Roland Sturm

Federalism

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URN: 0156-55996254

This is a translation of the following entry:

Sturm, Roland (2018): Föderalismus. In: ARL – Akademie für Raumforschung

und Landesplanung (Hrsg.): Handwörterbuch der Stadt‐ und Raumentwicklung.
Hannover, 697-706.

The original version can be accessed here:

urn:nbn:de:0156-5599625

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Translation and proofreading: ProLinguo GmbH

Recommended citation:
Sturm, Roland (2018): Federalism.
https://nbn-resolving.org/urn:nbn:de:0156-55996254.
Roland Sturm

Federalism

Contents

1 Term and concept

2 Forms of federalism
3 Intergovernmental relationships
4 Federalism and democracy
5 Resolving conflicts between the federation and member states
References
Additional literature

Federalism combines national unity with territorial diversity.

The forms of federalism, the division of competences and the
cooperative relationships between the federation and member
states reflect the balance between these two ideas. A distinction
should be made between dual federalism, cooperative
federalism and political integration. Federalism is an
expression of democratic rule.

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Federalism

1 Term and concept

The term federalism has its roots in the Latin word foedus, which means alliance or contract.
Federalism can be regarded as a voluntary agreement on the form of territorial rule. Individual
territories commit themselves to permanent cooperation, whereby, unlike a federation of states,
the political autonomy of the territories is restricted in favour of uniform decision-making at the
federal level. Federal law trumps state law. The federation is required to behave in a considerate
way towards the decision-making process of its members. The minimum requirements of
federalism are: the organisation of a political system into territorial units; a separate constitution
for each of these units, which is based on the idea of sovereignty of the people; participation
of the member states in decision-making by the federation; and a financial constitution which
permits the member states to fulfil those tasks which fall within their remit. The division of tasks
in federalism follows the principles of ▷ Subsidiarity and solidarity. The smaller territorial unit is
responsible for state functions and tasks in the first instance. If it finds itself unable to fulfil certain
tasks alone (e.g. defence or monetary policy), within federalist system it can expect that the next
higher territorial level will step in (local authority – state – federation – ▷ European Union).

2 Forms of federalism

Federalism is always a compromise between spatial uniformity and spatial diversity. The need
for diversity has various roots. In many cases (for example, the USA, Canada, Germany), these are
historical. A common national territory has been formed from previously autonomous territories.
The member states wish to maintain their identity and important competences within this
‘unifying federalism’. Federalism can also be the result of the collapse of a state. Particularly in
multi-ethnic societies with territorially concentrated ethnic, religious or other minorities and/or
with stateless nations, unitary states are rarely stable (cf. Heinemann-Grüder 2011). The alternative
to the breakup of these states is federalism, which can be used to attempt to hold a state together
(e.g. Belgium, Iraq, Bosnia-Herzegovina). In existing federal states, too, federalism allows a
flexible differentiation of regional representation, since the number of member states necessary
for federalism is not fixed. The reorganisation of federal states (Germany) or the creation of new
member states (Switzerland: Jura canton; India, e.g. Telangana in 2010 as the 29th federal state)
can meet the desire for autonomous spatial representation and thus stabilise a state structure.
Whether such an attempt is successful depends less on the specific arrangement of federal
systems than on whether there is sufficient commonality between the diverging parts of
the country. Examples of failed federal states are the Czechoslovak Federation (1989-1992),
Yugoslavia and Sudan (independence of South Sudan in 2011). In Europe, the idea of secession
still has supporters, for example in Scotland, Catalonia, the Basque country, Corsica and South
Tyrol (cf. Sturm 2016). The pursuit of territorial autonomy in existing state systems has produced
various precursor forms of federalism in the shape of political regionalisation. Federalism as a
further development of political regionalisation is an issue in Spain, Italy and the United Kingdom
of Great Britain and Northern Ireland. Large non-city states, with a few exceptions (e.g. the
People’s Republic of China), opt for federalism for practical reasons alone (Russia, Canada, the

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USA, Australia). The territorial units in federal states do not all have to be equal in size; in fact,
they do not even have to have the same competences. In multi-ethnic federal states, political
stability often cannot be achieved if all member states are equal. Multi-ethnic federal states
therefore concede special cultural, economic or political rights to the individual member states of
a federation; federalism thus becomes asymmetrical (Canada, Russia, Belgium) (cf. Tarlton 1965;
Agranoff 1999). It is only in states with relatively homogeneous societies that we find, at least de
jure, a symmetrical federalism (Austria, Germany, the USA).

2.1 Forms of the division of competences

The forms in which competences are divided up are constitutive for different types of federalism
(see Table 1). Competences in the federal system can be distributed according to the clearest
possible separation system, which means that the federation and member states govern their
respective areas and only cooperate in a few, clearly defined fields. This corresponds to a full range
of political institutions at both the federal and the member state level. Both levels therefore have
their own constitutions, governments, parliaments, constitutional courts and administrations
(dual federalism). Dual federalism is the preferred model in the economic theory of federalism
(cf. Oates 1972; Sauerland 1997). It enables territorial competition at all levels (competitive
federalism). The member states can attempt to find the best possible solution for their economic
problems, to provide a cultural programme that attracts tourists and investors, and to work with
innovative policy approaches. In this model, the successful member state retains the fruits of its
success. Living conditions are not homogeneous; rather, it is precisely their inequality which is
regarded as a motivation for political and social innovation. Federalism becomes a ‘laboratory of
democracy’ (cf. Tarr 2001; Oates 1999: 1131 uses the term ‘laboratory federalism’ in this context).
Political experiments in one member state can be imitated by other member states and by
the federation if they are successful. Failed experiments are unavoidable, but they only harm one
member state and not the entire nation. In elections within dual federalism, the voters can clearly
attribute responsibility and draw the corresponding conclusions (cf. Tiebout 1956). They do not
have to puzzle over whether a decision was made by the EU, the federation or the state. The federal
state parliaments have significance as places of legislation for the states’ own affairs. The markets
respond to successful or unsuccessful federal state policy with corresponding risk premiums for
individual member states requesting loans. As well as providing accountability towards citizens
on the occasion of elections and referendums, this exerts an additional pressure on policymakers
to engage in serious financial policy.
The second model of federalism is cooperative federalism. The focus here is on the joint
performance of tasks by the federation and member states. In the Basic Law of the Federal
Republic of Germany (Grundgesetz, GG), this cooperation (▷ Cooperation between federal and
state governments) is already embedded in the structure, since decisions about most legislative
matters are in the hands of the federation, but the federation can only execute laws in a few
cases (e.g. federal defence administration). There is no federal administration. ▷ Administration,
public is generally the job of the federal states. Cooperative federalism encompasses more than
cooperation when implementing laws. It is also based on the financial dependence of the member
states on the federation and on the joint performance of numerous tasks, particularly in the area of
the welfare state. The benchmark is often the standardisation of living conditions (▷Equivalence of

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living conditions). Here, the welfare state norm of equality collides with the essence of federalism,
which guarantees diversity (cf. Sturm 2013).
In cooperative federalism, the barriers to innovation in the member states are high, because
decisions are integrated into complex federal and state government negotiation systems. The
federal state parliaments are weakened in comparison with the federal state governments. Only
the latter act as cooperative partners of the federation (executive federalism). Because of the
financial association between the federation and member states, the markets cannot differentiate
with regard to the creditworthiness of individual member states. They count on a bail-out by the
federation if a member state should get into difficulties, and assign an identical rating to federal
and member state budgets.
A special form of cooperative federalism is political integration, which has a strongly
unitarising effect (cf. Scharpf/Reissert/Schnabel 1976; Kropp 2010). It goes beyond selective
and problem-related cooperation in the handling of political tasks, because it institutionalises
this cooperation and prescribes it in the federation’s constitution. Cooperation becomes the
structural principle for performing public tasks. Joint decision-making committees are formed,
in which the federation and member states seek to reach compromises. Given the large number
of stakeholders and interested parties in such committees, the smallest common denominator is
often the basis for decisions rather than a change of direction. Added to this is a tendency on the
part of all participants, in order to encourage consent, to organise gains for everyone at the cost
of the taxpayer, which is why the decision-making mechanisms of political integration contribute
to an increase in government spending. Area specialists from policy and administration in the
federation and the federal states are the spokespersons (‘professional brotherhoods’) and present
their proposed solutions to the elected parliaments as the only choice. Competition between
member states is excluded except for the few political fields in which the member states act on
their own authority. Decisions remain opaque for voters, because they are not made in the federal
state parliaments but rather in federal and state government committees of very different types,
which are filled by the governments. The results of these committees are not called into question
in the federal state parliaments.

Table 1: Types of federalism

Type Dual federalism Cooperative Unitary

federalism federalism
Characteristics Competitive Cooperation between Political integration
federalism federal and state
governments

Source: The author

The division of competences in federalism results in different types of legislation: exclusive

legislation by the federation (regulated in the federal constitution); exclusive legislation by the
federal states, which can be regulated both in the federal constitution (India) and in the member
state constitutions (Germany); and a third type of legislation: competitive legislation (regulated
in the federal constitution), which, in cooperative federalism, is intended to give the federation
access to a limited range of tasks performed by the states for overarching reasons, if there is a

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parliamentary majority for this at the federal level.

2.2 Financial federalism

The revenue systems in federal states are designed analogously to the models of cooperative and
dual federalism (see Table 2; cf. Döring 2000, who compares US and German financial federalism).
Dual federalism usually has a separate system with both the federal and member state level
having sovereignty over the organisation of tax collection. The principle of fiscal equivalence
applies (cf. Olson 1969), which means that each political level is responsible for creating a balance
between revenue decisions and spending decisions. In cooperative federalism, a system of tax
revenue sharing and distribution can be expected, or the exclusive right to levy taxes by the
federation. This does not exclude the possibility that, after the tax has been levied, the revenue
from a particular type of tax is allocated in advance to the member states (revenue sovereignty).
However, the decisive factor for the cooperative federalism model is that the member states are
financially dependent on the federation or on federal legislation.

Table 2: Forms of financial federalism

Form of federalism Dual federalism Cooperative/unitary

federalism
Financial constitution Separate system/fiscal System of tax revenue
equivalence sharing and distribution/
allocation system

Source: The author

This dependence is expressed not only in tax law but also in the financing of numerous
state responsibilities in which the federation acts as co-financer. The combined financing of
responsibilities can be structured in different ways. It can be tied to a particular responsibility
and its fulfilment. However, the federation can also provide a fixed total sum and entrust it to
the member states to use as they wish. The latter model has the advantage for the federation
that it does not have to contribute any further funds if the scope of the responsibility should
grow over time, e.g. because of demographic change. Any type of combined financing carries the
danger of the so-called ‘golden reins’, i.e. the problem that the federation may end up steering
the policies of member states through financial incentives, such that member states lose their
political autonomy.
One way out of this dilemma would be to strengthen the federal states’ own income. In
every federal state, there are rich and poor member states. This means that there is also always
a mechanism of fiscal equalisation (▷ Fiscal equalisation between the states). A distinction is
made between vertical and horizontal fiscal equalisation (cf. Döring 2005). Horizontal fiscal
equalisation is based on the principle of federal solidarity, i.e. that the federal states will be there
for one another. The economically/fiscally more successful federal states co-finance the less
successful ones. Horizontal fiscal equalisation is only practised in a few federal states (Germany,
Switzerland). Many of its aspects are controversial. For example, it is not clear when equalisation
can be considered sufficient – when the federal states are fully equal after balancing payments or

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when they have achieved a certain percentage of the financial power of the federal states. Another
question is how to measure the different financial performance of the federal states – by their
results (as in Germany) or by their starting conditions (as in Switzerland). Which measurements
and indices should be used as reference values for the balancing is also disputed. The alternatives
are to determine the (financial) need of the federal states, to take their population as a starting
point, or to calculate an indicator for the financial strength of the member states.
In federal systems with horizontal fiscal equalisation, vertical fiscal equalisation is used in
addition in order to be able to perform further corrections to funding in favour of the poorer
federal states. This is achieved by means of payments from the federal budget in order to cushion
exceptional emergencies. In countries which lack horizontal fiscal equalisation, vertical fiscal
equalisation, i.e. balancing payments by the federation to the member states, alone takes on the
function of correcting the spatial distribution of income at the member state level. This means that
the federation alone decides which spatial effects it wants to achieve. Indirectly, the federation
also always has the option of pursuing a policy of strengthening certain federal states through the
regional dimension of its political decisions (▷ Locational policy) (e.g. locations of the army or of
ministries, or the awarding of contracts to companies).
The multi-layer structure of federalism offers incentives to pass on financial burdens to lower
political levels, e.g. burdens which result from the enforcement of federal laws. This can only be
counteracted if the ▷ Connexity principle applies for legislation with cost consequences, which
obliges the entity causing the costs to bear them, even if these costs only have to be settled at the
member state level or at the municipal level.

3 Intergovernmental relationships

The cooperation between federation and federal states can be organised in different ways. The
spectrum ranges from informal relationships to cooperation in federal legislation in the second
chamber of the federal parliament. In the USA, for example, the governors of federal states only
have the role of lobbyists in Congress if they want to influence federal legislation in their favour. In
other countries, such as Austria or Canada, where – as in the USA – the second chamber is omitted
as a place to bring federal state interests into the legislative process because the formation of
party political camps prevails there, alternatives have been sought. Here, the heads of the regional
governments meet regularly, sometimes also with representatives of the federal government,
in order to make the concerns of the member states heard (Provincial Governors’ Conference
[Austria], First Ministers’ Conference [Canada]).
The German Federal Council (Deutscher Bundesrat) is, in many respects, a peculiarity in this
context (cf. Reuter 2007; Sturm 2009). The Federal Council is not a second chamber of the German
parliament. Nonetheless, the German federal states participate in federal legislation and in affairs
of the European Union through it. The members of the Federal Council are the Minister-Presidents
and other delegated members of the federal state governments. Membership in the Federal
Council changes after each state parliament election. The Federal Council as such, however,
remains intact (‘perennial institution’). It is not organised purely along party political lines, and
its members do not have the free mandate which is otherwise usual in democratic parliaments.

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The representation of the federal states in second chambers either follows the principle
of scaling the number of representatives according to the different population numbers of the
individual federal states (Federal Council principle [Bundesratsprinzip]) or the principle of equal
treatment of all federal states (senate principle). The Federal Council is organised according to
the moderated Federal Council principle, which mitigates the spread of seat numbers per federal
state in the Federal Council in favour of the small federal states. Territoriality plays a large role
in Federal Council decisions, even though this is usually reflected in the negotiations of Federal
Council committees, out of the public view. Regional governments can also cooperate with each
other outside the federal institutions (third level of federalism). In Minister-Presidents’ and state
ministers’ conferences, votes are taken on political tasks which are particularly significant if the
member states carry sole responsibility in this area (e.g. Standing Conference of the Ministers of
Education and Cultural Affairs of the Länder in the Federal Republic of Germany).

4 Federalism and democracy

Positive federalism theory disputes the connection between federalism and democracy (cf.
Benz 2009). In this view, every state that calls itself federal is federal, including an autocracy like
Russia. Normative federalism theory, on the other hand, argues that democracy and federalism
are inextricably linked (cf. Sturm 2015). In spatial terms, it understands federalism to be a vertical
separation of power alongside the horizontal one between the legislature, executive and judiciary.
Democratic governance in the member states restricts the power of the federation and checks
the exercise of power. Parliaments at the member state level make policy more manageable
and shorten the distance between voters and elected representatives. In homogeneous federal
states, elections to member state parliaments have also developed into a kind of interim election
for federal policy; in multi-ethnic federal states, they offer a forum for the articulation of ethnic
interests. The vertical separation of power is the only justification for the existence of German
federalism. Without this element to safeguard democracy, German federalism – like any other
federalism – would be the equivalent of a decentralised administration.
Every nation in the world has decentralised administrative structures. Decentralisation and
regionalisation are distinguished from federalism in that only the latter ensures democratic
governance, namely by its democratic legitimation from below. The member states are the
building blocks of the state in federalism. This is made apparent by the fact that the responsibility
for social tasks not covered by the constitution is normally (with exceptions, e.g. India) held by the
lowest political level (general competence). The election of regional parliaments, such as in Spain,
France or the United Kingdom, demonstrates an advanced state of political deconcentration or
devolution. But it is only when these regionalisation processes are linked to the constitutional
acknowledgement of member state sovereignty that the step from the regionalisation to
the federalisation of the political system has been taken. The research emphasises that the
democratic potential of federalism does have certain prerequisites. Federalism requires a culture
of federalism (cf. Duchacek 1987; Sturm 2004), which can be empirically measured, among other
things, by whether citizens expect solutions for social problems, or for the performance of state
tasks, to come rather from the federation or from the member states.

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Only a lively culture of federalism exploits all the possibilities for diversity in federalism. From
the point of view of the federation, diversity conflicts with efficiency in the performance of public
tasks. From the point of view of the member states, diversity is an expression of the democratically
articulated preferences of the citizens of the member states. Federalism in African (South Africa,
Nigeria, Ethiopia) and Asian countries (India, Malaysia, Myanmar) faces another problem in relation
to democracy. In these cases, the desire for regional autonomy conflicts with the planning by the
central government for the state’s economic development. What’s more, successful liberation
movements against colonial rulers or indigenous dictators show little inclination to share their
power with the representatives of member states after taking over power at the federal level.

5 Resolving conflicts between the federation and

member states

Conflicts between the federation and member states over resources and interpretations of how a
federation perceives its role and function can be resolved either formally or informally. A formal
procedure is to go to the supreme federal or constitutional court, which can derive its competences
for such a procedure from the constitution. Before it comes to this, there is always the possibility
of compromises within the legislative procedure; these compromises are facilitated by the fact
that federalism allows for trade-offs over time. The circle of stakeholders is limited, and certain
concessions could be made now in exchange for other concessions later. Secession as a means
of resolving conflict is only an option when there are fundamental doubts about the democratic
legitimation of the federal state. If a member state desires secession, a supreme court decision can
be requested to clarify the legality, conditions and procedures of secession.
Informally, conflicts in federalism are defused by coalitions formed by specialist politicians at
different political levels. Political parties play an even larger role as long as they do not only act
one-sidedly as regional parties in one member state representing particular interests. National
parties integrate the diverging interests of individual member states within the competition
between parties (cf. Lehmbruch 2000). They do this in two ways: firstly, they reach a national
compromise between the different political positions of the member states on a topic, and
secondly, they flexibly take into account diverging positions in individual member states and act as
lobbyists for these positions in their local party organisations. As long as national parties succeed
in moderating conflicts between the interests of member states and those of the federation within
the party, the competition between parties in the federal state has a unifying effect.

References

Agranoff, R. (Ed.) (1999): Accomodating diversity: Asymmetry in federal states. Baden-Baden.

Benz, A. (2009): Ein gordischer Knoten der Politikwissenschaft? Zur Vereinbarkeit von
Föderalismus und Demokratie. In: Politische Vierteljahresschrift 50 (1), 3-22.

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 Federalism

Döring, T. (2000): Finanzföderalismus in den Vereinigten Staaten von Amerika und in der
Bundes­republik Deutschland im Vergleich. In: Wentzel, B.; Wentzel, D. (Eds): Systemvergleich
Deutschland – USA. Stuttgart, 53-112.
Döring, T. (2005): Finanzausgleich. In: ARL – Akademie für Raumforschung und Landesplanung /
Academy for Territorial Development in the Leibniz Association (Ed.): Handwörterbuch der
Raumordnung, Hanover, 297-302.
Duchacek, I. D. (1987): Comparative federalism: The territorial dimension of politics. Lanham.
Heinemann-Grüder, A. (2011): Föderalismus als Konfliktregelung. Russland, Indien, Nigeria und
Spanien im Vergleich. Leverkusen.
Kropp, S. (2010): Kooperativer Föderalismus und Politikverflechtung. Wiesbaden.
Lehmbruch, G. (2000): Parteienwettbewerb im Bundesstaat. Wiesbaden.
Oates, W. E. (1972): Fiscal Federalism. New York.
Oates, W. E. (1999): An essay on fiscal federalism. In: Journal of Economic Literature 37 (3),
1120-1149.
Olson, M. (1969): The principle of ‘fiscal equivalence’: The division of responsibilities among
different levels of government. In: American Economic Review 59 (2), 479-487.
Reuter, K. (2007): Praxishandbuch Bundesrat. Verfassungsrechtliche Grundlagen, Kommentar zur
Geschäftsordnung, Praxis des Bundesrates. Heidelberg.
Sauerland, D. (1997): Föderalismus zwischen Freiheit und Effizienz: der Beitrag der
ökonomischen Theorie zur Gestaltung dezentralisierter politischer Systeme. Berlin.
Scharpf, F. W.; Reissert, B.; Schnabel, F. (1976): Politikverflechtung. Theorie und Empirie des
kooperativen Föderalismus in der Bundesrepublik. Kronberg im Taunus.
Sturm, R. (2004): Bürgergesellschaft und Bundesstaat. Demokratietheoretische Begründung des
Föderalismus und der Föderalismuskultur. Gütersloh/Berlin.
Sturm, R. (2009): Der Bundesrat im Grundgesetz: falsch konstruiert oder falsch verstanden?
In: ECRF – European Center for Research on Federalism (Ed.): Jahrbuch des Föderalismus
2009. Baden-Baden, 137-148.
Sturm, R. (2013): Der deutsche Föderalismus – nur noch ein Ärgernis? In: Gallus, A.; Schubert,
T.; Thieme, T. (Eds): Deutsche Kontroversen. Festschrift für Eckhard Jesse. Baden-Baden,
297-308.
Sturm, R. (2015): Der deutsche Föderalismus – Grundlagen, Reformen, Perspektiven.
Baden-Baden.
Sturm, R. (2016): Von der Autonomie zur Sezession – Schottland, Katalonien und Flandern.
In: Knodt, M.; Große Hüttmann, M. (Eds): Föderalismus – das Problem oder die Lösung?
Baden-­Baden, 67-83.
Tarlton, Ch. E. (1965): Symmetry and asymmetry as elements of federalism: A theoretical
speculation. In: Journal of Politics 27 (4), 861-874.

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Federalism

Tarr, A. G. (2001): Laboratories of democracy? Brandeis, federalism, and scientific management.

In: Publius 31 (1), 37-46.
Tiebout, C. M. (1956): A pure theory of local expenditures. In: Journal of Political Economy 64 (5),
416-424.

Additional literature

ECRF – European Center for Research on Federalism (annually since 2000): Jahrbuch des
Föderalismus. Baden-Baden.
Forum of Federations (Ed.) (2005): Handbook of federal countries. Montreal.
Härtel, I. (2012): Handbuch des Föderalismus, 4 Volumes. Berlin/Heidelberg.
Loughlin, J.; Kincaid, J.; Swenden, W. (2013): Routledge Handbook of federalism and
regionalism. Abingdon.
Sturm, R. (2003): Föderalismus in Deutschland. Munich.
Sturm, R. (2010): Föderalismus. Eine Einführung. Baden-Baden.

Last update of the references: November 2016

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