Purposes of Federalism

Marnie takes issue with my claim that "it's hard to see why you would have a federation if you don't have free trade within it." and with the connection between intra-federation free trade and the "national treatment" and "most favoured nation status" principles of international trade law.

Free trade within British North America was definitely one of the objectives of Confederation, and it was motivated largely by the loss of the Reciprocity Treaty at the hands of the protectionist and anti-British Republicans. See both the federal "trade and commerce" power in section 91 of the BNA Act and the words of s. 121, "All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces."

"National treatment" and "most favoured nation status" are non-discrimination principles. Goods produced and services supplied from other countries should neither get worse nor better treatment than those produced and supplied in your own. That's the basic norm of international trade law. It is also enforced between the American states by the courts under the "dormant commerce clause." Unfortunately, it has relatively little (but not zero) support in Canadian constitutional law.

Barry Weingast defines the requirements of growth-inducing federalism as fourfold:

F1. Hierarcy There exists a hierarcy of governments with a delineated scope of authority. (Ideally, Lord Atkin's watertight compartments.)

F2. Subnational autonomy. Do the subnational governments have primary authority over public goods and service provision for their territories? (The subsidiarity principle.

F3. Common market. Does the national government provide for and police a common market that allows factor and product mobility?

F4. Hard budge constraints. Do all governments, especially subnational ones, face hard budget constraints? (Not if Danny Millions or Ahhnold can help it, they don't).

F5. Institutionalized authority. Is the allocation of political authority institutionalized or within the sole control of one of the levels of government?

When you get all five of these, federalism promotes effective government and economic growth. When you don't, it doesn't.

Interestingly, Canada was really only able to maintain all 5 of these conditions when its federation was policed from outside, i.e., by the Privy Council. Since we let the final decisions be made by a branch of the federal government, all 5 of them have declined.