2  General principles for allocation and co-ordination of functions

This section addresses various principles underlying any discussion about how governmental functions should be allocated initially and co-ordinated thereafter.

These include balancing between national consistency and preserving local diversity, co-ordinating policy processes and ensuring accountability and participation, and the use of constitutional frameworks to achieve these principles.

It concludes by discussing decision criteria for making decisions on allocation of roles in a manner consistent with the principle of subsidiarity.

2.1  Consistency vs diversity – allocation of powers

The issue of how best to allocate powers between national and trans-national bodies, and between levels of government within a nation (taking into account the concept of subsidiarity) must be addressed from both private (individual and firm) and public policy perspectives.

Ideally this would result in simultaneously facilitating diversity in preferences, conditions and values, maintaining the ability to live, work or run a business anywhere within a locality, region, nation or trans-national grouping, having consistent regimes that facilitate the activities of individuals and firms anywhere within a harmonised set of jurisdictions, and reflecting the principles of subsidiarity through allocating decision-making powers to the most appropriate level of governance.

This is theoretically feasible, in that the decisions which most affect the freedom to live, work or do business in different places could be made at the higher levels of governance, with the level of decision-making declining as the impact of the decisions on individuals’ or firms’ freedom declined.

It is also consistent with theories of fiscal federalism which assert that the jurisdiction of decision-making should correspond to the jurisdiction of effects (Claridge and Box 2000, p69).

However, it requires careful balancing of conflicting objectives, especially around the importance of minimising transaction costs. There may be situations where the advantages of maintaining distinctive policies outweighs the results of a straight benefit/cost analysis.

In this context, it is interesting to note that even Switzerland (not a member of the EU, or most other trans-national bodies) still finds it difficult to both maintain the ability of sub-units (cantons) to experiment with differing policies and open up domestic markets to achieve international harmonisation.

Competition can have advantages – the Tiebout effect suggests individuals migrate to match preferences for the combination of taxes and public goods they prefer, forcing governments to optimise the quantity and “price” of public goods, and protecting individuals from coercive government (van den Hauwe, 1999, p609).

At the same time, however, consistent rules across jurisdictions facilitate exchange, and support the role of central governments in dealing with intra- and inter-national externality effects, including through making and enforcing international treaty commitments. It is crucial to determine where uniformity matters and where it does not. There may be situations where inter-jurisdictional competition offers net national benefit as opposed to encouraging rent-seeking or cost-shifting behaviour.

How the rules are set for allocating different policy areas to each category is a much more difficult and complex issue where we can draw on principles such as those identified below by Kerr, Claridge and Milicich (1998). The public good nature of maintaining armed forces, for example, along with the potential for free riding, argues strongly for centralised provision.

Constitutional design can be seen as a matter of determining which voting rule or choice mechanism would be specified for each state activity, with the best decision rule for each activity being the one that minimised “interdependence costs” - “perceived for each individual as being the sum of the external costs levied on that individual if not part of the decision set and the decision making costs for that individual if part of the decision set” (van den Hauwe, 1999, p612-3).

This approach of linking involvement in decisions to the effect of the decisions is closely related to the concept of subsidiarity in the design of state institutions.

As well as defining what each level of government can do, a constitution may (and perhaps should) also define what they cannot do, for example, a constitution may ban any level of government from infringing on certain rights of citizens, prevent lower levels of government undertaking certain activities reserved to higher levels (or vice versa), or prohibit one lower level government from taking actions that impinge on activities in a locality for which another lower level government is responsible. Subsidiarity is one reason for such bans.

Federal constitutions often define the number of lower tier governments, their respective responsibilities and local representation in national government. The degree of decentralisation will be on a spectrum between the two extremes of fully centralised or fully decentralised responsibilities (neither of which is likely to be practical). Federal constitutional structures are therefore one means of implementing or achieving subsidiarity.[1]

2.2  Inter- and intra-governmental co-ordination

A crucial part of resolving the above issues is to determine how much co-ordination should occur between levels of government, and what form it should take; i.e. hen and how often, who should take part, and whether it would be for information only or as part of the decision-making process. Co-ordination can take the form of consultation, delegation, or joint planning and/or implementation.

In a steadily more globalised policy environment, national governments need to consider whether existing internal arrangements for intra-governmental co-ordination are adequate to optimise the outcomes from their international relationships, and how to achieve transparency, public access and accountability in any structures established to manage international relationships (Bermann, OECD, 1994).

Effective co-ordination long-term requires institutionalisation of contacts, reciprocal notifications of regulatory actions and transparency, participation and accountability regimes. These are particularly important for cross-border regulation, since as regulations become more closely harmonised, there is increasing pressure to integrate planning and decision-making across jurisdictions and to do so at earlier stages of the policy process. (OECD, 1994, p60):

Subsidiarity provides one approach for starting a discussion on where any particular policy responsibility should sit. It would normally support placing the responsibility at as low a level of government as practicable given other factors (see the discussion below on decision criteria).