Response to Elliot Posner’s Review of The Politics of Fiscal Federalism: Neoliberalism versus Social Democracy in Multilevel Governance

Abstract

despite divisions (within social democrats over the EU and neoliberals over monetary union) and how such preference complexities spawn consistent sequences, across federal, regional, and global cases, wherein social democrats and neoliberals alternate between assignment preference in response to the other’s policies. The details of these sequences, which echo James Mahoney’s path-dependent reactive sequences, unfold in the three empirical chapters on global agreements, regional cooperation (UK/EU and NAFTA), and federalism (Canada and the United States). By making these and other incisive points, the book connects political ideology to debates on global governance, eliminating unnecessary distinctions between levels of analysis and elevating the role of classic policy preferences. Harmes delivers what he promises: to demonstrate that left–right politics, properly discerned, ought to be part of, though not a complete, explanation for evolving forms of multilevel governance arrangements and that scholarly books cannot be expected to do everything. Nevertheless, the political economy of The Politics of Fiscal Federalism raises important questions for future research. First, systems of governance with multiple levels frequently arm social democrats in at least some subunit jurisdictions with additional resources that enable them to fend off pressures from policy competition. One such power source derives from internal institutional configurations, highlighted by historical and sociological institutionalists, that can buffer subunits and preserve enough policy autonomy to maintain welfare programs. The main examples have been rich European countries that have shown relative resilience and adaptability in the face of capital mobility and open trade. Another source of power comes from asymmetries in interdependent economic relationships. International political economy (IPE), comparativist, and legal scholars have all shown that lopsided interdependence can be a power resource for jurisdictions with large markets. Well-known illustrations can be found in the US federation (the California Effect), in the EU, and at the international level (the Brussels Effect). Adding these two sources of power—internal configurations of small jurisdictions and the leverage stemming from asymmetrical interdependence for large ones—complicates Harmes’s framework. Based on his analysis, it stands to reason that key players on the Left and the Right have also recognized that mobility is only one of several potential sources of power and have strategized accordingly. How do social democrats and neoliberals line up with respect to these aspects of multilevel governance? Second, in his examination of the global level, Harmes leaves out a major development of the last 30 years—the rise of international soft law (sets of written advisory prescriptions created in treaty-based and non-treaty-based organizations). The omission means that Harmes’s framework does not include central designers of the global multilevel architecture—subnational regulatory authorities, mostly from the United States and Europe, organized via transnational networks—whose primary motivations do not fit snugly into his left–right schema, as Abraham Newman and I argue in our recent book under review here (Voluntary Disruptions: International Soft Law, Finance, and Power, 2018, chapter 3). Indeed, it would be interesting to know how technocrats and regulatory agencies intersect with the broad coalitions detailed in Harmes’s book.Moreover, the example of soft law—voluntary at the international level but politically disruptive and often legally binding at the EU and domestic levels—reveals additional complexity not included in Harmes’s depiction of policy authority as assigned cleanly to single levels of governance. Indeed, soft law sets off reactive sequences of its own that are reminiscent of, but quite different from and messier than, those outlined in The Politics of Fiscal Federalism. The creation of standard-setting bodies at the global level provides new political arenas that probably play to the advantage of mobile actors, a pattern that Harmes’s neoliberals likely support. Yet who benefits from other second-order effects is probably indeterminate.Who is likely to benefit in Brussels and Washington regulatory contests from the global institutionalization of policy arenas and the creation of soft law? These dangling questions notwithstanding, The Politics of Fiscal Federalism, with its focus on the left–right politics of multilevel governance, is a welcome and timely addition to the social sciences of markets. Policy makers would be wise to keep its conclusions in mind when striving to rebuild post-pandemic economies in ways more consistent with societal goals.