Intergovernemntal trasnfers are fiscal redistribution

Economic transfers could be used as a substitute for existing federal controls over state and local decisionmaking. The current system of central regulation of state and local social services through federal conditional grant programs is an inherently clumsy method of remedying the local social service problems created by competition for investment and resource disparities among states in an integrated national economy. 46 Not only does the federal grant [*107] system short-circuit state and local political self-determination, but it also fails in practice to provide any significant redistribution of resources to needier jurisdictions. 47 A more effective and less intrusive strategy would reconstitute the existing system of fiscal federalism by using the federal tax system to transfer money from wealthier states and localities or those with fewer needy residents, to jurisdictions with less fiscal resources or more fiscal demands. Such a system of horizontal redistribution, which has functioned successfully in other federal systems including Canada and West Germany, 48 would provide states and localities with insurance against the consequences of interjurisdictional competition and reduce jurisdictional disparities in fiscal resources and needs. 49

These examples illustrate some of the reconstitutive initiatives that might be developed to replace the current system of centralized command and control. Other possibilities include expanded use of taxes or liability to discourage socially undesirable conduct, such as the operation of unsafe workplaces, and the expanded use of vouchers to promote diversity, innovation, and efficiency in housing, education, health care, and other social service programs. 50

Economic exchange and transfer systems have important advantages over prescriptive strategies. Economists have long favored such systems because they are more likely to promote economic welfare than centralized prescriptions. 51 But it is also important to emphasize the noneconomic advantages of such systems. By delegating decisionmaking to state and local governments, business firms, and other subsystem decisionmaking units, reconstitutive strategies lessen the current concentration of decisionmaking power [*108] within central bureaucracies and promote decentralization, flexibility, and diversity. For example, a transferable pollution permit system could allow not only business firms but also state or regional authorities a far greater role in environmental and economic policy choices than the current system of centralized directives allows. Although the federal government would establish a maximum number of pollution permits, state and local governments or new regional airbasin or riverbasin authorities could establish and manage permit markets. They could issue fewer permits than the maximum and determine how permits would be allocated and exchanged. Similarly, if federal grant programs were replaced by a horizontal system of fiscal redistribution, states and localities would decide what social needs command the highest priority and how best to meet those needs.

Using economic incentive systems, however, does not mean that the national policies underlying those systems should be set by an economic cost-benefit analysis. For example, the number of air pollution permits could be tightly restricted in order to promote noncommodity values, including health and preservation of exceptionally scenic areas. 52 Nor should such incentive systems necessarily be viewed solely as mere instruments to achieve a specific goal such as clean air. Economic incentive systems can incorporate and promote intrinsic process values. Transferable pollution rights socialize the market by making firms responsible for the externalities that they generate. Income transfers from rich to needy jurisdictions reflect and promote solidarity values of mutual concern and aid.

Economic incentives and transfers, moreover, are but one form of reconstitutive strategy. An alternative approach is to require or encourage new decisionmaking procedures and structures. Occupational risks provide a case in point. Occupational safety and health regulation by the federal government has been justified on the grounds that workers are often poorly informed about occupational hazards and may lack the collective resources and bargaining power to deal effectively with them. 53 But centralized Occupational Health [*109] and Safety Act (OSHA) directives are not the only means of addressing this problem. The current system of labor law, for example, could be reconstituted to promote unionization. 54 The federal government could either disclose information about occupational hazards itself or require employers to do so. Employers could be required to hire occupational health and safety professionals, chosen jointly by employers and employees, to monitor risks and correct hazards. Occupational health and safety could be made a mandatory subject of collective bargaining or employment contracts. 55 These steps might reduce workplace hazards more effectively than the current patchwork and inherently clumsy system of centralized regulation. 56 They would shift decisionmaking responsibility to those most directly affected, enabling employers to choose the most cost-effective means of dealing with hazards, and giving workers a direct voice in determining acceptable levels of risk in their workplace. 57

[*110] A third reconstitutive approach to harmonizing subsystem conduct and national goals and norms is to alter the jurisdictional competence of different constitutive legal systems. Deregulation is one example of this approach. It replaces administrative governance of particular sectors of the economy with governance by market laws. Straightforward deregulation is an appropriate and desirable form of reconstitution in some sectors. But in others, scale economies and other considerations dictate more complex forms of restructuring. For example, deregulation of banking should take into account the potential desirability of retaining dual federal-state bank licensing and the problems raised by bank affiliate access to the payments system. 58 Deregulation of the electricity industry could involve a restructuring of the generating, transmission, and local distribution sectors of the industry along quite different models. 59

Substituting different structures of market law for regulatory administration is but one form of jurisdictional reconstruction. A different approach is followed by the proposed system of horizontal fiscal redistribution, which would shift responsibility for decisions about social service policies from the federal government to states and localities. Scholar-advocates on the left have proposed more radical forms of reconstruction, including a greatly increased economic role for cities 60 and new systems of capital allocation aimed at creating novel economic and social subsystems. 61