Earlier this week, we pointed out that, under President Barack Obama, the dependency of the states on the federal government has reached a threatening and historic high. As USA Today sums it up, “In a historic first, Uncle Sam has supplanted sales, property and income taxes as the biggest source of revenue for state and local governments.”
There are lots of reasons to oppose this, ranging from its inevitable inefficiency to the unaccountability it fosters. But the most basic reason of all was one President Reagan understood well: the U.S. is a federal union. When Washington DC comes to set the policies of all the states – and whoever provides the money will indeed ultimately make the rules – the U.S. will have lost a basic part of its history, and of the liberties it was founded to secure.
But the U.S. will not be alone. If you want to get a sense of how far the process of centralization can go, take a look at Britain. There, local authorities rely on the Treasury for far more than 50% of their expenditures. Depending on how you define the terms, English local authorities receive between 68% and 75% of their funding from central government. And just as President Reagan reduced state dependency in the U.S. in the 1980s, Prime Minister Margaret Thatcher did the same in Britain in the same decade.
But in both the U.S. and Britain, this was a temporary victory. From the late 1940s through the mid-1970s, the value of locally raised revenue declined from about 50% of expenditures to less than 40%. Many accounting and funding changing since then make precise comparisons difficult, but the fact that locally raised revenue is now no more than 32% shows that the slide towards nationalized finance resumed after Lady Thatcher left office in Britain, just as it did in the U.S. after Reagan.
The justification offered for this in Britain is that less-well-off areas need extensive central grants if they are to maintain ‘essential’ services. But even the well-off South East of England raises only 30% of its revenue locally, while the worst-off North East raises 22% locally. In short, English local finance is nationalized no matter where you look; it’s just a question of whether it’s 70% or 78% national.
The idea of trying to equalize services is, in any event, a dangerous one, because what it means is that, no matter how badly a locality does, no matter how ridiculous its policies, it will never have to pay a price for its failings. That simply encourages economic inefficiency, and financial and political irresponsibility.
True, Britain – unlike the U.S. – is not a federal state. But Britain did once have a great tradition of local government. Sidney and Beatrice Webb, English socialists and – later – supporters of the Soviet Union thought enough of English local government to devote no less than ten volumes to it between 1906 and 1929.
The Webbs obviously had their own prejudices and preferences, but at least they took the subject seriously. When local government has three-quarters of its money supplied by the central state, it no longer matters all that much. And that is as inefficient and as dangerous in Britain as it is in the United States.
