Singapore, Hong Kong & Federalism

This past week I have been in Singapore and Hong Kong. They are not perfectly liberal societies by any means. Singapore executes those that traffic drugs but as consolation will let you buy a beer at the corner Seven-11. In Hong Kong you are forced to inhale awful air and the place smells of burnt rubber, they really needs to do something about the pollution (although perhaps it’s blowing in from China and the options are limited). Both places let you ride a push bike without a helmet. 

Both of them are very open places in terms of trade and immigration and have very low income taxes (I’ll forgive Singapore it’s 100% tax on cars) and a very favourable overall tax environment for investors. And their labour laws seem much saner than ours. It does not take long to figure out why these places have open economies. They are both city states and excluding imports would mean poverty and misery. Likewise for being unfriendly towards investors. Think how people in Sydney would fare if Sydney tried to restrict the importation of food. I doubt there is any particularily liberal mentality within the mindset of politicians in Singapore or Hong Kong, just political incentives that are different and run of the mill pragmatism. It does suggest to me that if you believe in liberty then smaller nation states are probably a really good idea. If Sydney ceceded from Australia I’m pretty sure it would be a better place.

I’ve also been thinking about federalism more lately. I’ve decided it isn’t such a great idea. In theory a federalist system with a minimalist central government providing freedom of movement and trade between the constituent states, and perhaps a common currency, is a nice ideal but in practice it is never sustainable. The incentives built into a federalist system are to move power to the centre. It happens in every federalist system in the world with Switzerland being perhaps the only example which would allow a credible counter argument. Certainly the USA and Australia have seen a steady march towards centralisation of power over their history. The EU is edging down that path but the centre of that federalist system is thankfully still nice and weak by comparison. Rather than this tendancy towards centralisation being a product of flawed political thinking I believe it is a somewhat inevitable consequence of federalism. The political incentives within a federalist system are to keep the size of state taxes low. So the cental government is where the statists do their work. And so it flows that tax powers will be centralised within a federalist system. About the only way I could see a federalist system being sustainable classical liberal model is if central government was constitutionally prohibited from levying taxes and the barrier to any constitutional amendement was very high. The EU comes very close to such a system, but as can be seen with the proposed debt bailout of Greece, governments are frequently happy to simply ignore constitutions (or in this case treaty agreements).  A more solid constitution arrangement would need some mechanism by which citizens could seek personal legal remedy if the government breaches the letter of the agreement. For instance if individual German taxpayers could sue their government for significant punitive damages in the event that Germay bails out Greece then perhaps the system of financial discipline could be defended. Likewise any constitutional attempt to limit central tax powers needs some legal remedy which individual citizens can deploy.

All this implies I can imagine a federalist system that works long term. However in practice even my imagined system is probably too optimistic. It is better to abolish federations and have smaller nations. Abolishing Australia seems like a good place to start. Unfortunately our constitution prohibits it.

20 thoughts on “Singapore, Hong Kong & Federalism

  1. “buy a beer at the corner Seven-11”
    “Both places let you ride a push bike without a helmet.”

    I would guess that Australia is one of the few western countries in the world where you can’t do either of these things. Most (all?) of Europe allows both as well as most of the US.

  2. This isn’t exactly entirely on topic, but I want to repost a comment I made earlier on another topic referring to Singapore and Hong Kong. Note that this comment refers to Hong Kong, but it is correct about Singapore as well.

    I am known for my affection for Hong Kong, but lets not mischaracterize its economy.

    One specific area of it is laissez-faire: the international sector. There are low nominal taxes, true, and relatively low regulation, but the government itself basically dispenses favors to a network of zaibatsu-style favored merchants. Its domestic economy is an unofficial oligopoly where a set of elite tycoons are in bed with the government. Its basically corporate statist, domestically speaking.

    So it is legally libertarian-ish but culturally Cronyist. You don’t really get rags-to-riches stories in HK and Asia generally. You still get them in the West, even if our economy is legally a mixed economy. The fact is that Asia was enriched by the free sectors in its economy, but power-elites like ‘stable social orders’ (read: they want to keep themselves and their buddies at the top of the pile). Hence, they want the wealth of Capitalism but they want to minimize (what they see as) the “negative side effects” (i.e. dynamic, non-heirarchial social structures). This pattern exists pretty much all over Asia.

    For more details on this, I recommend the book “Asian Godfathers” by Joe Studwell; he attacks the corporate statism of HK in the name of actual free markets and the upward social mobility provided by true capitalism.

    For expats and foreigners, HK basically is laissez-faire, but for the people that live there…

    HK is an example of the malfunctions that can occur to a market economy if the underlying social values (i.e. of Western Classical Liberalism) that free markets need are not present.

    Note that I’m not suggesting that Western nations need to avoid emulating HK’s concrete policies. We certainly do. But on the other hand, Asian civilization needs to heavy dose of western values to bring it into alignment with the economic system that dragged it out of the gutter. The West needs to consider the East’s less-regulated policy architectures; the East needs to consider the values of the West’s social-cultural individualism.

  3. Canada is also an example of a federation where power has moved away from the centre. I understand Malaysia wouldn’t support your case either.

    I’m a bit doubtful about federalism myself, but not because of any tendency towards power centralisation (which is not inevitable). On the assumption that less government is always better, I simply like the idea of one small central government to multiple competing small governments. The inclination of governments to “do something” is definitely inevitable.

  4. The latent vice of Democracy is Centralism. Politicians bid for votes by promising to expand the powers of government, and claim a mandate for such expansion when they win. A politician who promised to do less would be thought of as lazy, and might lose votes. Also, according to this book which I’m reading (The life and death of Democracy, by John Keane), Democracies become arrogant (WE’VE got the BEST type of government!), and feel only they have the right and duty to interfere in their neighbours societies. (Athens turned the Delian League into an empire, France tried repeatedly to export its’ type of government to its’ neighbours, and the USA keeps on interfering in the affairs of Central and south America). The Swiss Confederation seems like the best working antidote to hubris.

  5. DavidLeyonhjelm
    You don’t seem to have acquainted yourself with any of the arguments presented in favour of federalism.
    Going from a unitary state to a federalist is like going from a monopoly market to a free one where many vendors compete for you engagement. The essential virtue of federalism is that, when it is running as it should and the central govt. has a very limited, non taxing, non interfering role, you can choose, by voting with your feet, your own type of government.
    You may wish to migrate out west to WA because it has a tougher law and order regime. Many Rednecks doing this may alienate the Cafe Latte residing there and induce them to travel east to more enlightened climes. This could in turn lead to a diaspora of lifestyle choosing whereby states that were slightly religious (or whatever) become heavily so. More definition in political alternatives would be both the cause and the result of more migration which in turn can only lead to the greater happiness of the peoples of each particular region.

  6. Phillip, that’s fine in theory, but it doesn’t seem to work in practice. Perhaps you need to build each state’s constitution, so that WA might mandate that all offences are either life in prison, or the death penalty. Namby-pamby easterners might give criminals compensation money for the way society has turned them into hardened criminals, because the constitution demands it. the federal government might need to be forbidden from interfering in the administration of justice, etc. Otherwise politicians will want to mix and match, creating the hodgepodge that we have today.

  7. Phillip, I know the theory quite well. I just don’t see evidence of it occurring in practice.

    Canada’s provinces are quite good at telling Toronto where to go, but Canada has still ended up a dreadful nanny state. There’s very little competing on any issues affecting freedom. They just have arguments over jurisdiction and squabble about money.

  8. I think a lot of states and provinces are too big for federalism to have any real competitor effect.

    Moving state is a bigger deal for most people than tax and education policy. If the “states” were the size of local councils it might have more the desired effect.

  9. Nuke, Yes it can’t happen until the states have gained autonomy for all things except those of a truly national character (defence, air traffic control, border control, pandemic control etc). Actually the correct word is confederalism which is just federalism on a greater scale whereby the states themselves raise taxes and pay to Caesar not what Caesar demands but what the states decide on most probably an equal per capita share. A good example would be the Confederated States of American led by Jefferson Davis, err…apart from the slavery aspect.

    DavidLeyonhjelm, I’m not that familiar with what happens in Canada but I can’t believe the federal government in Ottawa maintains only a minor subservient role. Eg Isn’t the only reason Quebec doesn’t break away from the rest of Canada that it is perpetually subsidized by it? I should hardly think that the provinces on their own initiative are handing over the cash.
    But America is a somewhat good example. Not perfect because the constitution is not explicit enough on the issue and there is no procedure to remove errant Supreme Court justices, and so much of each state’s money is taken by the federal government for its own policy experiments.
    But still there is a degree of lifestyle and policy choice. The airheads and dopeheads for California, gun nuts for the south and west, ditto the “string ‘em up, that’s the only language they understand” types, gays for Massachusetts, survivalists for Montana, bible bashers for Utah, freedom lovers for New Hampshire, up until recently some states used to be dry (non alcohol) states (I remember that from the Andy Griffith show. South Carolina?), lesser government largess states such as Texas and New Hampshire where there is no state tax. Plus that state where you don’t have to wear seat belts, or helmets.

  10. Federalism only works when the states have real power, responsibility and accountability, and the federal government is prevented from acquiring it (or never giving it back in our case). That’s why the US system works, and ours and Canada’s less so.

    Consider if we only had a federal government as some people are calling for. What’s one of the first things it would do? Establish a public service agency in each region to run local matters like oversee local law and order, education, health etc. In our case this is the role the states voluntarily assume to some extent, but in true federalism the local agency would be a local government held accountable to the taxes they collect and subjected to periodic voter scorn keeping them a lot more honest than a bunch of bureaucrats.

  11. >> Moving state is a bigger deal for most people than tax and
    >> education policy.

    I don’t agree with this. I have lived in five out of the eight Australian states and territories in my life.

    I (and my family) have moved where the opportunities were – just like my ancestors did when they first came to Australia.

    Moving to another state with the same language and culture is really no big deal.

    A competitive union of states seems pretty attractive to me.

  12. Strawman- that may be true in your case. But I’d say that for a lot of people the weather in QLD/ Vic is a bigger factor than taxes in those respective states.

    Would you agree that smaller states would make federalism more accessible to most people?

  13. Shem, we just need to give more powers to counties and shires, and populate the upper houses of states with an ambassador from each local county or shire!

  14. Shem, If the weather is more important to some people than the ‘economic/law and order/educational/freedom of the media/ right to ingest’ system they live under then that is still fine for them. They obviously spend their lives opening the newspaper at the sports pages and are good at not letting things bother them. No problem for them or anyone else.
    However there are people who truly resent having big chunks of their income spent “in a more enlightened way” and being told what they can and cannot do by big brother. For this the trip across the country and to a different climate is well worth it.
    Remember the boat people refugees from Vietnam who would give their life savings to acquire passage on a leaky boat in shark infested waters for a -chance- to make it to the west where they would have nothing, not even the language.

    I think we would be getting a bit soft to ask that our Utopia should be brought to us instead of we getting of the couch and going to it.

    Besides, economies of scale would make a nation of mini-federations highly impractical.

  15. I don’t really get the whole competitive federalism thing even though I’ve noticed many Libertarians are very keen on it. I think of governemnt and business as being quite different and don’t see why principles from business should necessarily apply to government. Having said that I don’t fear monopoly businesses anyway. (as long as they achieve their monopolies in a free market and not through government favours or illegal activity).

    Also, isn’t there an infinite regress here? Smaller and smaller geographical areas of jurisdiction = better?

    The LDP website states:
    “Where possible, government activities should be decentralised to the State level to allow the benefits of governmental competition, policy experimentation and individual choice. This will also allow the removal of bureaucratic duplication of federal and state agencies”

    Maybe someone could go back to basics and elaborate a bit.

  16. Tim R., i just think we can keep governments small in scope by also keeping them small in size, so that emigration teaches local counties that tax rates of 150% are a bad thing, as a hypothetical, hyperbolic, example.

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