government Making ‘Obviously False Claims’ over EU,” Business Insider UK , 3 March 2016, http://uk.businessinsider.com/ rupert-murdoch-government-false-brexit-claims-2016-3. 134 Phillip Inman, “EU Referendum: 250 Business Leaders Sign Up as Backers of Vote Leave,” Guardian, 26 March 2016, https://www.the​ guardian.com/politics/2016/mar/26/250-business-leaders-sign-up-asbackers-of-vote-leave; Peter Dominiczak, “EU Referendum: More Than 300 Business Leaders Back a Brexit,” Telegraph, 15 May 2016, http://www.telegraph.co.uk/news/2016/05/15/eu-referendum-morethan-300-business-leaders-back-a-brexit/; “Would Business Win or Lose From a Vote to Leave?,” Pretoria News, 22 June 2016. 135 Inman, “EU Referendum.” 136 See: https://businessforbritain.org. 137 Interview with the author, London, UK , 10 April 2016. Similar statements were made during other interviews, conducted in April 2016, with officials from various British free-market advocacy groups. 138 UK I P, “The Truth about Trade beyond the EU.” https://d3n8a8pro​ 7vhmx.cloudfront.net/ukipdev/pages/2701/attachments/original/ 1434455138/784392327.pdf?1434455138. 139 Mayer, “The Parallel between Brexit and US Federalism.” 140 Bandow, “Brexit Was a Win for the Good Guys”; Roberts, “Brexit Could Lift All Boats”; Di Matteo, “Understanding Brexit and the Need for EU Reform.” 141 Doern and Tomlin, Faith and Fear, 47. See also: Clarkson, Does North America Exist? 142 Rugman, “Why Business Supports Free Trade,” 95. 143 Doern and Tomlin, Faith and Fear, 34. 144 Cited in Cameron, The Free Trade Deal, x. 145 Doern and Tomlin, Faith and Fear, 216. 146 Tony Van Alphen, “Backers Plan Final Ad Blitz for Free Trade,” Toronto Star, 17 November 1988. See also: Murray Campbell, “Business United in Support for Deal,” Globe and Mail, 19 November 1988. 147 For example, from March 1987 to April 1988, the Alliance spent almost $3 million. A further $2.3 million was also spent in the final days of the election, mainly on a large, four-page newspaper insert,

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251

titled “Straight Talk on Free Trade,” to counter the claims of freetrade opponents. See Doern and Tomlin, Faith and Fear, 218–9. 148 Doern and Tomlin, Faith and Fear, 219. 149 Mayer, Interpreting NAFTA , 38–9. 150 Mayer, Interpreting NAFTA , 39. 151 Cited in Mayer, Interpreting NAFTA , 45. 152 Cited in Rupert, “(Re)Politicizing the Global Economy,” 668. 153 Shawn McCarthy, “Liberals and N D P Slam Deal on Trade,” Toronto Star, 9 September 1992; Thomas D’Aquino, “Trade Pact Is Supported by Business,” Toronto Star, 7 December 1992. 154 Doern and Tomlin, Faith and Fear, 207. 155 See, for example: Laxer, Leap of Faith. The first chapter is titled “The Free Trade Debate Is about Sovereignty.” 156 Doern and Tomlin, Faith and Fear, 211. 157 Mel Hurtig and Duncan Cameron, “Pros and Cons of Taking the Leap: No longer Will Canada Make Sense,” Globe and Mail, 14 November 1988. See also: Tom Spears, “Free Trade Deal Called Environmental Disaster for Canada’s Resources,” Toronto Star, 22 September 1988. 158 Van Alphen, “Backers Plan Final Ad Blitz.” 159 Cited in Mayer, Interpreting NAFTA , 45. 160 Ibid., 74. 161 Ibid., 70. 162 Ibid., 68. 163 Ibid., 90. 164 Rupert, “(Re)Politicizing the Global Economy,” 673. 165 Pat Buchanan, “America First, N AF TA Never,” Washington Post, 7 November 1993. 166 “The 1992 Campaign: Transcript of 3rd TV Debate between Bush, Clinton and Perot,” New York Times, 20 October 1992. See also: Perot and Choate, Save Your Job, Save Our Country. 167 Mayer, Interpreting NAFTA , 168–9. 168 Faux and Lee, “The Effect of George Bush’s NA FTA on American Workers”; Friedman, “N AFTA as Social Dumping,” 32; Robinson, North American Trade. 169 Faux and Lee, “The Effect of George Bush’s NA FTA .” 170 See also: American Federation of Labor and Congress of Industrial Organizations, “Exploiting Both Sides”; United Automobile Workers, “Fast Track to Decline? North American Free Trade Agreement,” cited in Rupert, Ideologies of Globalization. 171 Mayer, Interpreting NAFTA , 181.

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Notes to pages 160–3

172 Cited in Mayer, Interpreting NAFTA , 188. 173 Cited in ibid. 174 Jonathan Ferguson, “Business Group Threatens to Stop Backing NA F TA,” Toronto Star, 11 June 1993. See also: “Canadian Business Leaders Back Government’s N AFTA Stand,” Dow Jones Newswires, 12 August 1993. 175 Compa, “American Trade Unions and NA FTA .” 176 Cited in Mayer, Interpreting NAFTA , 204. 177 Rupert, Ideologies of Globalization, 58. 178 Helleiner, “Forum: Dollarization the Strange Politics”; Helleiner, Towards North American Monetary Union. 179 Grubel, The Case for the Amero; Courchene and Harris, “From Fixing to Monetary Union.” See also: Harris, “The Case for North American Monetary Union.” 180 Grubel, The Case for the Amero, 12. 181 Helleiner, Towards North American Monetary Union, 165. 182 Laidler and Poschmann, “Leaving Well Enough Alone.” 183 Ibid., 166. 184 National Post, 13 December 2000. Cited in Helleiner, Towards North American Monetary Union, 167. 185 Ken Georgetti, “It Would Be Folly for Us to Adopt the US Dollar,” Global and Mail, 2 July 1999; Jackson, “Social Impacts of ‘Dollarization’”; Seccareccia, North American Monetary Integration. 186 Helleiner, Towards North American Monetary Union?, 177. 187 Jackson, “Social Impacts of ‘Dollarization.’” 188 Gabriel and Macdonald, “Of Borders and Business,” 89. 189 Coalition for Secure and Trade-Efficient Borders, “Media Advisory – Business Coalition to Release Paper on Borders,” Canada Newswire, 1 November 2001. 190 Dobson, “Shaping the Future of the North American Economic Space.” See also: Wendy Dobson, “What’s the Big Idea, Canada? Americans Want Security and We Want Security of Trade. Let’s Do the Vision Thing Together Says a New C.D. Howe Study by Economist Wendy Dobson,” Globe and Mail, 16 April 2002. 191 Canadian Council of Chief Executives, “Security and Prosperity.” 192 Thomas D’Aquino, “Reinvent the border: The interdependence of Canada and the United States has never been greater. It’s time to create a new economic and security partnership,” National Post, 17 January 2003.

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193 Campbell, From Deep Integration to Reclaiming Sovereignty; Dobbin, “Zip Locking North America.” 194 Yussuff, “Sovereignty or Standard of Living?,” 452–3. 195 Cited in Virgil, “Donald Trump, Rosie the Riveter, and the Revival of American Economic Nationalism,” Breitbart News, 17 March 2017, http://www.breitbart.com/big-government/2017/03/17/virgil-donaldtrump-rosie-riveter-revival-american-economic-nationalism/. 196 Michael Wolff, “Ringside With Steve Bannon at Trump Tower as the President-Elect’s Strategist Plots ‘An Entirely New Political Movement,’” Hollywood Reporter, 18 November 2016, http://www.hollywoodreporter.com/news/steve-bannon-trumptower-interview-trumps-strategist-plots-new-­political-movement948747. 197 Julia Hahn, “Fox News’s Rupert Murdoch Endorsed Obamatrade,” Breitbart News, 27 January 2016, http://www.breitbart.com/big-­ government/2016/01/27/foxs-rupert-murdoch-endorsed-obamatrade/. 198 Canadian Labour Congress, “N AFT A Renegotiation”; Berman, “Major Environmental Groups Lay Out Vision”; Citizens Trade Campaign, “Civil Society Speaks Out.” 199 Citizens Trade Campaign, “Civil Society Speaks Out.” 200 Canadian Labour Congress, “N AFT A Renegotiation.” 201 Chrystia Freeland, “Chrystia Freeland’s Vision for a New NA FTA ,” Maclean’s, 14 August 2017, http://www.macleans.ca/politics/chrystiafreelands-vision-for-a-new-nafta/. See also: Ciuriak, “Canada’s Progressive Trade Agenda.” 202 Murray, “Trump Moves on Trade”; Riley, “Three Recommendations.” 203 Riley, “Three Recommendations.” chapter five

   1 Bakvis, Brown, and Baier, “Contested Federalism,” 25. See also: Cairns, “The Governments and Societies.”    2 Smith, “The Ideological Origins of Canadian Confederation.”   3 There is a strong debate over the ideological origins of Canadian federalism in the BNA Act. For the conservative view that the BNA Act reflected classical liberal ideology, see: Ajzenstat, Canadian Founding. For the critical view that the BNA Act reflected a classical liberal approach, see: Smith, “The Ideological Origins of Canadian Confederation,” 25. For the view that it reflected a red Tory form

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Notes to pages 169–73

of interventionism, see: Smith, “Toryism, Classical Liberalism, and Capitalism.” For the view that the BNA Act reflected practical considerations and not ideology, see: Waite, Confederation Debates in the Province of Canada, 1865.   4 Mackenzie, “The Art of the Impossible,” 7.   5 Cooper, “A Return to Classical Federalism?”  6 Hale, Uneasy Partnership, 112; Banting, “Canada – Nation-Building,” 10; Bradford, Commissioning Ideas.   7 Armstrong and Nelles, “Private Property in Peril”; Mallory, Social Credit.   8 Brooks and Stritch, Business and Government in Canada, 171.  9 Mallory, Social Credit. 10 Barlow and Campbell, Straight through the Heart, 12. 11 Banting, The Welfare State and Canadian Federalism, 48. 12 Ibid., 61. 13 Banting, “Canada – Nation-Building,” 12. 14 Ibid. 15 Horn, The League for Social Reconstruction. 16 Co-operative Commonwealth Federation, “Regina Manifesto (Programme of the Co-operative Commonwealth Federation, adopted at the First National Convention held at Regina, Sask., July 1933),” Saskatchewan Archives, S-G2-1933.6, C C F Pamphlets, 1933, pages 1–8, http://www.saskarchives.com/sites/default/files/ccf_g-2-1933-6-­ regina-manifesto.pdf. 17 League for Social Reconstruction, Social Planning for Canada. 18 Owram, The Government Generation, 225. 19 Mackenzie, “The Art of the Impossible,” 8. 20 Bakvis, Brown, and Baier, “Contested Federalism,” 263, n2. 21 Banting, “Canada – Nation-Building,” 14. See also: Owram, The Government Generation. 22 Squires, “Creating Hegemony,” 159. 23 Ibid., 163. 24 For more detail on the differences between social and technocratic Keynesianism, see: Bradford, “The Policy Influence of Economic Ideas.” 25 Squires, “Creating Hegemony”; Owram, “Economic Thought in the 1930s.” 26 Royal Commission on Dominion-Provincial Relations [Rowell-Sirois Commission], 1940: Report, book I (Ottawa: King’s Printer, 1940), 36. Cited in Banting, “Canada – Nation-Building,” 13.

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Notes to pages 173–9

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27 Owram, The Government Generation, 239. 28 Mackenzie, “The Art of the Impossible,” 9. 29 Banting, “Canada – Nation-Building,” 15. See also: Owram, The Government Generation. 30 Barlow and Campbell, Straight through the Heart, 21. 31 Brooks and Stritch, Business and Government in Canada, 454. 32 Banting, The Welfare State and Canadian Federalism, 53. 33 Bradford, Commissioning Ideas, 55. 34 Ibid. 35 For a more detailed discussion of the stagflation crisis, see Chapter 3. 36 Carroll and Shaw, “Consolidating a Neoliberal Policy Bloc in Canada.” 37 Bradford, Commissioning Ideas, 106. 38 Courchene, Lewis, Lortie, and Walker, Canadian Confederation at the Crossroads. 39 Ibid., xiii. Emphasis in original. 40 Ibid., xix. 41 Ibid., xx. Emphasis in original. 42 Ibid., xviii. 43 Ibid., 13. 44 Alvaro, “Why Property Rights Were Excluded”; Russell, Constitutional Odyssey. 45 Coyne, “The Meech Lake Accord,” 246. 46 Schwartz, “Fear and Loathing on the Constitutional Agenda,” 20. 47 Business Council on National Issues, “Business Leaders Applaud Meech Lake Accord Consensus.” 48 McBride and Shields, Dismantling a Nation, 112–3. 49 Business Council on National Issues, “Business Leaders Launch Study.” 50 Watts and Brown, Options for a New Canada. For a more social democratic approach within this same volume, see Boadway, “Constitutional Design in a Federation.” 51 Business Council on National Issues, “Canada and the 21st Century”; Business Council on National Issues, “Canada’s Constitutional Future.” 52 McBride and Shields, Dismantling a Nation, 116–7. 53 Business Council on National Issues, “Canada and the 21st Century.” 54 Business Council on National Issues, “Canada’s Constitutional Future.” For a similar view expressed by the Fraser Institute, see Walker, “Constitutional Essentials.” 55 Business Council on National Issues, “Canada’s Constitutional Future.”

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Notes to pages 179–85

56 Walker, “Constitutional Essentials.” 57 Robson, Dynamic Tensions, 23. 58 Canadian Centre for Policy Alternatives, “Briefing Notes on the Tory Constitutional Proposals,” 1. 59 McLeod, Under Siege, 74–5. 60 Ibid., 75. See also: Ontario Ministry of Intergovernmental Affairs, “A Canadian Social Charter.” 61 McLeod, Under Siege, 75; Richards, “The NDP in the Constitutional Drama,” 159–82. 62 Business Council on National Issues, “Yes.” 63 Business Council on National Issues, “Canadian Business Leaders Respond.” 64 Doern and MacDonald, Free Trade Federalism, 41–2. 65 D’Cruz, “Interprovincial Trade Barriers.” 66 Tullock, The New Federalist. 67 Filip Palda, “February’s Solution: How to Get Effective Government,” Fraser Forum (February 1994). 68 Palda, Provincial Trade Wars. 69 Doern and MacDonald, Free Trade Federalism, 6. 70 Ibid. 71 Canadian Chamber of Commerce, The Agreement on Internal Trade; Canadian Chamber of Commerce, Obstacles to Free Trade in Canada; Schwanen, “Drawing on Our Inner Strength”; C.D. Howe Institute, “Disentangled Federalism Key to Avoiding Future Fiscal Excesses”; McKenzie, Reflections on the Political Economy; Knox, “The Forgotten Trade Agreement,” 15–16; Cooper, “Rebalancing the Federation,” 4–6. 72 Phillips, “The Canada Health and Social Transfer,” 66. 73 Ken Dewar, “The Budget: Who’s the Balkanizer Now?,” Globe and Mail, 2 March 1995. 74 Phillips, “The Canada Health and Social Transfer,” 66. 75 Richards, The Paradox of the Social Union Framework Agreement. 76 Schwanen, “More Than the Sum of Our Parts”; Council of Canadians, “Power Game.” 77 Lazar, “The Social Union Framework Agreement.” 78 Banting, “The Three Federalisms Revisited,” 152. 79 Stephen Harper, “My Plan for ‘Open Federalism,’” National Post, 27 October 2004. 80 Ibid. 81 Conservative Party of Canada, “Policy Declaration.”

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Notes to pages 185–93

257

 82 Ibid.   83 Young, “Open Federalism and Canadian Municipalities.”   84 Conservative Party of Canada, “Policy Declaration.”   85 Conservative Party of Canada, “Stand Up for Canada,” 42–3.   86 Ibid., 42.   87 Conservative Party of Canada, “For Real Change.”   88 Harper, “Harper Announces Conservative Platform for Quebec.”   89 MacDonald, “A Conversation with the Prime Minister,” 5–8.   90 Harper, “Prime Minister Harper Outlines His Government’s Priorities.”  91 Ibid.   92 Government of Canada, Focusing on Priorities.   93 Ibid., 8.   94 Ibid., 55.   95 Ibid., 56.  96 Ibid.   97 Ibid., 68.   98 Ibid., 57.   99 Ibid., 69. 100 Norman Spector, “There’s a Flaw in Mr Harper’s Plan for Canada,” Globe and Mail, 15 May 2006. 101 John Ibbitson, “Judicial Reform: It’s the Newest ‘Liberal’ Initiative,” Globe and Mail, 21 February 2006. 102 Dunn, “Harper Without Jeers, Trudeau Without Cheers,” 10–11. 103 Canadian Council of Chief Executives, From Bronze to Gold. 104 Ibid., 21. 105 Lee, Tax Cuts and the “Fiscal Imbalance,” 19. 106 Day, “Empower the People, Not the Provinces.” 107 Courchene, “A Blueprint for Fiscal Federalism,” 17. 108 Ibid., 16. 109 Murray Dobbin, “Provincial Trade Barriers? What Provincial Trade Barriers?,” Globe and Mail, 11 January 2008. 110 Cited in ibid. 111 Ibid. See also: Gould, Asking for Trouble. 112 Sinclair, Transforming the Agreement on Internal Trade, 2. 113 Castro-Rea, “Harper’s Legacy on Federalism.” 114 Crowley, Knox, and Robson, Citizen of One, Citizen of the Whole. 115 For example, see: “Only Ottawa Can Tear Down Barriers between Canadians: Think Tank Proposes Economic Charter of Rights,”

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Notes to pages 193–8

Canada Newswire, 21 June 2010; Robert Knox, Brian Lee Crowley, and John Robson, “Tear Down the Economic Barriers,” Globe and Mail, 30 June 2010. 116 Tom Flanagan, “Beware Ottawa Bearing Gifts: Classic Federalism Is Back,” Globe and Mail, 17 January 2012. 117 Geoff Norquay, “Health-Care Funding: How Harper Views the Canadian Federation,” Globe and Mail, 23 December 2011. 118 Dunn, “Harper without Jeers, Trudeau without Cheers.” 119 Government of Canada, One Canada, One National Economy; John Ivison, “Harper Government Aims for Deal to End Provincial Trade Barriers, Which Cost Canadian Economy $50B Annually,” National Post, 29 May 2014. See also: Kukucha, “Internal Trade Agreements in Canada.” 120 Brian Lee Crowley, “Provincial Trade Deal Betrays the Promise of Confederation,” Globe and Mail, 14 April 2017. 121 Jack Mintz, “How Mass Disruption, from B C Pipelines to Brexit, Could Turn to Canada’s Advantage (Eventually),” National Post, 13 June 2017. 122 Maxime Bernier, “Restoring Our Federal Union.” 123 Maxime Bernier, “Learn More about Maxime Bernier’s Vision for Canada.” 124 Liam Casey, “David Suzuki Fights for a Constitution That Guarantees Environmental Rights,” Canadian Press, 14 November 2016. 125 McIsaac, “Bringing Human Rights Back into Balance.” 126 Gill, “Constitutionalizing Inequality and the Clash of Globalizations.” 127 Locke, Two Treatises of Government. Locke’s quote is often paraphrased as “life, liberty, and property.” The precise quote is: “Man … hath by nature a power … to preserve his property – that is, his life, liberty, and estate – against the injuries and attempts of other men.” 128 Macpherson, The Political Theory of Possessive Individualism, 59. 129 Beard, An Economic Interpretation. 130 Polanyi, The Great Transformation, 225–6. 131 See, for example: McDonald, “Thomas Jefferson’s Changing Reputation.” 132 Becker, The Declaration of Independence. 133 Post, “Jeffersonian Revisions of Locke,” 152. 134 Hueglin and Fenna, Comparative Federalism, 153. 135 Ibid., 154.

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Notes to pages 198–204

259

136 Peterson, The Price of Federalism, 11. 137 Greve, Real Federalism, 15. 138 Peterson, The Price of Federalism, 11. 139 Ibid., 12. 140 Ibid., 13. 141 Wallis and Oates, “The Impact of the New Deal on American Federalism,” 156. 142 Cited in Greve, Real Federalism, 156, n22. 143 Conlan, From New Federalism to Devolution, 1. 144 Ibid., 8. 145 Ibid., 6. 146 Oates, “Toward a Second-Generation Theory.” 147 See Chapter 3 for a more detailed outline of the political mobilization of the US business community. 148 Williamson, Reagan’s Federalism, 9. 149 Ronald Reagan, Acceptance Speech, Republican National Convention, Detroit, M I , 17 July 1980. Cited in ibid., 5. 150 Ronald Reagan, Inaugural Address as the 40th President of the United States, Washington, DC, 20 January 1981. Cited in ibid., 193. 151 Finegold, “The United States Federalism,” 169. 152 Conlan, From New Federalism to Devolution, 3. 153 Ibid., 156. 154 A F L-CI O Statement Submitted for the Record, President’s Federalism Initiative, Hearings before the Senate Committee on Governmental Affairs, 97th Congress, 2nd Session (GPO 1982), 482. Cited in Conlan, From New Federalism to Devolution, 183. 155 Oates, “The New Federalism: An Economist’s View.” 156 Lees, Maidment, and Tappin, American Politics Today, 23. 157 Conlan, From New Federalism to Devolution, 163. 158 Williamson, Reagan’s Federalism, 194. 159 Finegold, “The United States Federalism.” 160 Executive Order No. 12,612, 52 Fed. Reg. 41,685 (1987). Cited in Williamson, Reagan’s Federalism, 229–34. 161 Conlan, From New Federalism to Devolution, 13. 162 Ibid., 230. See also: Ferejohn and Weingast, The New Federalism, x. 163 Nathan, “The Devolution Revolution.” 164 Pilon, Testimony before the Subcommittee. 165 Daniel Patrick Moynihan, “The Devolution Revolution,” New York Times, 6 August 1995. 166 Thierer, “President Clinton’s Sellout of Federalism.”

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Notes to pages 204–7

167 Finegold, “The United States Federalism,” 176. 168 American Enterprise Institute, “The AEI Federalism Project.” 169 Greve, “The AEI Federalism Project.” 170 See, for example: Mayer, “The Parallel between brexit and US Federalism”; Goldberg, “Trump: An Opportunity for Federalism.” 171 See, for example: Somin, “Libertarianism and Federalism”; Dinan, “How States Talk Back to Washington and Strengthen American Federalism”; Feulner, “Re-Embracing Federalism.” 172 “Competitive Federalism Can Restore Government’s Credibility,” Washington Examiner, 7 April 2013, http://www.washington​ ­examiner.com/national-editorial-competitive-federalism-can-­restoregovernments-credibility/article/2526474. 173 Liberty Foundation, “Common Sense Fix Empowers Citizens,” Businesswire, 6 March 2013, http://www.businesswire.com/news/ home/20130306005886/en/ Common-Sense-Fix-Empowers-Citizens-Free-States. 174 Center for Competitive Federalism, “What Is the Center for Competitive Federalism?” 175 Ibid. 176 Milkis and Rhodes, “George W. Bush, the Party System, and American Federalism,” 483. See also: Conlan and Dinan, “Federalism, the Bush Administration.” 177 Conlan and Dinan, “Federalism, the Bush Administration,” 279. 178 Tanner, “Leviathan on the Right”; Viguerie, Conservatives Betrayed. 179 Milkis and Rhodes, “George W. Bush, the Party System, and American Federalism,” 482. 180 Ibid., 483. 181 Philip Rucker, “Obama Curtails Bush Policy That Let Federal Rules Override State Laws,” Washington Post, 22 May 2009. For more detail on Bush’s use of “preemption,” see: Zimmerman, “Congressional Preemption,” 432–52. 182 Conlan and Posner, “Inflection Point?,” 431. 183 Rucker, “Obama Curtails Bush Policy.” 184 Conlan and Posner, “Inflection Point?,” 421. 185 John Schwartzjan, “Obama Seems to Be Open to a Broader Role for States,” New York Times, 30 January 2009, http://www.nytimes. com/2009/01/30/world/americas/30iht-30federal.19809671. html?mcubz=2. 186 Center for Competitive Federalism, “What Is the Center for Competitive Federalism?”

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187 Matt Mayer, “An Era of True Competitive Federalism,” US News and World Report, 20 March 2017, https://www.usnews.com/opinion/ economic-intelligence/articles/2017-03-20/donald-trump-ushers-inera-of-true-competition-for-states-with-his-budget. 188 Slingsby, “Speaker Ryan Statement at Task Force on Intergovernmental Affairs Hearing.” 189 Ibid. chapter six

   1 Cox, “Social Forces, States and World Orders,” 128.    2 Oates, “Toward a Second-Generation.”   3 Held, Global Covenant.   4 Blyth, Great Transformations, 262.    5 Greve, “Big Government Federalism.”    6 Michael Greve, “Germany’s Bad Example for Iraq,” Wall Street Journal, 3 October 2005.    7 Ziblatt, “Recasting German Federalism?,” 624.   8 Ibid., 633.    9 “Untangling the System: Germany’s Federal Constitution,” Economist, 6 November 2003, https://www.economist.com/ europe/2003/11/06/untangling-the-system.   10 Noronha and D’Cruz, “The World of Work in Contemporary India.”   11 Sharma, “Why Decentralization?,” 11.   12 Snyder, “Scaling Down,” 93. See also: Garrett and Rodden, “Globalization and Fiscal Decentralization,” 278.   13 For more details on the empirical trend toward “glocalization” and decentralization (including data on globalization and decentralization), see: Swyngedouw, “Neither Global Nor Local”; Sharma, “Why Decentralization?,” 11.   14 Boadway and Shah, Fiscal Federalism, 547.   15 Garrett and Rodden, “Globalization and Fiscal Decentralization,” 2.   16 See, respectively: Swyngedouw, “Neither Global nor Local”; Hooghe and Marks, “Unravelling the Central State”; McGinnis, Polycentric Governance and Development; Rosenau, Distant Proximities; Brenner, New State Spaces; Collinge, Spatial Articulation of the State.   17 Harvey, “Globalization and the Spatial Fix”; Jessop, “The Crisis of the National.”  18 For example: Garrett and Rodden, “Globalization and Fiscal Decentralization”; Rodden, “Comparative Federalism and

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Notes to pages 219–22

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Index

Adam Smith Institute, 39, 133 A F L - C I O. See American Federation of Labor and Congress of Industrial Organizations Agreement on Internal Trade, 176, 181–2, 188, 191 Alliance for G ATT Now, 94 allocative efficiency: and classical fiscal federalism, 71; and global public goods, 81; and invisible hand, 31–3; and neoclassical ­synthesis, 61; and public goods, 42–3; and third way, 67; and trade, 52 alt-right, 164 America First: and Pat Buchanan, 158; and Donald Trump, 163 American Enterprise Institute: 39; and free trade, 100; on German federalism, 217; and neoliberal federalism, 51; and neoliberal nationalism, 113–15; and political mobilization of business, 93; on similarity between Brexit and US federalism, 153; and US federalism, 204 American federalism, 196–208

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American Federation of Labor and Congress of Industrial Organizations (A FL-C IO), 66–7; and labour and environmental standards, 106; and NA FTA , 157; and Reagan’s New Federalism, 202 Amero, 161 Anti-Federalist League, 146 anti-globalization: and anti-­ globalization movement, 102–7; and populist conservatives, 88–9; and social democracy, 85, 88 assignment problem, 3, 6; tax assignment problem, 44 Atlantic Institute for Market Studies, 176 Atlanticists, 126, 133 austerity: and ER M crisis, 143; and euro crisis, 147–8; and monetary integration, 139, 161 Austrian school: and euro crisis, 147–8; and impossible trinity, 138–40 balanced budget amendment, 36, 203

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300

Index

Bannon, Steve, 164 Banting, Keith, 170–4 Barlow, Maude, 102 battle of Seattle, 101 Beard, Charles, 197 Bello, Walden, 103 benefit taxes, 44, 73 Benn, Tony, 126 Bennett, R.B.: and Canadian new deal, 172 Bernier, Maxime, 191, 194–5 Black, Conrad, 135, 144 Blair, Tony: and European integration, 144–6; and third way, 40, 67–8, 145 block grants: and neoliberal federalism, 76; and US federalism, 202–4, 208 Blyth, Mark, 18; and preference formation, 18–20, 22–3, 230n62; and sequencing, 213; and stagflation, 93, 221; on uses of term “political economy,” 225n2 Breitbart News, 164 Bretton Woods Agreement, 78, 89–92, 140, 221, 239 Brexit, 147–54; neoliberal origins of, 120–54; and US federalism, 153 British Chambers of Commerce, 39, 153 British euroscepticism, 121–3; and Brexit, 147–54; and the Labour Party, 126–32, 144–6; and monetary integration, 142–4; and neoliberals, 29, 123–5, 132–6, 142–4, 147–54; and populist conservatives, 125–6, 135, 139, 143, 147, 149–51

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British North America Act 1867, 168, 169 Broadbent, Ed, 177 Broadbent Institute, 67 Brown, Gordon, 146 Bruges Group: and Brexit, 152; and Thatcher’s Bruges speech, 133; UK IP connections with, 146 Buchanan, James: and Canadian federalism, 177; and competitive/ neoliberal federalism, 30, 45, 47, 49–51, 75, 113; and European integration, 124, 133–4; and Leviathan hypothesis, 34; and monetary policy/integration, 84, 137–9; and neoliberal nationalism, 54; and neoliberalism/public choice/constitutional economics, 33–6; on ordinary vs constitutional politics, 6; on relationship between federalism and free trade, 53 Buchanan, Patrick, 110, 111, 158– 9, 163, 215 Bush, George H.W.: and NA FTA , 156–8 Bush, George W.: and federalism, 205–7 Business Council of Canada (B C C ), 38, 39. See also Business Council on National Issues (B C NI); Canadian Council of Chief Executives (C C C E) Business Council on National Issues (B C N I ), 155, 175, 178– 80. See also Business Council of Canada (B C C ); Canadian Council of Chief Executives (C C C E ) Business for Britain, 153

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Index

business liberals: in Liberal Party of Canada, 38, 39, 69 Business Roundtable, 38, 39, 93, 116, 155–9 buy American, 164 C.D. Howe Institute: and the Canada-US Free Trade Agreement, 156; and Canadian federalism, 176, 179, 180, 182; and North American monetary integration, 161–2 Cameron, David, 148–50 Canada. See Canada-US integration; Canadian Alliance; Canadian federalism; Chretien, Jean; Conservative Party of Canada; Cooperative Commonwealth Federation; Harper, Stephen; Liberal Party of Canada; Mackenzie King, William Lyon; Martin, Paul; Mulroney, Brian; New Democratic Party; North American integration; Reform Party of Canada; Supreme Court of Canada; Trudeau, Justin; Trudeau, Pierre Canada Free Trade Agreement (C F T A ), 194 Canada Health and Social Transfer, 183–4 Canada-US Free Trade Agreement (C UF TA), 94, 101, 154–6 Canada-US integration, 154–65. See also North American integration Canada West Foundation, 176, 191 Canadian Alliance, 184. See also Conservative Party of Canada; Reform Party of Canada

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301

Canadian Centre for Policy Alternatives: and the Canada-US Free Trade Agreement, 157; and Canadian federalism, 176, 180, 190; and NA FTA , 159; and social democracy, 67 Canadian Chamber of Commerce: and the Canada-US Free Trade Agreement, 155; and Canadian federalism, 181–2, 191, 193; and NA FTA , 160; and neoliberalism, 39 Canadian Charter of Rights and Freedoms, 176–7, 179, 195, 216. See also constitutions Canadian Coalition for Responsible Environmental Solutions, 115 Canadian Council of Chief Executives (C C C E), 162–3, 190. See also Business Council on National Issues (B C NI) Canadian federalism, 167–96 Canadian Federation of Independent Business, 155 Canadian Labour Congress (C LC ), 66, 67, 163, 164 Canadian Manufacturers Association, 155 Canadian Taxpayers Federation, 39, 176 capital controls, 52, 91–2, 99, 136, 221 capital mobility: and Bretton Woods, 89–91; and Canadian federalism, 170, 173; and classical fiscal federalism, 72; classical liberals vs neoliberals on, 17, 21, 33, 52, 89–91, 95–100; and European integration, 129–30, 142–3, 147; and impossible

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Index

trinity/fixed exchange rates, 83–4, 136–41; and neoliberalism/market-preserving federalism, 4, 24, 46–57, 86–8, 109–10; and populist and neoconservatives, 110–12; and social democracy, 4, 78–9, 100–1, 103–4 Carter, Jimmy, 93 categorical grants, 200, 202 Cato Institute: and American federalism, 203, 204; and capital controls/tax competition, 52, 99, 114; and Murdoch media, 135; and neoliberalism, 39, 236n29; and political mobilization of business, 93, 232n28; in support of Brexit, 153 CCF. See Cooperative Commonwealth Federation Center for Competitive Federalism, 205, 207 centralization/decentralization: and Canadian federalism, 167, 169, 171–5, 177–81, 183, 189–90, 193, 195, 216; and classical fiscal federalism, 42–5; in classical liberalism and neoliberalism, 33; in comparative federalism literature, 8–18; and European integration, 139, 143; and globalization, 109; and glocalization, 218–21; and market-­ preserving federalism, 45–52, 86, 216; and municipalities, 222; outside the Anglo-American countries, 217–18; in regionalism and globalism, 52–4; and social democratic federalism, 71–5, 86, 216; and social democratic regionalism/globalism, 80–1,

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84–5; and US federalism, 196, 200, 202–3, 206–7 Centre for Policy Studies, 142, 152 Cerny, Philip, 18 Charlottetown Accord, 178–81 Charter of Economic Rights, 192 Chicago school, 92, 139 Chretien, Jean, 182–3 Citizens Trade Campaign, 160 classical economic liberalism: and capital mobility, 137; and classical fiscal federalism, 41–5; and free trade, 51–2, 95–8; vs neoliberalism, 17, 31–7, 89, 95–8, 210, 212; and social democratic multilateralism, 116–19; and third way, 40, 67–8 classical fiscal federalism: and classical economic liberalism, 41–5; and global public finance, 80–5; vs market-preserving federalism, 50; and post-WWII federalism, 201; and social democracy/ Keynesian-welfare economics, 70–8. See also public finance approach climate change, 63, 79–80, 114–15, 146, 207 Clinton, Bill: and NA FTA , 116–17, 159–60; and third way/classical economic liberalism, 40, 67, 97; and US federalism, 203–4 collective bargaining. See wage competition Commerce Clause, 198–200 common currency: and euro, 136, 138, 142–7; and impossible trinity, 136; and neoliberalism, 138– 9; and North America, 161; and social democracy, 141

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Index

comparative federalism, 8–13 competitive deregulation, 79, 100 competitive federalism. See marketpreserving federalism conditional grants, 170, 174, 191 Confederation of British Industry: and Brexit, 147, 150–1; and neoliberal movement, 38–9; and 1975 referendum, 127; and single currency, 143; and Social Charter, 134 conservative movement, 21, 24, 89. See also Atlanticists; neoconservatism; populist conservatives; social conservatives Conservative Party (UK), 19, 38, 39, 69, 123, 215; and Brexit, 148–50, 154; and EEC, 125–6, and 1975 referendum, 127–8; and Single European Act, 128; and Social Charter/shift to euroscepticism, 133, 136; and split over monetary integration, 142– 4; and U KI P, 146 Conservative Party of Canada, 38, 39, 68–9; and Canadian federalism, 172, 177–82, 184–94; and North American integration, 155–6. See also Canadian Alliance; Reform Party of Canada constitutions, 19; and Buchanan’s constitutional politics/economics, 6, 24, 36, 45, 50–1, 133, 137–8; and Canada, 168–9, 171–81, 185–6, 193–5; and Gill’s new constitutionalism, 6, 36, 45, 138–9; and Hayek, 46; and neoliberalism, 33, 36, 47; and populist conservatives, 39, 111; and

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303

social democracy, 66, 76, 79; trade agreements and monetary integration as types of, 79, 83, 101, 139, 155; and United States, 196–8, 200, 203 constructivism, 18. See also ideas Contract with America, 203 Cooperative Commonwealth Federation (C C F), 171, 174, 177 cooperative federalism. See Grodzins, Morton; social democratic federalism Council of Canadians, 67, 156, 180 Courchene, Thomas: and North American integration, 161; and Canadian federalism, 191 Cox, Robert, 18, 26, 210 critical geography, 221 CUFTA . See Canada-US Free Trade Agreement D’Aquino, Thomas, 163, 181 debt crisis (1982), 94 decentralization. See centralization/ decentralization decentralization theorem, 42–3, 71, 73, 81, 86 Delors, Jacques, 104, 128, 130–3, 143–4, 215, 217 Democratic Party, 38–9, 67–9, 117, 158, 199 devolution revolution, 7, 203–4, 218, 226n9 division of powers: in Canadian federalism, 11, 168–9, 170–1, 176, 179–86, 188, 191; Hayek on, 46 Dobson, Wendy, 162 dual federalism, 77–8, 220

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304

Index

Economic and Monetary Union (E MU), 84, 134, 141–3, 145 economic nationalism, 33, 90, 142, 148; and populist conservatives, 88–9; and social democracy, 81, 85, 88, 103–5, 107, 131–2, 159, 164, 213. See also Bannon, Steve; new protectionism; populist conservatives Economic Policy Institute, 159 Economists for Brexit, 152 Elliot, Matthew, 153 embedded liberalism, 58, 78, 90 environmental rights, 195. See also labour and environmental standards/side agreements equalization payments, 76, 173–4, 191–2, 195 euro crisis, 147–50 Euromarkets, 91 European Economic Community, 125–32; 1975 UK referendum on, 127–30 European Fiscal Compact, 149 European integration, 13–16; UK and, 121–54, 213–15 European Roundtable of Industrialists, 128, 131 European Social Charter/Chapter. See social charters European Stability Mechanism, 149 European Trade Union Confederation, 131 European Union. See European integration euroscepticism. See British euroscepticism Exchange Rate Mechanism, 142–5 exchange rates, 83–4, 91, 121, 137–43, 238n68. See also

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Exchange Rate Mechanism; impossible trinity exit option, 4, 30, 34, 45–7, 51–5, 86, 98, 109, 137, 167. See also capital mobility externalities, 58–9, 62–3, 71, 73–4, 80–1, 86 fair trade, 117–18. See also progressive trade Farage, Nigel, 146, 150 fast track authority, 157–8 federalism. See American federalism; Canadian federalism; classical fiscal federalism; dual federalism; German federalism; Indian federalism; laboratory federalism; market-preserving federalism; New Federalism; open federalism; progressive ­federalism; social democratic federalism financial globalization, 91–2, 239. See also capital mobility First World War, 96, 170, 175 fiscal federalism theory, 41–51, 70–8, 80–5 fiscal imbalance, 170–5, 183, 186–9 fiscal stimulus, 72, 84, 238n74 fiscal transfers, 72, 75, 141 fiscal union, 142, 147–9 Flanagan, Tom, 193 foreign aid, 82 Fraser Institute, 39, 153, 156, 161, 176–7, 179, 181–2, 191 free rider problem, 62, 68, 84 free trade election (Canada, 1988), 157 Freedom Caucus, 38–9

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Fresh Start Project, 149 Friedman, Milton: and capital controls, 99; and decentralization, 47–8; and exchange rates/common currencies, 83–4, 139–40, 142–3, 161; and neoliberalism, 31, 33; and stagflation, 65, 92 functionalism, 9, 14, 121 Galbraith, John Kenneth, 20 Gamble, Andrew, 31, 34, 38, 108, 123, 126, 145 GA T S , 243n106 General Agreement on Tariffs and Trade (G ATT), 90, 94, 97, 111, 125, 158, 243n106 German federalism, 217–18 Giddens, Anthony, 40, 68. See also third way Gill, Stephen, xi, 6, 18, 36, 138, 196 Gingrich, Newt, 203 globalization, 13–8; and decentralization, 7; emergence of, 89–95; liberal vs neoliberal support for, 95–100; market-preserving federalism and, 51–4; social democratic federalism and, 78–85; social democrats and, 100–7. See also glocalization glocalization, 6–7, 29, 209, 218–21 government failure, 34, 68 grants. See categorical grants; conditional grants; grants-in-aid; unconditional grants grants-in-aid, 170 Great Depression: and Canadian federalism, 195, 199; in economic history, 31, 46, 216, 220–1; and Keynesian economics/

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305

Keynesian-welfare state, 60, 90; and the New Deal, 199; and stagflation, 92, 170 Great Recession, 147, 189, 192. See also euro crisis Great Society program, 90, 200 Greve, Michael, 51, 77, 78, 100, 204 Grodzins, Morton, 9, 77 Habermas, Jürgen, 148 hard budget constraint, 48–9, 139 harmonization. See labour and environmental standards/side agreements; policy harmonization Harper, Stephen, 184–94 Harris, Mike, 222 Harvey, David, 108, 121 Hayek, Friedrich von: and capital controls, 52, 99; and currencies/ private money, 137–9; and federalism, 46–7, 50; and neoliberalism, 4, 31, 33, 36; and Thatcher, 142 health care, 46, 66, 146, 183–4, 188, 193, 195 Heath, Edward, 126 Helleiner, Eric, 65, 78, 83, 89, 91–2, 97, 99, 139, 140–1, 161–2 Heritage Foundation, 39, 93, 115, 153, 165, 204, 232n28 Hirschman, Albert, 32 Hoover, Herbert, 199 Hurtig, Mel, 157 ideas: and preference formation, 18–24; and theorizing social movements, 24–6

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Index

immigration, 146, 153, 159, 163–4, 215 import substitution industrialization, 90 impossible trinity, 238n68, 239n10; and euro crisis, 147; and Exchange Rate Mechanism, 142– 3; politics of, 136–41 inclusive trade, 118. See also progressive trade Indian federalism, 218 infrastructure transfer payments, 195 intellectual property rights, 79, 101, 107, 109, 116, 243n106. See also property rights International Forum on Globalization, 106 International Labour Organization, 107, 118 International Monetary Fund, 85, 101, 237n56 Institute of Directors, 39, 134 Institute of Economic Affairs, 133, 135, 137, 152, 232n28 institutionalism, 7–10, 13–6, 19, 23–4, 77–8, 96–7 internal trade, 181–2, 188, 191–4 investor property rights. See property rights investor-to-state lawsuits, 164 invisible hand, 32, 59, 61 Jackson, Andrew, 162 Johnson, Boris, 150, 152–3 Johnson, Lyndon B., 90, 200 Keynes, John Maynard, 4, 57, 78, 89, 91, 99, 140

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Keynesian-welfare economics, 4, 28, 31, 33, 35, 57–66, 69, 173, 235n7; and social democratic federalism 70–7, 85–6, 170–5, 201; and stagflation, 92 Krugman, Paul, 92 Kyoto Protocol, 54, 113, 115–6 laboratory federalism, 41, 43, 207 labour and environmental standards/ side agreements, 82, 101, 104, 106–7, 116–18, 157–60, 165, 214–15 Labour Party (UK), 18–19, 38, 67–9, 104–5, 126–7, 129–30, 132, 135, 144–6, 150, 154, 214– 15, 235n20 labour unions/movement: and American federalism, 199, 202; and Canadian federalism, 169– 70, 172, 174–6, 180–2, 199; and European integration, 129–32, 134, 138, 141, 145, 148, 150–1; and globalization/free trade, 100–4, 106–7, 116–17; and North American integration, 154, 156–60, 162–4; and social democracy, 25–6, 65–7, 69, 215; and stagflation, 91–2. See also American Federation of Labor and Congress of Industrial Organizations; Canadian Labour Congress; Trades Union Congress League for Social Reconstruction, 171 Leviathan hypothesis/model, 34, 49, 226n14, 233n53 liberal intergovernmentalism, 16

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Index

liberal internationalism, 79, 96 Liberal Party of Canada, 38–9, 67, 69, 155, 163, 165, 223. See also Chretien, Jean; Mackenzie King, William Lyon; Martin, Paul; Trudeau, Justin; Trudeau, Pierre liberalism. See classical economic liberalism; liberal intergovernmentalism; liberal internationalism; Liberal Party of Canada; neoliberalism local government, 41, 43–5, 48–9, 72–5, 80, 180, 201–3, 208, 222–3 localization. See glocalization Locke, John, 36, 196–7, 258n127 lock-in mechanisms, 6, 17, 36–7, 45, 47, 50, 53, 66, 79, 83, 86–7, 95, 101, 110, 113, 124, 138–9, 142, 177, 197, 203 Ludwig von Mises Institute, 147 Maastricht rebels, 144 Maastricht Treaty, 133–4, 143–5 Macdonald, John A., 168 Macdonald Commission, 155 Macdonald-Laurier Institute, 192, 194 Mackenzie King, William Lyon, 172, 174 Macmillan, Harold, 125–6 Macpherson, C.B., 196 Major, John, 143 market populism, 135 market-preserving federalism/­ competitive federalism: and Canadian federalism, 169, 177, 180, 184, 190, 192, 194–5; vs classical fiscal federalism, 50;

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307

and dual federalism, 77; and European integration, 124, 133; and German federalism, 217; and glocalization, 220; and impossible trinity/monetary union, 84, 139; and neoliberal nationalism, 108–10, 113; and neoliberalism, 41–51; and regionalism and globalism, 51–4, 98–100; vs social democratic federalism, 77, 86; and US federalism, 12, 51, 201–8 Marshall, Alfred, 32–3, 43, 61 Martin, Paul, 182, 193 McKean, Roland, 34 Meech Lake Accord, 178 Memmi, Albert, 20 Mintz, Jack, 115 Mises, Ludwig von, 138 Monbiot, George, 105, 128 monetarism. See Friedman, Milton monetary policy: and fiscal federalism theory, 44, 71–2, 83; and stagflation, 65, 84, 90–1 monetary union, 83–4, 137–41, 147–8; and European integration, 129, 134, 136, 142–8, 214; and North American integration, 161–2, 214. See also exchange rates; impossible trinity Montreal Economic Institute, 194 Mulroney, Brian, 94, 155, 178 Mundell, Robert, 141. See also impossible trinity; optimum ­currency area theory Mundell-Fleming thesis. See impossible trinity municipal downloading, 222

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Index

municipalities. See local government Murdoch, Rupert, 135, 144, 146, 152, 164, 215 Musgrave, Richard, 4, 57, 64, 71, 75–6, 85–6, 201 NA F T A . See North American Free Trade Agreement National Citizens Coalition, 176, 184 nationalism. See economic nationalism ND P . See New Democratic Party negative externalities, 59, 63, 71, 74, 80 neoclassical economic liberalism, 32, 60–1, 65 neoclassical synthesis, 61–2, 71, 79, 235n7 neoconservatism, 21, 31, 38–40, 69, 88–9, 111–13, 125–6, 206, 212. See also Atlanticists neoliberal federalism. See marketpreserving federalism neoliberal idealists, 37, 117–9, 149, 165, 194, 213, 215 neoliberal institutionalism. See institutionalism neoliberal movement, 25, 30, 37–8, 66 neoliberal nationalism/euroscepticism. See British euroscepticism; neoliberalism neoliberal pragmatists, 39, 69, 149, 215 neoliberalism: actors and interest groups supporting, 37–40; and Brexit, 147–54; and Canadian federalism, 175–96; differences from classical economic

30660_Harmes.indd 308

liberalism, 17, 31–7, 89, 95–8, 210, 212; and euroscepticism, 121–5, 132–6; and federalism, 45–51; and monetary union, 137–44, 161–2; and nationalism, 107–16; and North American integration, 154–6, 158–63; and regionalism and globalism, 51–5, 89–100; and US federalism, 201–8 new constitutionalism. See constitutions New Deal, 153, 199–200, 220–1; and Canada, 172 New Democrat coalition, 38–9, 69, 117 New Democratic Party (NDP), 67–8, 157, 177, 180, 182 New Federalism, 201–3 New Labour, 38, 69, 235n20. See also Blair, Tony; third way new protectionism, 92–3, 154 News Corporation. See Murdoch, Rupert nightwatchman state, 32–3, 65 Nixon, Richard, 91 North American Free Trade Agreement (NA FTA ), 53, 94, 104, 106–7, 109, 111, 117, 119, 121, 156–66 North American integration, 94, 118, 154–65, 176, 213–15 North American Monetary Union (NA MU), 161–2 Oates, Wallace, 4, 7, 41–4, 50, 57, 64, 71–4, 76, 85–6, 200–2 Obama, Barak, 115, 117–18, 207–8 official development assistance. See foreign aid

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Index

O P E C . See Organization of Petroleum Exporting Countries open federalism, 184–94 opt out: in Canadian federalism, 178–9, 188, 191; in European integration, 143–4 optimum currency area theory, 72, 84, 141 Organization of Petroleum Exporting Countries (OPEC), 92–3 Oxfam, 67, 103, 105 perfect mapping, 71, 74, 86 Perot, Ross, 159, 215 Phillips curve, 90, 239n15 Pierson, Paul, 19 Pigou, Arthur, 58–9, 61–2, 71, 75 Polanyi, Karl, 197, 220–1, 234n6 policy efficiency, 41–3, 45–6, 50, 70–1, 76, 98 policy trilemma. See impossible trinity political mobilization of business, 93, 158, 201, 221 pollution haven, 157 populist conservatives, 17–18, 31, 38–40, 69, 215; and Canadian federalism, 184–5, 201; and European integration, 120–3, 125–6, 135, 139–40, 143–4, 149–51, 154, 215; and globalization, 88–9, 108, 110–11, 118, 215; and N AFTA, 158, 163–5, 215 positive economic rights, 66 positive externalities, 62–3, 73–4 post-Keynesian economics, 64–5 Powell, Enoch, 126, 215 Powell memorandum, 37

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pre-emption of state laws, 206–7 preferences. See ideas; institutionalism price signals, 32, 59, 61 private currencies, 137 Pro-Canada Network, 156–7 progressive federalism, 207. See also social democratic federalism progressive movement, 24–5 progressive trade, 118–19, 165 property rights: in Canadian federalism, 177, 179–80, 186; in neoliberal theory, 4, 30, 34–7, 45–7, 50–3, 55, 79, 137; in trade agreements, 52–3, 55, 79, 101, 107, 109, 116, 165, 243n106; in US federalism, 196–7, 258n127 protectionism. See new protectionism public choice approach, 4, 7, 10–11, 30, 34, 49, 64, 77, 99, 181, 203 public finance approach, 4, 8, 28, 57, 64, 71, 76, 80, 83, 85, 106, 201, 211, 217 public goods, 33, 41–4, 49–50, 62–4, 68–9, 71, 73–6, 78, 80–3, 106, 217 qualified majority voting, 136 Quebec, 168, 171, 176, 178, 183, 185–7 Rabkin, Jeremy, 113 race to the bottom, 79, 82, 100, 106, 117, 190, 204, 222 Rae, Bob, 180 rational choice, 10–16, 18–19, 21, 23–4, 225n2, 226n12, 228n40

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Index

Reagan, Ronald: and federalism, 201–4; and free trade, 155; and neoliberalism, 94, 108 realism/neorealism, 13, 113, 121, 228–9n45 redistribution: in fiscal federalism theory, 30, 33–6, 43–50, 52, 58–61, 70–6, 78, 80–3, 85–6; and third way, 68 red Tory, 253n3 Reform Party of Canada, 39, 110, 184. See also Canadian Alliance; Conservative Party of Canada Regina Manifesto, 171 Republican Party, 38–9, 68, 93, 158, 206, 215 residual powers, 169 revenue sharing, 49, 75 Ricardo, David, 31, 33, 36, 43, 51, 97 Rodden, Jonathan, 49, 219 Roosevelt, Franklin D., 66, 172, 199 Rowell-Sirois Commission, 172–4 rules of origin, 164 Ryan, Paul, 208 Salinas de Gortari, Carlos, 156 Samuelson, Paul, 4, 57, 61–4, 71, 85 S E A . See Single European Act Second World War, 61, 76, 173 security conservatives, 39, 126, 206. See also Atlanticists; neoconservatism separation of powers, 47, 196–8 shared-cost program, 174, 183, 188, 191, 193 side agreements. See labour and environmental standards/side agreements

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single currency. See common currency Single European Act (SEA ), 53, 94, 101, 104–6, 109, 128, 130–2, 136, 214–15 Sked, Alan, 146 Smith, Adam, 31, 35, 39–40, 61, 97, 112 social charters: and Canadian federalism, 180–1; and Europe, 104–5, 131–6, 142–3, 146; and North America, 159, 162; and social democracy, 82 social conservatives, 24, 167. See also populist conservatives social democracy: 57–8, 220–1, 226n14, 234n1, 235n15, 237n56; actors and interest groups supporting, 66–70; and Canadian federalism, 170–5, 177, 182, 191–2, 195; and European integration, 129–32, 144–5, 148, 215; and federalism, 70–8; and globalization, 100–7, 116–19, 215; and Keynesianwelfare economics, 58–66; and monetary union, 140–1, 144–5, 162; and North American integration, 156–60, 162–5, 215; and regionalism and globalism, 78–85; and US federalism, 198– 203, 205, 207 social democratic constitutionalism. See constitutions social democratic federalism/cooperative federalism, 4, 8, 57; and Canadian federalism, 170–5, 177, 182, 191–2, 195; and classical fiscal federalism, 70–8; and cooperative federalism, 77–8;

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Index

and impossible trinity/monetary union, 140–1, 144–5, 162; and Keynesian-welfare economics, 70–8; vs market-preserving federalism, 77, 86; and regionalism and globalism, 78–85; and US federalism, 198–203, 205, 207. See also social democratic multilateralism social democratic movement, 25–6, 57, 66–70, 88 social democratic multilateralism: and European integration, 131–2, 141, 145, 148, 151, 154; and fiscal federalism theory, 78–86; and globalization, 100–7, 116–19; and North American integration, 159, 164, 215. See also social charters social dumping, 79, 100, 105, 130–1, 159 social Europe. See social charters social justice, 58, 61, 70, 76–7, 172, 178 social liberals, 67 social movements: constructivist definition of, 23–6. See also neoliberal movement; social democratic movement social union, 176, 181, 183 Social Union Framework Agreement, 176, 183 spatial fix, 219 spending power, 174, 178, 182–3, 185–8, 191 spillovers, 14, 73. See also externalities stagflation, 31, 65, 84, 92–4, 141, 154, 175, 201, 219, 221 states’ rights, 201

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Stiglitz, Joseph, 80 structural adjustment programs, 94, 101, 218 structural power of capital, 79, 100, 233n52 subsidiarity: in European integration, 134, 152; in fiscal federalism theory, 42–3, 71, 75, 79–81 Supreme Court of Canada, 169, 193 Supreme Court of the United States, 13, 198–200 Suzuki, David, 195 tax assignment problem, 44 tax competition: in fiscal federalism theory, 44, 49, 52, 73–6, 79, 82, 99–100, 114–15, 190, 202, 233n53, 236n29; OEC D Initiative on Harmful Tax Competition, 54, 104, 109, 114 Taxpayers Alliance, 39, 152–3 Tea Party, 39, 110, 215 Thatcher, Margaret, 39, 68, 94, 108, 120–1, 127–8, 132–3, 136, 140, 142–6, 148, 214 TheCityUK, 150 third way, 40, 67–9, 117, 145. See also Blair, Tony; New Labour Tiebout, Charles, 41, 43, 50, 73 Trade, Investment and Labour Mobility Agreement (TILMA ), 191–2 Trade-Related Aspects of Intellectual Property Rights (TR IPS), 107, 116 Trades Union Congress, 66–7, 104– 5, 107, 129–32, 145–7, 150–1 trade unions. See labour unions/ movement

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transfer payments. See infrastructure transfer payments Trans-Pacific Partnership (TPP), 106, 118–19, 164 Treaty of Amsterdam, 145 Treaty of Rome, 125–6 Trudeau, Justin, 118, 165, 194 Trudeau, Pierre, 176 Trump, Donald, 39, 110, 118, 121, 153, 160, 163–4, 207, 214–15

Democratic Party; globalization; Johnson, Lyndon B.; New Deal; Nixon, Richard; North American integration; Reagan, Ronald; Republican Party; Roosevelt, Franklin D.; stagflation; Supreme Court of the United States urban politics. See local government Uruguay Round, 94, 117, 243n106 U S A *NA FTA coalition, 160

ultra vires, 170, 172, 193 unconditional grants, 191 unions. See labour unions/ movement United Kingdom. See Blair, Tony; Brexit; British euroscepticism; Cameron, David; Economic and Monetary Union; European Economic Community; Exchange Rate Mechanism; Major, John; Thatcher, Margaret United Kingdom Independence Party (UKI P), 39, 110, 146–7, 149–50, 153, 215 United Nations: populist view of, 111 United Nations Development Program, 237n56; and global public finance, 80–3, 106 United States. See American federalism; Canada-US integration; Carter, Jimmy; Clinton, Bill;

Volcker, Paul: and capital mobility, 91; and stagflation, 93–4

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wage competition, 79, 101, 134 wage-price spiral, 65, 92 Weber, Max, 20 Weingast, Barry, 35–6; and marketpreserving federalism, 47–52, 109, 139 welfare economics. See Pigou, Arthur White, Harry Dexter, 78, 89, 140 Wilson, Harold, 126–7, 129 Wilson, Woodrow, 96 Winnipeg General Strike, 170 World Bank, 101, 111, 150, 218, 237n56 World Trade Organization (WTO), 53, 94, 97, 101, 106–7, 109, 111, 115–18, 150, 215, 243n106 World War II. See Second World War

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