Federalism from the Bottom Up

As our national government bumps along from one self-made crisis to another, the dysfunction and hysteria mask positive forces. This recession, tied to a major financial breakdown, was the deepest and most destructive in 70-plus years. But from the pain and suffering it inflicted, the Great Recession may be offering potential for self-renewal. A healthier new economy is beginning to emerge -- one that is better balanced, more productive and substantially deleveraged.

Perhaps most promising, it appears the 30-year trend toward outsourcing of manufacturing goods is beginning to reverse. Thanks to higher international transportation costs, wage growth in China, declining energy and labor costs in the U.S., a stunning improvement in robotics, and a new interest in bringing the people who design stuff and assemble it together under the same factory roof, we’re seeing a nascent renaissance in making things.

One thing that could derail this more positive outlook is Washington -- its Russian-roulette politics, mindless sloganeering and depressing incivility. That’s why I found a recent series of policy briefs suggesting a better way so intriguing and heartening. Launched by the Metropolitan Policy Program at The Brookings Institution, the effort is designed to elicit a more positive and creative policy debate in the first months of the new Congress and presidential term. The series, “Remaking Federalism/Renewing the Economy,” offers up a radical but non-ideological series of changes in the way Washington should work, based on three guiding principles.

The first principle: Make significant cuts in spending and tax subsidies, and then invest part of the savings in strategic investments designed to spur economic growth -- R&D, infrastructure, education, training and so on. The government’s own accounting office recently identified $400 billion in easily justified cuts; the brief suggests investing one of every four of those saved dollars to help transform the economy.

Second, in the spirit of the “reinventing government” movement of 20 years ago, reform the way the government works. “Direct action by the federal government will need to give way increasingly to catalytic government: government by incentive, government through partnership, government by alignment,” the report states. Many federal programs remain too rigid, prescriptive and redundant, so reducing them should be managed “in ways that seek to make limited investment go farther by seeking greater focus on building in more space and flexibility” for problem-solving by state and local governments and the private sector.

And that leads to the third principle -- the one that resonates most with me. The report calls for the emergence of a new “bottom-up” federalism, where states, locals and the private sector collaboratively do much more of the work. Policy will need to be “co-developed” and new institutions created to manage the process. This may sound like pie in the sky, but whether you approved of the 2009 stimulus program or not, there is agreement at all levels that the interaction between Washington and subnational governments in administering it was surprisingly seamless. It can be done.

Indeed, until it was defunded in 1996, the U.S. Advisory Commission on Intergovernmental Relations played such a role in Washington, trying to strengthen the federal system by coordinating federal efforts with the states and localities. Something like it would be needed in a bottom-up approach.

Already, many states, cities and metro business groups, sometimes allied with universities, are crafting promising new programs. Specific examples are cited in a number of cities, states and regions.

The work by Brookings, authored by Bruce Katz, Mark Muro and some 15 other experts, is more than one big report. It is a series covering all sorts of topics, making specific recommendations not only on how best to carry out the three guiding principles, but also on actions that should be taken to juice up the economy. Some are controversial -- limiting the home interest deduction or imposing a modest tax on carbon emissions, for instance. There probably will not be great enthusiasm in Congress for those ideas.

But what is intriguing, just for starters, is the prospect of bringing the 50 governors -- 30 Republicans and 20 Democrats -- into the decision-making process, as well as mayors and metro business leaders. They generally are more pragmatic and less ideological than members of Congress, and they have a better idea of what is needed now on the ground. In more general terms, the effort offers a path to positive change in a transforming economy and an escape route from the muck we are in. It gives both the administration and its opposition an alternative agenda to consider.

Washington is dysfunctional, but it’s worse than that, “because it is fundamentally misaligned with the imperatives of the new global order that is unrelentingly competitive, constantly changing, and paradoxically local,” the report concludes. The federal government “currently appears unable … to respond to the need to develop a new American growth model. And it is that inability to respond to profound challenges that has deepened the current sense of drift.”

You can find the full series of these reports at the Brookings site.