How not to approach federalism like scripture
As Wheare observed, the central government can exploit the richer areas for the benefit of the poorer. What wealth there is, they can seek out. Whereas the government of a depressed region, with great demands for social services, and correspondingly small resources to meet them, is confined within the area of its own territory for the resources it may tap, the general government can rage over the whole field. One function which the general government of a federation is coming increasingly to perform, rightly or wrongly, is the redistribution of the wealth of the whole country, taking it from the more prosperous regions and giving it to the poorer.”
Germany has a unique Peter-to-Paul horizontal equalization transfer (Länderfinanzausgleich, or LFA), whereby revenue is transferred from the richer subnational units to the poorer by a mechanism of equalizing their financial capacities under article 107(2) of the German Constitution, which mandates legislation that “shall ensure a reasonable equalization of disparate financial capacities of the Lander, with due regard for the financial capacities and needs of municipalities.”
Although everywhere there is a net transfer of revenue from the richer regions to the poorer regions, the former generally resent it. It should surprise no one that this is also the case in Nigeria as well. The derivation entitlement in the 1999 Constitution (13 per cent) is only a third of what it was in the 1963 Constitution (50 per cent). However, context is important. Petroleum rents was not significant until especially the early 1970s. Fifty per cent entitlement was probably no longer realistic in the new circumstances without creating a radical horizontal fiscal asymmetry (between States). Even with 13 per cent, the 2017 Q1 revenue allocation shows, for example, that the N75.44 billion gross revenue allocated to Akwa Ibom is three times that of Kaduna and more than twice Kano’s. It is four times that of Cross River and five times Kwara’s. So, contrary to the popular perception, the derivation factor currently has a significant impact in the horizontal distribution of revenue (between States) in Nigeria. Nonetheless, today, with petroleum revenue barely half of the Federation Account, it is tempting to experiment with progressively increasing the percentage of the derivation entitlement, possibly even up to 50 percent.
FALLACY 6. Federalism requires that States develop at their own pace.Without doubt every subnational unit of a federation cannot develop at the same pace. Lagos State, for example, is developing at a greater pace than Gombe State. What is not true, however, is to deny that the central government may legitimately intervene to ensure that the provision of public services (health, education and so on) in every State is at a comparable level. That is an imperative of national citizenship. Some federal constitutions expressly affirm this obligation (e.g. Canada, s. 36(2); Germany, art. 72(2)).
The alternative scenario is that, as long as there is unhindered mobility of citizens, the population will move from poorer States to the States with better public services, thereby passing the financial burden for providing these services to the well-off States.
FALLACY 7. Allocation of revenue to States from the Federation Account is feeding-bottle federalism.
This reflects a misunderstanding of the mechanism. The Distributable Pool Account is one of the enduring legacies of the Sir Jeremy Raisman Commission (1958). It has been incorporated in every Nigerian Constitution since. The Federation Account is not an account of the Federal Government. The Constitution itself (s. 162(1)) says, “The federation shall maintain a special account to be called the Federation Account.” As we have previously noted, the Federal Government acts as the agent of all the governments of the federation in collecting revenues constitutionally designated for the Federation Account (practically all the revenue collected by the Centre). Revenue sharing of this kind is a feature of all federations the United States excepted. In Nigeria, as in many other federations (e.g. Australia, Austria, India, and Germany), this transfer is the most important source of the income of the subnational units. In India, for example, States are chronically dependent on transfers from the Union government. One study concluded that, “the States are always looking to the Union Government for transfer of the resources. They prepare their budgets after the budget of the Union Government is presented because the States know this determines how much Central resources will be available to them” (Gill, 2013:230-31).
Fiscal imbalance is inherent in federations. “As a rule, federal governments tend to collect most taxes while state and local governments are responsible for more expenditures than can be financed from sources of revenue directly under their control” (Bird & Tarasov, 2004: 77). In addition, the central government is better able to borrow. The tendency is for it to be fiscally dominant in all federations. In Australia and Austria, for example, the federal government controls all the important sources of revenue. The vertical fiscal imbalance in federations is closed, to some extent, majorly through revenue-sharing, or intergovernmental transfers from the centre. Without revenue sharing most of the States in Nigeria will clearly be unable to deliver but the barest public services. Of the four major inflows into the Federation Account (petroleum rents, customs revenue, company income tax, and VAT), all but VAT were centrally collected before 1966. VAT did not exist until 1996. If States levied their separate VAT or sales tax, a “race to the bottom,” with States competing to lower taxes to attract investors and consumers, is unavoidable, and the administration of the taxes will be characterized by double taxation.
Professor Nwabueze has bought into the popular perception that the monthly meeting of the Federation Account Allocation Committee (FAAC) amounts to State Governors going “cap-in-hand, as it were, to Abuja for their share of the money in the Federation Account.” If the Abuja venue of the meetings is what is objectionable, there is no reason why other venues around the country cannot be used or, for the sake of neutrality, even Accra or Lomé. Or better still, perhaps in our increasingly digital-complaint society, inexpensive virtual meetings could replace Abuja meetings as long as account inflow disclosures and reconciliation can be effectively achieved. The cap-in-hand metaphor is a bit over the top way to describe the disbursement of legal entitlements under the Allocation of Revenue (Federation Account) Act. German scholars, in contrast, consider Lander share of centrally collected revenues in Germany as own-revenue of the subnational units rather than a grant from the central government. This is justified by the fact that the share cannot be unilaterally varied by the central government. However, Professor Nwabueze objects, correctly in my opinion, that, since section 162(3) of the Nigerian Constitution grants the central government the power to prescribe the terms and manner of sharing the revenue in the Federation Account, it puts the share of the States completely at the mercy of the Federal Government. In practice, it is the Revenue Mobilization Allocation and Fiscal Commission that reviews the revenue allocation formula, on the basis of which the President presents legislative proposals to effect it to the National Assembly. Although there is a representative from each State on the Commission, the President is not specifically required to consult with the States before making an appointment. Combined with the fact the National Assembly is an instrumentality of the central government, Nwabueze is correct in principle that, section 162(3) “is a somewhat over-bearing power in a federal system.”
The vertical and horizontal distribution of the revenue is according to a statutory formula put in place for the time being, and not simply something left to the whims and caprices of the centre to distribute as it pleases outside the law. Of course, it is not like a salary. There will always be fluctuations in inflows into the Account. Yet, section 162(3) is imperfect in its present form. In contrast, section 140 of the 1963 Constitution specified the respective shares of each Region in the Distributable Pool. In addition, section 164 required that, “The Government of the Federation, acting in consultation with the governments of the regions, shall from time to time appoint a Commission to review and make recommendations with respect to the provisions of sections 140 and 141 of this Constitution.”
III. CENTRALIZATION VS. PERIPHERIZATION
The 1963 federal Constitution though long dead is experiencing romanticization of sorts among our political elite, with even apparently serious calls for its resurrection. Professor Nwabueze’s statement last week that, it “may fairly be described as a model of true federalism” deserves careful consideration. Nwabueze is not only the nation’s leading constitutional expert, he is the only one alive, I think, who authored a constitutional law textbook on that Constitution. However, there are certain aspects of the federation under the 1963 Constitution that can no longer be replicated. For example, the disproportionate size of the Northern Region (landmass as well as population) created an asymmetric federalism, which necessarily ensured that the Region, and a fortiori the periphery, was strong relative to the Centre. As John Stuart Mill observed, in such a situation, the oversize Region “will insist on being the master of the joint deliberation” (Mill, 1862: 322). Federations with one or a few disproportionately large or economically powerful subnational units are likely to be stronger at the periphery than a federation with numerous medium or small units, such as Nigeria today. Also, the existence of strong regional parties enhances and secures the power of the region vis a vis the centre, especially where national parties rely on regional parties to form the government at the centre. We see that, for example, in India and Pakistan.
The old Northern Region is today broken into twenty units (including the Federal Capital Territory). Although a return to the old Regional arrangement has been advocated by some, no one has provided a roadmap for recoupling the old Regions. Some have suggested using the existing six geopolitical zones in place of the old Regions. That itself is a major modification of the 1963 model, with the North split into three and the South more or less retaining its previous three-unit structure. The Yoruba nation has suggested a multi-layer federal structure of Centre, Regions and States. There is no precedent of a successful experimentation with this naturally complicated model.
FALLACY 8. The 1999 Constitution transferred to the Exclusive Legislative List several important powers from the Concurrent Legislative List of the 1963 Constitution.
The truth of this claim is mostly taken for granted. However, it deserves to be taken seriously not the least because it is shared by Professor Nwabueze, who wrote recently, “the intrusion of absolutist military rule for 28 years after 1965 has brought about the accretion of a vast amount of additional powers to the Centre over and above what they were under the 1960/63 Constitutions, resulting in the system being turned virtually into a unitary system.” We have earlier acknowledged that centralization under military rule left its fingerprints in the Constitutions of 1979 and 1999. However, the picture one gets when the Constitutions of 1963 and 1999 are closely compared is not the Tectonic shift that is widely reported.
The only matters moved from the 1963 Constitution’s Concurrent Legislative List to the Exclusive Legislative List of the 1999 Constitution are: arms and ammunition, bankruptcy and insolvency, census, commercial and industrial monopolies, combines and trusts, drugs and poisons (designated by the President by order), fingerprints, identification and criminal records, labour and trade unions, prisons and other institutions for the treatment of offenders, promotion of tourist traffic, quarantine, registration of business names, and evidence. Police was never on the Concurrent Legislative List On the contrary, the 1963 Constitution, section 105(4), stated clearly, “Subject to the provisions of this section, no police forces other than the Nigeria Police Force shall be established in Nigeria or any part thereof.” The only exception permitted was native authority and local government police, and this could only be established for a province or a part thereof and not a Regional police. In the event, there was no local government police in the Eastern Region.
Two observations are inescapable. First, the failure of quality public services delivery in almost every State today is not a result of lack of legislative competence. How many States can boast of functional fire departments in its towns and cities, public libraries, public water supply, standard emergency services, adequate healthcare and so on? Each of these matters is within its allotted sphere. State courts are the principal source of input into the prison system maintained by the Federal Government. State prisons make every sense. The United States has only twenty federal penitentiaries, for example. State police will be a big-ticket item on any State budget, and only a few States will be able to sustain a substantial police force. Second, State finances are generally poor now (mounting arrears of unpaid salaries and benefits, bailouts from the Federal Government, etc.). Any added competence will put subnational finances under greater stress. These observations tell us that it is critical to sustaining federalism in Nigeria to preserve revenue sharing. It is important for States to be provided at least the minimum resources necessary for provision of quality public services. With more competences offloaded to the States, the sharing formula must be revised in their favour of States, but equalization criteria must remain relevant to horizontal distribution of revenue in the Federation Account.
FALLACY 9. The functions of the Federal Government should be limited to defence, external relations, immigration, currency and microeconomic management.
It is not clear whether those who make this claim expect it to be taken seriously. There is no federation where the central government is confined to these functions. Perhaps that may be so with a confederation. As we have previously noted, even in areas of State competence, negative interjurisdictional externalities and spillover effect, for example, environmental protection, and the imperative of a minimum national standard make action by the central government inevitable. The executive departments of the United States, for example, include departments for matters such as education, health, agriculture, transportation, and energy. In Canada, there are federal government ministries for public safety, agriculture, fisheries, families, children and social development, transport natural resources, sport, environment, infrastructure, employment and labour, small business, and health.
Assuming it was even possible to limit the competence of the central government to the bare bones (defence, currency, etc.) suggested, does it follow therefore those will be the only issues in presidential and National Assembly elections? Candidates for elective offices at the centre should not be expected to have a healthcare, education or infrastructure agenda? Of course, that would not be the case. Healthcare is a major issue in American national politics even though the subject is mostly within State competence. The federal government expenditure on healthcare in the fiscal year 2015 was roughly one trillion dollars.
FALLACY 10. Devolution of more powers from the Centre to the States will reduce corruption.
Decentralization of responsibilities and expenditure is likely in principle to increase accountability. As decision-making is at the grassroots, it is expected to be more sensitive to local preferences than in a centralized system. Voters and citizen groups are more able to hold local decision makers accountable. However, State capture by elite groups is also more likely in a decentralized system, particularly Nigeria. The stubborn prevalence of neo-patrimonial politics and clientelism in our country makes the periphery highly vulnerable to state capture by elites. Hence with us, decentralization worsens corruption. That is however no a case against decentralization, only that we ought to lower our expectations. That there is state capture almost everywhere at the State level today is not in doubt. The question is whether we should hope for a different situation with restructuring when the social relations enabling state capture are not restructured. That aside, there is, in fact, empirical evidence that constitutional decentralization (federalism) is associated with higher corruption.
IV. PROCESS FEDERALISM
Here is what the structural approach to federalism is about. We vainly expect that once we can erect legal hedges of steel between the Centre and the subnational units, and to some extent between the subnational units themselves, we shall surely have a thriving economy and a perfect union. But structures, even perfect ones, by themselves will not do. The sovereigntist approach to subnational autonomy in Nigeria is essentially impulsive and will not advance our federalism. Instead, we should focus on mechanisms through which the Centre and periphery fruitfully interact whereby the latter can participate in the framing and execution of national policy. Let’s call this cooperative federalism. According to Daniel Elazar, “The elements of a federal process include a sense of partnership among the parties to the federal compact, manifested through negotiated cooperation on issues and programs and based on a commitment to open bargaining between all parties to an issue in such a way as to strive for consensus or, failing that, an accommodation that protects the fundamental integrity of all the partners. Only in polities whose processes of government reflect federal principles is the structure of federalism meaningful” (1987: 67). Interestingly, three decades earlier, Wheare acknowledged that, “It is this cooperative tendency in federal government which provides its most hopeful prospect” (1964: 243).
Mechanisms of process federalism already exist. All the political parties holding power at the Centre and periphery are national political parties. There are national constitutional bodies comprising all governments of the federation (the Council of State and the National Economic Council especially) and several policy agencies, such as the national councils for education, for health, and so on. To these we may add State legislatures’ role in treaty implementation affecting matters outside the Exclusive Legislative List (section 12(3)). If this power is engaged proactively, it will give States an indirect role in treaty-making, a matter ordinarily of unqualified federal competence. Through these mechanisms, States participate in developing national policy, which they would voluntarily participate in executing within their jurisdictions, rather than shield their space from the application of national policy.
Elsewhere the story is the same. In Canada, for example, although nowhere stated in the Constitution, inter-governmental relations are primarily conducted through the First Ministers Conference, Annual Premiers’ Conference, Ministerial Council, and meetings of officials.
“Thinking about federalism,” observed Larry Krammer, an American federalist expert, “feels a bit like joining the proverbial blind men trying to describe an elephant.” Whatever appeal the “dual sovereignty” doctrine may have had in the United States, our federalism model – to use Alfred Stepan’s helpful terminology (1999) – “Holding-together” federalism is different from the American ‘Coming-together” federalism. Or, to use American expressions, ours is marble-cake federalism, not a layer-cake federalism. In suggesting reforms for Nigeria, it is important, and indeed the responsible thing to do, to pay close attention to the achievements and failures of federal experimentation elsewhere.
It is important as well to remain mindful always that a constitution is not a one-way train ticket valid for one journey only. It cannot simply be good only to ameliorate one’s present circumstances. Some have proposed a new constitution be adopted by referendum because the present constitution has failed. Positive constitutional theory teaches that assessing constitutional performance is complicated (Ginsburg & Huq, 2016). The 1999 Constitution has already lasted many times longer than any post-independence Nigerian constitution. Twice as many general elections have been successfully conducted under it, including the only occasion there has been a successful democratic power transition at the centre from one political party to another. The 1963 Constitution now, celebrated afterlife, achieved nothing of the sort. Our First Republic, with its two constitutions, lasted barely 63 months. The present Fourth Republic of the 1999 Constitution has been going for 18 years and counting. Changing wholesale a constitution that has been stable for that long, and with its governing structures functioning, will need to surmount a significant coordination problem. The people tend to acquiesce to any constitutional order that has ensured a stable and effective government over time. Unless there is elite consensus, change can only be achieved at the margin. Without that consensus, the likelihood of a new constitution, if it was possible to write one, winning a referendum is poor. The man on the street yearns for life more abundant. He desires good public services, robust citizenship, and security and good governance.
It is fitting to conclude this essay with Wheare’s prophecy of the future of federalism. His patient study of the development of federalism and federal government and a two-decade rumination spanning the four editions of his famous work convinced him that the practice of federal government was rolling inevitably away from the purity of his concept of federal principle.
“…[I]t is unlikely that the general government will be ready to surrender or return financial resources to the region. The present [central government’s] predominance is likely to be permanent. The prospect for federal government, so far as this tendency is concerned is…that a plurality of jurisdiction is likely to be combined with some measure of financial unification. The regions will cling to their areas of independent power, to the topics over which they have legislative and executive control, but in return for this they have to accept from the general government some degree of financial assistance and with it a greater or less degree of control. This means a modification of the federal principle to some degree, though it need not mean a complete denial of federalism. It will mean, too, that the independence in jurisdiction of the regions in law may be unreal to some degree in practice. But such a combination may well prove workable, and it may produce better government than complete independence in finance and jurisdiction” (1964: 242-43).
We risk completely losing the present opportunity unless energies are focussed at the margins, the areas where consensus is possible and yet better governance can be achieved.
• Ukhuegbe is a Benin City, Edo State-based legal practitioner
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