The importance of federalism in spreading economic development and its benefits has been almost entirely overlooked. By and large, what has passed for national development in the Third World is not national at all, but rather concentrated in a single metropolitan area, usually that of the capital. This area not only has monopolized the infusion of new resources to the country but has managed to drain the countryside of a major share of such resources as existed there prior to independence1.According to Purfield, the resultant impoverishment of the countryside without appreciable progress in the metropolis has become a feature of Third World national economies which reflects a vicious circle.
As the countryside becomes impoverished, its people migrate to the metropolis in search of opportunity or, in most cases, sheer survival. In their masses, they overwhelm the metropolis and transform it into what has come to be known as the Calcutta syndrome. The metropolis absorbs all wealth-generating capacity; people rush to the center, so that the new capacity is lost in the magnitude of the problems created.The only ones to benefit are the ruling class, whose members are able to siphon off a substantial share of the development funds for their own personal use or for their Swiss bank accounts. Development in federal countries suffers from some of these Third World problems.
But because of the existence of federalism, the new resources are inevitably spread over a number of centers. At the very least, the capital of every federated state has some claim on the national resources, and together they work to prevent the single metropolis syndrome.This means that more people have a chance to benefit from development efforts.
At least, it means that some of the worst excesses of resource concentration are eliminated, and a basis for truly national development begins to emerge. India and Nigeria are prime examples. Although Calcutta and, of late, Bombay and Lagos suffer from the worst aspects of the rural-urban migration, in both countries one does not have to live in Calcutta, Bombay, or Lagos to gain benefit from economic development.
Rather, development efforts have been spread throughout the country, if not uniformly, at least in significant ways. Many people who have stayed home or migrated to less prominent centers have managed to improve their lot, if not sufficiently, at least more than their peers in more centralized states. This phenomenon deserves to be studied in detail. It is clear that, as always, politics influences economics as well as vice versa, particularly in the contemporary world, where state intervention is once again crucial in the economic realm.The way in which politics is structured affects the economic future of every inhabitant of any particular polity. Thus although economic measures that do not differentiate between segments of the polity may suggest equality, the realities of economic resource use and development may be quite different.
The politics of federalism offers a means for extending economic benefits more widely than has otherwise been the case in the Third World. The development of new governmental arrangements – at least new to the modern era (some have classic antecedents, Weingast 1995, Przeworksi, A. nd Limongi, F. 1993).These new governmental arrangements have moved in two directions simultaneously, to create both larger and smaller political units for different purposes, to gain economic or strategic advantage while at the same time maintaining an indigenous community, better to accommodate ethnic diversity.
All embody the idea of more than one government exercising powers over the same territory. That idea, which was at the heart of the American invention of federalism, was anathema to the European fathers of the modern nationstate.