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Abstract. Horizontal competition among governments has to be enforced by a higher-level institution, but this institution must not be the federal or union ...
Constitutional Political Economy, 10, 327–338 (1999)

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Enforcing Competition Among Governments: Theory and Application to the European Union ROLAND VAUBEL

[email protected]

University of Mannheim, Seminargeb¨aude A5, D-68131 MANNHEIM, Germany

Abstract. Horizontal competition among governments has to be enforced by a higher-level institution, but this institution must not be the federal or union government, parliament or court, because these have a vested interest in intergovernmental collusion and ultimately in monopolization. The European Union institutions have been interested in removing national protection, regulations and subsidies because, by doing so, they could induce the interest groups, politicians, and bureaucrats of the member-states to demand more European protectionist measures, regulations, and subsidies. The establishment of a directly elected European Senate is proposed which would have no other powers than to enforce competition among governments on the basis of qualified minority decisions. JEL classification: F 02, H 77, K 33.

1.

Introduction

Competition among governments protects individual freedom,1 and it stimulates innovation and growth.2 Just as private firms are controlled by market competition rather than shareholder meetings, governments—as providers of public (and other) goods—are more effectively controlled by institutional competition than by their poorly-informed voters. The management of a firm fears loss of demand for its products or a hostile takeover. The government of a country, province or city is afraid of losing taxable resources or regulatory power to other governments. It suffers such losses when the demand for goods and services or for monetary, financial and real assets shifts to other jurisdictions or when, ultimately, the citizens themselves vote with their feet, taking their human capital with them. Since vote trading tends to be prohibited in democracies, in peacetime there cannot be threats of takeover that might act as a discipline on governments. Competition among governments, like competition among firms, cannot be left to itself. Governments, like firms, have a vested interest in restricting competition. They can protect themselves against foreign competition by restraining the import of goods and services, the use and holding of foreign currencies, and the export of financial and human capital. They grant monopoly rights and other special privileges to domestic firms, especially those owned by the state (the postal service, telecommunications, the railroads, the national airline, gas and electricity, social insurance, the central bank, etc.). They set up tax and regulatory cartels or monopolies by “harmonizing” or centralizing taxation and regulation at the federal or supra-national level. Unlike firms, governments may not even have the (explicit) legal right to leave the cartel, i.e. to opt out or secede. To the extent to which such tax and regulatory collusion or merger is imposed by simple or qualified majority, the majority can raise their rivals’ costs—a strategy well-known from the theory of indus-

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trial organization and the political economy of regulation.3 At the extreme, governments may terminate competition from rival governments by attacking and subjugating other countries. Just as private competition in a market must be confined by the law to contractual means, international competition among governments must be confined to peaceful means by an international or supra-national system of security. Just as peaceful competition in a market has to be enforced by anti-trust policy, peaceful competition among governments has to be enforced by a superior institution, a federal or supra-national competition authority.4 Ultimately, as in the market, collusive agreements among governments tend to break down, but they can cause considerable damage in the meantime. If “horizontal competition” among state or national governments is enforced by a higherlevel government, there will be another dimension of intergovernmental competition for tax and regulatory powers, i.e., “vertical competition” between the higher-level government and the lower-level governments. As Kerber and Vanberg (1995:55) have noted, “by defining which strategies jurisdictions of lower levels may use in their competition, the higher-level jurisdiction simultaneously decides also about the vertical structure of competences within such a multi-layered system.” Unfortunately, the higher-level government is not an unbiased arbiter of such vertical competition.5 Moreover, as I shall argue in this paper, a higher-level government engaged in vertical competition is not even an unbiased arbiter of horizontal competition. It follows that the supervision of horizontal competition cannot be left to the higher-level government. On the contrary, the higher-level government must itself be prevented from restraining competition. 2.

The Problem

Horizontal competition among governments not only requires the removal of barriers to trade, capital movements, and migration and the enforcement of private contracts in interstate commerce and finance. State governments must not only be prevented from protecting their territorial tax and regulatory monopolies against interjurisdictional substitution by the market. They must also be prevented from setting up tax and regulatory cartels among themselves. Moreover, if horizontal competition is not to be distorted, the competing governments must not be permitted to impose negative non-market externalities—like war, pollution, claim-jumping or cost-raising majority decisions—on each other. Both the rules of intergovernmental competition and the supra-governmental competition authority can be established by the constitution in a federation or by treaty in a confederation or international organization. As history shows, it is sometimes possible to reach unanimous agreement among governments on the removal of barriers to trade, capital movements, and migration (in this order), because the multilateral liberalization of interstate transactions tends to provide mutual benefits to all participating countries. The productivity gains from an improved division of labor raise income and, at given tax rates, government revenue. Thus, even though the participating governments lose the power to regulate interstate transactions, the overall effect on their power can be positive. To be sure, in the long run, dynamic competition among them will generate pressure for deregulation and tax cuts. But these long-term effects on governments may be smaller, or they may largely be ignored

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by politicians. Since politicians do not own the resources over which they dispose and periodically face elections, their planning horizon is short. More difficult than the liberalization of international trade and factor movements is domestic deregulation. The withdrawal of monopoly rights and other privileges from firms owned or tightly regulated by the states affects the power of governments more directly, and the losses to producers are more concentrated. In the history of European integration, several decades had to pass before the European Commission vigorously applied its competition policy to public enterprises and utilities. But it is precisely the removal of the international barriers to entry which weakens domestic resistance to domestic deregulation. As foreign substitutes become available, the rents from domestic regulation are dissipated, and domestic interest groups lose interest in these regulations (Peltzman, 1989). It is still more difficult to reach unanimous agreement about the prohibition or mandatory compensation of negative interstate externalities—at least if, as in the European context, the “polluter pays”-principle is upheld (Art. 130 r). Obviously, such agreements are not in the interest of those who cause the externalities. International conferences on the control of cross-national pollution or ocean-fishing provide ample evidence of this problem. Unanimity cannot be attained unless the agreement encompasses numerous types of externalities or establishes highly general and abstract rules so that each state and government can hope to benefit. Only rarely do governments consent at the constitutional or treaty level that one or some of them may be outvoted by a qualified majority. The history of European environmental policy shows how long this may take.6 What is most difficult to attain is an intergovernmental agreement against intergovernmental cartels on taxation and regulation. Even though such an agreement benefits the citizens, it is not in the interest of their governments. Tax and regulatory collusion enables politicians and bureaucrats to raise the level of taxation and regulation because it reduces the market’s incentive to shift economic activity to other states (exit), and because it quells political opposition from domestic voters (voice). A government which is too weak to raise the level of taxation and regulation on its own may even wish to be outvoted in decisions about minimum tax rates and regulatory standards for the union. For example, the Socialist governments of Spain, Greece, Ireland, etc. willingly accepted the European Social Agreement of Maastricht (1991), which introduced qualified majority voting on social regulations. The citizens’ interest may prevail among new governments who feel bound by their electoral promises, or in a constitutional assembly whose members are barred from future political office, or in referenda if the citizens retain the right of initiative. However, the median voter, too, may be interested in tax and regulatory collusion among governments to the extent that it facilitates redistribution in his or her favor. If the income distribution is skewed to the right, the median income is below the average income, and even a proportional income tax would be sufficient to redistribute toward the median voter (Meltzer and Richard, 1983). It is probably for this reason that the requirement of popular referenda for constitutional amendment does not significantly restrain political centralization in federal states (for the econometric evidence, see Vaubel (1996)). In the absence of progressive taxation, such redistribution could be avoided by introducing qualified majority voting so as to raise the income of the decisive voter above the average income.7 Starting from pro-

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gressive taxation, however, intergovernmental collusion and political centralization cannot be prevented entirely unless a constitutional contract is concluded. 3.

The European Institutions as Enforcers of Intergovernmental Competition?

In the European Union, the enforcement of horizontal intergovernmental competition is mainly left to the European Commission and the European Court of Justice. At the same time, Commission and Court compete with the member-states for executive and judicial power.8 They are engaged in vertical competition with the actors they are supposed to control. The governments’ interest in European policy collusion or monopolization grows as their exposure to competition increases (Vaubel 1990:75; Mussler and Wohlgemuth 1994:28). Competitive pressures have intensified with the removal of barriers to trade, capital movements, and migration as well as national monopoly rights. Moreover, the revolution in transportation and communication has reduced the cost of international transactions. Finally, the more mobile factors of production have increased their weight: capital relative to labor and both relative to land.9 It follows that the European Commission and the European Court have always had a vested interest in market integration: they have attacked national protectionism, regulations, and subsidies not only because this is the way of exercising the powers which the Treaty conferred on them (Buchwitz 1998; Mussler 1998:128) but also because, by strengthening international market interdependence, they increased the demand for the Commission’s collusive facilitation services and for the Court’s adjudication of Union legislation and policies. The demand for centralization at the European level not only comes from the national governments but also from organized interest groups. As a consequence of market integration, they not only lose interest in national regulations and benefit less from national subsidization, they also increase their pressure for government intervention at the European level.10 Even though the removal of national trade barriers, regulations, and subsidies initially disturbs the established distributional coalitions (Olson 1982), those organized interests which are similar in most parts of the Union tend to combine and apply their joint lobbying power to the European institutions, mainly the Council and the Commission. Since European regulations are more comprehensive, they are even more valuable than the national regulations have ever been. At the same time, owing to the lack of parliamentary control, the dominance of bureaucracy and the opacity of the European policy process, the democratic constraints on rent-seeking are weaker at the European level. Thus, in the new equilibrium, interest groups are more powerful than ever.11 Indeed, as two researchers of the subject have concluded, “the EC system is now more lobbying-oriented than any national system” (Andersen and Eliasson 1991:178). In view of these incentives, it cannot come as a surprise that the Single European Act (1986), which started the Internal Market Program, also facilitated the adoption of European regulations (Art. 100 A, 118 A), and that it was soon followed by the Social Agreement (1991), which introduced qualified majority voting for social regulation. To some extent, national protection and regulation have also been replaced by European subsidies—

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first in agriculture and steel, then in declining regions in general. The more backward member-states accepted the Internal Market Program only on the condition that the European structural funds would be doubled in real terms, and their condition for agreeing to the Maastricht Treaty, in particular the monetary union, was the establishment of a European Cohesion Fund. To a considerable extent, these transfers are used to subsidize producers in the recipient member-states. European subsidies also substitute for national subsidies, which are controlled by the European Commission under its competition policy (Art. 92–94). The Commission strives to become the sole supplier of such favors to organized interests (Peirce 1991).12 From 1988–90 to 1990–92, for example, national subsidies in the European Union were reduced by 16 percent, while European subsidies increased by 13 percent.13 Finally, if national trade barriers are dismantled, more European trade barriers are demanded (variable import levies for most agricultural products, so-called “voluntary export restraints” on producers from non-member countries, all sorts of import quotas, e.g., for bananas, so-called “anti-dumping” measures, etc.). By eliminating national protectionism, regulations, and subsidies, the European Commission and Court have increased the demand for their own services and the willingness to supply additional powers to them. Thus, the Commission and the Court are biased in favor of European market integration. For the same reasons, this is also true for the European Parliament. Can anything be wrong with that? There are essentially two problems. The first is that the European institutions have a vested interest in minimizing the transaction and information costs in interstate commerce and finance even at the price of suppressing differences in national preferences. In the case of purely domestic pollution (noise, the quality of drinking water, etc.), European legislation tends to ignore the fact that the demand—the willingness to pay—for environmental quality depends on income levels, population density, cultural factors, etc. Very similar considerations apply to the Europeanization of product regulations14 and the “harmonization” of labor and company law (working time, notice periods, parents’ leave, co-determination, etc.). Even monetary union may be a case in point: it minimizes transaction and information costs in interstate commerce and finance but it ignores the fact that, since international goods market equilibrium necessitates large real exchange-rate adjustments, price stability in all member-states requires nominal exchange rate adjustments—i.e., divergent monetary policies (Vaubel 1978). Moreover, nominal exchange-rate changes facilitate the international adjustment of relative wages, i.e., they allow for different labor market needs (e.g., Fellner 1973). The second and even more serious problem is that the European institutions have a vested interest in intergovernmental collusion because such “harmonization” or coordination is negotiated and monitored at the Union level and even tends to pave the way for European policy centralization. Not to prevent, but to maintain intergovernmental cartels is their aim. As long as horizontal competition policy was mainly a matter of eliminating national protectionism, regulations and subsidies, enforcement by the European institutions was “incentive-compatible.” The prospect of European centralization even provided a strong positive incentive. But now that the internal market has almost been completed, this prospect has become a threat to intergovernmental competition. The task of enforcing competition

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among governments must be delegated to some other decisionmaker who does not have a vested interest in policy collusion or monopolization at the European level. 4.

Proposals

The difficulty, as we have seen, is that both the existing European institutions and the competing national governments are interested in restraining intergovernmental competition. It follows that both horizontal and vertical competition among governments must be imposed by some other actor who is independent of both. It is useful to distinguish between the rules of competition and their application. The rules of intergovernmental competition are so fundamental that they ought to be part of the Treaty or Constitution.15 Three types of rules are required: 1. Rules enabling the Union institutions to proceed against national protectionism, regulation and subsidization; 2. Rules restraining protectionism, regulation and subsidization by the Union; and 3. Rules restraining tax and regulatory collusion among the governments of the memberstates. Since existing institutions do not have a sufficient incentive to provide the appropriate rules of competition,16 they must be proposed and adopted by a directly elected Constitutional or Treaty Assembly or by popular initiative and referendum. Once adopted, they have to be enforced—either by a court or by a competition authority. The enforcement of type-1 rules can usefully be left to the European Commission and the European Court of Justice because both have a strong incentive to apply these rules. Type-2 and type-3 rules cannot be enforced by the European institutions, because they have a vested interest in centralization and “harmonization.” The enforcement of type-2 rules could be assigned to a “European Court of Review” of the sort proposed by the European Constitutional Group (1993). Its judges would be empanelled from and be appointed by the highest courts of the member-states for a strictly limited period of time. The Court of Review would decide in each case whether the division of powers between the Union and the member-states is at stake. If so, it would settle the case on its own. If not, it would pass it on to the European Court of Justice.17 This solution presupposes that the judges of the highest courts of the member-states are sufficiently independent of and detached from the governments and parliaments of their countries. This condition is crucial because, for various reasons, the national politicians themselves may desire centralization at the Union level (Vaubel 1994:154–57). For example, they may wish the union to do the “dirty work” of catering to interest groups on whose support they depend (Vaubel 1986), or they may be willing to transfer the powers of lower-level jurisdictions or of independent national institutions (the central bank, the national competition authority, etc.) to the Union government if they can obtain some quid pro quo from the Union in exchange.18 The enforcement of type-3 rules cannot be left to the existing European institutions either. They are interested in collusion among the governments of the member-states because such

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agreements would be monitored and enforced by the European institutions and might in due course lead to outright centralization of policies at the Union level. Once more, a European Court of Review may have the required incentives, because the national judges do not wish to lose enforcement power to the European Court. Once more, however, the judges of the highest national courts would have to be sufficiently independent of and detached from the national governments and parliaments. In the European Union, this condition does not seem to be satisfied at present. In most member-states, all, or at least half, the judges of the highest court are nominated by parliament or other party politicians.19 Many judges have themselves been members of a political party, and some are former party politicians. But there is also a more general problem. Constitutional law cannot be enforced by a court unless there is a plaintiff, and there may not be enough plaintiffs, because the enforcement of constitutional law is a public good.20 There is a free-rider problem. This is also true for the maintenance of competition, both private and intergovernmental. The free-rider problem explains why the enforcement of competition among private producers is not usually left to the courts alone. Very often, this task is entrusted to a specialized competition authority which enjoys some independence from the government. It initiates investigations, acts as a public prosecutor and passes decisions which are subject to appeal in the courts. It satisfies the market’s need for speedy, even though preliminary, decisions. Just as in the case of private competition, the free-rider problem requires a competition authority for intergovernmental competition. What is different, however, is that, in the case of type-2 and type-3 rules, a competition authority appointed or nominated by politicians— be they European or national—, will be too weak because the defendants will not be private firms but the politicians themselves and because the national governments and the European institutions may have a common interest in restraining competition. This leads me to the conclusion that the members of this competition authority have to be elected by the people and that the court of appeal, too, can only be the people. The underlying reasoning is the same as in Hayek’s case for a separate, directly elected legislative chamber that would “provide an effective check on the decisions of an equally representative governmental body.”21 Just as Hayek’s “rules of just conduct” must not be set by politicians who are to operate under these rules, the enforcement of the rules of intergovernmental competition cannot be left to a body appointed by the politicians who are to compete under these rules. To provide the appropriate incentives, it is important that the directly elected members of the competition authority—let us call it the “Senate” in the European context— are given no other powers than to enforce competition among governments. How are they to be elected? As noted in Section 2, the median voter of the Union and the median voters in the member-states may be interested in policy centralization or collusion to the extent that restraint of interjurisdictional competition facilitates redistribution in their favor. Thus, competition among governments probably cannot be preserved by simple majority voting. The voting rule would have to be asymmetrical: any permission to monopolize or cartelize policymaking would require a qualified majority. In other words, a qualified minority would be sufficient to veto centralization and “harmonization.”

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This implies that the Senate would have to consist of at least three members and that the electoral system would have to permit minority representation. Proportional representation from party lists ought to be avoided, because the Senators should be as independent of the politicians in government and parliament as possible. The Senators could be elected in a personal plurality vote or, ideally, under the single transferable vote. If appeal to the people is to be permitted in specific controversial cases, the monopolization or cartelization of policies would have to require a qualified majority in a referendum. Such a referendum may be called, for example, in those cases in which an international agreement is considered a threat to policy competition by a qualified minority of Senators but approved by a simple majority of the Senate. Alternatively, a referendum could be called by popular initiative. Like many constitutional proposals, this solution—though it might be ideal—is not likely to be feasible, except at the time when the original constitutional contract is negotiated. Starting from a status quo of unrestrained international policy collusion and simple majority decisions within the member-states, the best arrangement that might be feasible is a competition authority which conforms to the interests of the median voters of all membercountries (establishment by treaty) or to the interests of a qualified or simple majority of union voters (establishment by a new constitution), respectively. It is feasible only if the median voter(s) can prevail over the interests of those ruling politicians, bureaucrats, and interest groups who benefit from policy collusion and monopolization, even though the latter are better organized. If a European Senate cannot be established, competition among governments, like competition among private producers, cannot be maintained unless at least one competitor refuses to collude. This presupposes that no government can be forced to collude. Thus, decisions to centralize or “harmonize” taxation and regulation must require unanimity, or, if majority decisions are admitted, the minority must at least have the right to opt out. If centralization and “harmonization” can be checked in one of these ways, the European institutions will be less interested in abolishing the remaining protectionist barriers, regulations, and subsidies of the member-states. Thus, whereas market integration strengthens policy competition, the enforcement of policy competition is an obstacle to further progress of market integration. Fortunately, the process of European market integration has almost been completed, and it cannot be reversed by the individual member-states unless they leave the Union altogether. The further market integration has progressed and the more safely it has been entrenched, the smaller is the opportunity cost of enforcing competition among the member-governments. This means that the enforcement of policy competition tends to assume even greater importance within federations. Competition among the states of a federation must be monitored and enforced by a federal institution. But this federal institution must not be the federal government, parliament or court, because the latter have a vested interest in horizontal collusion and, ultimately, vertical centralization. However, a competitive order for governments does not require a supra-national government. It merely calls for a treaty specifying the rules of competition and establishing an institution that is capable of enforcing them. Thus, rules of peaceful competition among governments can be agreed and enforced not only in federal states and confeder-

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ations (like the European Union). They are also on the agenda for the world economic order.

Notes 1. This insight is due to Immanuel Kant (1784), Edward Gibbon (1787), and, for the industrial revolution, Max Weber (1923). It was revived and further developed by Hayek (1939, 1976); Tiebout (1961); Brennan and Buchanan (1980); North (1981, 1998); Jones (1981); and several others. For a more complete survey of the literature see Bernholz, Streit, and Vaubel (1998:3–11). Competition among governments means competition among jurisdictions. It refers not only to the executive but also to the legislative and the judicial branches of government. 2. This aspect was emphasized by Jones (1991:119, 123, 236); and Chirot (1986:296). 3. See Salop and Scheffman (1983); and Goldberg (1982). Stigler (1970:2); and Heller (1986:271f., 277) suggested that, in the United States, the federal minimum wage has served this purpose—the Congressional majority of the Northern states suppressing low-wage competition from the South. Bartel and Thomas (1987) interpret the Occupational Safety and Health Act in a similar way. 4. See also Vanberg (1993:20f.); Vanberg and Kerber (1994:212ff.); Vaubel (1995:33); Apolte (1996:283, 286); and, in the German literature, Mussler and Wohlgemuth (1994:27f.); Gerken (1995:19); Hannowsky and Renner (1998:103); and Kerber (1998a). Vanberg (Ibid.:21) calls for rules of competition “that may need to be enforced by federal agencies like, in particular, a federal court.” Apolte (Ibid.:283) believes that “the EU institutions should be interpreted as political anti-cartel offices, or, more broadly, as interjurisdictional competition-enforcement agencies.” Previously, Breton (1987:283) has argued “that the federal government and a number of self-regulating federal institutions are natural ‘monitors’ of horizontal competition.” Similarly, Dye (1990:26) has pointed out that “intergovernmental competition requires rules,” that “rules require referees” (Ibid.:28) and that “the supremacy clause of the Constitution . . . makes the federal court system the ultimate referee in the American federalism” (Ibid.). Finally, Kenyon and Kincaid (1991:15) have suggested that the states must agree “to compete and cooperate . . . within the agreed-upon rules enforced by an overarching government.” 5. See e.g. Vaubel (1994); Breton (1996:258ff.). 6. Initially, i.e., from the 1970s onward, the European environmental policy was based on the general empowering clause of Art. 235 which requires unanimity. The Single European Act (1986) introduced the possibility of unanimously agreeing on qualified majority voting (Art. 130 s). The Treaty of Maastricht (1991) introduced qualified majority voting as a general rule but reserved some matters for the previous procedure and others for co-decision with the Parliament. The Treaty of Amsterdam (1997) extended the co-decision procedure to all environmental legislation. 7. This is Wicksell’s solution (1896). As David Hume [(1752)1985] has pointed out, the alternative is a bicameral system in which one chamber represents the high-income earners or propertied class. To some extent, the constitution of the Athenian and the Roman Republic and the British Monarchy (until 1911) were built on this principle. 8. The Court’s power grows as competencies are transferred from the national governments and legislatures to the European Commission, Council, and Parliament, because the Court adjudicates conflicts over the use of these competencies. As for the United States, Dye (1990:28) suggests that the Supreme Court as a national institution, i.e., as a member of one of the contending teams, has a “bias toward centralization.” My crosssection analysis (1996) has shown that the age of the constitutional court is the most significant constitutional variable explaining the centralization of federal states. 9. David Friedman (1977) applies the same idea to forced centralization (conquest). 10. Cf. Weingast (1993:292). 11. For various reasons, this view was taken by Lee (1985); Vaubel (1986); Aranson (1990); and Laffont and Martimort (1998). The opposite view is expressed by Madison [(1787) 1987]; and Olson (1965). Madison argued that, in a federation, interest groups from different states would block each other. Olson emphasized that, in a centralized state, interest groups are more encompassing and internalize mutual negative externalities.

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12. Freytag (1995) provides a case study of such subsidy substitution in the area of technology policy. See also Kerber (1998b). 13. Institut der deutschen Wirtschaft, iwd, Nr. 40, 1995:5. 14. Uniform European product regulations are mainly demanded by large European firms which expect to reap economies of scale in the European market and have enough power to obtain European regulations that act as barriers to competition from non-member countries (Peirce, 1992). The smaller producers which cater for diverse local and national preferences are less well-organized and less influential. Thus, European product regulation is also largely due to the fact that the incentive to invest in lobbying is stronger for firms with large market shares (Olson, 1965). Cohen (1989) and Gr¨uner and Heffeker (1996) apply this insight to European Monetary Union which has mainly been promoted by the large (especially German) banks. To be sure, the principle of mutual recognition which was introduced by the European Court in 1979 and defended in the Commission’s White Paper (1985) does not minimize information cost in interstate commerce and finance. But it was an act of despair after a long period of unsuccessful attempts at direct regulatory harmonization (Calingaert, 1988:33), and in the long run, it serves the purpose of national (competitive) deregulation and European re-regulation (Vaubel 1994:176). The governments, by introducing Art. 100 B of the Single European Act, tried to channel the application of the principle of mutual recognition through the Council. According to Art. 100 B, mutual recognition required a qualified majority decision. Art. 100 B has not been invoked if, nor have the individual member-states implemented the principle of mutual recognition to any degree at their own initiative. 15. The European Constitutional Group (1993), of which I am a member, has also suggested that any increase in the Union budget as a share of the member-states’ GNP should require a referendum. 16. As Streit (1998:249) notes, “the fact that the rules of competition among institutional systems have to be set by the same institutional suppliers which will be affected by it afterwards represents a problem.” 17. In a similar vein, Rasmussen (1986:495) has suggested docket control by a joint senate of the highest national courts. 18. In the European context, there is the additional problem that the national governments may desire centralization at the Union level because this enables them to legislate without effective parliamentary control while participating in European policymaking through the Council. Thus, intergovernmental competition would benefit from a strengthening of parliamentary control. But the European Parliament has a vested interest in centralization as well. This is why the European Constitutional Group (1993) has suggested to establish a second chamber of the European Parliament which would consist of delegates of the national parliaments. Even more effective would be control by the national parliaments themselves (Vaubel 1995). 19. For example, in Germany and the Netherlands all judges of the constitutional or supreme court are nominated by parliament, in Spain and Portugal the majority, in Austria, Belgium and Denmark one half of the judges. In Austria, the other half is chosen by the government. In France, the President of the Republic, the President of the Upper House, and the President of the Lower House each select three members of the Constitutional Council; moreover, the former Presidents of the Republic are members of the Council. In Sweden, all judges of the highest court are picked by the government. In Italy, Parliament, President and the other high courts each nominate one third of the judges of the Constitutional Court. 20. For public-goods problems in constitutional enforcement see, e.g., Sutter (1997:145f.). 21. Hayek (1979:112). By the “equally representative governmental body,” he means parliament as we know it.

References Andersen, S. A., and Eliasson, K. A. (1991) “European Community Lobbying.” European Journal of Political Research 20: 173–87. Apolte, T. (1996) “American Federalism and Emerging Federal Structures in Europe: A Comparative View.” Ordo 47: 279–92. Aranson, P. E. (1990) “The European Economic Community. Lessons from America.” Journal des Economistes et des Etudes Humaines 1: 473–96.

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