?

It is well accepted that by forcing companies to compete with each other and breaking up monopolies you can get an efficient economy.

Is it possible to do the same with governance of a state?

In the US there are 50 states, if they had complete control of the taxation of companies and individuals within their borders, and people could choose where to live and work based on what offered the best in terms of both the availability of jobs and living conditions (like what the tax levels were, and what level of health cover was offered...) Would this work to ensure successful states were more populous, and had a larger work-force to tax?

Are people mobile enough to take advantage of better offers over the state line?

Would this work equally well within the EU? (even though workers have a much wider range of languages to compete with?)

@pootercannon, yes i did, it was a bit long to post in the op: please discuss.

> Are people mobile enough to take advantage of better offers over the state line?


The short answer to this is "no". You're also ignoring things like the environment (ie: more people want to work in California than Alaska).

Homeowners are exceptionally screwed, especially in this economy. I *have* better offers than what I currently make, but the economic benefits do not outweight the costs of relocating my family.

In fact, in America there is a serious drive to the bottom to keep businesses in state. This means that states are held hostage by easily movable business (across state lines) so they can't enforce regulations or corporate taxes.

so states are competing with each other to keep bussinesses.
Are bussinessescompeting with each to keep their employees? offering perks like health insurance, better pay/working hours et al.

how much competition between states do we want to encourage??

Enough to make the US run like a diplomacy game:]

enough that you can have a healthy competition withot resorting to war, or economic sanctions. Basically free movement of goods, services, and people.

To ensure the best people are doing the best job in the right place for the best pay and conditions. And the only two groups which have close enough to this kind of free movement of people which i'm aware of are the EU and US, maybe i'm discounting the PRC and the Republic of India each of which have twice the population, but considerably lower economic output.

Perhaps some combination of South American states will also fit this category in the next decade (or i might just be dreaming)

There is already massive competition between states to lure business, and there are very different business climates in all the states. There's a reason why so many businesses incorporate in Delaware.

In addition, there is a big different for people too. States DO have different income taxes, different sales taxes, different gasoline taxes, plus extremely varying utility and car insurance rates. So that does occur.

and is the state expected to front the bills for infrastructure developments which allow companies to operate more effectively and medical expensives which encourage people to live there, or are companies expected to offer health insurance to ensure their employees are healthy and build roads/telephone lines/broadban services which they can then rent to those who want to use them?

oh, i mean how well does it work? with all the complaints about higher taxation is it just federal budgets which people are worried about? I'm imagining a system with a weak federal government.

So you want the states to more or less be self sustaining, but unified under a loosely controlled federal government?

@orthaic: Out of interest what country do you live in yourself?

This is something that economists assume: "perfect mobility". It creates the assumption that the entire labour market can move to a better job if it is so offered. Think about it in real life. If you are offered the same job you are currently working, with a slight wage increase, on the other side of the country, would you move? Probably not for a slight one, maybe you have a house in your current area that you would need to sell, friends and family that you would leave behind, a signifigant other that would have to leave his/her job. There are all kinds of barriers that prevent people from moving to the best labour climate. That is why people still live in Michigan (zing).

Compare that to a simple corporate decision to file in a different county. Not really all that big a deal is it?

@Centurian: Good point. My brother-in-law has been saying: "If taxes rise any higher, I'm leaving the country" for the last six or seven years.

Every time he sees his tax bill rise, he repeats this phrase.

But he's still here.

@jamiet: Ireland: where setting low corprate tax rates, and a well educated english speaking population has encouraged many american companies to set up their European headquarters... And control of our own tax rates is a political issue for the coming referendum on the lisbon treaty (which moves certain powers into the perview of the European parliment, amongst other things...)

Where corporations pay their taxes is an interesting question, but i do think governments and states should have the greater say...

@Orathaic: Ireland is a lovely place. I live in the UK (North East England) myself but grew up in the Shetland Islands.

I hope the Irish people vote against the Lisbon treaty, the EU in its' present format is too politically unaccountable.

in it's current form or in the form it will be in if the treaty is ratified by all states? I must say i voted for the treaty last time, but i'm fairly annoyed that the government is asking us to vote again...

I do believe that European nations have the right to pool their sovereignty (that our fore-fathers died for) and that we can benefit from further integration.

I almost pity libertas' failure at the polls.

@ Orathaic: In its current form it is democratically unaccountable - we don't elect the Commission, and it's the Commission, not the European Parliament, which actually holds most of the power in practice. The Lisbon Treaty does not correct this imbalance.

actually while the commission decides most of the legislation it is the heads of state of european parliment which votes on most things.

Very few things are decided by the commission alone, but you are right they are effectively a group of people who are appointed and not elected but they are appointed by those we elect, it is like a government minister choosing advisors and analysts to decide on issues which he isn't expert enough to decide himself...

I don't really mind that these commissioners may not have won any particular populatirty contests, just that the political accountability lies with the council of ministers, the heads of state and european parliment(some things have to be passed by the parliment, others by the relevant council of ministers, so while the commission gets to decide the agenda they're not all powerful).

There is enough confusion left to allow politicians to hide who did what, which is a lack of transparency that I would object to within the EU at present... but i don't in principle have an objection to an unelected commission.

Hypothetically a directly elected president could claim to that having support of the entire population of europe and hence legitimacy and could put heads of state and governments under extreme pressure, the unelected commission has considerable less leverage on national politicians. (not that i have any personal expierence of this, merely speaking hypothetically)

but i'm completely going off topic.

How does america really work instead of assuming the things that make economists wrong?

Well, I don't live in America, but my understanding is states that border eachother hurt eachother.

Take Washington state for example. They have no income tax, governement revenues come solely from consumption tax, also known as sales tax. This means they get their full income, but have to pay high prices at the store because of taxes.

Washington states borders two other states, Oregon and Idaho. Both of these states have an income tax but no consumption tax. This means they have less money to work with, but prices in their stores are lower.

The result? Everyone anywhere near the border in Washington State shops across statelines, thus avoiding state taxes altogether. This means that Washington businesses (on the borders) can't compete. Also, the increased demand for Oregon and Idaho products drives up prices for the locals, who already pay income tax.

Lesson, if everything was uniform, you wouldn't have people driving out of their way to screw the government.

em, correct me if i'm wrong, but increased demand in oregan/idaho means increased income for those people providing the sales. Increased investment in the facilities required to sell things thus (bigger 'malls' ) and a better range of goods available to those who live/shop there?

There is a currency difference between the Republic of Ireland and Northern Ireland, thus the towns of Newry and Dundalk are on unfair terms competing for sales. When one currency (Euro Vs Sterling)is stronger commercial bussinesses in the other town suffer. When i was last in Newry they were offering a great exchange rate just to encourage shoppers from 'down south'.

Though in both cases the states have both income tax and sales tax, so the governments earn something whether you buy or not.

In your example it is only the consumers from washington who benifit, they get cheaper goods while paying little income tax, but if Oregon/Idaho were really suffering they are fairly free to change their own tax policy...

Washington consumers benefit, but their retailers suffer massively and their government has to respond (because of decreased revenues) to cut services. In the neighbour states, the over taxed have to pay higher prices, while a few large border retailers who aren't even catering to them benefit.

and again, if washington state is losing revenue due to their own tax policy i'm fairly sure there is one group that has the power to make a change...

Political scientists and legal scholars like to refer to this as "laboratories of democracy." While the federal government has a lot of power and gets all the press, each state really makes the vast majority of its own decisions. This allows each state to try something new, without foisting the idea on the entire nation. So, if it works, then other states may adopt it, and if not, it goes away. In theory, this allows for legal and policy innovation on a wide scale.

For example, one of the health care proposals currently airing in Washington DC is to require all Americans to buy health insurance. This ides comes directly from one done in Massachusetts, and the proponents of this plan trot out the "success" in Mass. to promote the idea.

With respect to competition for business and jobs, this certainly happens. Many southern states (TN, MS, AL, LA) have vehemently competed to try and get new car manufacturing plants in their localities. Indeed, counties and cities within each state have competed too. These states/counties/cities have offered tax incentives, but the state laws also are much more anti-union (or less pro-union, if you prefer) than states such as Michigan or Ohio. So, not only are these states "competing" through tax policy, but they are also doing so via law.

There are tradeoffs to be sure--Michigan might lose some jobs to Tennessee, but the Michiganders like their unions and don't want to offer tax subsidies and are thus willing to make that trade. Conversely, Tennesseeans might not have the job security and bargaining power that comes with a union shop, and are subsidizing the new plant via lost tax revenue, but they have made the decision to forgo those benefits to obtain more jobs.

Also, the mobility of American labor is high, but often depends on class. People move for new jobs all the time, but there are structural considerations--the cost of moving/selling your house, the social cost of losing your social network at your home, etc. Statistically speaking, richer and more educated are more likely to move for a job, because they are able to do so. But poorer people are less likely to have the resources for such a move, let alone the job skills to obtain a job across the country. This is in contrast to the 1950s and 60s when huge numbers of poorer--and largely African-American--people moved from the South to Northern cities for industrial jobs, when those Northern cities needed a larger labor pool.

Perhaps I'm way off topic. But maybe this sheds some light on Orathaic's initial question.

Also, with respect to Washington and Oregon, there is a finite number of people who can live/work in Washington but shop in Oregon. Just those people on the border. But there is an opportunity cost in doing so--like my brother who will drive 10 miles out of his way (and use half a gallon of gas) to save 2 cents per gallon. Moronic.

Also, there are studies showing that the loss in revenue is fairly insignificant. Plus, Washington has laws forcing its citizens to pay sales tax on big-ticket items purchased in Oregon. For example, cars or boats. They tax you based on where the car is registered, and you get taxed if you move the location of registration from Oregon to Washington. California does the same thing. This doesn't mean that some people don't game the system, but it's a lot harder to do so.

not offtopic...

I worry about States being forced to cut regulations or taxes just to compete with whatever state has the most brutal cuts. I mean don't get me wrong, I'm not a massive union fan or anything, but isn't this south eastern state reality that you are talking about just a drive to the bottom where only the corporations with their precious jobs benefit?

That's very possible. But (in theory), the state legislature is making that decision on behalf of its people. Nothing is "forcing' them to do this. We can debate if it is a wise decision, and perhaps compare the lifestyles of Tennessee v. Michigan.

Take for example my home state of California. It's highly regulated, highly taxed, etc. And it is true that some businesses leave. But there are 54 million people here and some of the largest and most successful companies. Most Californians are not willing to give up their benefits and regulation. Of course, our state is basically bankrupt, and we are spoiled with climate, proximity to the beach, and sheer market size to skew any decisions about departing businesses. I doubt Alabama could regulate as much as California and get away with it, but then again Alabama is not paying its bills with IOUs.

Well as an individual state legislature it probably is a good idea to entice businesses in with tax incentives etc. However, that just means it will be a good idea for the next state to do the same, but even more... hence race to the bottom.

But I agree with your California example. There is no silicon in silicon valley, but there are alot of smart Californians and that is what is important,

While you are right that the "next state" may offer even better incentives or lower regulation, at some point there is a floor beyond which legislators cannot or will not go. I'm just saying that it's up to each state to determine their own floor. And if it doesn't work, then the people should vote the bums out of office.

Ahh Democracy will get us out of it! Of course, some states will have lower floors than others (as we see on the international stage) but thats where beautiful beautiful comparative advantage comes in...

:) As a friend likes to say: 51% of people agree, democracy is great! I'm not saying this all works perfectly, and in the American system, the "race to the bottom" between states to undercut each other through deregulation is tempered by Federal standards--say, the minimum wage, child labor laws, etc. In theory, our constitution and federal laws serve to set the basic standards while still allowing the states room to tweak things as they see fit. While it's not always pretty or perfect, I think it tends to work pretty well, considering the alternatives.

This isn't really democracy, it's federalism. The US is a federal entity where each state has its own completely separate and "sovereign" government in addition to the national government. The federal government can't just dissolve a state the way a state can dissolve a county. There's bound to be differences between states in such a system, but that's the natural outcome of having individual states being responsible for a great many government programs and obligations. There's no doubt in my mind that there would be more problems and more serious ones at that if we just had a unitary government ruled from Washington.

Woo federalism!

Spoken like a true conservative Invictus. Although local government has its merits, there is such thing as an economy of scale that the federal government could produce to benefit citizens of all 50 states.

In some things, yes. Each state shouldn't have its own nukes, for instance.

Here in Illinois, however, the state is largely the tool of Cook County, where Chicago is. Even living in Lake County right next door I feel pretty distant from relevant decisions. Washington is out of touch enough already, just think what it would be like if Congress controlled zoning ordinances and school funding.

I for one would love to see that attempted, just because Congress barely controlls whatever the hell Congress tries to control.

Things like zoning should obviously be as local as feasible, But thats just the thing about the feds, they can't be dominated by a single urban centre. Wouldn't it be better if say, a minimal employment insurance, was bought by the feds and then the states or private companies can suplement it from that base. There are obvious advantages to this, as it would seriously lower insurance costs, because people who seek insurance have more problems, so there costs are made higher. If you don't trust the federal government why trust the more local one?

The problem I often have with more local government is the potential for abuse. It doesn't come under the same kind of microscope the feds do, so bad management is easy to get away with. Since you are from illinois this shouldn't be news to you.

Well, for one thing the people from my state elect everyone who either runs or appoints someone to run the state government. The people who affect Illinois are controlled by the people of Illinois itself, not anywhere else. I realize that still assumes that the state is a primary form of government people identify with.

I elect only my Congressman, two Senators, the President, and the Vice President to the federal level. Many decisions which affect me are made by people whom I did not elect. That's the price of the necessity of a national government and certainly has its legitimate place, but the fact remains that the federal government is inherently more distant from people by virtue of its design. If I don't like what a member of Congress from another state, or even from another district, is doing there's not much I can do. They don't listen to me since they plain don't need my vote.

I don't buy that state legislatures are any more likely for abuse than Congress. You get corruption from any organization, and while small organizations are easier to control than large ones, people are alike all over. At the end of the day a crook will be a crook whether he's in city hall, the state capitol, or Washington.

You talk about how states don't "come under the same kind of microscope the feds do." Maybe there's some truth to that, but the Congress does plenty of shady stuff and gets away with it. It's not much of a microscope to begin with, and there's always a partisan smudge on the lens.

As for employment insurance, often programs like this START in the states and are then either adopted by the federal government directly or spread around the country on their own merits. States started welfare and Prohibition.

Basically, important decisions ought to be made as close to the people who will be affected by those decisions as possible. I for one prefer a government of people I can actually meet and yell at and turn out in a few years if I wanted to to a faceless one imposed from across the country.

That's not to say that there aren't national issues which require national solutions, but decisions which seriously affect you ought to be made by people who are directly accountable to you.

I do believe Centurian makes some good points, but I think the risk of corruption and poor behavior in local governments are largely because local elections typically involve 1) very, very low voter turnout, 2) a relatively uninformed electorate, 3) non-professional politicians running for the job--that is, the local schoolteacher may be smart but doesn't have the time or a staff to devote to fully understanding and delving into the issues he or she is in charge of, 4) a lack of local journalistic outlets to investigate problems. But on the upside, local politics are very responsive to voter input--when you have only 8,000 people electing a mayor or city councilperson, and only 20% show up to vote, your vote REALLY matters.

@Invictus: The system we have in Ireland is kinda messed up in different ways.

From the top down, we elect MEP to the European Parliment, but nobody is quite sure what they do, or how much say they have. kinda like your senators or congressmen we don't neccesarily like what the MEP's from other european countries do.

At the National level we elect our TD's who sit in the lower house of parliment. However they are elected by a local constituency, to get re-elected they don't have to care about national issues they just have to convince their local voters (about 20,000 people) that they will act in the local area's best interest, whether that means rubbing shoulders with some big property developers or making sure the big incinerator project doesn't get landed in their constituency...

We also elect senators to the upper house, which is seen as unimportant as the government appoints enough senators to ensure it always has a majority, they rubber stamp things and review/debate legislation.

Then we elect local councillors who have very little power, can't raise tax to be spent on local projects so have little affect on the people they serve. Have a great say in what road signs get put up and wother trivial local stuff (so again nobody really cares)

voter turnout was fairly good at the last election ~57% because they held the local and european elections on the same day...

our national governement does a crap job, and is slowly handing power over to the EU which can make laws in some areas which overide our laws and our constitution. (i am in favour of more integration even if it sounds like i don't approve of the EU)

Can you explain, then? Why do you want more integration if you dislike the decisions of MEPs from other countries so far? It's very interesting.

no, i mean I could potentially dislike the decisions of MEPs from other countries (as you might dislike the decisions of senators and congress men from other states), but I actually believe that Europeans will be better off both in terms of standard of living and peace+security and the ability to influence our neighbours to the same by further integrating.

A single voice on international matters representing the 450 million EU citizens would make for a super power comparable to the US or China. I believe this sort of power has the potential to greatly benifit the world. I hope that it will be used responcibly, even if i know i'm not going to like everything it does.