I support federalism on the basis of subsidiarity (decisions should be made at the most local level that is consistent with their resolution) and since it can introduce market-like competition between states for citizens/investment which allows citizens to choose to live in a state with their preferred policy/tax bundel (as described in the Tiebout model).

Rural/Urban Divide

However, I strongly disagree with the author’s proposal to create seperate urban and rural states (at least at the ‘top’ level) since it would create economically non-self sufficient states which would tend to undermine the working of a federal system by shifting power to the federal government.

States in a federal union should, to the greatest extent possible (which can be limited by geography), be able to stand on its own as a self-sustaining economic entity. Cities can’t stand without food and natural resources from rural areas, and rural areas are dependent on commerce and technology from urban areas. Even more so, in many nations rural economies are heavily subsidized by tax transfers from urban areas to maintain the standards of living of the rural population which would not otherwise be viable.

If most of your states are not economically self-sufficient, then the federal government will naturally tend to use its role as the economic supporter of non-self sufficient states to force its policy preferences on the states. As a real world example, consider that the uniform 21 year old drinking age in the United States is enforced by the federal government by holding transportation funds hostage. Or the recent swings left and right (under Obama and then Trump) on how universities should handle sexual harassment cases were also forced by the federal government holding education funding hostage.

Even the states that could be self sufficient (for example California and New York in the United States) become dependent on the federal government for funding. They could in theory walk away and not accept federal funding to create their own programs outside of federal control with state taxes, but their citizens would then have to pay double taxes to support the state and federal programs. In the United States since the federal government provides a majority of healthcare funding for public programs (which cover about a third of the population), the structure of the entire system is written in federal law with limited flexibility for states; states have no power to make major reforms like moving to fully market-based system or a single payer system without permission from the federal government unless they are okay with losing out on all of the federal taxes their citizens are paying.

Similar shifts of power to the federal government have played out in Australia, Canada, and India.

There are also issues of environmental and human externalities/spillovers between urban and rural areas which share the same geographic regions (for example denominated by mountain ranges, watersheds and air basins). Environmental externalities should be obvious. By human externalities an example is that if a economically non-self sufficient rural region is not able to provide a good quality of life to its residents, many will leave for the nearest urban area. Dealing with these migrants only once they reach the urban area as adults may be far more costly than if the whole geographic region had a common human development policy to begin with. An opposite example would be urban area refusing to build sufficient housing which forces people into surrounding rural areas increasing congestion. There’s also the practical considerations of building infrastructure in a geographic region which may span urban and rural areas.

The author also cites Singapore and Hong Kong as city states that do fine with little rural land, but note that there are no examples of the opposite. There are no prosperous countries in the world which are rural only and have no cities. A federal system based on urban and rural divides would ultimately leave the rural states economically disadvantaged unless the federal government is willing to step in to equalize outcomes (which tends to undermine federalism as described above).

Federalism within Federalism

I do think the author is onto something with the semi-autonomous subdivisions of states. If we’re imagining dividing up a massive country like the United States (330 million population), we may need to accept that realistically we’ll need more than one level of federalism to meaningfully implement subsidiarity. Unlike local governments which generally exist at the whim of the state governments, this second federal level would need to have constituional role and distinct policy areas where it is in charge. While I don’t think it would make sense to divide urban and rural areas at the top level, it may be more appropriate for the second level. If according to subsidiarity the federal government should do the bare minimum (national defense, foreign policy, common internal market) then the states would need to have populations in the tens of millions (the high end of the author’s scale) to be self-sufficient enough to implement major domestic policies effectively (health care financing, education financing, transportation networks, natural resource management). But within those large states, many policies could be effectively run on far smaller levels of hundreds of thousands to low millions (criminal law, health care operations, education operations).

Interestingly Russia and China (and previously the USSR) have arrangements for multilevel federalism and autonomous regions in their constitutions, although it does not seem like they have been implemented with much spirit.

State Representation

I agree with the author on the lack of state government representation in the federal government since the 17th amendment. I would note that even before the 17th amendment it did not really work in practice since state legislative elections in many states effectively served as proxy elections for the US Senate elections. For example the famous Lincoln–Douglas debates (which made US Senate Candidate Lincoln into a major political figure) where held long before the 17th amendment.

The Council of Governors idea is good, and is actually very similar to the German Bundesrat which is made up of delegations consisting of each of the states’ chief executives and other cabinet members.