Local autonomy and subsidiarity as prerequisites for the proper functioning of direct democracy

Lesedauer: 25 Minuten

Deutsche Version

Always assume that mankind as a whole wishes what is right, but never count on it in individual cases. (Friedrich Schiller, To the Lawmakers – poem)

A lot of people are all for democracy until they realise that democracy is not for them. (Stanislaw Lec)

Tito Tettamanti is renowned for making pithy statements that sum up complex subject matter in a single, provocative sentence. One such pronouncement I have never forgotten and I have quoted it in various contexts on innumerable occasions: “There are two kinds of money – ‘money’, and ‘my money’.” This statement gets to the very heart of the notions of centralism, subsidiarity and democracy: the further removed an institution is from its direct financial backers, the less inclined it is to take into account the needs of those individuals who, as taxpayers, were asked to reach into their pockets to fund it in the first place. It is part of the very essence of taxation that it is due in the first instance with no preconditions and that, once collected, money originally belonging to an individual (“my money”) is directed into a larger pot, with the individual having only a very limited say in the use(s) to which it is put.

The following clarification is taken from chapter 7 of Tettamanti’s book Welches Europa? (“Which Europe?”, Zurich, 1994) under the heading “Structures and Institutions”:

Nothing invites waste more than being in a position to spend money provided more or less providentially and efficiently by an institution that stands at a distant remove, to which we have no sense of belonging. We no longer act according to the criteria of thrift and caution that we apply when allocating our own money, as we are entirely convinced that the subsidies and contributions are in no way, shape or form ‘our money’, but rather a kind of manna that has fallen from heaven, costing nothing.

There is a school of thought in democratic theory that maintains that a taxpayer surrenders only part of his self-determination; as a taxpayer (who is invariably also a member of the electorate and, in direct democracy, a citizen entitled to vote in referendums, to boot), he at least retains in its place the right for his voice to be heard in determining how his tax contribution is used, thus making it possible to mesh individual wellbeing with the common weal in a process of public consensus-building.

A model to increase taxpayer co-determination

The usual democratic argument to justify taxation is well-known and runs as follows: yes, you are indeed taxed to the hilt, but in a democracy, and especially in a direct democracy, you will have a say in how and where the state uses and invests the contributions you make.

This is largely an illusion. The state reduces the income of its citizens through taxation, and taxpayers actually have very little influence over how these funds are used. When new laws are enacted, the costs they will incur are very seldom communicated, or if these are indeed vouchsafed, the figures are wholly unreliable. In Switzerland, a financial referendum may be held at a cantonal and communal level (and should be introduced at a federal level as well), but no say is permitted in the allocation of all the “committed expenditure” (which makes up the lion’s share) and financial assets are in any case handled pretty arbitrarily. Anyone obliged to hand over 40% of his income to the state has been 40% nationalised and has surrendered 40% of his autonomy, as he will never have a 40% say in how it is allocated. The more progressive the tax regime, the slighter the influence of top-rate taxpayers on the allocation of tax revenues.

It is possible to imagine a reorientation of the tax regime along radical democratic lines whereby the taxpayer might simultaneously also be allowed to make an individual declaration on how tax revenues should be allocated (e.g. under headings specified in the constitution, for each of which there would be a “pot”: “domestic defence”, “social spending”, “development aid”, “education”, “health”, “arts and culture”, “agricultural policy”, perhaps even “miscellaneous”, etc.). While this would no longer conform to the classical definition of tax as “a contribution due without precondition to the national and public purse”, the individual taxpayer’s influence on the use of his tax contribution would be increased. It would also be possible to divide taxes into “general” and “ringfenced” contributions at every level of state infrastructure; a percentage (“general taxation”) would be due without preconditions and a further percentage (“ringfenced taxation”) would offer personalised “allocation options” to a discrete “pot”.

By making larger donations for cultural or social purposes tax-deductible, the US federal tax system has partially cleared a path for such options; anyone not making such donations is simply taxed at a correspondingly higher rate. This is an incentive to munificence: you have to pay either way, but by making donations you can set priorities. Such transfers are thus only “voluntary” up to a point and should therefore also be factored into the “fiscal quota” (Fiskalquote) and/or the “mandatory contributions quota” (Zwangsabgabenquote). A wealthy taxpayer has at least some influence over how his tax contributions are used, however – although the entire arrangement may be a “trick” intended to obfuscate the fact that any influence on the use of tax revenue is fundamentally marginal. Equally, there is no good reason why such a system of individualised allocations should only be possible for cultural and social purposes.

Individual “allocation rights” for tax contributions would usher in a new form of direct democracy, revolutionising politics from the ground up – even if it did not generally improve matters right away. Parliaments would be deprived of some of their powers and major taxpayers would have greater influence over the individual allocations of their assets. Parliaments would then be able to (re)distribute only on the basis and within the framework of the strictures declared by the taxpayer.

Subsidiarity as a prerequisite for effective self-determination

As they stand, direct democracy and federalism are principles of equal value and importance, but direct democracy is most likely to work in the context of small communities that cooperate with one another as confederates while also acting independently in a competition for exit options and entry rights. In such a system, communities are continuously able (and obliged) to learn from one another. The crucial factor here – tying in with the notion of non-centralism – is an understanding of subsidiarity. Functioning communities are ultimately based on personal networks of people who communicate and trade.

The root of the evil of centralisation is to be found in central government’s propensity to build up pint-sized, personal systems until they collapse under their own weight, and then to default towards centralised hierarchies. Modern politics is growing increasingly afraid of the small-scale experiments that would actually constitute the true strength of federalism. It is not even a case of central power wanting ever more sway; the problem is that the executive authorities of member states and communes are tending to relinquish ever more responsibilities to a centralised bureaucracy, wishing only to retain the benefit of redistribution while sending the unpopular bill for the costs to the people upstairs.

As representatives of the people, politicians are always looking for excuses for why they have – oh, so regrettably – been unable to keep the promises they made during the election, and to these ends, they need not only their political opponents but also – especially when they are in power with a multi-party majority – their coalition partners as scapegoats. If that is not enough, or no longer cuts the mustard, our elected representatives need a “higher” and/or more centralised authority to whom the responsibility for every infelicity or insufficiency can be delegated; this may well help to trigger just the “flight to centralisation” that can be observed in all federally structured states. The central authority stands as a projection screen for every pipe dream; a perpetual excuse for everything that doesn’t work. “Brussels” will not be able to evade the same fate in the EU.

Illusions surrounding the majority principle

Liberals know that reconciling liberalism and democracy is not without its tensions and problems. Democracy gives people a hand on the tiller according to the majority principle, and the direction steered generally corresponds to the preferences of the majority. But a minority of the electorate will find themselves subject to the whim of a helmsman they did not choose. From a liberal point of view, self-determination trumps co-determination: replacing personal, autonomous self-determination with democratic co-determination is not as such a desirable goal, although it is often inevitable when making common cause in political matters, and is preferable to autocracy. Direct democracy has fewer politico-economic faults than representative democracy. Too little critical attention has been paid to the illogicalities and flaws of a decision-making process which, in attempting to represent political interests, rides rough-shod over the concerns of outvoted minorities.

There are few properly documented studies of such experiences in Switzerland, as the Federation and the cantons operate a mixed system of direct and representative democracy. It is possible that direct and representative democracy are two systems that cannot simply be differentiated by degrees; the distinctions are of a more fundamental nature. By this token, the semi-direct democracy practised in Switzerland would be a hybrid, combining both the advantages and disadvantages of each decision-making system. We Swiss should subject this to critical scrutiny before vaunting our combo system as an exemplar.

Astonishingly few empirical studies have been carried out on the subject, either in Europe or round the world – doing so would probably bring too many of the illusions adhering to democratic co-determination crashing to the ground. An elector’s personal influence in a parliamentary democracy is extremely constrained; based on a manifesto and a list, he selects one or more representatives that may go on to ally themselves with others in a coalition agreement and then form a government. How great is the risk for perhaps even a sizeable majority of the electorate that what transpires is the exact opposite of what they actually envisaged? Is the “majority principle” still even an appropriate term to use for representative systems, or is it merely a highly complex filter of interests and/or a scrambler of communications, where no one genuinely understands the decision-making logic at play?

Transparency for those footing the bill

I would thus argue that democracy should be built on competing, non-centralised, fiscally autonomous polities and on constitutionally guaranteed rights to liberty that circumscribe the ambit of politics as a whole and keep a tight leash on redistribution, both territorially and as a matter of principle. In addition, the checks and balances exercised by the population on those in power should be as direct as possible.

If the link between income and expenditure is made transparent for every political decision and the fundamental questions of “who is going to pay for this, and who ordered it?” have to be answered, politics will return to being a mutually manoeuvrable means of fulfilling (and financing!) common undertakings.

Small-scale federalist systems are ideal biotopes for learning and study, as they offer latitude for experimentation; successful outcomes are copied, harmful ones avoided. Only organisations that can learn stand a chance of survival in a changing world. The price for such learning curves is the occasional inexpedient or failed project at an individual, communal or member-state level. Productivity and efficiency may experience a short-term fillip through harmonisation, as freedom and spontaneity are reined in and variant solutions suppressed from the centre out, but over the long term, such organisational forms are only ever as good as their bureaucratic heart and are thus extremely susceptible to committing errors. Entrenched power tends to erode an individual’s (and a system’s) readiness and ability to learn.

Subsidiarity – an ambivalent principle

The notion that political duties only climb to the top of the communal agenda when they can no longer be satisfactorily discharged by individuals and small groups without the (financial) support (subsidium) of the community has been described as far back as Aristotle, although the term “subsidiarity” is obviously a much later coinage. In the first instance, the principle places the burden of proof on those who would transfer a task from individuals and small, private groups to political affiliations, or, secondarily, seek to transfer the tasks fulfilled by smaller common political entities to larger, more centralised political aggregations; it also provides an argument for the return of political and financial sway to regional, local and private patronage.

The subsidiarity principle provides that shared problems are to be solved as a matter of course at the lowest possible level: privately and locally. Higher levels should only be involved at the request of the lower level when the latter is no longer in a position to solve a shared problem. This principle is one of the most important foundations of communal life in liberal, market-based federal systems. The criterion at the heart of subsidiarity, “being in a position” and/or “no longer being in a position” – i.e. being able or unable – to solve a problem satisfactorily, should not be considered an exclusively one-way (ascending) escalator, however; it has to work in the opposite direction as well. Problems that cannot be solved centrally and/or can no longer be financed should be devolved to smaller funding bodies and/or private individuals.

Twin origins in intellectual history

Two entirely independent origins for the principle stand out in the history of modern ideas. After the Reformation, there was a need to find a principle for ecclesiastical organisation that offered an alternative to the centralised, hierarchical structure of the Papal church and permitted of a minimum of organisation – from the bottom up. In the Netherlands, which had turned Calvinist, this principle was then transferred from ecclesiastical to state organisation in Johannes Althusius’ treatise on the theory of the state in 1603. This justification starts with the individual and small community; as it does not presuppose a centre and the centre only emerges in stages as a necessary consequence of providing support, the principle might be described as having non-centralised roots.

It may also arise in reverse as part of an incremental process of decentralisation stemming from the devolution of responsibility from an existing omphalos. The Christian understanding of humanity presupposes personal responsibility before God. Catholic social ethics prescribe the principle of personality in Man’s relationship with God, the principle of subsidiarity in his relationship with the Catholic Church as an institution, and the principle of solidarity in his relationship with his fellow men. A hierarchically organised church must also presuppose the delegation of personal responsibility and guilt. From this perspective arose the variant form of the subsidiarity principle that reasoned from the centre outwards but was neither able nor willing to consign everything to the centre (top down): subsidiarity through decentralisation. This approach was set out in Thomas Aquinas’ theories of personality and property, and endorsed in the 19th-century Papal encyclical “Rerum Novarum”. The principal motive at the time was the creation of a religious magisterium that was to be protected from the proliferating power of a secularised state.

These two differing origins are of scant relevance today. What matters is that the arguments of Catholic social ethics are rooted in the responsibility of the individual and the family, and they interpret ecclesiastical and state support not as a prerequisite but rather as a contingently essential aid to successful communal life. The Catholic social ethicist Martin Rhonheimer describes this as follows:

For this reason – and here the principle becomes normative – the core unit of society should be the individual: in the family, which reproduces human society and endows future citizens with the fundaments of education and social competence; and on the free market, which people enter to their mutual benefit in relationships based on exchange, creating new wealth and effecting an increase in general levels of prosperity. In a market economy – and here the term ‘market’ should not be understood in purely material terms – pursuing one’s own ends is always an aid to others in achieving their own. The logic of the market thus has a special kind of correspondence with the social nature of man; it makes human co-existence a mutually advantageous affair. (Das Subsidiaritätsprinzip – vergessener Garant von Freiheit und Selbstverantwortung [“The Subsidiarity Principle – Forgotten Guarantor of Liberty and Personal Responsibility”], 2015).

The subsidiarity principle has thus developed in a continuum of tension where trust and distrust of the individual and organised community have been constantly questioned and contested from differing perspectives, either “bottom-up” or “top-down”.

No clear political goals

In a theory of government, the subsidiarity principle is principally a maxim that provides formal guidance for the political process without, however, supplying any binding pointers on how to optimise the allocation and financing of specific communal tasks. Those supplying sufficiently good reasons for centralisation will find it all the easier to stomach renunciation of individual self-determination and personal responsibility. The standards expected by those whose priorities lie within the sphere of self-determination for individuals and small communities will be all the higher when it becomes a matter of proving that these are indeed no longer in a position to cope. The restoration of tasks and financial burdens to smaller regional authorities and private individuals when central state structures fail to deliver is becoming increasingly topical.

Nowadays, the principle is primarily discussed in the context of allocating political tasks within federal states and communities of states. From its origins, however, the other (regulatory) interface, i.e. between market and private autonomy on the one hand and universally binding state ordinances that can be implemented by force on the other, is actually of more decisive importance. In this regulatory stand-off, it is indeed possible – and often even probable – that priority when it comes to judging problem-solving capacity is not given to any smaller, emotionally driven group but rather to a large, anonymous, economically structured corporation. Here we are not dealing with a clash between “large” and “small”, but rather the postulate of conditions that are as equal as possible for all on the largest possible playing field. From this perspective, a few – albeit centrally issued – universally binding, reliable rules are preferable to a complicated concatenation of unpredictable, nation-state, member-state and communal political regulations. Economic players tend to militate for the lightest-touch economic regulation, but when statutes are passed, they prefer wide-ranging, generally binding, dependable rules that balance the costs and benefits as equally as possible for all concerned.

This scepticism, directed against the complexity and unpredictability of a host of competing local polities, led 19th-century liberals in Germany, Italy – and Switzerland, too – to fight for greater political centralisation and harmonisation. The liberals of that time were yet to discover the advantages afforded by peaceful systemic competition for the goal of “more freedom, a smaller state and lower taxation” and the struggle for federalist structures was left to the conservatives. The same phenomenon was to be seen in the process of European unification at the end of the 20th century. Nowadays, the ranks of the sceptics are swelling with liberal voices that place greater trust in the competition of small, non-centralised players (even in the political process) than in centralised, bureaucratic structures with an autonomy that is increasingly difficult to control. Subsidiarity, which is rooted in regulation and draws on the relationship between individual and state (giving the upper hand to the former), overcomes any scepticism about excessively numerous levels of political jurisdiction and the associated overlapping regulatory requirements.

Subsidiarity in Switzerland and the EU

Subsidiarity is one of the fundamental principles of the constitution that has grown up over time in Switzerland. The federal state was created through the unification of cantons that identified themselves as “sovereign” and the federation received only the competences expressly granted it in the constitution. As the central federal organisation was re-conceived in 1848, the subsidiarity principle anchored in the constitution now takes the form of a rule placing the burden of proof in favour of the smaller polity in order to guarantee the “bottom up” principle. It is thus fundamentally sceptical of the centre. The higher layer of community may (and must) intervene only when the individual (in the first instance) and the lower layer of community is no longer in a position to meet an obligation. The lowest and smallest layer should be responsible as a matter of principle and a justification must be provided for escalating an obligation to a larger organisational entity. Proof must be provided that the lower layer is incapable of solving the problem satisfactorily.

The genesis of the EU reveals that this institution’s attachment to the subsidiarity principle, which is rooted in the Maastricht Treaty (article 5, para. 2, TEU), is comparable to that of Switzerland. The details are set out in the “protocol on the use of the principles of subsidiarity and proportionality”. The EU is not a federal state, but rather a halfway-house between a federation of states and a federal state. It was founded from the “bottom up” and there was initially no hierarchical top layer vested with its own sovereignty.

Given these origins, the Calvinist, reformed approach, favouring individual solutions and smaller political units (non-centralism) makes more sense than the Catholic principle of incremental and apportioned delegation of responsibility (decentralisation). The subsidiarity principle in the EU also skews the burden of proof rule to favour nation states and smaller polities, with a preferential tendency towards individual, then local and regional, and then national solutions. However, all the formulations drawing on the notion of “being in a position” and operating on the principle of “as local as possible, as central as necessary” are, to put it mildly, open to interpretation. There is thus a risk that interpretation of the conditions – one outcome of which being that the next organisational entity up is “more suitable” – may turn the principle on its head.

Potential uses and abuses

The partially conflicting interests and political/ideological orientations described here have resulted in the subsidiarity principle being addressed from entirely different perspectives, with the danger that it will be used as underpinning for almost any argumentation either for or against particular political measures or developments.

Situations constantly arise in politics in which steps taken have an effect that is entirely contrary to what was intended and asserted by their proponents; when applied, the subsidiarity principle is very often transformed into its polar opposite as ever more arguments are dreamed up for the “better” option of deferring to higher and more centralised levels of authority.

Two examples may serve to illustrate this:

Like many national constitutions, the EU is designed to enable as “equal” a “distribution” of wealth as possible and thus subsidises economically weak (peripheral) and depressed regions. Funding and redistribution via regional funds, structural funds and subsidies is one of the most important and popular functions of the central state and a centralised union of states. Politics then degenerates into an unseemly scrum for as much subsidy as possible. Every kind of redistribution is popular, and every kind fraught with problems, as, inevitably, someone is always unhappy. This is not only true of interpersonal redistribution between richer and poorer individuals but also – and to an even greater degree – of inter-regional and international redistribution within a federation of states. There are good reasons to suspect that a proportion of the public assets flowing to the periphery as financial support will ultimately return to the centre, effectively only reinforcing the dependency of the periphery and distorting competition; this, at least, has been one of the outcomes experienced in Switzerland with regional funding financed by the central government and the so-called “fiscal equalisation scheme” (Finanzausgleich).

Catholic social ethics contain the classic formulation of the subsidiarity principle, i.e. that each human being should be personally responsible for fulfilling, to the best of his abilities, the duties falling to him as an individual. The community, represented by the central authority with the relevant responsibility, should step in only on a subsidiary basis. So what does this mean in practice when it comes to sanctioning methods of birth control, for instance? Following the subsidiarity principle, you might start from the position that only the woman involved and affected (or, at most, both parties involved in the conception) should be responsible. Using the argument of “not being in a position”, the decision can be devolved further and further upwards until you reach the highest ecclesiastical authority, the Pope, who is to give a generally binding answer to this question. This does not erode the subsidiarity principle if you assume that such a decision is beyond the moral competence of all the less centralised authorities.

Guido Hülsmann sums up his criticism of the practical application of this principle as follows: “It is the nature of the beast that there are always going to be some activities that are ‘beyond the capacities’ of lower-order entities. However, this means that in all such cases, the subsidiarity principle does nothing more than provide justification for the interference of the superior authority.” (Guido Hülsmann, Im Namen der Subsidiarität [“In the name of subsidiarity”], in: Eigentümlich frei, May 2015, p. 55). However, this entirely justified criticism should not be an argument against restoring the principle to its original use and meaning.

Subsidiarity and financial autonomy

Things become more difficult still in applying the subsidiarity principle when problem-solving capability is measured in terms of financial feasibility. A centralised tax system in which all tax revenues are diverted in the first instance to a central authority will necessarily evince an “incapability” to fulfil infrastructural responsibilities at a lower level and in practice issues a one-way ticket to centralisation. It is of course paradoxical to introduce a harmonised, centralised tax system and decentralise the responsibilities alone without providing the communes and member states with the requisite means. This perfidious form of decentralisation has in many instances helped to discredit federalism, communal autonomy and the subsidiarity principle.

For a panoply of reasons (and these should be most carefully analysed), there is politico-economic and socio-cultural pressure towards greater centrality. The subsidiarity principle must thus be carefully defined and radicalised as a countertrend in the sense that, as soon as a problem can no longer be adequately or sustainably financed at a higher, more central level, it opts for the restoration of competence, responsibility and financing to the smallest possible and/or autonomous and/or privately autonomous funding body that is as close to the source of the problem as possible. This is a highly utopian agenda, as what central power would be ready to beat an “orderly retreat” voluntarily? Given the debt crisis, however, a retreat from the debt trap seems an appealing solution. Debts can hardly be decentralised. If the centre becomes insolvent, a non-centralised reboot is required.

Non-centralism and decentralisation

The somewhat unorthodox use of the term “non-central” requires further explanation. The term arises as the adjective “federalist” may describe two differing tendencies, i.e. one stressing (unlike “confederalist”) stronger and closer links, or one striving (unlike “centralist”) for greater autonomy for smaller organisational entities. The modern EU is a mélange of confederation, federation and central government; correct application of the term “federalist” would mean the EU became more like a federal state with “ever closer union”. In Germany and Switzerland, however, “federalist” emphasises the autonomy of member states while in French or English, the adjective is more suggestive of greater competence residing with the central authorities. For this reason, purely linguistic, translation-based misinterpretations have compounded the historic misunderstandings rooted in differing temperaments.

The purely descriptive term “non-central”, which does not imply militant anti-centralism or the like, thus presents itself. But why “non-central” and not “decentralised”? Decentralisation presupposes a centre and thus cannot evade the sickness whose cure it cannot supply. When dealing with already centralised structures, decentralisation does of course offer an antidote, providing for a kind of “orderly retreat” from flawed frameworks. The danger that the mental link to the centre will be retained in such a delicate operation – and that the outcome merely gives rise to a more sophisticated form of central administration in which the politico-economic costs are propelled to the periphery while the concomitant benefit remains at the centre – is impossible to ignore. Anti-centralism, on the other hand, has a secessionist tendency that may entail extremely high conflict-related costs. Non-centralism leads to a peaceful application, rejustification and restoration of competences that do not fall prey to an inherently crazy “the more central and state-oriented, the better” mindset.

Competing regulatory models as a learning process

The remarks below are based on the political principle that minimising centralisation is a worthy aspiration. The section’s core messages may be summarised as follows:

Non-central solutions based on political subsidiarity have the clear disadvantage of being less uniform and less predictable. This disadvantage is more than offset by the fact that the principle of non-centralism and non-Procrusteanism results in competition for the best possible solution, enabling and accelerating political learning curves. In critical situations, such learning processes are vital for the survival of larger, heterogeneous political communities. Non-centrality also opens up competition between regulatory – and especially fiscal policy – agendas that outweighs the disadvantages of a certain complexity and unpredictability. These advantages mean that the existence of politically and economically sub-optimal solutions may (have to) be accepted as part of the bargain, but competition is ultimately more effective in eliminating these than any imposed central harmonisation could be.

Bailout and sovereign default

The problem (currently unfolding in Greece) of the imminent bankruptcy of a member state cannot be exhaustively investigated here under the heading of subsidiarity. It is nonetheless part of the financial autonomy of a member state (as envisaged by the subsidiarity principle) that such a state cannot run up unlimited debts at the expense of the other member states. No federal nation in the world offers its member states unlimited financial aid when their debts get too high. And why should a looser union of states (of all things!) be any more generous with subsidies and loans in such a situation? The financial failure of a polity does not necessarily spell either exclusion from the currency or from the union of states, however. Almost every US state has become insolvent at some point or other in the course of American history without the dollar being abolished there or the state being ejected from the union. Even when California was teetering on the brink of bankruptcy, there was never any question of exclusion from the dollar or expulsion from the USA.

Sovereign default will of course typically have grievous consequences for the banking system; in a worst-case scenario this may result in both bank customers and shareholders becoming insolvent. Operating on the brink of temporary insolvency is part of the banks’ stock-in-trade. It is far more likely that the banks will find a way out of the crisis than an ailing state that has to recover through the economic poison of new loans and the political ignominy of partial disenfranchisement. The banks that don’t make it, even with bridging loans, will then quite rightly be consigned to history; bank clients around the world will simply have to get used to the idea that banks do not remain infinitely and permanently solvent either – while the banks, in turn, will have to (re)acquaint themselves with the fact that sovereign defaults can never be ruled out. This is part of the “systemic price” of capitalism. The insolvency of any market player must always be considered as a possibility, and if such a fall results in the collapse of the system, then the system is structurally flawed.

Government finances cannot be cleaned up via politically motivated loans; these will only accelerate the vicious circles of enforced redistribution via compulsory centralisation and other statist urges, and result in the can being kicked down the road for generations to come. A centrally administered economy cannot function in the financial sector either, as the centralised knowledge required for this is lacking. This is not the fault of the economists and financial experts who have failed to reach a consensus; they should not be castigated for failing to foretell the future and preferring to “play for time” in crisis situations, sooner counselling a horror without an end than an end with a potential – albeit frequently salutary and instructive – horror.

Privatisation: an object lesson in regulatory subsidiarity

Many of the problems that people have felt obliged to organise and regiment through regionalisation, administrative unions, fiscal equalisation and centralisation over the last thirty years could be solved in future if they were returned to the market and privatised using the regulatory components of the subsidiarity principle already outlined. Sustained financing by users and socio-politically motivated, targeted aid (for those users who are dependent on use but are “not in a position”, as individuals, to bear the costs) would be a practicable interim solution.

A peaceful civil society would thus be characterised by an ability to get by with few public regulatory requirements or technical and socio-political infrastructures while allowing conflicts to be resolved on a private and autonomous basis by those affected and involved.

Much of the striving for autonomy would be superfluous if the central governments in question would only limit themselves to what was really required: circumscribed rule, i.e. delineated governmental power, limited “power to tax” and the provision of central public facilities and services at prices that cover the costs, and the avoidance of monopolies. The autonomy of regional bodies would thus be engendered through the same process as private autonomy – that is, through the orderly retreat of the political system from every area where it has no business in a peaceful civil society. Such a programme will be demanding in the extreme and anything but popular…

The struggle for regional and local autonomy is synonymous with the struggle against an outsize central political authority and financing structure that is geared towards contingencies and the preservation of power.

Tax-raising powers must be as citizen-centric as possible

In a direct democracy, the relevant citizens (as beneficiaries of public infrastructure) determine the level of taxation by majority vote. Such a model cannot be transferred directly to other settings. Doubts are invariably raised about whether government and parliament could (and should) give responsibility for something as delicate as “the power to tax” directly to the taxpayer. The civic majority’s responsibility for setting taxes at every level of state organisation is, however, dependent on these not being framed in an overly progressive fashion; if they are, there is a risk that a “democratic heteronomy” of higher-income taxpayers will evolve, and that this will eventually end in their “exodus” to greener pastures. Votes carried out on a “per head” basis only work when the impact per head is comparable.

The danger of a “race to the bottom” towards a zero-taxation state offering zero services should be neither entirely discounted nor overestimated. Political undersupply in respect of regulation and infrastructure is all the more improbable as long as there are options for comparison with other polities that better satisfy demand for such goods. In many cases, a majority of taxpayers can indeed be motivated towards tax increases for desired and scarce public goods. In other words, people are prepared to pay a higher price if doing so enables them to increase their collective quality of life.

The politico-economic mechanism outlined here may not be distorted with too many well-intended equalisation payments (inter-community, inter-regional and international fiscal equalisation; aid and structural funding of any kind). The upshot of aid is often that structures that are unfeasible, no longer viable or incapable of sustainable financing are kept alive with the “artificial respiration” of state subsidy and redistributive funding.

The more direct a democracy is, the stronger the sense of the quid pro quo between taxation and the services offered in return, and the more it becomes a political football for the authorities who simultaneously impose taxes and provide infrastructure. In such cases, the responsible taxpayer is identical to the responsible citizen who continuously monitors the value for money offered by the authorities he has elected, demands and promotes thrift and transparency, and is highly sensitive to underprovision of any kind.

The risks and benefits of non-centrality

Non-centrality is clearly not without its disadvantages. When systems compete, the “worst competitor” is worse than anything that can be imposed through centralist averaging and harmonisation. From a liberal point of view in particular, there are painful deficits in so-called under-developed areas and the price of inequality is high. There are, however, countless historical examples of so-called reactionary structures suddenly proving themselves viable and progressive again. The risk of “standardising in line with the very latest scientific and political fallacies” is inherent in centralisation, and no one, whichever part of the political spectrum they occupy, is immune to this – even leading experts.

Over the long run, however, allowing a host of small, non-central errors to compete against one another is more efficient – both domestically and further afield – and less dangerous in terms of its liberty quotient and ability to learn than a highly centralised system. Non-centrality’s primary advantage is that there is no embargo on pioneers (and these are often the small fry that are outvoted in majority-led bodies) taking the path less travelled, i.e. behaving in “creative dissidence”. The successful endeavours of such pioneers engender learning and imitation processes that are more effective than anything that can be achieved through central compulsion and imposed majority decisions.

The internet, one of the most impressive and successful achievements of technical civilisation, is based on the principle of non-centralism, i.e. on the fact that potentially every receiver can be a broadcaster and every consumer a producer, and no one presumes to improve the overall system through centralised control. There are many collective committees for exchanging ideas and harmonisation (not to be confused with standardisation) that should function on the internet principle: everybody sends and receives and ignores what they like, everyone allows others to send and receive what they like, and everyone reaps the rewards.

Untangling and individualising welfare

If the link between income and expenditure is made transparent for every political decision and the fundamental question “who is going to pay for this?” has to be answered, politics will, as we suggested at the outset of this article, return to being a mutually manoeuvrable means of fulfilling (and financing!) common undertakings.

Let us consider an example. Social policy explicitly pursues the goal of redistribution. The bureaucracy of a centralised, redistributing welfare state relieves citizens of social responsibility and thus promotes selfishness. The less anonymous social security redistribution becomes, the less bureaucratic control is required and the more willing people are likely to be to assume personal responsibility.

As a result of the political pressure for equal treatment across the board, social policy via state redistribution inclines towards centralism, thus becoming more and more bureaucratic and susceptible to abuse. The “way back” will take us via the principle of user financing, which – following the subsidiarity principle – links into the smallest possible unit, the individual. The first step is the continuation of state payments to public services and facilities (although these should be made available to the users instead of the institutions); the second is that these users (i.e. customers) will have to deal with the cost/benefit calculation themselves. In a liberal society, no one can spend more over the long run than they can bring in themselves. Living at the expense of others is not sustainable as this means coercion must be applied, which can lead people astray – into refusal or avoidance strategies, or into corruption and the exploitation of loopholes. Anyone presenting the prospect of greater prosperity through increased coercion and redistribution is banging the drum for populist politics.

Willingness to help others as the basis for civil society

Providing financial help to those in need is important for the continuing existence of a society. The more this is provided through institutional coercion, the weaker the willingness will become among private individuals to offer spontaneous assistance. The key to the economic and social survival of a political community lies not in what happens in centralised bodies, but in the ever-changing and adapting options for exchange and spontaneous help that evolve between individuals. The more directly such adaptation is allowed to play out between those affected and those intervening, the faster and more flexible it will be. If willingness to provide mutual assistance in difficulties of every kind steadily declines in a society, even the most sophisticated central mechanisms of coercive redistribution will reach the limits of financeability. But what happens then? In the first instance, attempts to wring more funds for redistribution out of an economy will be initiated via higher and more progressive taxation. Such a financing method, which involves turning the tax screw ever tighter, is condemned to failure, at the very latest when ever more burdensome taxation results in a loss of international competitiveness and a decline in productivity – and hence also of tax receipts.

Financing the welfare state, which in its politico-economic arrangement is a “bottomless pit”, cannot thus be guaranteed through higher taxes alone, and an alternative route has long been sought in public debt as a complementary and increasingly important source of finance. The end of this cul-de-sac will be reached at the latest when the cost of debt servicing exceeds total government revenue.

Any politically astute approach to the irresistible rise of sovereign debt and ballooning government spending will require an interpretation of the subsidiarity principle that militates for a restoration of political and financial responsibilities to more local and private entities when higher, more centralised authorities are no longer in a position to fulfil them.

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Article published in: Konrad Hummler / Alberto Mingardi, Europe, Switzerland and the Future of Freedom, Essays in Honour of Tito Tettamanti, Torino 2015, p. 319 – 340