Monday, October 29, 2012

The Costs of Federalism

The Elizabethan Poor Laws, though a well-intentioned policy initiative to alleviate poverty, posed unforeseen problems for the country at large. Parliament passed an unfunded mandate that required each parish to develop a program in order to feed, shelter, and cloth the poor within their territorial boundaries. Permanent welfare recipients responded by moving from parishes with low benefits to those with high benefits, therefore the burden of the law shifted to the most generous of parishes. No one was as generous anymore as a race-to-the-bottom in social benefits offered occurred.

Seeing that the program was not working, the national government intervened by passing the Poor Relief Act of 1662, which empowered the parishes to take action against those whom were not born within their territorial boundaries. The range of options for each parish now included forcible removing poor immigrants to placing them in workhouses to even imprisoning them. That put a halt to worker migration. The able-bodied poor stopped searching for work far from home as it was not worth the risk. The means to the end created a segregated labor market, which in turn increased the ranks of the unemployed and therefore causing more poverty instead of less.

It seems that politicians have learned little in the past few hundred years. In both the United States and Canada, the federal government requires the states and provinces to alleviate poverty though social programs - but only to their own citizens and within their own borders. To collect unemployment benefits in New York for example, beneficiaries must remain within the state therefore creating a disincentive for them to search for work elsewhere. The Province of Ontario completely covers your health care if you stay within the province (and even most of the country), but we wary if you cross the border to search for work in Detroit or Buffalo. 

Europe suffers from high and unevenly distributed unemployment. It's hard to get all countries on the same page when their problems vary so dramatically. Increased liquidity in their labor market would go a long way to solve such a problem. Even with policy changes, people are generally unwilling to move from their homelands where there is little work to places where the economies are doing much better; migrating from Greece to Germany or from Ireland to Finland. The reasons are many: different languages, different cultures, and nationalistic/xenophobic tendencies. 

The United States and Canada suffers not from these problems, but only from the policy woes that they have imposed upon themselves. By social benefits (such as unemployment checks) following a territorial boundary instead of a person, people are unwilling to where there is demand for their labor; from Nevada to North Dakota. 

Federalism, though increasing access for democratic participation, has its own set of policy costs.

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