The New Road to Serfdom (7 page)

This observation was already demonstrably true in Gibbon’s time. Britain’s ascendancy over France began when, with the Revocation of the Edict of Nantes, the
Bourbons expelled their Protestant subjects, thereby driving some of their most enterprising and inventive people to settle in competitor states. It was to be vindicated again in the story of the defeats of Bonapartism, Nazism, and the Soviet tyranny.

Which is why it is so tragic to see Europe abandoning the pluralism that was its greatest strength, and instead pursuing the Ming-Mogul-Ottoman road toward uniformity, mandarinism, and central control. Most EU member states are coy about admitting what percentage of their national legislation comes from Brussels. In Germany, however, a thorough analysis was produced by the Federal Justice Ministry in answer to a parliamentary question. It concluded that an extraordinary 84 percent of all the laws in Germany were there to give effect to EU directives or regulations. Unless and until other governments supply their own figures, it seems not unreasonable to assume that that figure would not vary much around the EU. If that figure is even remotely accurate, a European superstate is already upon us.

Quite apart from the negative impact on democratic accountability, this centralization of power has deleterious consequences for economic prosperity. As the Nobel Laureate Gary Becker has written:

It’s a phenomenon that political scientists call “systems competition.” The United States is a fine example of its beneficial effects—although less and less so as the federal government expands. The EU is a depressing example of what the United States might turn into: a federation that is prepared to sacrifice prosperity for the sake of uniformity.

External competition is perhaps the major constraint upon a
dirigiste
government. A state can raise taxes only up to a certain point before capital begins to flow into overseas jurisdictions. It can offer its workers generous social entitlements only up to a certain point before entrepreneurs, firms, and eventually whole industries start to relocate to more attractive regimes.

As Milton Friedman put it:

Of course, many of the supporters of European integration have an ideological dislike of competition. There were few economic liberals among the EU’s early leaders. Some of the Euro-patriarchs were socialists.
Most were Christian Democrats, heirs to the corporatist and centrist political tradition that had begun in the late nineteenth century as an attempt to lure Catholic working men away from Marxism. For many Euro-integrationists, much of the appeal of the project lies in the fact that it is an alternative to the “jungle capitalism” that supposedly defines the United States.

The first generation of Eurocrats believed that supra-nationalism would remove the competitive restraints on governments. Instead of the difficult political task of persuading their electorates to accept spending cuts or less generous entitlements, EU governments could simply export their costs to their neighbors. They believed, too, that big was beautiful: that the advantages of a large home market would outweigh the costs of reduced competition.

Setting aside the ideological objections to this vision, it has become technologically obsolescent. In the 1950s, regional blocs were a much more credible proposition than they are today, when the Internet has eliminated distance, and when capital can surge around the globe at the touch of a button. It is no longer possible to ignore competition from the other side of the world. Competition from China and India is every bit as real as competition from Slovakia or Greece.

We can see, moreover, that the size of an economy is no guarantor of its success. If big really was beautiful, China would be more prosperous than Hong
Kong, Indonesia than Brunei, France than Monaco, the EU than Switzerland.

In fact, the reverse is true. There is an inverse correlation between size and prosperity. The wealthiest people in the world tend to live in very small states, as can be seen in this league table.

Source:
CIA World Factbook

As you will see, the list is dominated by micro-states. The only country in the top ten with a population of more than six million in Switzerland: a highly diffuse confederation.

You might be tempted to dismiss some of these territories as tax havens, but this is to beg the question. They became tax havens in the first place by having low taxes. And why did they have low taxes? Because they were able to avoid the waste and excess that plague larger territories.

It is enormously significant that the first large state on the list should be the United States: the big exception, in both senses. The reason the United States has done better than other macro-states is that, until now, it has governed itself like a confederation of statelets, allowing substantial autonomy to its constituent parts, and thereby retaining the chief advantages of small statehood: efficiency, lack of duplication, proximity to the electorate, limited bureaucracy.

Euro-integrationists dimly grasp that the assumptions of the 1950s no longer pertain, and that the EU is threatened by competition from more efficient polities. But their response is not to free up their own markets. Rather, it is to seek to globalize their costs, to extend Europe’s socioeconomic model to other continents. The EU has poured resources into encouraging the development of regional blocs around the world: Mercosur, ASEAN, the Andean Community,
the African, Caribbean, and Pacific Group of States. And it is investing its political capital in schemes designed to create a degree of global harmonization, such as the G20 and the Rio-Kyoto-Copenhagen process.

In November 2009, the EU appointed its first president: the former Belgian prime minister Herman Van Rompuy. At his very first press conference, Van Rompuy announced that he wanted the EU to return to “the economic and social agenda.” Referring to the G20 Conference, he hailed 2009 as “the first year of global governance,” and went on to describe the Copenhagen Climate Summit as “another step toward the global management of our planet.”

Until now, the main obstacle to such global governance has come from Washington. Leaders of the EU, true to their founders’ vision, have tended to favor supra-nationalism, believing that global technocracies are a surer form of government than vote-grabbing national politicians. Leaders of the United States, true likewise to
their
founders’ vision, have supported national sovereignty, democratic accountability, and the dispersal of power.

Recently, though, things have started to change. The United States has been readier to accept a measure of supra-nationalism, and Barack Obama has indicated a willingness to share sovereignty on issues ranging from climate change to collaboration with the International
Criminal Court. This international change in outlook has accompanied a change in the domestic arrangements of the United States: a shift toward greater central control and higher federal spending. America, in short, is becoming more European.

T
he Founding Fathers were in no doubt about the merits of decentralization. The autonomy of the individual states was, for them, “an auxiliary precaution,” alongside representative democracy and the separation of powers, to prevent the growth of an overbearing government.

The dispersal of power has several other advantages, too. It stimulates competition and economic growth. It
encourages experimentation and the spread of best practice. It brings government nearer to the people and, in doing so, makes it smaller and less wasteful. All these boons, however, are, so to speak, fringe benefits. U.S. federalism was chiefly designed to prevent the growth of a dictatorial central state.

As Thomas Jefferson put it in a private letter in 1812:

Don’t make the mistake of thinking that these arguments belong in the pages of a history book. If anything, the framers were hundreds of years ahead of their time in anticipating modern public choice theory. They intuited something that political scientists were later able to study empirically. They understood that large administrations would become prey to vested interests, and that the law of dispersed costs and concentrated gains would make big government expensive, inefficient,
and nepotistic. In the words of John McGinnis of Northwestern University Law School:

The founders, and the Jeffersonians in particular, were also ahead of their time in understanding that, in any state, there will always be a centripetal force exercised by the federal authorities. Again, they sensed by instinct a phenomenon that a later generation of political scientists was to identify and label. Professor Roland Vaubel of Mannheim University has carried out a major study of twenty-two federations, and found that, in all but one of them, there has been a tendency, over time, for power to shift from state or provincial authorities to the central government. He has identified a number of factors that drive the process of centralization. Provincial governments, for example, often refer a decision upward in order to overcome local opposition to a specific measure, which jurisdiction, once transferred, is almost never returned. Constitutions are usually interpreted by a supreme court whose members, being appointed at the federal level, tend to have a federal
outlook. Powers delegated to the center in times of war or crisis are rarely devolved when the emergency passes.

Among the twenty-two nations surveyed, the only exception was Canada where, until the mid-1980s, the body equivalent to a supreme court was the British Privy Council, which, not being a Canadian institution, had no interest in strengthening the national authorities at the expense of the provinces. Everywhere else, many more powers were transferred upward than downward.

It is a measure of their genius that the Founding Fathers did their best to take precautions against this tendency, even though they had no direct experience of it. The Bill of Rights that they tacked on to the Constitution, in the form of the first ten Amendments, asserted the prerogatives of the citizen against national institutions, and at the same time protected the sovereignty of the states. The Tenth Amendment (originally proposed by Madison as the ninth) makes explicit what is implicit in the tone of the entire constitutional settlement:

There were, inevitably, fierce arguments about where to draw the line between state sovereignty and federal
authority: arguments that led, in time, to the Nullification Crisis and eventually to the Civil War. But what strikes the observer at this distance in time is how successful the authors of the Constitution were in securing their objectives. Even today, U.S. states in many ways enjoy more autonomy than whole nations within the European Union: They are able to set their own rates of indirect taxation, for example, and can decide whether or not to apply the death penalty.