Liberalism and Federalism
By Ronald Meinardus and Gerhard Raichle

Federalism in Germany: “The Federal Republic of Germany shall be a democratic and social federal state.” This is one of the key paragraphs of the German constitution, as it establishes the principles the state is based on. The writers of the constitution deemed federalism so important that they included this provision among the few elements that are not amendable under any circumstances. Federalism has long become a part of the Germans’ political culture. Often, they refer their our country simply as “die Bundesrepublik” – the Federal Republic. This shows how central the concept of political decentralization has become for them.

In Germany, the 16 federal states have substantial authority. The citizens of the states do not only elect their own state parliaments, who then choose their own state governments headed by veritable prime ministers. Importantly, these politicians wield genuine political power. They are responsible for all affairs pertaining to culture, internal security, the media, local government and regional taxation. In addition, the “Laender” have a significant say in national affairs.

Like the Philippines, Germany has a bicameral legislature. But unlike here, the members of the Upper House are not elected on a national level. The Federal Council, as it is called, is more like the Senate in the United State, representing specific regions, in our case, the regional governments. In the legislative practice, a majority in the “Bundesrat” has the right to block all laws that directly or indirectly affect the interests of the regions. According to estimates, more than fifty percent of federal legislation is conditional on approval by the regional entities.

The basics od Federalism: While supporters of this system argue this mechanism has effectively protected the states against encroachment of their rights by the central government, others say the principle of federal solidarity and national burden sharing stands in the way of economic development and modernization. The Friedrich-Naumann-Foundation has been one of the driving forces of this public debate regarding the future shape of federalism in Germany. It is, therefore, a pleasure to share with the readers of this Philippine book some more fundamental thoughts about federalism. We hope that after reading this chapter you may agree with us that the quest for federalism deserves a high ranking on the agenda of any liberal reform policy.

Let us begin with the basics: “Federalism” denotes a form of decentralized government, where – in legal terms - the component parts of the federation (be they states, provinces, laender or cantons) possess statehood of their own that in some cases have existed prior to formation of the federation. There are other cases, were a federal state was created by the devolution of power from a previously centralized government.

The Principle of subsidiarity: The underlying principle on which every federal constitution rests is the principle of subsidiarity. This stipulates that decision making power should rest as close as possible to those it affects. This is obviously a fundamental liberal principle which reaches far beyond the constitutional structure of the state. Freedom is the supreme principle of liberalism, which is just another term for self-determination or autonomy. If liberals speak of freedom, they first and foremost think of the freedom or the autonomy of the individual. Accordingly, liberals believe that the right to make decisions should first and foremost rest with the individual.

In a political or collective context, this is not always possible for practical reasons. For instance, we cannot decide individually on which side of the road we would like to drive our cars. Still, the autonomy of a small group leaves more freedom with its members than that of a large group as fewer fellow-members engage in the decision-making process. From a liberal standpoint, therefore, wherever collective decision-making is unavoidable, this should be exercised in the smallest possible unit. Consequently, any delegation of power from smaller to larger units should be subjected to the burden of proof that the smaller unit is unable to cope with the problem in question. In practice, this means that all those matters should be left in private hands or in the hands of the citizenry for which a need of government interference has not explicitly been proven. This is the essence of the principle of subsidiarity, which is not only a core principle of liberalism but also the essence of the concept of civil society. Applied to the organization of the state, subsidiarity will result in a decentralized form of government where only those matters are dealt with at a central level that cannot be dealt with adequately at lover levels.

Accomodating diversity: One major merit of federalism lies in its capacity to accommodate diversity. When a country is subdivided in sufficiently small and autonomous subunits, different religious, ethnic or cultural groups can arrange their affairs according to their own preferences in their areas. This is the case where the boundaries of the sub-units coincide more or less with the religious, ethnic or cultural division lines permitting each group to have at least one of those units "as its own". Even where such groups or groupings neither exist nor play a significant role, a federal structure makes it easier to take into account regional peculiarities, as the local or regional government or administration can address such peculiarities.

Generally, where there exist many decision-making centers covering limited areas, more people will get what they want from those who govern them than where only one decision-making body is in charge for the whole country. In the latter case, you may reach a situation, where 51 percent of the population could dictate to 49 percent. In short: When administrative borders coincide, by and large, with ethnic or other division lines within a country, federalism can be a highly effective method of solving minority problems.

By securing room for a wide variety of solutions – or attempts at solution - federalism promotes “competition as a method of discovery” (F.A.v.Hayek). The direct opposite of a "one-solution-fits-all" approach, federalism tends to minimize the risks involved in errors of political decision-making: if such an error affects the whole country, the damage will be considerably severer than if it affects only one province. Worse, still: if the system allows for only one approach (i.e. the one covering the whole country), the probability of identifying the most conducive policy is much smaller than if different policies are applied in the various sub-units of the country. It is an age-old and empirically well-supported experience that competition produces incentives for individuals and collectives to strive for better results. This basic experience is also valid for the organization of the state. While centralist states lack this dimension, federalism may provide for such competition among the sub-division.

Checks and balances: Basically, it is all about sharing political power and control. Sharing and checking political power is the very essence of democracy - the better the system of checks and balances in a country, the better the quality of its democracy. In a democracy, division of power should not be confined to the classical separation between the three traditional powers – legislative, executive and judiciary. In addition to this horizontal division, what may be termed a vertical division of power is crucial. To check the power of the central government, it is essential to devolve authority and rights to lower levels.

As consequence of this vertical separation of powers, federalism foresees a clearly defined allocation of responsibility at the various levels of government. In other words, each state level should hold clearly defined powers and responsibilities exclusive to it. There should be no mixing or "sharing" of power among different levels of government as this would only result in a blurring of responsibilities. The voters should always be in the position to identify the origin of a policy. They should know, for example, who to blame or who to credit for the quality of public services or the level of taxation in a given case. Without such transparency, a rational decision at elections becomes difficult. This transparency is a precondition for democratic accountability.

Last but not least, for responsibility and accountability to be genuine, the transfer of political powers must be accompanied by a transfer of fiscal powers. Devolving power to decentralized units makes sense only if the necessary taxation powers go with it. As long as the central government controls the financial strings, all "devolution" or “decentralization" is but sham devolution and sham decentralization. He who pays the piper calls the tune – this is as much a truism in politics as anywhere else.