Democratic capitalism poses an enduring tension or contradiction. In given settings or historical moments, the “democratic” side of that equation can operate to ensure that the “capitalist” side is more palatable or equitable. Democratic aspirations might be decisively constrained by market imperatives, or they might transcend them. The range and viability of those alternatives, in turn, are shaped not just by market constraints but by political institutions. The architecture of political representation, participation, and policymaking can amplify democratic voices or stifle them; it can invite democratic (even systemic) alternatives or litter the path forward with obstacles.

By almost any contemporary or historical measure, the American version of democratic capitalism is remarkable for its firm commitment to the “capitalist” side of that compromise and a correspondingly weak commitment to productive democracy. The “New Deal order” and the social movements that gave it meaning now seem like a momentary exception in a long march of unbridled accumulation and neoliberal rule. Modern American political history plays out like endless variations on a “why no socialism?” riddle whose solution is at once elusive and overdetermined. The many failures of progressive politics, and the ease with which its few successes have been rolled back, reflect a wide array of political obstacles, hurdles, or choke points. One of the most important of these, underappreciated as both cause and consequence of our limited political horizons, is federalism.

In its idealized and abstract form, American federalism parcels out political responsibility across tiered jurisdictions (federal, state, local) in the pursuit of three interrelated goals. First, it promises democratic engagement and political responsiveness by vesting responsibility in the smallest practical unit of government, confining the federal role to those realms (national defense, interstate commerce) beyond the capacity of individual states or localities. Second, federalism envisions state governments as guarantors of liberty, protecting ordinary citizens — and especially regional minorities — from the tyranny of national rule. And third, federalism is routinely lauded as an opportunity for policy competition, innovation, and diffusion across state-level “laboratories of democracy.” Federalism, in this view, structures political representation at a scale large enough to accomplish policy goals but small enough to ensure a nimble response to policy challenges and a meaningful civic connection between the government and the governed.

On each score, American federalism is a dramatic disappointment. Historically, it can be judged by the company it keeps. “States’ rights,” of course, served as virtuous camouflage for slavery, for Jim Crow, and for the long (and continuing) backlash against the civil rights movement. “If one disapproves of racism,” the political scientist William Riker concluded bluntly in 1964, “one should disapprove of federalism.” Every Republican president since Richard Nixon announced a “new federalism” of some description, invariably as a gambit for dismantling national standards and regulations, eroding civil rights protections, or starving redistributive social policies. While at times frustrated by the variety and fickleness of state policies, economic interests are now deeply invested in federalist devolution as a reliable source of “business-friendly” labor, social, tax, and regulatory policies. Broadsides against “our centralized, micro-managed, Washington-based bureaucracy” (Newt Gingrich) or invocations to “drain the swamp” (Donald Trump) are animated less by the supposed virtues of decentralization than they are by its spoils. “People do not go to war for abstract theories of government,” W. E. B. Du Bois observed in response to efforts to memorialize the “states’ rights” Confederate cause. “They fight for property and privilege.”

We are reminded of this lost promise each spring, as statehouses run out their calendars with a catalogue of nonsense, repression, and naked greed dressed up as legislation. This year, that sorry list features efforts to strangle voting, LGBTQ, and reproductive rights; to roll back basic labor protections and the last shreds of firearm regulation; and to starve or privatize basic public goods. In one respect, such policies are a dismal barometer of our political polarization, and of the peculiar combination of libertarian fever dreams and authoritarian social policies that increasingly animate American conservatism. More fundamentally, such policies offer a stark reminder of the dangers posed by fragmented politics and policymaking. Decentralization breeds economic and political inequality. Devolution of political responsibility, advertised as a means of democratizing policy, is almost exclusively employed as a strategy for thwarting popular goals or aspirations. State governments, far from acting as incubators of good ideas and policy experiments, have instead become — as the comedian Jon Stewart deftly put it in the Daily Show’s coverage of statehouse politics — the meth labs of democracy.

Federalism and Democracy

How do we account for this? First and foremost, the American configuration of federalism is narrowly concerned with the distribution or exercise of political power and willfully blind to that of economic power. Politics and policy, in democratic capitalist settings, are fundamentally shaped by two constraints. A “demand” constraint establishes deference to the growth and profitability of private investment as a baseline or boundary for political action. The market, as Charles Lindblom reminds us, is a prison. Public policy is confined to securing the conditions under which capital can be accumulated and ensuring that those conditions are not so exploitative as to constitute a threat to the social order. These parameters of compromise manage what Karl Polanyi dubbed “the double movement” inherent in democratic capitalism: the capitalist impulse to commodify everything matched (or at least accompanied) by the democratic impulse to dampen or compensate for the cruelties of the market.

A “resource” constraint, in turn, ensures that well-heeled economic interests will always wield more political power than the votes they cast. Especially in a setting where the regulation of money in politics has largely evaporated, those with money enjoy dramatically lower barriers to influence, information, and collective action.

Federalism exaggerates all of this. In a patchwork of investment-anxious local and state jurisdictions, firms can much more credibly and readily wield the threat of exit — a dynamic underscored by the jurisdictional competition to subsidize new investment and the perpetual hand-wringing in state legislatures over the maintenance of a “friendly business climate.” State legislatures, on this score, are notoriously in thrall to the demands of local employers and labor markets, calibrating their labor and social policies (even ensuring the wholesale exemption of some workers from any protection) to ensure a stable and quiescent labor supply. In subnational jurisdictions, the logic of Polanyi’s “double movement” is distorted at both poles: state and local political actors are at once more inclined to defer to the interests and demands of capital and less inclined to contemplate social protections that might prove competitive liabilities. These dynamics are even starker in municipal settings where economic growth and property valuation is the sine qua non of local public policy, where regulatory and taxing powers are constrained by the “home rule” provisions of state law, and where meaningful social protection is beyond the vision or capacity of local policy.

In turn, states do not just replicate the nation-state at a smaller scale or nest neatly inside it. They lack not only the will but the ability to ameliorate market conditions, to sustain equal protection, or to provide robust public goods and services. Policy devolution, in other words, often means lodging political responsibility — quite intentionally and strategically — in jurisdictions without the capacity or inclination to meet them. American federalism (unlike all its international peers) makes no provision for revenue sharing across jurisdictions. The fiscal capacity of state government is relatively weak (most states have self-imposed tax and expenditure limits) and reliant on regressive revenue sources. For their part, local governments are doubly disadvantaged; their ability to raise revenue or incur debt is sharply constrained by state governments, leaving them dependent on volatile sales and property taxes, increasingly meager intergovernmental transfers, or predatory policing and code enforcement. In the delegation of political authority, state and local government is largely organized around “police power” regulation, restraint, and punishment of private conduct. The unsurprising result, at this intersection of narrow political horizons and limited fiscal capacity, is a policy environment in which market deference is matched by meager and punitive social policies.

Federalism, in practice, is hostile to productive democratic governance. It works to the benefit of those best positioned to exploit or leverage both jurisdictional competition and the jurisdictional proliferation of political “veto points.” It sustains a “checks and balances” environment for policymaking that is almost all checks. Gridlock, inaction, and the failure to respond to changing conditions favor the status quo. The defense of federalism or the pursuit of decentralization, as Lisa Miller underscores, has become a profoundly anti-statist agenda. The goal is not to find the best venue or jurisdiction for affirmative state action but to quash that prospect altogether. In the states, entrenched interests are uniquely able to “craft political agendas behind the scenes, kill off reform policies before they see the light of day, or create seemingly neutral anti-statist political narratives.” In our polarized states, partisan or ideological differences are widened by the administration of policy — which increasingly reinforces political extremism rather than dampening it.

Indeed, as recent work by Miller, Jacob Grumbach, Alex Hertel-Fernandez, and others has documented, state legislatures have become the sweet spot for conservative policy experiments. Growing partisan polarization has yielded gridlock in national politics but a steady increase in one-party “trifecta” control of state politics (in 1992, the Democrats claimed trifecta control in sixteen states, the Republicans just three; in 2018, the Democrat claimed eight trifectas and the Republicans twenty-six). This has afforded national conservative interests (including partisan groups like the Republican Governors Association, multi-issue clearinghouses like the American Legislative Exchange Council, and single-issue lobbies like National Right to Life) the opportunity to capture state policymaking and to use the states to shop even the most odious and unpopular policy ideas. Republican statehouses play right along, not only embracing such policies but (as in the post-Dobbs abortion debate) competing with one another to see who can come up with the most craven and punitive version. The cynical backlash against “woke” curricula and diversity programming, in the bargain, serves as a potent reminder of the racial animus at the core of our fragmented politics.

Taken together, partisan polarization, institutional racism, and jurisdictional venue shopping by conservative interests turn the democratic pretensions of federalism on their head. State policy decisions, as the struggle to expand Medicaid in laggard states suggests, are increasingly divorced from what citizens want or need. By any measure, state policy is increasingly unresponsive and unaccountable. While elites navigate or manipulate the federal system to their advantage, ordinary citizens are left in a jurisdictional and informational fog — unable to translate local organization or aspirations into effective political demands. The pursuit of decentralization as a conservative political project is laid bare by the fondness of these same state governments for preempting city or county initiatives — on issues such as labor standards or gun control — when they do succeed.

State politicians, for their part, understand perfectly well that their policies fly in the face of popular representation or aspirations. This is why their agenda is routinely accompanied by constraints on political participation. The reign of Jim Crow rested on terror, intimidation, and the systematic disenfranchisement of African Americans. Indeed, across our history, the national government has confronted tyranny in the states — not the other way around.²⁷ In our own time, deference to plutocrats and zealots is made possible and permanent by stifling the voices of everyone else. As of January this year, thirty-two states have introduced legislation that would make it harder to register to vote, vote, or even remain on the voter rolls. This is not about wrestling power from “big government”; it is about pursing power in whatever jurisdiction best serves your interests and locking it down by defanging or demobilizing the opposition.

The notion that American federalism is (or can be) a boon to democracy, in short, rests on a long list of elusive conditions. It assumes that the democratic institutions of democratic capitalism are unaffected by its capitalist interests; that states only compete above a high and stable floor of national standards or rights; that the racial premises of fragmented rule are all in the past; that subnational units of government have fiscal and political capacities commensurate with their responsibilities; that state innovation is rigorously assessed or benchmarked; and that decentralization is narrowly concerned with the scale of government authority and not a thinly veiled attack on the very legitimacy of government authority. None of these conditions hold, ensuring that federalism remains an open institutional invitation to interests on the Right and a fundamental institutional obstacle to those on the Left.

Federalism and Public Policy

The limits and dangers of federated rule are evident across the policy landscape. Consider economic development. Observers, and even those engaged in the practice, have long recognized state or municipal competition for new investment as a pointless game of musical chairs. States attract new businesses only by pirating them from another state or entering a bidding war that compels them to offer such steep subsidies that the prize for entering the fray is almost entirely lost. Tax incentives do not conjure up jobs or investment that would not otherwise exist; they just move them around. Amazon alone has claimed over $6 billion in public subsidies from states and localities since 2000 — a price tag that has not yielded one forklift or warehouse that the company would not have provided on its own dime. This “economic war among the states” is entirely an artifact of federalism and its tendency to gird business power with both an exit threat and an entrance ransom. It comes at the expense of public goods (the biggest share of local abatements are usually revenues that would otherwise go to schools) and often of labor standards (little effort is made to ensure that subsidized firms pay fair wages or respect labor rights).

Consider labor law and policy. As democratic capitalism tends to generalize the interests of capital (what’s good for General Motors, et cetera), it also minimizes or undermines the interests of working people. This is true within states, where the disproportionate political clout of employers has yielded a long and dismal history of anti-labor repression and violence. And it is true across states, where labor laws and labor standards vary dramatically by region and jurisdiction. Fragmented organization and regulation nurtured divisions among workers (most starkly along racial lines) and wide state-to-state and regional disparities in the social wage. The uniform, expansive, and national right to collective bargaining in the United States lasted barely a decade — from the passage of the Wagner Act in 1935 (which was explicitly designed to erase regional disparities in labor law and policy) to the passage of Taft-Hartley in 1947 — which invited states to check worker power in the private sector by passing “right-to-work” laws. Right-to-work regimes, in turn, have dampened wages, slowed new organizing, and yielded wide regional and state gaps in union membership: private sector union density today ranges from 1.4 percent (South Carolina) to 14.1 percent (Hawaii). Public sector labor law enjoyed no flirtation with national standards and remained firmly rooted in the states, where disparate laws have also yielded disparate protection: public sector union density in the states ranges from 6.7 percent (South Carolina again) to 68.4 percent (Connecticut).

Federalism fractures not just the regulation of labor relations but the organization, structure, and solidarity of the labor movement itself. The exceptional and debilitating fragmentation of the American labor movement rests in large part on its roots in disparate state settings and on the absence of any sustained peak bargaining — both consequences of federated politics. Jurisdictional silos of solidarity, as Joel Rogers has argued, have invited calculated division, often pitting workers and their organizations against each other. The class bias of American federalism, in turn, has sustained an unrelenting regime of authoritarian rule in American workplaces, simultaneously exploiting workers and heightening the risk of pushing back. “Most workplace governments in the United States are dictatorships,” Elizabeth Anderson notes, “in which bosses govern in ways that are largely unaccountable to those who are governed. They don’t merely govern workers; they dominate them.” And the damage done at work spills into public life. Federalism weakens union power and voice at the bargaining table and in politics, a fact explicitly recognized and exploited by the attack on public sector unions in recent years. Without a strong labor voice in politics, fragmented anti-statism prevails, the basic elements of social protection wither, and the political and economic gaps between the ruling class and everyone else widen.

Consider social policy. The American safety net is designed to undermine social citizenship and frustrate equal protection. Deference to states — including not only control over needs standards, eligibility, and benefit levels but sweeping occupational exemptions — was hardwired into the New Deal welfare state. From the outset, national standards, let alone any commitment to universality, has been thin, and states have been inclined to exercise their considerable discretion in ways that “divide citizenship” and “fragment democracy.” The inevitable consequence is wide state-to-state disparities in the responsiveness, inclusion, and generosity of our social policies. Cash assistance for poor families is meager everywhere: even the most generous states offer less than $700 per month and reach fewer than half of eligible families; the stingiest offer less than $200 per month and reach fewer than one in ten poor families. In unemployment insurance, states set the level of benefits, their duration, and a whole host of “non-monetary” eligibility criteria — and state variation on all three has been widened by conservative backlash to the “generosity” of supplemental federal programs during the Great Recession and the COVID-19 pandemic. The average compensation for the same spell of unemployment (a measure that captures variation in benefits and duration) ranges from about $8,000 in the most generous states to less than $3,000 in the stingiest.

This uneven unwillingness to cushion citizens from market uncertainty is rooted in federalism’s deference to state and local labor markets. This not only hardens the “principle of less eligibility” (the determination that public assistance should never compete with private wages) but infuses social policy with the expectation or qualification of labor force participation. Work shapes access to the “private welfare state” of job-based benefits (especially health insurance and pensions). It tiers access to social insurance programs like social security. And it increasingly conditions receipt of means-tested assistance — a punitive commitment to “workfare” rooted in state discretion and experimentation. In turn, meager social policies are a quite intentional consequence of self-imposed fiscal constraints. Even when the costs are very small, state legislators are quick to justify cuts by manufacturing anxiety over their public or private burden. Strangling access to unemployment insurance and workers’ compensation is premised on both forcing the jobless or injured back into the labor force and (not incidentally) ensuring that taxes on employers are kept low.

In every arena of policy, the logic of American federalism — evident in its motivation and in its persistence — is irretrievably racial. It represents a commitment to local discretion and to anti-statism that is animated by systematic concessions to racialized labor markets and a profoundly even commitment to equal protection. The New Deal welfare state, as the NAACP’s Charles Hamilton Houston noted bitterly at its passage, seemed little better than a “sieve with the holes just big enough for the majority of Negroes to fall through.” Since then, state discretion, either in the design and administration of basic social programs or in the decision to adopt them at all, has been a reliable engine of racial discrimination and racial disparities. The legitimacy and generosity of state social policy is tightly and inversely tethered to the share of immigrants and people of color in the local population, or their share among program recipients. Seven of the ten states that have not expanded Medicaid are in the Deep South, and more than half of the non-elderly adults left uncovered are black or Latino. For African Americans especially, all of this creates and sustains compounding tiers of disadvantage: residential and occupational segregation throttle access to the private welfare state; public programs meant to narrow that disparity — in which states enjoy wide discretion — instead widen it.

The organizational and political weaknesses of federalism were laid bare by the COVID-19 crisis. Effective public health policy, like civil rights, depends upon robust national standards, common purpose, and nimble enforcement or administration. Instead, in the face of fragmented responsibility and the callous ineptitude of the Trump administration, states crafted their own inconsistent and idiosyncratic policies on social distancing, school closures, definitions of “essential” business, and “gating criteria” for reopening state economies. “Even the basic question of where the problem was most serious and how fast it was spreading,” Donald Kettl underscores, “was impossible to answer because there was no common language for charting the problem.” States tested and reported test results (or neglected to report test results) with bewildering variety. Delegated the task of vaccination, states adopted an array of criteria that had them “increasingly diverging from CDC guidance and from each other,” a Kaiser Family Foundation summary of state plans concluded, “suggesting that access to COVID-19 vaccines in these first months of the U.S. vaccine campaign may depend a great deal on where one lives.”

The issue here, regarding protection from both the virus and its economic fallout, was not federalism per se but the uncooperative, transactional, market-deferential, and deeply partisan federalism that now prevails in the United States. Nowhere in subnational policymaking was there a discernible hint of the local responsiveness or benchmarked innovation that are supposedly the virtues of decentralized governance. Instead, state decisions were driven largely by petty partisan standoffs over the most mundane public health guidelines, by willful confusion and misinformation, and by growing fiscal anxieties. As the pandemic dragged on, states proved less innovative and less responsive, instead settling into well-worn political and policy grooves.

In turn, the cumulative consequences of fragmented social policy left Americans uniquely exposed to both the virus and to the COVID-related recession. The United States “stands alone in its failure to provide universal health insurance, general cash assistance to the poor, and entitlement to childcare subsidies, among others,” as one post-pandemic survey put it. “Its patchwork of social assistance varies greatly across states, and often within states, leaving many Americans unprotected and vulnerable in periods of economic upheaval.” Disparate policy commitments (on public health, on labor standards, on paid leave, on Medicaid expansion) meant health and economic risks fell unevenly across states and populations. Federated labor and social policies fragmented health coverage and tied it to private employment, meaning that, when a public health crisis precipitated a recession, health security effectively evaporated when it was most needed. Because existing vulnerabilities — in labor markets, in access to health care, in the social determinants of health — were deeply racialized, so too were the ravages of the virus.

Even where social policy innovations did make a difference, they underscored the folly of federated risk and protection. The temporary generosity of the CARES Act’s unemployment programs was a concession to both the gravity of the jobs crisis and the inability of state unemployment insurance systems to process (let alone fund) the avalanche of claims. As the pandemic wore on, anxieties about state labor markets grew, and in the summer of 2021, twenty-six states cut short the supplemental federal benefits — a largely political decision that yielded little but renewed economic insecurity. The meager and short-lived paid leave provisions of the Families First Coronavirus Response Act, by the same token, underscored the inefficiency and unfairness of delegating such basic social protections to private whim and state-by-state policy innovation. To fulfill the Centers for Disease Control and Prevention’s national moratorium on evictions, states and local housing programs — even those funded with federal dollars — offered a frayed patchwork of relief. For a fleeting moment, national policies rendered existing social programs more generous and more universal and crafted new ones to fill in some of the gaps. On every score, these marked an effort to overcome fragmented state provision; on every score, states led the push to dismantle the effort at the first opportunity.

Overcoming Federalism

The culprits in this litany of failure are many, and they include labor market precarity, a tattered safety net, systemic racism, and yawning gaps in public and private health provision. But a consistent coconspirator, bearing substantial responsibility for these conditions and for exacerbating their consequences, is American federalism. That institutional framework, and the choices that underly it, is not (as it is so often portrayed) a means of balancing liberty and security, or equity and efficiency. And it is certainly not, in our historical or current experience, a reliable mechanism for responsive and effective public policy.

This is hardly surprising. From its inception, our federal system was designed to protect private interests and dampen popular representation. Aspirational excerpts from the founding debates over state and federal responsibility cannot disguise the fact that our political institutions were crafted first and foremost to protect property. Going forward, the distribution of political responsibility across jurisdictions, the broad discretion afforded state governments under even putatively federal programs, and the reliable deference of state legislators to local economic interests, accomplished just that. At every turn, federalism has strengthened capital and weakened working-class interests. Its institutional architecture has made it easier for employers to make and win political demands; its fragmented politics and policy have made it harder — and riskier — for workers to do the same.

Republished from Catalyst: A Journal of Theory and Strategy.

This article is reprinted from Catalyst: A Journal of Theory and Strategy, a publication from the Jacobin Foundation. Right now, you can subscribe to the print edition of Catalyst for just $20.