Characteristics of a Federated System: State Autonomy & Intergovernmental Relations, Schemes and Mind Maps of Law

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Ten Advantages of a Federal Constitution and How to Make the Most of Them Geoffrey de Q. Walker

Contents Foreword Executive Summary The New ‘Age of Federalism’ Advantages of a Federal System

1. The Right of Choice and Exit
2. The Possibility of Experiment
3. Accommodating Regional Preferences and Diversity Unity in diversity Cultural differences in Australia Less can be better Isolating discord Subsidiarity
4. Participation in Government and the Countering of Elitism The fall and rise of political elitism Free speech for all, or the few? Creative controversy The “voice” factor
5. The Federal Division of Power Protects Liberty Barrier of our liberty Recent assaults An end in itself
6. Better Supervision of Government Lower monitoing costs Coping with size The limits of moral capacity
7. Stability
8. Fail-safe Design
9. Competition and Efficiency in Government Government of the people, for the governors The duplication issue
10. A Competitive Edge for the Nation Facilitating the selection function A race to the bottom? The truth about railway gauges Making the Most of a Federal Structure Developments Favourable to Federalism Some Steps towards More Effective Federalism Conclusion Endnotes

Executive Summary Worldwide interest in federalism is greater than ever before and more countries are moving to adopt it. It has proved its worth and is especially well adapted to today’s world, but in Australia it is still being attacked and undermined. The debate concentrates on, and exaggerates, the minor inconveniences of federalism and makes no mention of its great advantages. These include:

1. A federal system allows citizens to compare political systems and ‘vote with their feet’ by moving to a state they find more congenial. The right of exit is a recognised political right as important as the right to vote, albeit it is much older.
2. Federalism allows and encourages experimentation in political, social and economic matters. It is more conducive to rational progress because it enables the results of different approaches to be compared easily.
3. Federalism permits economic and cultural differences to be accommodated, thus strengthening national unity. At the same time, federations work better if regional differences are not too marked, so Australia has an advantage here. The sheer size of Australia makes some kind of federal structure inevitable in any event.
4. A federation is more democratic than a unitary system because there are more levels for public opinion to affect. A federal structure helps to offset governmental elitism.
5. The federal division of powers hampers the rise of despotic central government and thus protects liberty. This was exemplified when the states led the struggle against the political broadcasts ban in
6. Federal decentralisation makes governments easier for the people to supervise and results in better decisionmaking. State governments have fewer programmes and employees, and their smaller scale cuts monitoring costs. As the states cannot create money, the scope for abuse of power is reduced.
7. Federations produce more stable government than unitary systems, and stability is a cardinal virtue in government.
8. The competition between governments in a properly working federation reduces waste and promotes the best mix of taxation and services. The duplication issue is misunderstood—Australia spends proportionally less on government than the unitary United Kingdom or New Zealand.

9. Competitive federalism facilitates the discovery of the rules and devices that will enhance the competitive position of Australia in world markets. Australia’s problem with railway gauges long predates Federation; its persistence may be a result of government monopoly ownership. At the dawn of the Commonwealth’s second century, changes are in progress that may help revitalise Australian federalism and make the most of its potential. The goods and services tax in practice provides the secure revenue base the states have long needed, and is a step towards more balanced Commonwealth-State fiscal relations. The lack of a formal national bill of rights denies the federal judiciary the de facto veto power over state (or provincial) legislation that they enjoy in the United States and Canada. The general intellectual climate is becoming more favourable to constitutionalism, checks and balances, aided by the decline of the old British theory of absolute parliamentary power. Many of the world’s other federations tap the benefits of federalism better than Australia does. There are a number of simple and inexpensive steps that would improve Australia’s performance in that regard. They include reviving the Senate’s role as the states’ house by establishing a standing committee on federal-state relations, formalising present intergovernmental bodies by requiring, for example, regular meetings and public hearings, and recognising that the usual drive towards national conformism should be balanced by an appreciation of the benefits of diversity. The High Court should be invited to emulate the United States Supreme Court and revisit some of the centralist decisions that have undermined the Constitution. Some purely symbolic measures would help to reawaken the spirit of independence, self-reliance and community solidarity. Our national future is not determined by our past. There is no reason why past conditions, mistakes and prejudices should be allowed to lock the nation into unhelpful patterns. Australia is a young, vigorous and successful country. Within its own borders it can be anything it wants to be.

The Indonesian parliament is belatedly starting to debate a federalist solution and President Wahid reportedly favours the idea. Sri Lanka’s British-designed unitary structure has had catastrophic results that might have been avoided if the main regions had possessed some degree of self-rule under a federal arrangement. Whereas in 1939 a Harold Laski could declare that ‘the epoch of federalism is over’, it would be truer to say as the new millennium approaches that unitary government has proved unstable and that we are in fact entering the ‘Age of Federalism’.^3 One reason for this favourable reassessment is the ending of the great confrontation between liberal democracy and tyranny that lasted from 1914 to the fall of the Berlin Wall in 1989. Democracy’s success in that conflict removed one of the main justifications for centralised government, the need to maintain an economic structure that could be mobilised for war. Again, the collapse of the Soviet Union and its empire has undermined the appeal of all authoritarian, centralising ideologies, while the spread of human rights values has called in question all forms of elite governance and created increasing pressure for genuine citizen self-government. The general wariness towards utopian ideologies has also helped, in the sense that federalism is not an ideology. It is a pragmatic and prudential compromise intended to meet both the common and the diverse preferences of people by combining shared rule on some matters with self-rule on others.^4 In fact its decentralised design is a useful barrier to the control dynamic that lurks within ideologies and most group belief systems. Economic change has been a factor too. An increasingly global economy has unleashed centrifugal economic and political forces that have weakened the traditional nation state in some respects and strengthened both international and local pressures. The spread of free markets has stimulated socioeconomic developments that favour federalism: the emphasis on autonomous contractual relationships, recognition of the non-centralised nature of a market economy, consumer rights consciousness and the thriving of markets on diversity rather than uniformity. Related to this are advances in technology that are shrinking the optimum size of efficient businesses, and models of industrial organisation with decentralised and flattened structures involving non-centralised interactive networks.^5 A further reason is the observable prosperity, stability and longevity of the main democratic federations: the United States, Canada, Australia and Switzerland. Together with New Zealand and Sweden, they are the only countries to have passed more or less intact through the furnace of the 20th century.^6 (The United Kingdom fails to qualify because of Ireland’s secession). While Sweden and New Zealand are unitary states, not federations, they account even today for only

12 million people between them. It should also be noted that no federation has ever changed to a unitary system except as the result of a totalitarian takeover. Within the Australian political-intellectual clerisy, however, attitudes to federalism range from viewing it as a necessary evil to, as one recent work puts it, ‘waiting for an appropriate time in which to abolish our spent State legislatures’.^7 There are several reasons for this dismissive, even hostile view of our constitutional structure. One is the lingering influence among intellectuals and the media of the ideologies of bureaucratic centralism which, though discredited in the real world, are still able to evoke powerful myths in the minds of those who do not place a high value on the lessons of experience. The influence of British academic writings has in the past also been a source of centralist prejudice, as the British intellectual establishment has been anti-federalist since at least the days of A.V. Dicey. Another reason is a kind of pseudo-pragmatism expressed in casual one-line assertions about the costs of a federal division of power. This attitude not only overlooks the available data and fails to consider the costs of the alternative but also takes no account of the positive benefits of the federal model. To some extent those attitudes are understandable. The pattern of constitutional interpretation followed by the High Court over most of this century has consistently tended to favour the expansion of Commonwealth power at the expense of the states. This has made it harder for the states to perform their proper role, so that the advantages of constitutionally decentralised government are more and more difficult to identify and evaluate. This factor was highlighted when the High Court decision invalidating state retail taxes^8 provoked a renewed chorus of calls for the abolition of the states. Again, federal and state governments have been able to create a kind of political cartel by the increasing use of uniform ‘national’ legislation and by heavy reliance on special-purpose grants. These developments have the effect, and probably the purpose, of denying to the people the opportunity to make comparisons between different models of legislation, taxation and spending. To the extent that the one-sided nature of the public debate on federalism stems from the lack of information about, and recent experience of, the proper working of a federal system, it is useful to draw together and articulate in one place the main points on the other side of the argument. We should start by defining the term ‘federation’. Decades of debate have not produced a universally accepted formula, but the list of characteristics put forward by Professor Watts of Queen’s University, Canada, will serve:

Ten Advantages of a Federal System

1. The Right of Choice and Exit When we think of political rights in a democracy, those that first come to mind are usually the right to vote and the right of political free speech. While they are indeed crucial, an equally important and more longstanding right is the freedom to decide whether or not to live under a particular system of government, the right to ‘vote with one’s feet’ by moving to a different state or country. That this is a political right is obvious from the events leading up to the fall of the Soviet Union. The communist governments were the only regimes in history ever to suppress the right of exit almost completely. The Soviet authorities well knew that if their subjects should ever seize or be granted that right, the communist system would instantly collapse. And that, of course, is what happened. The citizen in a liberal unitary state who is dissatisfied with the national government may of course move to another country. But it is becoming harder to obtain a permanent resident visa for the kind of country to which one might wish to emigrate. Globalism notwithstanding, immigration is increasingly unpopular with voters the world over. In a federation, however (including a quasi-federal association such as the European Union), there is complete freedom to migrate to other states. A federal structure allows people to compare different political systems operating in the same country and to give effect to those comparisons by voting with their feet. This process of comparison, choice and exit has occurred on a massive scale in Australia, especially during the 1980s and early 1990s. During those years Australians moved in huge numbers from the then heavily-governed southern states to the then wide open spaces of Queensland.^10 The freedom to leave has been recognised as a political right longer than perhaps any other attribute of citizenship. Plato’s dramatised account of the last days of Socrates restates the principle in context: ‘[A]ny Athenian, on attaining to manhood and seeing for himself the political organisation of the State and its Laws, is permitted, if he is not satisfied with [them], to take his property and go away wherever he likes’.^11 In the 17th century, Thomas Hobbes wrote of the consent of the governed as embodied in the willingness of the citizen to live under a particular government and respect its laws. That tacit consent

gave legitimacy to a ruler even before the advent of modern democracy^12 —indeed, it was the only form of political legitimacy available at that time. A federal constitution therefore operates as a check on the ability of state and territory governments to exploit or oppress their citizens. This function did not appear in the first of the modern federal constitutions (that of the United States) as a matter of conscious design—it is merely a happy by-product of the system. None of the early commentaries discuss the value of federalism as a check on state power. Nevertheless, it is clearly an inseparable consequence of any federal structure.^13 According to Professor Richard Epstein of the University of Chicago, the freedom of individual choice among governments in a federation is one of most effective of the usual safeguards against governmental excesses, the others being the full separation of powers and a legally enforceable bill of rights. The special merit of the right of exit is that it is a self-help remedy that is simple, cheap and effective.^14 Some other American commentators argue that it is the most effective of the three safeguards.^15 Judge Robert Bork, in support of this view, points out that the division of power between federal government and states is the only constitutional protection of liberty that is neutral, in the sense that you can choose to move to the state that protects the particular freedoms you cherish most, regardless of whether they are specifically protected by the constitution or find favour with judges.^16 At the very least, as Gordon Tullock adds, ‘The addition of voting with your feet to voting with a ballot is a significant improvement’.^17 So when centralists give federalism the disparaging label ‘states’ rights’, they are obscuring the fact that it is above all the people's right to vote with their feet that is protected by the constitutional division of sovereignty in a federal system.^18 This beneficial feature of federalism has two limitations, however. One is that it gives existing residents no protection for assets that cannot be moved, such as land or licences.^19 The New South Wales parliament exploited this limitation spectacularly in 1981 when it purported to confiscate all privately-owned coal deposits in the state without giving the owners a right to compensation.^20 The effectiveness of exit as a remedy is also limited by the number of states. The fewer states there are, the fewer the choices and the greater the opportunities for governments to collude on taxes, spending priorities and other areas of law or policy that are important to the citizen. The small number of states in Australia, as compared with ten provinces in Canada, 26 Swiss cantons and 50 American states,

have attracted legislative attention recently because society has no experience in dealing with them on the present scale. Which is the better policy: the interventionist approach of the New South Wales Property Relationships Act 1984, or the common law libertarianism of Western Australia?^27 The only way to be certain is to observe what happens in practice under each approach. The evidence produced by comparing the results of different policies in different states may force a modification of the approach, provided that the legislature is open to rational persuasion. Besides making experiment and comparison possible, a federal system also makes it harder for legislatures to avoid or dismiss evidence that undermines the approach they have taken. The results of experience in one’s own country are less easily ignored than evidence from foreign lands. Even if residents do not or cannot exercise the exit option, a federal structure stimulates what the Nobel laureate James Buchanan calls ‘virtual exit’, an important mechanism in the internal process of political decision and choice. ‘The mere fact that coexisting units of government exist and can be observed to do things differently exerts spillover effects on internal political actions’, Professor Buchanan argues. ‘As a practical example, even though exit was of some importance, especially in Germany, the observations of Western economies, culture, and politics by citizens of Central and Eastern Europe were independently critical in effecting the genuine political revolutions that occurred in 1989-91’.^28 That is one of the main reasons why ideologues tend to be hostile to federalism. Hardly a week passes without some activist group lamenting the ‘inconsistent’ (the term being misused to mean merely ‘different’)^29 approaches taken by state laws to current social or economic issues and calling for uniform ‘national’ legislation to deal with the problem. Behind these calls for uniformity lies a desire to impose the activists’ preferred approach on the whole Commonwealth, precisely so that evidence about the effectiveness of other approaches in Australian conditions will not become available. Unless experimentation can be suppressed, the activists cannot isolate their theory from confrontation with contrary evidence.^30 The Family Law Act 1975 is an example of a law that has been insulated from feedback in this way. Seldom has an Australian law been as consistently controversial as Lionel Murphy’s federal legislation in this vital field.^31 A good case can be made for uniform divorce laws rather than the separate state laws that existed before 1959,^32 but Senator Murphy’s brand of uniformity has exacted a cost that

many Australians still regard as too heavy. If evidence produced by alternative contemporary approaches had existed some useful adjustments might have been made.^33 Not only may suppressing the possibility of experiment be too high a price to pay for uniformity, but the uniformity itself may be an illusion. The federal Evidence Act 1995, intended to be re-enacted by all the states, was promoted with the claim that uniform legislation was needed to put an end to the ‘differences in the laws of evidence capable of affecting the outcome of litigation according to the State or Territory which is the venue of the trial’.^34 The Act certainly does away with some legal differences, but in most cases it does so by granting the trial judge a discretion whether to admit the evidence or not. The exercise of these discretion has generated innumerable disputes. Indeed Justice Callinan reports that since his appointment to the High Court the Act has given rise to more appeals than any other statute.^35 Few litigants can afford to seek special leave to appeal to the High Court, and even fewer actually obtain it, so one result of the legislation is a substantial extension of the powers of individual trial judges in matters of admissibility. Thus, instead of eight different state or territory laws capable of affecting the outcome of a case, we now have in effect as many different evidence ‘laws’ as there are trial judges. This has increased delays and uncertainties in litigation, besides making out-of- court settlement more difficult to achieve, because no-one can confidently predict what evidence will be admitted and what will not. Besides adding to the uncertainty of the law and the cost of litigation, this also represents a major transfer of discretionary power from the private sphere to the public sector, in this case the judicial arm of government. Since to date only New South Wales has adopted the Act, it remains open to the other states to experiment with reformed evidence laws (uniform or not) that do not suffer from those defects. Again, centralists tend to assume that uniformity and centralisation of the law bring greater legal and commercial certainty.^36 But uniformity and certainty are quite unrelated. That is clear from experience with the Evidence Act and the Family Law Act, not to mention the federal tax laws, all of which are uniform but at the same time severely lack certainty or predictability. In this light the recent decision of South Australia and Western Australia to capitulate, under intense political and media pressure, to the Commonwealth's campaign for the states to refer their legislative powers over corporations to Canberra takes on a more ambivalent aspect. Theoretically at least, if the two states had kept their powers they could have followed the example of Delaware and developed a more simplified approach to corporate law. Delaware is a popular jurisdiction for incorporation, not because

some smokers in State A decide to move to State B, and some anti-smokers in State B decide to move to State A.^39 Government overall thus becomes more in harmony with the people’s wishes, as Professor Sharman explains: ‘[F]ederalism enhances the range of governmental solutions to any given problem and consequently makes the system as a whole more responsive to the preferences of groups and individuals’.^40 That is one of the reasons for what Professor Buchanan calls the greater ‘political efficiency’ of federations as compared with unitary systems.^41 Paradoxically, perhaps, a structure that provides an outlet for minority views strengthens overall national unity. ‘In contrast with what conventional wisdom would have us believe’, writes Jean-Luc Migué of the University of Quebec, ‘the unity of a federation does not require a strong central government. Quite the opposite. Centralisation is everywhere the enemy of harmony inside national communities’.^42 Without the guarantee of regional self-government, Western Australia, at least, would not have joined the Commonwealth. The state has a long-standing secession movement that has revived in recent years. If that guarantee were by some means abolished, the West might secede, perhaps taking one or two other states with it. Wayne Goss, when premier of Queensland, was making essentially that point when he warned that abolishing the states, even de facto, could fracture the unity of the nation.^43 Federalism thus has an important role, as Lord Bryce observed, in keeping the peace and preventing national fragmentation.^44 It is far from impossible that if the British had adopted a federal structure, as many reformers in the last century urged,^45 the Irish might have preferred to stay in the United Kingdom (or the ‘Federal Kingdom’ as it might then have been) and a century of strife might have been avoided. Cultural differences in Australia. Though the fact is often overlooked in Canberra and Sydney, there are attitudinal and cultural differences, sometimes quite marked, between the Australian states. Differences in ethnic composition and demographic profiles also seem to be widening. ‘It should be recognised’, writes former Chief Justice Green of Tasmania, ‘that although relatively speaking the Australian population as a whole is fairly homogeneous, each State and Territory has different laws, values, history, economic profiles, electoral and parliamentary systems and court systems’.^46 Victoria's Federal-State Relations Committee likewise concluded that ‘Australia is a country of significant regional diversity’.^47

A central government in a country as vast as Australia can never hope to accommodate those differences as efficiently as a state or territory government can. A classic illustration is the well- documented case of Darwin Hospital, which was designed by Canberra bureaucrats for snow—not because they thought it might snow in the tropics, but because they simply rebuilt a Canberra suburban hospital in Darwin on the false assumption that climatic and cultural differences could be fully offset by the air-conditioning system.^48 Some commentators see sociocultural diversity as the only possible explanation and justification of federalism. This leads to the assertion that the regional differentiation of social characteristics in Australia is not sufficiently marked to warrant a federal structure. The borders between the states are purely arbitrary, it is argued, so the states lack a genuine social basis.^49 Those propositions are unfounded, for reasons succinctly expressed by Professor Sharman: To begin with, a sense of political community can exist quite independently of social differences between communities. Geographical contiguity, social interaction and a sharing of common problems all tend to create a feeling of community, whether it is a street, a neighbourhood or a state. The chestnut about the arbitrary nature of state boundaries is not only wrong as a geographical observation for many state borders—deserts, Bass Strait and the Murray River are hardly arbitrary lines—but fundamentally misconceives the nature and consequences of boundaries. Drawing political borders on a featureless plain is an arbitrary act, but once drawn, those lines rapidly acquire social reality.^50 To Sharman’s list of the natural boundaries between the states one could add the Queensland border ranges, which mark the real beginning of the eastern tropical and sub-tropical zones, and the factor of sheer distance between the urban settled areas, a feature perhaps more marked in Australia than in any other country. Despite the wonders of modern communication, if people are really to understand and empathise with one another they still need to meet and talk face to face. So it could never be said here, as Lord Bryce did of America, that ‘The states are not areas set off by nature’, with only California having genuine natural frontiers, the Pacific and the Sierra Nevada.^51 Yet in America the states have undoubtedly become real political communities in the way described by Sharman, including the arbitrarily-drawn ‘quadrilateral’ states west of the Mississippi.

only in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale or effect of the proposed action, be better achieved by the Community’. Obviously much will depend on how this piece of Eurospeak is applied in practice, but the principle’s adoption is credited with saving the 1991 Maastricht agreement.^57 Public misgivings over the centralist ambitions of the French president of the Commission at the time, Jacques Delors, might otherwise have blocked any further moves towards European integration. Australia's premiers in 1997 adopted subsidiarity as a guiding principle for a review of Commonwealth-state responsibilities.^58

4. Participation in Government and the Countering of Elitism A federation is inherently more democratic than a unitary system because there are more levels of government for public opinion to affect.^59 The great historian Lord Acton went further, saying that in any country of significant size, popular government could only be preserved through a federal structure. Otherwise the result would be elite rule by a single city: For true republicanism is the principle of self-government in the whole and in all the parts. In an extensive country, it can prevail only by the union of several independent communities in a single confederacy, as in Greece,^60 in Switzerland, in the Netherlands, and in America, so that a large republic not founded on the federal principle must result in the government of a single city, like Rome and Paris;... or, in other words, a great democracy must either sacrifice self- government to unity, or preserve it by federalism.^61 De Tocqueville was making the same point more broadly when he wrote that democracy works best when it proceeds from the bottom up, not from the top down, with the central state growing out of a myriad of associations and local governments.62^ Decentralised government makes people more like active participants than passive recipients; it produces men and women who are citizens rather than subjects and gives government a greater degree of legitimacy. The fall and rise of political elitism. This more deeply democratic aspect of federalism is especially important at a time when elitist theories of government, albeit clothed in democratic rhetoric, are once again in vogue. The struggle between the idea of government by the people and government by an

elite is as old as the Western political tradition itself. In fact political philosophy was founded on that controversy: Plato’s The Republic was largely his criticism of democracy in the form in which it was practised at Athens. In its latest manifestation the conflict between elitism and democracy explains modern politics more satisfactorily than the traditional division between left and right.^63 Elitism has been dominant throughout most of history. The democracy that exists today in countries influenced by the Western tradition is only two centuries old, a legacy of the French and American revolutions. When united with the English traditions of liberty and the rule of law, democracy has produced not only an unprecedented measure of individual freedom but also a huge and unsurpassed increase in the material well-being of the masses. Despite democracy’s success, elitism has never conceded defeat. Throughout the 19th century, critics assailed the belief that the common man could govern as being contrary to experience and an absurdity. One after another, new theories were advanced to justify rule by a select few, on technocratic grounds, on the basis of some romantic ‘superman’ mystique, or by reason of a supposed historical inevitability. In the 20th century those theories brought forth the twin poisoned fruit of communism and Hitlerian national socialism. The defeat of those two monstrosities through the heroism of ordinary men and women has not brought democracy final victory. For the 1960s saw the sprouting of a new hybrid of the old Platonic plant that has now grown to a position of dominance. This is a model of government that lies somewhere between the traditional poles of democracy and elitism, a model in which the power of an enlightened minority would help democracy to survive and progress. The several variations of this model have come to be known as the ‘theories of democratic elitism’. The late Christopher Lasch deplored this ‘paltry view of democracy that has come to prevail in our time’ as reduced to nothing more than a system for recruiting leaders, replacing the Jeffersonian ideal community of self-reliant, self-governing citizens with a mechanism for merely ensuring the circulation of elites.^64 The new wave of elitism has gained momentum from the trend towards globalisation. The growth of global consciousness is no doubt a good thing, but the other side of the coin is that it has opened the way for undemocratic bodies such as the United Nations and its agencies to implement an elitist agenda under the pretext of promulgating ‘international norms’.^65 International relations circles have acknowledged this problem and labelled it ‘democratic deficit’,^66 but no steps other than cosmetic measures have been taken to overcome it.