July 4, 2007
Liberalism needs central power
By Adam Posen Two hundred and thirty-one years ago on Wednesday, the Continental Congress declared American independence. While the US constitution was in place 13 years later, much of the subsequent two centuries have been spent fighting over the locus of economic policymaking. The initial battles between the states and the federal government were of course driven by slavery, but the economic aspects of the dispute over federalism went on independently and far outlasted the civil war. Having a constitution settled nothing in this area. So Wednesday is a good opportunity to take a longer view on the implications of the recent European Union summit agreement for economic decision-making. Often, eurocrats use historical comparisons of European integration with the early years of the US as an excuse: “Look how far we have come in so few decades. What more could you expect?” Yet what the US experience demonstrates is that the question of whether or not the recent agreement leads to something that resembles a constitution matters far less than many think. In the US, the power of the centre relative to local politics in economic policy has varied for more than 200 years, even though there have been few constitutional amendments. The EU’s new agreement leaves the European Commission much too weak vis a vis the member states. The remainder of this column can be read here (FT.com subscription required). Discussion from our guest economists is free.
Willem Buiter: Adam Posen’s “ode in praise of strong central government” - especially the verses calling for stronger central government in the EU - would, I venture to guess, have dismayed the authors of the American Constitution. A guiding theme of that document is the need for checks and balances to restrain Leviathan.
A Federal state, and even a proto-Federal entity like the EU, makes three kinds of decisions about the state. First, how powerful/strong the state shall be - that is, the checks and balances that prevent the executive, legislative and judiciary branches of government from abusing the coercive powers of the state. Second, how the competencies of the state will be devolved, that is, what will be the roles, powers and functions of the central (or supranational in the case of the EU), state/provincial (or national in the case of the EU) and municipal. In the EU, this second issue is, in principle, determined by the application of the subsidiarity principle. Third, the size and scope of the state (at all levels). My disagreement with Adam concerns not the distribution of power in the EU between the supranational and national institutions of government, but the effectiveness of the checks and balances at the supranational, EU level.
Adam argues that there needs to be a further transfer of state power to the supranational level in the EU. I agree that for a number of key government competencies this is indeed the case. As far as Adam is concerned, however, it is just the European Commission that needs to be given greater powers. I strongly disagree.
Even today, there is a massive democratic deficit at the supranational level in the EU. The Commission and the European Court of Justice are excessively powerful and substantively unaccountable. The European Parliament is an almost entirely toothless sorry excuse for an effective legislature. As I argued in an earlier discussion on this Forum, the entire European integration process has been characterised by a strengthening of the executive (and to a lesser extent the judiciary) at the expense of the legislative branches of government. Successive Treaties have transferred existing national competencies to the supranational level, where they escape national parliamentary scrutiny and control, without effective European-level parliamentary control being substituted for it. In addition, new competencies have been created at the supranational level. They too are beyond effective parliamentary control.
Until the European Parliament is elected using procedures befitting a proper parliament, acquires the power of initiative, is granted serious budgetary powers, can fire individual members of the Commission, has the power to impeach and try judges of the ECJ and can fire the soon-to-be-appointed-if-the-new-Reform-Treaty-is-ratified permanent President of the European Council and High Representative for the Common Foreign and Security Policy, I would not give the Commission (or the ECJ or the Council) the additional authority to lick stamps. Unaccountable executive power, be it at the national or EU level, is the greatest threat to our liberty. I will support Adam’s proposal to strengthen the Commission, as long as the European Parliament can have one fifth of the power of the US Congress.
Posted by: Willem H. Buiter | July 4th, 2007 at 6:04 pm | Report this commentPatrick Minford: Adam Posen is right to say that there is more chance to suborn lower levels of government. He concludes that power should be concentrated at the federal level which will be more likely therefore to pursue free market policies. However, it is also possible to suborn the federal government. Success in this would impose immense costs if it had a monopoly of power. Unfortunately history is littered with examples of such governments.
I am not suggesting that the EU is to be remotely compared with such examples as the Soviet Union or Mao’s China. However I would point out that the EU Commission under Jacques Delors pursued an aggressive policy of social regulation, backed by the coalition of the most powerful EU member governments of the time. Furthermore even though Jose Manuel Barroso’s Commission is pushing a free market agenda, the dominant coalition of governments has yet to show that it backs this agenda. The EU has a history of strong protectionism not just in agriculture but also in manufacturing; and so far it has had fairly limited success in liberalising national protection of services. Sarkozy’s success in removing ‘undistorted competition’ from the new draft Treaty, apparently with quite a lot of support from most other governments, is not a good omen.
Dispersing power among political levels and forcing them to compete among themselves is likely to be a be a more reliable route to the free market objectives Adam and I share than placing a big bet on virtuous federal monopoly power.
Posted by: Patrick Minford | July 6th, 2007 at 1:48 pm | Report this commentAdam Posen: Willem Buiter as always combines practicality with his analytic breakdown of intra-governmental relations. While he is right to distinguish the issue of accountability from that of competencies, and is understandable in his focus on the former, I am unsure that strengthening the notoriously weak European parliament fixes that problem.
If the goal is to assure that the executive is competent, transparency to a free - and one hopes actively critical - press and to market judgments should be the first resort. It is very rare for a legislature to exercise oversight in real time that is meaningful, and when they come in ex post, it usually is to allocate blame as much as to improve processes.
If the goal is to prevent abuse of power, executive excess, and the like, at least in theory there is a far greater role for checks and balances, such as a stronger legislative branch, as Willem invokes from American constitutional discussions. As American history demonstrates, however, the exercise of executive power is usually endogenous to the degree of popular support, and the majority of popularly elected Congress goes with that wind. That is true whether that was when Andrew Jackson forcibly resettled the Cherokee Indians to Oklahoma on the “Trail of Tears”, Franklin Roosevelt tried to pack the Supreme Court, or George W. Bush circumscribed numerous civil liberties following September 11, 2001, and it was even more evident in the various military actions undertaken with supine authorization by Congress or without Congressional opposition or authorization since the 1820s.
At least Willem correctly does not put much faith in the ability of the ECJ to be more of an independent voice for liberalism and rights in the face of political pressures, since we know that the US Supreme Court has mostly followed political trends from Dred Scott to its most recent decisions.
Put differently, yes, Madison and Hamilton authoring the Federalist Papers wrote about limiting executive power, but it was more their concern about limiting “majority faction” (i.e. populist politics in the legislature) and protecting minority rights from that majority that was their issue. Remember that they were writing their papers in favor of a relatively strong central government against the “anti-Federalists” (e.g., Patrick Henry), and Hamilton went on to argue for a national bank and the national assumption of states’ Revolutionary War debts. More importantly for purposes of this discussion, “original intent” is not really the issue since the debates on economic policy between Hamilton’s Whigs and Madison’s Democrats promptly following adoption of the US constitution swung back and forth the balance of power and accountability on those issues. Which is my point that constitution or no, the EU has to face up to having more competencies economically at the European level - which Willem states and I know he agrees with.
PS - if we need strong independent legislatures to assure accountability of the executive power, what is the state of governance in the vast majority of the world’s democracies which are parliamentary systems and have party discipline, such that the executive runs the legislative between elections? Are they places of abuse of power inherently or at least recurrently?
Posted by: Adam Posen | July 7th, 2007 at 2:34 pm | Report this commentAdam Posen: Patrick Minford and I do indeed agree on the free market objectives, and I appreciate his balanced treatment of the EU’s limited room for abuse as compared to say Mao, as well as his social intrusion example from the Jacques Delors Commission. We are thus into the empricial discussion and analysis which I think is the right one for policymakers in Europe: how likely is a strong commission to pursue liberal goals rather than excessive statism if given greater competency and authority? AND how bad is the status quo in terms of liberalism versus statism in the absence of a stronger supra-national European authority in economic and other matters?
On the second question first, Patrick states: “Dispersing power among political levels and forcing them to compete among themselves is likely to be a be a more reliable route to [our] free market objectives…” My reading of the evidence to date, both European over the last 50 years and American over the last 230, is rather more skeptical. As economists, we would like to think that competition felt through investment and labor mobility, as well as political response to bad governance while seeing better alternatives, should produce better outcomes. That presumption does not accord with the recurring collaboration between sub-federal governments, be it in the Congress or in the Council of Ministers, to protect the status quo and politically privileged interest groups.
Patrick is completely right that “the dominant coalition of governments [in today’s EU] has yet to show that it backs this agenda” which is predictable and precisely the point. Even if a strong central government bears the risks of abuse, it may be necessary (not sufficient) to getting past this kind of illiberal coalition of national governments which is what arises in fact instead of competition to better national models.
Which brings us to the first question: how likely is there to be abuse by a stronger central European authority in economic matters? Illiberal demands for a “social Europe” by eurocrats should not be invoked to demonstrate more than an outside risk, for they resoundingly failed to get through (and just because the UK was the only one loudly opposing does not mean they were the only narrow resistance, it just means other opposing countries rationally free-rode on the UK’s efforts) while Delors did push the Single Market in the end.
I would argue that Europe is so very far at present from having a capable executive in the sense of having the authority to implement policies for liberal economics over nation states’ opposition - look at Mario Monti’s and Nellie Kroes’ successive brave and largely frustrated attempts to enforce competition policy on state aid, or at the failures of the proposed Services and Takeover Directives - that the risks are almost totally from weakness. Obviously, I hope this is the start of a debate on this issue, in which I appreciate Patrick engaging.
Posted by: Adam Posen | July 7th, 2007 at 2:57 pm | Report this commentMartin Wolf: I very much appreciate Adam’s column, not least because it filled the space so admirably during my vacation (actually, book writing). I also appreciate it because he expressed so clearly what I think of as a classic American view of Europe, particularly from an American “liberal” perspective.
Even the best informed American - and Adam is very well-informed indeed - sees Europe through an American lens. Of course, they feel that, in the US context, “states rights” stands for reactionary, deeply anti-democratic, often racist politics, while the federal government, for all its faults, stands for more civilised government and market integration.
The question is whether this paradigm is useful when looking at Europe. There are two aspects to this.
The first is that of political legitimacy, on which Willem, in particular, has written. The US constitution created a federal government, with substantial legitimacy. Moreover, the results of the civil war determined forever which came first: the union or the states. Most Americans (I cannot speak for the South) surely accept that verdict. They are Americans first and New Yorkers and so forth second.
This, evidently, is not true - and, in my view, will never be true - of Europe. Thus a strong central authority, particularly, but not exclusively, an unelected one, has limited legitimacy. If it gets into head-on conflicts with the member states, particularly big member states, it will lose. There is no fix for this. The parliament is not and cannot be a solution, because it is not the product of a shared political process. It is still the outcome of national political processes and preferences.
The second aspect is that of pragmatism. Which works best - top-down regulation or competition among regulatory regimes? The answer is surely that Europe needs both.
If countries refuse to open up to trade in some relevant areas, without agreement to common rules of some kind, then a top-down agreement is necessary. The art is that of reaching such an agreement without sacrificing too much of the desired liberalism. In other words one must avoid accepting excessively restrictive common standards. There is no fix by proposing to increase the power of the Commission, because that is what governments do not wish to grant.
Where liberal trade already exists, however, such top-down rules are not needed. Competition will indeed work. If companies, for example, start to leave France, in response to some regulatory burden, the French government will be forced to respond. Even in the US, competition among states in tax levels has substantial effect. Of course, one would not like it if one wanted to keep revenue up. (That is, no doubt, why ultimately the federal government needed tax revenue of its own.) The key, in any case, in each new area (e.g. energy) is to open up the market to competition with the minimum level of shared regulation. That is what the central process is for. But the key players in reaching such an agreements are the member states - and rightly so, because that is where political legitimacy lies.
So my big points are two. The first is that it is misleading to apply the US template to Europe. The second is that the aim is reach framework agreements that are as liberal as possible and then allow regulatory competition to work. The results are imperfect. But they are not too bad.
A much stronger Commission is not the solution. It will not happen anyway and it solves neither the problem of political legitimacy nor that of achieving liberalism securely, so long as member states must agree to any legislation (as they should).
Posted by: Martin Wolf | July 10th, 2007 at 9:01 am | Report this comment