Contemporary American federalism can be described as an era of coercive or regulatory federalism in which the predominant political, fiscal, statutory, regulatory, and judicial trends have entailed impositions of federal dictates on state and local governments. This era began in the late 1960s and succeeded a 35-year era commonly referred to as cooperative federalism. The era of coercive federalism has been marked by a shift of federal policy-making from the interests of places (i.e., state and local governments) to the interests of persons (i.e., voters and interest groups). That is, elected federal officials, as well as the federal courts, have been highly responsive to electoral coalitions, interest groups, and campaign contributors operating in the national arena and much less responsive to elected state and local government officials. Elected state and local officials no longer have any privileged voice in Congress or the White House as elected representatives of the people; instead, they must behave like interest groups and compete with all other interest groups in the federal policymaking arena where, quite frequently, they are unable to prevail against powerful interest groups that can bring crucial financial, ideological, and voter rewards and punishments to bear on the electoral fortunes of federal officials. Consequently, as U.S. Senator Carl Levin (Democrat-Michigan) commented to this author in 1988, ‘There is no political capital [for members of Congress] in intergovernmental relations,’ that is, in catering to the concerns of governors, state legislators, county commissioners, mayors, and the like.

At the end of the Second World War, there were only four functioning federations in the world – the United States, Switzerland, Canada and Australia. Today, there are some twenty-five to thirty federations, and federalism is being actively discussed in perhaps another half dozen countries. In addition, the European Union has emerged as one of the most ambitious and remarkable political innovations of the last half century – one with increasingly federal features and an active debate around federalism.

This proliferation of federations has been driven by a variety of factors. Foremost must be democratization. Germany and Austria returned to federalism with their return to democracy. Mexico, Brazil and Argentina became truly functioning federations with the end of one party or military rule. The death of Franco in Spain and the end of Apartheid in South Africa both uncorked democratic forces that resulted in those countries adopting what are effectively federal structures. A second factor was the end of the British Empire – India, Pakistan, Malaysia, and Nigeria all emerged with federal structures on achieving independence. We have also seen the rise of identity politics and regional or communitarian stresses which have pushed Belgium into federalism and Italy well along the road in that direction, and tested a long-established federation such as Canada.

Of course, the story of federalism, like that of democracy more generally, includes failures and setbacks. A number of post-colonial federations that had been cobbled together by departing Imperial powers did not hold together.

The framers of the Australian Constitution were well aware of the conceptual difficulties in accommodating responsible government with federalism. Under the system of responsible government, a government is formed from and is accountable to the popularly elected House of Parliament. It ceases to hold office when it loses the confidence of that House. Federalism entails a division of power and a system of checks and balances. As Brian Galligan has put it, ‘[t]he purpose of responsible government is to unify and consolidate political power whereas that of federalism is to fragment and circumscribe its exercise’ by enshrining ‘complicated procedures and conflicting institutions within the democratic process in order to refine and restrict the majority will’. The modern Australian Senate continues to manifest the tensions between these principles. But it does so as a House thoroughly dominated by party allegiances and in which territorial representation is vastly attenuated. It is able (and motivated) to check government much of the time, not because it represents discrete state interests, but because the government rarely controls the Senate.

The Constitutional Design

Composition and Representation

Section 1 of the Australian Constitution (1900) establishes the Senate as one of the three components of the Federal Parliament in which the legislative power of the Commonwealth is vested (the others are the Queen and the House of Representatives). In accordance with the traditions of British bicameralism, the concurrence of all three components of the Parliament is necessary to enact legislation.

Capital cities are unique as they are seen as an important symbol of the entire country. This symbolism has special meaning for federal countries, which tend to be diverse or large, or both. Consequently, in federal countries, the choice of a capital city, its location, its monuments, and its governance arrangements have to reflect this diversity while at the same time being as neutral as possible with respect to individual states or provinces. Not surprisingly, therefore, several capital cities are located on historic regional, linguistic, or ethnic borders. The Nigerian capital, Abuja, is located in the geographic centre of a very diverse country, and is home to both a grand mosque and a national cathedral, which together, represent the country's two great religions. Similarly, Brussels, as Belgium's only bilingual region, reflects the country's linguistic and cultural diversity. Bern's position in the relative centre of the country in close proximity to the French part (and its relative unimportance as an urban centre) contributed to its selection as the seat of the Swiss government. In Germany, the decision to relocate the capital to Berlin (because it is the only major urban centre that straddled the east-west divide) was an important gesture in the process of integrating the eastern Lander. Not surprisingly, the location and status of capitals remain a bone of contention in many emerging federations such as Iraq.

Very little has been written about capital cities and even less on their finance and governance. Moreover, the few studies that have been written do not focus on the particular issues of capital cities in federal countries.

Introduction

The enormous amount of grumbling among politicians and intellectuals in Spain over how to classify the Estado de las Autonomías (State of Autonomies) – and specifically, over whether it qualifies as a ‘federal’ state or not – might appear incomprehensible, and inconsequential to an outsider. The significance of these debates only becomes clear when they are situated within the horizons of political discourse in Spain and recognized as attempts to legitimate and/or contest existing constellations of material and social power relations. The fact that the typological debates over the nature of the Estado de las Autonomías are so hotly contested only makes sense once it is recognized that the people who espouse the different positions in this often incredibly technical and legalistic debate are simultaneously engaged in advancing competing and contradictory substantive and normative ‘stories of peoplehood’.

As a rough first approximation, it can be said that the debate about the federal or, alternatively, ‘unitary decentralized state’ has two ideological roots and political functions. One on the part of some nationalists in the periphery to question the present Constitution and Estatutos, question its legitimacy since it has not been enacted by agreement of original independent units – nations – seeking a federation. Indirectly it is a way to argue for de facto independence ending in some loose confederation, since independence may not be feasible. The other ideological position is that the present asymmetrical federalism creates privileges and tension and that federalism – a la U.S.A. – would lead to an equal treatment of all the component units.

Introduction

Devolution is both a response to problems of managing the union of the four nations of the United Kingdom, and a challenge about the future character of that union. It responded to perceived problems in Scotland, Wales and Northern Ireland surrounding the legitimacy of a political system concentrated on UK political institutions in Westminster and Whitehall and dominated by its largest component, England. The challenge it has unleashed was exemplified in the processes of government formation following the devolved elections of spring 2007 – Scotland now has a government in Scotland run by a party, the Scottish National Party, which is committed to independence from the UK; the Northern Irish government is co-led by a party, Sinn Fein, committed to the unification of the island of Ireland; and Wales is now governed by a coalition of Labour with the nationalist Plaid Cymru which is committed to a referendum on further-reaching devolution for Wales.

These election outcomes suggest that the territorial configuration of political community in the UK remains contested. They also give the lie to claims made by some of the architects of Scottish devolution that the reforms reflected a ‘settled will’ (John Smith and Donald Dewar), or would ‘kill nationalism stone dead’ (Goerge Robertson). More accurate was the telling phrase by the former Secretary of State for Wales, Ron Davies, that devolution was a ‘process, not an event’, not a one-off enactment of constitutional change, but rather a dynamic whose trajectory was open and whose endpoint was unclear.

In recent years, Sri Lanka has seriously considered the federal idea as a basis for a political solution to the island's protracted ethnic conflict. There remains, however, steadfast opposition to the federal idea among significant sections of the island's Sinhalese majority and many of these anti-federalists are now part of the Rajapakse Administration that has governed the country since 2005. The chapter seeks to discuss the federal debate in Sri Lanka placing it in historical context, critically examine the reasons why federalism has once again in recent years become so unacceptable in the island's political discourse and reaffirm the arguments in favour of a federal based solution to the island's ethnic conflict.

Federalism in the Political Discourse of the Country

Federalism has been part of Sri Lanka's political discourse for a long time. In the 1920s, the young S.W.R.D. Bandaranaike, who later formed the Sinhala nationalist Sri Lanka Freedom Party and became Ceylon's fourth post independence Prime Minister in 1956, delivered a series of lectures in Jaffna, in which he argued that a federal Ceylon would be appropriate for the island given its ethnic diversity. Interestingly in one of his lectures he suggested that the island be part of a larger federal India. Reports of the lectures indicate that there were many critics and skeptics from among the Tamil members of the audience who expressed doubts as to how a federal Ceylon would address the grievances and aspirations of Tamils leaving outside the northern peninsula.

Introduction

India has always had numerous political parties. The first election of 1952 was contested by 14 National parties and 60 State parties. (In 1989, 8 National Parties and 20 State Parties). In those days the numbers did not matter, the INC was the dominant majority party.

In the 2004 election there were over 200 parties. By then no single party had enjoyed a majority since the early 1990s. Governments were now in the hands of coalitions, the National Democratic Alliance or NDA (1999–2004) and the United Progressive Alliance or UPA (2004-present). In each coalition there were over a dozen parties, led by either the BJP (the NDA) or the Indian National Congress (INC) (the UPA). Because of their minority status, both leading parties were constrained by their partners.

The Congress party after 2004 was in a weaker position than the BJP in 1999–2004. Whereas the National Democratic Alliance controlled a majority of seats in Parliament, the United Progressive Alliance did not. It was dependent on Left parties that were outside both coalitions.

If the trend away from the two largest parties, classified as ‘National Parties’ continues, government will become even more dependent on so-called ‘State Parties’ nearly all of which are confined to a particular region. India's politics could come to resemble the unstable regime of the French Third Republic.

The watchdog over all the political parties is the Election Commission of India (ECI), which also classifies the parties.

Financial exclusion broadly relates to a lack of access to a range of financial services. Several of those who belong to the lower income groups are unable to access mainstream financial products such as bank accounts and bank loans. This financial exclusion imposes real costs on them and their families' implications become graver when they prompt social exclusion and lock families in a cycle of perpetuity of debt, poverty and exclusion. An inclusive financial sector per contra, is one which offers a range of financial services to the entire population of a country and addresses issues of economic growth with equity. The RBI as the Central Bank has always been engaged with building a legal and regulatory environment for the financial sector which broadens access to its services. The processes of globalisation and faster economic growth have spurred the need for affirmative action for inclusive growth and to build social safety nets through increasing financial inclusion. Growth with equity has been the overriding policy concern which has governed the direction of banking policies. In India, in the context of initiatives exercised for extension of the penetrative outreach of the banking sector, the mode of financial sector development discussed in the previous chapters too has been characterised by the following features.

Macro Policy Initiatives

Financial inclusion was sought to be achieved through an increase in bank branches which led to an expanded cooperative network and new organisational forms like regional rural banks.

While the international studies on poverty have been rich and abundant, theoretical and empirical studies have been made on the subject of measuring poverty and targeting the poor for income transfer programmes. Several other strands that deal with specific sets of measures to either protect or promote the poor have also emerged. The growing interest in microfinance as a strategy for poverty alleviation is a case in point. There is a need to identify the key impediments in providing microfinance services to the poor and the necessity of a framework for scaling up the services rendered by various organisations to the poor and the unorganised sector. Introduction of the right incentives and removal of distortions would undoubtedly enable the sector to fulfil its developmental obligations, specifically the enhancement of accessibility of financial services to the poor. While the World Bank has estimated the annual demand for credit support from the 75 million poor households at Rs 450 billion, the extent to which this demand is satisfied by the formal banking sector and by the MFIS has not been ascertained. Several micro level studies however indicate that the poor still continue to depend on informal sources of credit and these sources account for 40 per cent to 60 per cent of household demand. The challenge for mainstream banking institutions and the microfinance sector is how to bridge the gap. The emergence of microfinance brings into sharper focus the need to provide appropriate delivery mechanisms for financial services and the poor are willing to pay for door delivery of reliable financial services.