European Libertarians and Federalism

In his post on American libertarians’ support for federalism, which I responded to here, NYU lawprof Rick Hills points out that American libertarian support for federalism may be at odds with the position taken by our European cousins. “European libertarians, to my knowledge,” he writes, “have never liked federalism much.”

The divergence between American and European libertarians isn’t as great as Rick suggests. For example, most European libertarians have opposed the growing concentration of power in the European Union and have argued for leaving more authority in the hands of individual national governments, except with respect to controlling trade and freedom of movement. This position is almost exactly analogous to most American libertarians’ position on the relationship between the federal government and the states.

Within individual European nations, libertarian-leaning scholars and political parties have indeed been more skeptical of federalism than American libertarians. But that’s in large part because of the very different nature of federalism in most European nations as compared with the United States. One of the main reasons why American libertarians support federalism is because it fosters competition between state and local governments for taxpayers and migrants. This also promotes policy innovation. As John McGinnis and I discussed in this article, the main incentive for such competition and innovation is the need to attract additional tax revenue. In most European federal systems, however, subnational governments get the lion’s share of their funds from central government grants, and keep little or nothing of the extra tax revenue generated by pursuing good economic policies at the state level. This eliminates most incentives to compete. Moreover, European federalism imposes few or no constraints on the regulatory authority of central governments, another important objective of American libertarian supporters for federalism.

State and local governments that get their funds from the central government cease to be active competitors for “foot voters” or a meaningful constraint on central government power. Instead, they become just another interest group feeding at the central government’s trough. European libertarians understandably have little enthusiasm for such state governments.

Not all European federalism is the same, however. Switzerland, for example, has a highly decentralized federal system where subnational governments (the cantons) raise a high proportion of their own revenue, and the powers of the central government are much more strictly limited than even in the US. Not surprisingly, Swiss libertarians, such as the FDP party (Les Libéraux-Radicaux in French) are strong supporters of federalism.

The same is true at the level of the European Union and its relationship to national governments. Despite some subsidies for poorer states, national governments in Europe raise the vast majority of their own revenue and the powers of the EU are fairly strictly limited by the various treaties establishing the EU and its institutions. As noted above, most European libertarians generally oppose increases in the powers of the European Union.

The general theme is that neither American libertarians nor European ones support all possible varieties of federalism. Rather, both groups generally seek a decentralized polity with strict limits on the power of the central government and states that have to raise their own revenue and compete with each other for taxpayers. From a libertarian point of view, a federal system that doesn’t incorporate these elements has few if any advantages over one that doesn’t have federalism at all.

UPDATE: As commenters point out, I should have mentioned that many European federal systems are primarily tools for managing ethnic conflict, and proposals for devolution often have a strong ethnonationalist component. Libertarians are generally hostile to nationalism for the sorts of reasons I elaborated here. That said, libertarians can and do sometimes support ethnic federalism when it is the best way – or the only way – to reduce central government oppression of minority groups.