Year XXXIX, 1997, Number 2, Page 77
FEDERALISM, DEFICIT AND THE NEW WORLD ORDER
The bipartisan agreement reached in the USA by the Democrats and Republicans to balance the federal budget by 2000 — the balanced-budget agreement — has a significance which transcends the American political horizon. On one hand, it is part of the wider debate on the balance of power in a federation whose roots go back to the Convention of Philadelphia and the subsequent battle for the ratification of the new Constitution. On the other hand, it is explicable only in the context of an analysis of the evolution of the world order following the end of the Cold War and with the prospect of the creation of the single European currency by 1999.
The agreement reflects the awareness, by now shared by both the big American parties, of the need for financial reform, and followed a heated debate as to whether the Constitution should be amended. At first sight this would seem nothing new: the subject has been raised in every legislature since 1936, and it is not the first time that a bipartisan agreement has been announced on the containment of the federal budget. But in the last three years particularly Congress and Senate have repeatedly discussed the problem. Since 1994 they have voted on three separate proposals of constitutional amendment to limit federal powers in fiscal and budgetary matters. As in the past, amendments have been blocked by the constitutional constraint that at least two-thirds of the members of Congress and Senate have to approve starting the complex procedure of revision of the Constitution. But on this occasion the agreement which followed on from it sought to unite the demands of reform with an ambitious internal “Marshall Plan”.
Let us briefly see how this result was reached, starting with the majority and minority reports presented by the Committee on the Judiciary of the Senate,[1] which had examined and given a first opinion favourable to the balanced budget constitutional amendment.
The senators in favour of amending the Constitution proposed fixing the majority necessary to annually approve a budgetary deficit at three fifths only in cases of particular emergencies or of imminent war; they justified the proposal by referring to observations made by the Founding Fathers of the Federation (in particular Hamilton, Jefferson and Madison) on the powers and moral responsibility of Congress. The majority report took as its starting point the fact that federal expenditure is now out of control, and no bipartisan agreement has so far succeeded in changing the situation. Indeed, federal expenditure now represents a high percentage of the United States GDP (23% in 1993 against 3% in 1929) and annual spending on interest payments on the national debt now equals military spending, while the percentage of foreign creditors is increasing. The senators opposing the change, also referring to the authors of The Federalist, retorted that such an amendment would upset the balance of the Federation, and in particular, would give excessive power to the courts, who would de facto have the power annually to establish the constitutional correctness of the budget proposals, and to evaluate emergency situations and proposed expenditure and investments. In this way, the minority senators objected, the very principle for which the War of Independence was fought would be lost, namely that of keeping the power of taxation anchored to the people’s representatives. To approve such an amendment, the minority speakers Leahy, Kennedy and Feingold insisted, would moreover undermine the international influence of the United States, in that it would weaken the effectiveness and credibility of US foreign and security policy. It was noted that if the proposed amendment had been in force, President Jefferson could not have acquired Louisiana at the beginning of the last century to promote a peaceful enlargement of the Union and to prevent the formation of potentially adversary States on its western borders. In connection with the facility, evoked by the majority speakers for circumventing the deficit clause in case of emergency, to constitute majorities sufficient to enable the Union to respond in good time to internal and external challenges, the minority report noted that this theory is not supported by historical experience. Thus, Congress and the Senate had decided only by the narrowest majority to extend military service on the eve of the Second World War; and it was by a hard-won majority that Congress had decided on war against Great Britain in 1812, and, after the Civil War, on the imposition of a tax, opposed by the States of the North, to finance aid to the States of the South.
To complete the context of the debate, it is worth noting another contribution appended to these speeches, that of Senator Torricelli: while declaring himself in favour of the amendment, particularly to contribute towards kindling a broader debate in the country, he stressed the need to tackle the problem of defining the constitutional and legislative criteria to distinguish between long term State investments and current expense.[2]
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As we can see, the debate in America on the problem of financial reform has become a debate on federal constitutional principles and how they stand up to the challenges of the globalization of the economy and the transition towards a new world order. These challenges were not yet present on the political and historical horizon of the Founding Fathers of the American Federation, whose primary objective was to protect the budding continental federal power from the claims of the member states and to make it sufficiently independent and strong. Concerns of this type emerge, for example, in Hamilton’s observations regarding the need to give the federal level unlimited powers of taxation (The Federalist N. 30), so that it could respond, independently of the member states of the federation, to situations as they arose. And, on the more general question of the limits of state borrowing, one might note the passage in The Federalist, again by Hamilton, which explains how “any outstanding items can be covered by loans. The possibility of establishing new funds by new taxes imposed on their own authority, would allow the national government to resort to loans for any sum which it might need... Foreigners, like American citizens, could reasonably have confidence in these commitments”.
Hamilton’s observations and the recent debate in the USA regarding financial reform give occasion to reflect briefly on three more general problems: A) the advantages and limitations of the American Constitution; B) the opportunities and risks linked to the end of the Cold War and globalization; and C) the American response to the European challenge.
A — Federalism has allowed the United States to find the necessary resources to tackle with success, and in any case more effectively than the European nation states and the big continental states like the USSR, the challenges of the evolution of the mode of production and of the world balance of power over the last two centuries of history. But also on the internal level, as Tocqueville observed,[3] federalism ensured that America became “the only country where one could observe the natural and tranquil evolution of a society”, by removing it from absolute power.
However, as America gradually became part of the world system of States, the federal principles of the Constitution were forced to adapt to the requirements of raison d’état. Thus there was a gradual erosion of the margins for autonomous internal reform of the US Constitution, just as previously there had been a gradual erosion of the margins for autonomy in domestic policy of the individual European nation states against the demands of international policy. We can therefore observe, in America as in Europe, that in both continents no state can reasonably hope individually to draft and adopt a perfect Constitution. To advance on this terrain Europeans and Americans now find themselves in the position of having to solve the problem highlighted by Kant in the Seventh Proposition of the Idea for a Universal History with a Cosmopolitan Purpose: “The problem of establishing a perfect civil constitution is subordinate to the problem of a law-governed external relationship with other states, and cannot be solved unless the latter is also solved”. This difficulty may perhaps permit a better grasp of the contradiction, which also emerged during the debate on the constitutional amendment to limit the national debt, between the aspiration to introduce constitutional constraints to make the policies of the state more efficacious, and the need to leave open the possibility of abrogating it — by evoking the prospect of imminent war — to allow the state to guarantee its own survival in a world of sovereign and independent states. The overcoming of this contradiction therefore depends not on the good or ill will of the American legislators, but primarily on the existence of the indispensable historical conditions to start a political struggle with the objective of affirming a world order compatible with the condition indicated by Kant.
B — The end of the Cold War and the process of globalization have established the premises for tackling this problem. In fact, in an age when the globalization of the economy and the end of the military blocs oblige every state to compete on the international markets to attract investment and capital, it is no longer possible to win the confidence of investors, referred to by Hamilton, without offering in exchange guarantees of the solidity of each national economy. Moreover, without the protective network of the powers of reference in the bipolar balance, the states must demonstrate that they deserve individually the trust of the markets by pursuing virtuous economic and budgetary policies. The interest of the States in pursuing healthy budgetary policies therefore coincides increasingly with the need to pursue them to avoid marginalization from the world economy.
The Treaty of Maastricht in Europe and the debate which has developed in America are the consequences of the same situation. However Europe, finding itself still without a constitution and without a government, has so far developed this debate in the intergovernmental arena and not by the normal dialectic between political and social forces and the government. The USA for their part seek to reconcile the policy of internal financial reform with maintaining their status as the single global superpower which survived the end of the Cold War.
C — But why, despite America’s current superiority, is the USA determined on objectives which go beyond the criteria of Maastricht? And again, why, with an unemployment rate below 5% for the first time since 1973, a ratio of 1 per cent between the public deficit and gross domestic product, well below the parameters of Maastricht, with a forecast increased fiscal revenue due to the healthy trend of the economy, is the USA going for a further effort of financial reform which should balance the budget by the year 2002? President Clinton’s answer to the American people is: “To prepare ourselves for the future”. The current American advantage is therefore not considered enough to put the USA out of all danger, and uncertainty on the future of the world order forces the USA to conduct a foreign policy capable of adapting as much as possible to every evolution of international relations.
The bipartisan agreement which followed the rejection by Congress and Senate of the amendments on balanced budget and tax limitations[4] was made possible, as Clinton’s group of counsellors who worked on this project has admitted, by the Democratic and Republican party leaders’ shared concern over the future of American security policy and foreign policy.
The future of Europe, for which the Americans have fought three wars in this century — the costs of the Cold War were in fact no lower than those sustained in the two preceding world wars — continues to occupy a prominent position in these concerns. With the prospect of a new European monetary pole, now considered by the US administration to be inevitable, the American economy in fact can no longer count on the uncontested power of the dollar in international trade — the European Commission forecasts that after 1 January 1999 at least a third of international trade will be effected in EURO far less on the maintenance of a substantial inflow of financial resources towards America. The USA must therefore prepare for greater financial competition or cooperation at global level. And the degree of bitterness of competition or of intensity in cooperation will presumably depend on the evolution of the equilibria affirming themselves in Europe. All this is sufficient to explain the determination with which the USA is conducting a policy of national unity in the area of budgetary policy.
The turning point announced in the American budgetary policy is of enormous significance when one considers that until the end of the Eighties the tendency was to rely on public borrowing for federal expenditure to support the growing costs of the social and defence programmes, rather than on higher taxes. In the first half of the Eighties the deficit quadrupled in five years and the debt doubled. It was the end of the Cold War which made it possible to reverse this trend. The fact that all this is happening, for the moment, without affecting the position of world leadership held by the USA, offers the Clinton Administration a unique opportunity to inaugurate a policy of national unity otherwise impossible. In fact, the recent Russian-American agreements on the reduction of their nuclear arsenals, which do not weaken the Russian-American supremacy on this terrain, and the decision to enlarge NATO, which allows the USA to maintain a role of leadership in the Alliance with the prospect of sharing out the financial burden more, have made it possible to agree on the budget and launch an unprecedented development plan. It is thanks to this context of détente that almost a third of all cuts to be made by 2002 can be made on the budget of the Pentagon, to an amount comparable to the investments made in Europe through the Marshall Plan in the five years bridging the Forties and Fifties.
But if the end of the Cold War has made reform of the American economy possible, the prospect of the birth of the European monetary pole has accelerated its launch.
Accepting the European challenge, the USA have announced their intention to go beyond the commitments undertaken by the Europeans in the Treaty of Maastricht. The point of departure of the American plan for development is the same as Delors’ European plan: the adaptation of society to the new phase of development of the scientific and technological revolution, starting with education.4 But the parallel ends there. The plan presented by Clinton is in fact a government plan supported by a political agreement of national unity. The European plans are intergovernmental agreements on which the approval of the individual national governments must daily be sought.
The US however cannot underestimate the fact that, in this phase, they can reconcile the reinforcement of their Welfare policies (which, moreover, are below the levels of social protection guaranteed in Europe) with the balanced budget by exploiting the peace dividends of the end of the Cold War.
For the USA it is therefore of vital importance to maintain a stable and secure world context, without which it will certainly not be possible to carry out the announced plan. The expansion of NATO, the relaunch of transatlantic relations between the USA and the European Union, the reinforcement of NAFTA in North America and the proposal of a Hemispheric Free Trade Area with Latin America, bear witness to a US foreign policy designed to consolidate this favourable moment for America by extending their area of economic and military influence.
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As the G7 summit in Denver, the New York summit on the environment and the Madrid summit on NATO showed, the policy of reinforcing the American leadership cannot be tolerated and endured for long by the other states. It is a policy which can therefore have limited successes in the short term, but not in the medium and long term, when inevitably it will become manifest that the USA cannot guarantee an American world peace. If at that moment there were as yet no mature alternative to the path followed by the USA, the world would risk being indefinitely swallowed up into a dangerous phase of disorder and international instability. In such a situation the problems of reform and relaunch of development plans on both sides of the Atlantic would inevitably give way to the day-to-day policies to guarantee the survival of the institutions essential for the survival of the States.
It is unlikely that such an alternative could emerge from the USA. It is true that twice in this century, following the First and Second World Wars, first President Wilson and then President Roosevelt laid the foundations for the reorganization of the international order starting with world institutions which were proposed to reinforce cooperation between States, but without putting sovereignty in discussion. The problem facing us today instead consists in going beyond cooperation and national sovereignty. An impulse in this direction is unlikely to come from Russia, which is grappling with a difficult process of economic and political transformation where internal objectives take priority over international ones; or from the emerging Chinese and Indian powers, not yet fully part of the process of globalization of the economy and commerce.
The construction of an alternative to world disorder must therefore start from Europe and from the model of the international state which the Europeans propose.
When it becomes clear what limitations constrain the American policy in its attempt to guarantee security and stability in certain key regions of the world, or to tackle certain serious global problems with any probability of success, what point will the European Union have reached in the process of transforming itself into a federal state capable of action? On the European response to this question depends not only the future of the debate on relations between federalism, financial reform and development plans, but also the future of the world order.
Franco Spoltore
[1] The Balanced-Budget Constitutional Amendment, Report from the Committee on the Judiciary, together with Additional and Minority Views, Filed under the Authority of the Order of the Senate of January 30, 1997, 105th Congress.
[2] This problem, far from being a merely technical question, also came up in the Treaty of Maastricht, which however left to an explanatory protocol — that on the convergence criteria — the problem of taking account of the difference between the public deficit and public expenditure for investments (art. 104 C).
[3] Alexis de Tocqueville, La Démocratie en Amérique, I, first part, second chapter.
[4] The bipartisan agreement proposes to relaunch education policy. Educational standards are to be spread out and raised: it is the largest investment in education made in the USA in the last thirty years. Taken as a whole, between direct support and fiscal deductions, the transfer into the education sector in the next five years will equal the cuts planned for defence. In health care, both savings and greater health care cover for the most needy are planned. In environmental protection new investment is planned for the cleaning up of contaminated areas (500 zones by the year 2000) and for the safeguarding of the people’s health. As we see, the USA is reaffirming the role of the state in promoting the growth of primary factors of development — like education — and in guaranteeing the health service and minimum social security for all citizens.
