Roderick M. Hills

State Autonomy in Germany and the United States

Both the United States and the Federal Republic of Germany have mechanisms by which their component jurisdictions—states or Länder—can either implement federal law or resist such implementation. The authors describe the different constitutional mechanisms by which the two federal regimes induce state cooperation and protect state autonomy. They then offer some speculations as to how such constitutional rules might affect cooperative federalism in the two nations, arguing that the German system provides more categorical and therefore more secure protection of the Länder, whereas the U.S. system provides for a more flexible system of cooperative federalism. This flexibility of the U.S. system, the authors suggest, allows for vertical competition between the federal government and the states, which may provide a valuable tool to combat inefficiency in policy implementation.

Federalism and Public Choice

This paper is a draft chapter for an edited collection on Law and Public Choice being published by Edward Elgar and edited by Dan Farber and Anne Joseph O’Connell. The chapter provides an overview of public choice literature regarding three aspects of federalism - exit-based normative justifications for federal regimes, voice-based normative justifications for federal regimes, and positive theories for how federal regimes are sustained through the political process. In general, I suggest that the most promising trend in public choice theory is the effort of economists, political scientists, and lawyers to tackle the thorny question of “voice” in federal regimes - that is, how subnational politics differs in federal regimes from the politics of unitary states. Moreover, the case for federalism based on exit critically depends on the argument for federalism based on improvement of ”voice.” Otherwise, migration from one city or state to another to escape predatory regimes would simply be pointless movement out of a ”Leviathan” frying pan into a ”Leviathan” fire. Public choice theorists seem to have an inveterate suspicion of claims that subnational government facilitates political participation, perhaps because the entire tradition of public choice is based on the theoretical impossibility that collective action can accurately represent individuals’ preferences and values. Yet nothing in the conventional account of how decentralization improves political ”voice” is inconsistent with the abstract principles of public choice theory.

Binding Leviathan: Credible Commitment in an Authoritarian Regime

The problem of credible commitment dogs every government, whether democratic or authoritarian. Governments that have sufficient power to begin a project can often change their minds. Paradoxically, such omnipotence can be crippling. If lenders cannot be assured that a current mayor’s successors will repay loans, then they may charge him or her extortionate interest rates. If homebuyers suspect that a mayor’s touted plans to improve the schools, police, the environment, or any other long-term project, will be abandoned by his or her successor, then they will discount their bids on the city’s land, reducing the capitalization of good government and discouraging the current mayor from even attempting such long-term improvements in the first place. Authoritarian bureaucracies face special credible commitment problems. Fear that local officials will build up a local power base has historically induced the leadership of China, imperial and Communist alike, to transfer local officials among subnational jurisdictions frequently. Such frequent transfers undermine those officials’ capacity to make the credible commitments that officials with more stable tenure can make with ease. Moreover, authoritarian regimes discourage the development of independent institutions like investor-owned banks or locally elected legislatures that are independent from local executive officials and that might otherwise act as monitors and enforcers of long-term commitments. We describe how these problems of credible commitment posed by China’s cadre transfer policy and, more generally, the CCP’s distrust of divided power lead to excessive municipal debt in China. We also propose three new institutional solutions for resolving the credible commitment problem of China’s authoritarian regime. In the end, we conclude that there is no magical solution that can reassure stakeholders such as lenders or home-buyers that an autocratic mayor will follow through on his or her promises. All of our proposed solutions, however, trade on the intuition that even modest institutional limits on power, compatible with China’s one-party system, of democratic centralism, can mitigate the problem of powerlessness ironically created by authoritarian power.

Voice and Exit as Accountability Mechanisms: Can Foot-Voting Be Made Safe for the Chinese Communist Party?

According to Albert O. Hirschman’s famous dichotomy, citizens can express their preferences with their “voice” (by voting with ballots to elect better representatives) and “exit” (by voting with their feet to choose better places to live). Suppose, however, that ballot-voting is ineffective: Can exit not merely aid but also replace voice? Using as a case study the People’s Republic of China, a party state without elective democracy, we argue that exit is not a substitute for, but rather a complement to, voice. China’s bureaucratic promotion system plays the role of local elections in the United States, promoting or replacing local officials based on their performance in office. In either regime, however, it is costly for local voters (in the United States) or the Chinese Communist Party (in China) to monitor and assess local officials. Attention to foot-voting in the legal design of local government can help reduce these costs. By evaluating cadres who run the lower levels of China’s local governments on the basis of how successfully they attract mobile households, the central CCP authorities could reduce the costs of monitoring these local officials and thereby reproduce, by bureaucratic means, some of the benefits of electoral democracy. Success in attracting foot-voters can be most cheaply measured by the Party’s evaluating cadres primarily on the basis of local land values which, because they are a product of foot-voters’ decisions about where to live, function like ballots insofar as they reflect the popularity of local cadres’ policy decisions with mobile Chinese households. For foot-voting to improve governmental accountability, however, the Chinese system of local government law requires some basic but politically feasible reforms ― in particular, the introduction of a local property tax system, the creation of a federated city system that grants power and autonomy to sub-city units, and the liberalization of China’s household registration system to make the population fully mobile across different jurisdictions.

Exorcising McCulloch: The Conflict-Ridden History of American Banking Nationalism and Dodd-Frank Preemption

Conventional wisdom holds that federal law’s conferring banking powers on national banks presumptively preempts state laws seeking to control the exercise of those powers. This conventional wisdom springs from a long-standing legal tradition, originating with McCulloch v. Maryland, that nationally chartered banks are federal instrumentalities entitled to regulate themselves free from state law, even when national law fails to address the risks that state law seeks to regulate. Incorporated into National Bank Act of 1864 by 19th century precedents but then abandoned by the New Deal Court, McCulloch’s theory of preemption is being revived today by the Office of the Comptroller of the Currency (“OCC�?) to preempt broad swathes of state law. This article maintains that it is time to exorcise McCulloch’s theory from our preemption jurisprudence. Far from being sanctioned by legal tradition, McCulloch’s theory that national banks are federal instrumentalities offends a deeply rooted tradition in American political culture and law that I call the “anti-banker non-delegation principle. This principle has been manifest in campaigns against national banks’ immunities from political oversight ranging from Andrew Jackson’s 1832 veto of the charter of the Second Bank of the United States message to Louis Brandeis’ 1912 campaign against the “House of Morgan�? as a “financial oligarchy.�? Rather than accept McCulloch’s view of banks as impartial instruments of the federal government, the American political system and, since the New Deal, the federal courts, have adopted the view that federal law should not delegate unsupervised power to private banks to determine the honesty, safety, and soundness of their own operations. Accordingly, if federal regulators set aside state laws regulating banking practices, then those federal regulators must explain how federal law addresses the risks the state law attempts to control. The most recent effort to eliminate McCulloch’s theory of preemption, according to this article, §1044(a) of the Dodd-Frank Act, which provides detailed standards governing the power of the OCC to preempt state law. This article argues that the OCC’s 2011 rules mistakenly revive McCulloch’s theory of preemption, contradicting not only §1044(a) but also the more general tradition of distrusting unsupervised delegations of immunity from state law to national banks. In particular, like McCulloch, the OCC’s rules draw irrational distinctions between states’ general common-law doctrines and states’ rules specifically directed towards banking practices, subjecting the latter to a sort of field preemption. Rather than accept such preemption, this article urges that courts ought to follow the ordinary principles of conflict preemption, barring preemption of state law unless the OCC has specifically approved the banking practice that state law forbids.

Corruption and Federalism: (When) Do Federal Criminal Prosecutions Improve Non-Federal Democracy?

Are federal prosecutions of non-federal officials for corruption likely to improve non-federal government? This essay suggests that such prosecutions can undermine the distinctive style of democracy at the state and local level, an effect that can be harmful to democracy in America overall. This conclusion rests on a larger argument about the different nature of federal and non-federal democracy in the United States. To insure that each official maintains impartial loyalty to values defined by a single, popularly accountable policymaker, the federal system of bureaucratic populism strictly separates the officials’ public and private interests, through various devices such as civil service protection for executive officials, Article III life tenure, and fixed salary for federal judges, specialized training for federal officers, and conflict-of-interest rules that bar federal officers from acting when their judgment could be compromised by private interests. By contrast, participatory populism rejects this separation of the public and private spheres, instead mixing professional and lay decision-making by using thousands of part-time, under-paid executive and legislative officers who are expected to have substantial private interests in the communities that they represent. The essay argues that each style of democracy has mutually exclusive advantages and disadvantages. However, enforcement of federal anticorruption law against non-federal democracies can undermine their system of mingled private and public interests, reducing the degree to which such governments can provide laypersons with opportunities for political activity. As an illustration of the overextension of federal criminal law, I examine the First Circuit’s interpretation of 18 U.S.C. §§ 1341 and 1346, the federal mail fraud statute in United States v. Sawyer. Sawyer comes dangerously close to declaring that any undisclosed state or local officer’s conflict of interest constitutes a violation of § 1346 when it involves the U.S. mails. I argue that this view of § 1346 is an error. Participatory populism requires that private and public tasks be closely mingled in ways that bureaucratic populism forbids. Undoubtedly, this mixture of public and private creates a risk that public office will be used for private gain. However, it also avoids some of the bureaucratic sclerosis and lack of lay participation that can be endemic to the more centralized federal tradition. In conclusion, I suggest that federal prosecutors ought to content themselves with using § 1346 to enforce already-existing state criminal conflict-of-interest rules, for the sake of preserving a place in our federal regime for participatory populism.