COURSE MANUAL

C6: Public Systems Management

MCP1606
Module 7: Inter-governmental relations

The Open University of Sri-Lanka

Faculty of Humanities and Social Sciences
Department of management Studies
Copyright
© Commonwealth of Learning, 2012

All rights reserved. No part of this course may be reproduced in any form by any means
without prior permission in writing from:

Commonwealth of Learning
1055 West Hastings Street
Suite 1200
Vancouver, BC V6E 2E9
CANADA

Email: [email protected]

The Open University of Sri Lanka

Faculty of Humanities and Social Sciences
Department of Management Studies
Nawala Nugegoda (10250),
Fax: +94 112 881408
Sri Lanka
E-mail: [email protected]
T.No: +94 112Website:
881327/255
http://www.ou.ac.lk
Acknowledgements
The Commonwealth of Learning (COL) wishes to thank those below for their contribution to the
development of this course:
Course author Professor Robert Dibie, PhD
Dean and Professor of Public Affairs
Editor, Journal of International Politics and Development
School of Public and Environmental Affairs (SPEA)
Indiana University Kokomo, United States

Course content specialist Dave Barrows

Associate Director, MPA Program
Schulich School of Business
York University
Toronto, Canada

Subject matter experts Prakash V. Arumugam

Wawasan Open University, Malaysia

Henry Kofi Mensah

Kwame Nkrumah University of Science and Technology, Ghana

Carol A. Palmer, JP
University College of the Caribbean, Jamaica

Sugath Ranugge
Open University of Sri Lanka, Sri Lanka

Abuzar Wajidi, PhD

University of Karachi, Pakistan

Educational designers Symbiont Ltd.

Otaki, New Zealand

Course editor Symbiont Ltd.

Otaki, New Zealand

COL would also like to thank the many other people who have contributed to the writing of this
course.
 C6: Public Systems Management-MCP1606

Contents
Module 7 1
Inter-governmental relations 1
Module outcomes 2
Federalism, confederation and unitary systems3
Why should a country practice federalism? 6
Activity 7.1 8
Models of inter-governmental administrative interaction 8
Administrative machinery for inter-governmental relations 10
Activity 7.2 11
Why the role of regional governments has expanded 11
Activity 7.3 13
Fiscal federalism and inter-governmental management 14
Activity 7.4 19
The future of inter-governmental relations 19
Module summary 21
References 23
Further reading 25
Activity feedback 26
C6: Public Systems Management

1
 C6: Public Systems Management-MCP1606

Module 7

Inter-governmental relations
Introduction
Inter-governmental relations are an important set of activities or interactions that
occur between governmental units of all types and levels, within a federal system
of government.
Inter-governmental relations embrace not only federal and state relations, but
also include interstate, federal-local, state-local or local to local government
relations (Bardes, Mack & Schmidt, 2010; Nice, 1987). Federalism and inter-
governmental relations is not the same thing. Federalism provides the structural
framework within which inter-governmental relations are conducted (Stillman,
2010).
The federal form of government ensures that three (or at least two) order levels
of government are present. In modern federal countries, these orders of
government tend to be highly interdependent and interactive (Nathan, 2006;
Henry, 2010). The approach of this module is to explore the type of
administrative relations that exist among the levels of government, particularly
the possibilities for co-operation and conflict among the various units of public
institutions. In respect of jurisdiction issues in a federal system, national, state or
local governments possess policy-making authority over specific, but sometimes
overlapping territory, in order for them to address the needs of citizens.
The positive relationship between levels of governments is called co-operative
federalism. Co-operative federalism demands positive interaction among
governments at all levels (Shafritz, Russell & Borick, 2011). Whatever the short-
term trend of federal-state-local relations, co-operative activities are constantly
growing among the three levels of government in a number of countries, such as
Canada, the United States, India, Nigeria and so on. In these nations many
government units exist. These governments (including the national government,
the state, and a bewildering variety of local units) do not function in isolation
from one another (Bowman & Kearney, 2011). On the contrary, they interact
frequently. The interaction of different levels of government forms the basis for
the study of inter-governmental relations. The types of relations between these
levels of government range from harmonious co-operation and assistance to
bitter conflict (Nice, 1987). The relationship also ranges from activities as formal
as a constitutional amendment or a court hearing to the informality of a cocktail
party, a telephone call from one governor to another or from one governor to the
president.
Inter-governmental relations also occur when the national government sends
disaster relief to a state or province plagued by some form of natural disaster. It
also occurs when a state government gives financial aid to a local school district.
Most inter-governmental relations take place within a federal system of
government such as in Canada, Brazil, the United States, India or Nigeria.
Federalism is something of a mid-point on a continuum of a political system. At
one extreme is a unitary system such as the government of the United Kingdom,

1
 Israel or Egypt in which all decision-making power rests with the national
government and sub-national units do not exist. The United Kingdom is a
relatively unitary system. The workings of the federal system are sometimes
called inter-governmental relations. This term refers to the entire set of
interactions among national, state and local governments.
One important point to note is that many social issues facing communities have
proved to be beyond the responsibility and capacity of a single level or single
type of government, or of the private sector. In the twenty-first century,
government and private sector organisations may have to try and work together
to manage difficult problems in their communities. This module explains how
agents representing governments work out problems. It explores inter-
governmental administration, an emerging concept in the study of affairs
between national, state and local governments. The module also examines the
roles of public administrators who work at the margin between the different
government levels.

2
 C6: Public Systems Management-MCP1606

Module outcomes
Upon completion of this module, you will be able to:

 Explain how national and regional (state and local) governments

are directly involved in the daily lives of citizens.
 Demonstrate how regional governments’ resurgence is
exemplified in improved revenue systems, the expanded scope of
Outcomes local operations, faster diffusion of innovation, more inter-
jurisdictional co-operation and increased national and regional
government conflict.
 Define federal, unitary and confederation systems of
governments as well as demonstrate an understanding of the
advantages and disadvantages of federalism.
 Describe the power relationship among the three levels of
government as stipulated in various models, including dual and
co-operative federalism.
 Demonstrate an understanding of the implementation of fiscal
federalism.
 Explain why a national financial situation in a federal system
could result in the administering of formulas for the distribution
of revenue to regional governments.
 Demonstrate an understanding of the key trends that characterise
public administration in state and local governments.
 Discuss some of the public administration challenges facing state
and local governments.

Federalism, confederation and

unitary systems
There are about 200 independent countries around the world. Each of these
countries has adopted its own system of government. In most cases though, there
are three ways of fostering relations between the national government and
regional political systems. According to Nice (1987) and Nagel (2002), the three
popular systems of governments are:
1. A unitary system: This could be defined as a centralised
governmental system in which local or sub-regional governments
exercise only those powers given to them by the central
government. Countries such as the United Kingdom, Chile,

3
 Israel, Ghana, Egypt, Sweden, the Philippines and Japan have a
unitary system of government. In France there are departments
and municipalities that only exercise those powers and
responsibilities granted them by the national government. Within
the departments and municipalities are separate government
entities with elected and appointed officials. Under the unitary
French system, the decisions of departments and municipalities
can be overruled by the national government. According to
Bowman and Kearney (2011), the national government can also
cut off funding of many departmental and municipal government
activities. Moreover, in a unitary system, all questions related to
education, police, the use of land and welfare are handled by the
national government.
2. A confederation: This is a system of government consisting of a
league of independent states, each having (essentially) sovereign
power. The central government created by such a league has only
limited powers over the states. A confederation is the opposite of
a unitary government system. It is a league of independent states
in which a central government or administration handles only
those matters of common concern expressly delegated to it by the
member states (Bardes, et al., 2010). The central governmental
unit has no ability to make laws directly applicable to individual
states unless the member states explicitly support such laws
(Nice, 1987; Nagel, 2002). There are very few, if any,
confederations today that resemble those that existed in the
United States under the article of confederation. Van Dyke
(1996) contends that Switzerland is a confederation of 23
sovereign cantons. Some countries have also formed
organisations with one another for limited purposes, such as the
military or peacekeeping role of the North Atlantic Treaty
Organisation (NATO), the European Union (EU) and the United
Nations (UN). These organisations, however, are not true
confederations. As in Canada, the balance of power in a
confederation fluctuates over time, despite a constitution, due to
judicial and legislative interpretations. Canada is federal in nature
but a confederation when the national government is weaker. It
should be noted that the nature of confederations can be one of
tension. These tensions can manifest themselves sometimes with
the threat of separation.
3. A federal system: Federalism is a system of government
whereby a nations’ power is divided among two or more levels of
government. Each level of such divided governments will have
formal authority over the same area (land) and people (Nagel,
2002; Shafritz et al., 2011). Federalism can also be defined as a
system of shared power between units of government
(Rosenbloom, Kravchuk & Clerkin, 2009). In the United States,
for example, the 50 states have formal authority over their
citizens and inhabitants, but the national government can also
pass laws and establish policies that affect them all. In respect of
the two main levels of government that exist in a federal system,

4
 C6: Public Systems Management-MCP1606

each level is independent of the will of the other. Neither are they
free to destroy the other unit of government. The formal
distribution of legislative power to the two levels cannot be
altered or amended at the unilateral discretion of either one.
In the United States federal system, the citizens are subject to the
formal authority of both state and the national government
(Bardes et al., 2010; Bowman & Kearney 2011). According to
Coulter (1994), only 18 of more than 200 nations have federal
systems. Some of these countries include:
 Argentina,
 Australia,
 Brazil,
 Germany,
 India,
 Mexico,
 the United States, and
 Nigeria.
In the United States the federal government has only those
powers assigned to it in the constitution. All other powers (or
residual powers) belong to the states (Bardes et al., 2010).
Legislation adopted by the federal government within the limits
of its constitutional authority supersedes any conflicting state
legislation. For example, in 2010 the federal government of the
United States filed a lawsuit challenging the State of Arizona for
adopting an immigration law.
The unitary system is the most popular form of government in the
history of mankind. The important point to note is that there are
various ways of fostering relations between national governments
and regional units. Federalism is one of these. Understanding
federalism and how it differs from other forms of government is
important in analysing federal systems of government including
those in the United States, Canada, Brazil, Mexico and so on.
In the twenty-first century, whereas about 18 countries have
claimed to be federal in their political system, very few actually
practice shared governance. Only four seem to meet the pre-
conditions discussed in this module. These are:
 Australia,
 Germany,
 Switzerland, and
 Canada.
Each of the four countries listed differs in some respect from the
United States in its application of the federal principles.
In Canada, the rules are different from those of the United States.
The powers of the provinces are enumerated with residual powers
left to the central government. The government at each level is

5
 denied the authority to take away any power assigned to the other
level (Nagel 2002). A federation is also a union but clearly sets
the national governments above the subordinate governments. In
Canada, there is the tendency for some laws to be carried out by
local (provincial) agencies of government. For example,
provincial courts are even used to apply national laws (Van Dyke,
1996). In Australia, the division of power is such that the national
government may legislate in many of the traditional areas of local
government concurrently with the state governments (Coulter,
1994). When there is a conflict between the two levels of
government, the national law takes precedence.
In Germany, the national government places local authorities in
charge of the enforcement and administration of nearly all
national laws and the division of powers is more thoroughly spelt
out in the German constitution than in that of the United States.
In Switzerland, most government employees are local employees
and the national government is quite small. According to Henry
2010 ; Shafritz et al. (2011) and Bardes et al. (2010), Australia,
Canada, Germany and Switzerland are considered federal
because:
 The division of powers between the national government
and the local units is a real division of power that cannot
be changed without constitutional amendment, requiring
the consent of the governed citizens.
 The boundaries of the national and regional governments
cannot be significantly changed without the consent of
the citizens (inhabitants) therein.
Several other countries tend to claim to be federal system but
have not been able to fulfil the above criteria. Such countries
include:
 Argentina,
 Brazil,
 India,
 Mexico, and
 Nigeria.
Research reveals that these countries have failed to meet at least
one of the two criteria (Nagel, 2002). In other words, some
governments are only quasi-federal; neither completely unitary
nor federal in nature.

Why should a country practice

federalism?
There are several arguments why a nation would adopt a federal system. One
reason may be the complex set of diversity factors that some nations have faced
(or continue to face). Despite modern methods of telecommunication and

6
 C6: Public Systems Management-MCP1606

transportation, the diversity of the population (and the geographic size of some
countries) makes it impracticable to locate all political authority in one place.
The federal system of government brings government closer to the people. It
allows direct access to, and influence on, government agencies and policies,
rather than leaving the populations restive and dissatisfied with a remote,
faceless, all-powerful national (central authority). Table 7.1 shows the profile of
some countries that practice federalism

Nations Population Area sq miles (in Ethnic diversity

thousands)
Argentina 37,812,817 1,068 Low
Australia 19, 546,792 2,968 Low
Austria 8,169,929 32 Low
Brazil 176,029,560 3,286 Medium
Canada 31,902,268 3,852 High
Germany 83,251,851 138 Low
India 1,045,845,226 1,269 High
Malaysia 22,662,365 127 High
Mexico 103,400,165 762 Low
Switzerland 7,301,994 16 Medium
United States 300,562,489 3,718 Medium
Nigeria 150,700,120 1,235 High
Table 7.1 Profile of nations that practice federalism
Source: Central Intelligence Agency, The World Face book (2000)
Federalism allows large countries (such as Canada, India and the United States)
to function diligently as well as delegate authority to the states or provinces
(Edward et al., 2004, Bardes et al., 2010). The argument is that the lower levels
of government that accept these delegated responsibilities become the focus of
political dissatisfaction rather than the national authority. The advantages of
federalism are linked to certain values promoted by this formal arrangement of
power that became more apparent as several federal nations grew in size,
complexity and diversity. According to Shafritz et al. (2011), Bowman and
Kearney (2011), the values of federalism include:
 a sharing of authority that limits the power of government and
better avoids autocracy or tyranny,
 government policy-making that is decentralised and often closer
to the people,
 greater scope for diversity,
 a greater ability to experiment and create innovative policy
approaches to public problems,

7
  a greater ability to protect the needs and interests of minority
population groups,
 helps manage social and political conflict,
 encourages innovation among government levels,
 promotes administrative efficiency,
 helps maximise the political participation of citizens in the
political process, and
 helps protect individual freedom.
As stated earlier, only about 18 countries have federal systems. In trying to
determine why these 18 chose to adopt a federal system, the author of this
module discovered several factors.
The three North American countries (Canada, United States and Mexico) tend to
a trend that somewhat spills over to South America, where Argentina and Brazil
have federal systems. According to Van Dyke (1996), countries with large size
(such as Canada and Australia) or both size and population (such as India, the
United States, Brazil and Mexico) tend to have federal systems. This is because
the system enables them to decentralise administration of their governmental
services. Exceptions to these principles are China and Indonesia: two large and
heavily populated countries that practise the unitary system (Coulter, 1994;
Goldstein, 2003). The irony, however, is that a mid-sized country such as
Switzerland has a federal system.
According to Wright (1988) and Nice (1987), a country’s diversity in respect of
ethnicity and religion may play a major role in the development of a federal
system. Examples of countries that have been influenced by their diversity are:
 Canada,
 Brazil,
 Nigeria,
 India,
 Malaysia,
 Switzerland, and
 the United States.
These countries have large minority ethnic groups that often speak different
languages and practice different religions (Nagel, 2002). Several countries with
unitary systems, however (ranging from Belgium to most African countries), are
also replete with ethnic diversity. It is interesting to note that most federal
systems are democracies, although most democracies are not federal systems.
Authoritarian regimes generally do not wish to disperse power from the central
government (Weatherby et al., 2009).
As democracy swept through the former Soviet Union and Yugoslavia, the
national governments dissolved and several smaller nations were formed. It
should be noted that under a federal system of government, the national
government affects citizens severely at the point of the payment of national
income tax. All other relationships with the national government tend to involve
a co-operative arrangement with business and state agencies involving the use of
federal money on a voluntary basis or the control of business through national
regulations for the public benefit.

8
 C6: Public Systems Management-MCP1606

Activity 7.1
1. Why do some nations choose to adopt a federal system of
government?
2. What are inter-governmental relations? Is inter-governmental
relations and federalism the same concept?
Activity
3. State the main differences between a confederation and a federal
system of government.
4. What are the principles that a nation will have to fulfil in order to be
classified as a federal system?

Models of inter-governmental
administrative interaction
This section will explore the various relationships among the national, state and
local governments and the issues that both reflect and give rise to those
relationships. It will also present the leading models that have been developed to
explain those relationships and issues.
Three distinct but complementary models may be used to explain the role and
power of officials in the processes and outcomes of inter-governmental relations.
The three models are:
1. co-operation,
2. bargaining, and
3. bureaucratic politics.
The co-operation model
This refers to inter-governmental relationships involving (to a large extent)
public administrators or programme specialists from national, state and local
governments working together in a harmonious manner (Nice, 1987; Shafritz el
al., 2011). Co-operation, harmonious relationships and productive interactions
are facilitated because these public administrators would share a body of
knowledge and skills as well as a set of professional attitudes. They will also
share values that may relate to their particular policy field (Nathan, 2006). The
values of this model for explaining policy development and implementation in
certain areas of federal-state relations has been demonstrated well in respect of
the United States and Canadian governments’ welfare and health policy
programmes. Most developing nations’ education policies have been
implemented by both the national and regional governments. In the United
States, the growth of industrial and other types of corporations that grew beyond
the capacity of state and local government control led to the creation of national
independent regulatory agencies (Henry, 2010; Stillman, 2010; Nagel, 2002).

9
 The national government had to expand its area of policy concern and
programmes with co-operation from regional governments.

The bargaining model

This model stipulates that inter-governmental relations mostly involve senior
public administrators from the national state and local governments (Nice, 1987).
Interaction takes place in the form of a bargaining process in which these public
administrators present (and defend) their government’s position on specific
public policy issues (Shafritz et al., 2011; Nagel, 2002). The focus of the model
is on the policy, strategies and tactics used by participants in the process. In
respect of the bargaining model, the bone of contention is that participants in the
national and regional governments are not scattered throughout the system, rather
they are concentrated and limited to areas of mutual interests (Nice, 1987; Radin,
2011).

The bureaucratic model

This model refers to negotiations over inter-governmental matters among
ministers and senior public administrators in the departments and agencies within
each level of government. It involves intra-governmental rather than inter-
governmental bargaining. According to Schultz (1980), the bureaucratic model
could be used as a complement to what he described as the “government-as-
unitary-actors” model. Rosenbloom et al. (2009) contend that the model might be
productive in considering each government as a loose coalition of organisations
and the negotiating position of the governments as an outcome of an internal
negotiating process. This means that governments are often treated as single
actors because they normally present a united front in negotiations with other
levels of government (Henry, 2010). It is important to note that public
administrators who are not significantly engaged in inter-governmental relations
indirectly affect the success of these relations by influencing the resources
devoted to inter-governmental activities (Nathan, 2006; Nagel, 2002).The model
has been used most often to study foreign policy and has also been applied
recently to the study of inter-governmental relations in Canada and the United
States (Goldstein, 2009).

Administrative machinery for

inter-governmental relations
One of the most important administrative machineries of inter-governmental
relations can be seen in the financial and human resources that are devoted to
conduct the relationship between national and regional governments
(Rosenbloom et al., 2009). It is interesting to notice the expansion of public
administrators’ roles in the past three decades in the inter-governmental
machinery. Further, the number and quality of public administrators operating
these inter-governmental relations has been striking.
In some countries, the development of administrative structures geared
specifically to the management of inter-governmental relations was a response to
the large and growing number of meetings and the desire of the governments to
co-ordinate and rationalise the efforts of their departments in various policy
issues (Bowman & Kearney, 2011). It is difficult to find a country where there is
virtually no relationship between the national and regional governments in some
policy field.

10
 C6: Public Systems Management-MCP1606

In recent decades, the number of public administrators attending inter-

governmental meetings varies greatly from one meeting to another. It is notable;
however, that one of the frequent inter-governmental meetings comprises
secretaries to departments or ministers of ministries or directors of government
agencies. To some observers, the term inter-governmental public administrators
also refer to those officials whose formally designated responsibilities require
them to spend the majority of working hours on inter-governmental matters.
Some countries’ public administrators are normally described as inter-
governmental affairs experts (Kernaghan & Siegel, 1987; Nathan, 2006). Nice
(1987) and Weatherby et al., (2009) contend that public administrators hold
notably senior positions, and devote relatively little time to inter-governmental
issues, but whose occasional involvement may have a major influence on the
outcome of inter-governmental negotiations.
The organisational structure and the network of inter-governmental relationships
include separate ministries, departments, public agencies and other
administrative units in government. The network also involves individual
departments, inter-governmental secretariats and a large number of committees.
Radin (2011) argued that the creation of these structures had both resulted from,
and proliferated into, inter-governmental conferences and meetings.
According to Bowman and Kearney (2011) and Rosenbloom et al. (2009), the
reason for the development of this complicated web of inter-governmental
contacts is the expansion of the activities of all governments. The increased inter-
dependence of national and regional responsibilities and the consequent need to
design and operate modern machinery to manage these contacts is likely to
positively influence the delivery of goods and services to the citizens. The theory
of public finance indicates that taxation and delivery of service should be at the
lowest level possible. That is, local governments or municipalities should raise
funding for the collection and disposal of garbage.

Activity 7.2
1. Describe the major components of inter-governmental relations.
2. Explain the three models of inter-governmental relations. Which of
the three models do you consider best and why?
Activity 3. How are public administrators in your country involved in inter-
governmental relations?
4. Describe the types of federal or unitary system of government in your
country. How is the system in your country different from the
examples of Canada and the United States as discussed in this
module?

11
Why the role of regional
governments has expanded
Economic and social development of the citizens of a nation involves interaction
with other people and the mixed economy of the world. This practice of inter-
dependency may spill over to cultural, economic, political, technological and
environmental trends in their lives (Goldstein, 2009). At the same time, a
nation’s sustainable development processes may be influenced by the economic
and technological trends in other countries. This globalisation trend may also
have an important implication for national and regional governments. Federalism
is but one aspect of decentralisation.
The federal system of the United States allows important functions to be
performed at local and state levels. Most states and their local governments are
now responsible for many public policies issues, such as:
 education,
 public health,
 fire protection,
 police protection,
 highway maintenance,
 public welfare, and
 rubbish collection.
The states and their local governments are a diverse group, but each has a
government that makes, enforces and interprets laws for its citizens (Nagel,
2002). In the past three decades, governments at national, state and local levels
have expanded their roles in response to three historical developments:
1. Technology
2. Urbanisation
3. A growing dependent population
These three factors have forced state and local governments to adopt
programmes that are:
 regulatory,
 distributive, and
 redistributive in nature.
The expansion of state and local responsibilities did not come automatically
(Rosenbloom et al., 2009); it resulted from thousands of conscious decisions to
establish hundreds of programmes. The establishment of these state and local
government programmes was based on incremental conscious decisions. The
expansion of government has fundamentally altered the national structure of
government in several countries.
According to Bardes et al. (2010), most of the programmes and public policies
get established by the national government, while the state and local
governments serve primarily as deliverers of services created by the national
government. Despite state and local government having prime roles as service
deliverers that set policies, determine the level of services to be provided and the
extent to which they will be redistributed, such as zoning, health care and
emergency management services, they continue to depend on the national
government for some form of funding. Bowman & Kearney (2009) noted that
state and local governments have been pressured to reform themselves so that

12
 C6: Public Systems Management-MCP1606

they can produce their public goods and services as efficiently and politically
neutrally as possible.
State and local governments in most countries operate the public school system
and local roads. They also operate most of the judicial, welfare, police, health
care, correctional and recreational facilities. In addition, most regulation of
industry, banking, commerce, utilities, labour and protection of public safety is
managed by state and local governments. Regional governments are also
responsible for programmes in conservation, sanitation, social work, housing and
urban planning. These programmes are vital to the day-to-day lives of all citizens
(Bowman & Kearney, 2011). In some countries where the national government
may be involved in these programmes, state or local governments must decide
whether to participate as partners in these national programmes (Kincaid & Cole,
2003). If they choose to participate they must administer the programmes within
their jurisdictions.
It could, therefore, be argued that regional governments are very busy public
institutions. Bardes et al. (2010) argued that state and local governments exist
largely to make policy for (and provide services to) the public. This is no easy
task. These regional governments must perform efficiently, effectively, equitably
and they must do so with limited financial resources. Despite the glamour of
national politics, state and local governments in some countries carry on the
greatest volume of public business, settle the greatest number of political
conflicts, make the majority of policy decisions and direct the bulk of public
programmes (Nagel, 2002; Nathan, 2006; Radin, 2011; Stillman, 2010). On one
hand, most states have trial courts, intermediate courts of appeal and a court of
last resort. All these courts have jurisdiction over both civil and criminal cases
(Stillman, 2010; Rosenbloom et al., 2009). On the other hand, local (county, city
and township) governments help states perform many regional functions, such as
record-keeping and the administration of justice.
In summary, regional (state and local) governments in several countries have the
major responsibility for:
 maintaining domestic law and order,
 educating children in primary and secondary public schools,
 providing and maintaining local roads for easy transportation,
 caring for the poor and the ill (welfare),
 regulating the provision of water, gas, electricity and other public
utilities,
 sharing in the regulation of insurance and banking,
 regulating the use of land and supervising the sales and
ownership of property, and
 settling the greatest number of civil and criminal cases.
One can argue, therefore, that regional (state and local) governments are very
important elements of the political system of several countries. With the greater
responsibilities thrust upon regional governments by the national government
and the demands of their citizens, state and local governments respond by
enhancing their capacity to provide services to their citizens.

13
Activity 7.3
1. In what ways has the role of regional governments expanded over the
past three decades?
2. What are the reasons for the expansion of the role of regional
governments?
Activity
3. Why is it important for the regional government to help the national
government in your country in the implementation of some public
policies?

14
 C6: Public Systems Management-MCP1606

Fiscal federalism and inter-

governmental management
The growth in regional government has proceeded at a pace exceeding those of
the national government in most countries (Weatherby et al., 2009). This growth
has been driven by citizen demand for more government services. Although
voters in Canada, the United Kingdom and the United States want their elected
representatives to control the size of government, voters also want government to
provide more and better programmes. In most countries the second largest source
of regional revenue comes from inter-governmental sources (Goldstein, 2009).
As stated earlier, governments also get money from other governments. The
national government provides funds to state and local governments and states
provide money to local governments. These funds are called inter-governmental
revenue. Almost all state and local governments’ revenue comes as grants from
the national government.
Fiscal federalism could be defined as financial relations that exist between (and
among) units of government in a federal system (Shafritz et al, 2011; Henry,
2010). Fiscal federalism also refers to the granting of funds by one government
to another for the purpose of achieving specific policy goals (Henry, 2010).
According to Stillman (2010), the theory of fiscal federalism addresses the
optimal design of government in a multilevel (or federal) system. The theory of
fiscal federalism postulates that a federal form of government can be especially
effective in solving the following problems:
 the establishment of an efficient pattern of resource allocation,
 the attainment of the most equitable distribution of income, and
 the maintenance of high employment with stable prices.
(Shafritz et al., 2011)
The government is able to use its fiscal policies to achieve these goals
because of the flexibility it has in dealing with some problems at the
national, local or regional governments’ level respectively.
Table 7.2 shows the level of United States national government aid to state and
local governments between 1980 and 2008.

15
 Year Total dollars As a percentage of
(in millions) federal outlays
1980 91,385 15.5%
1985 105,852 11.2%
1990 135,325 10.8%
1995 224,991 14.8%
2000 284,659 15.9%
2001 317, 250 17.0%
2002 351,550 16.9%
2003 387,281 17.9%
2004 406,330 17.7%
2005 426,243 17.2%
2006 434,099 16.3%
2007 443,797 16.3%
2008 466,568 15.9%
Table 7.2 United States national government aid to state and local
governments
Source: United States Bureau of the Census 2008
According to the United States Bureau of the Census statistics data (2008), local
government dominated public finance between 1999 and 2009 and this accounts
for 58 per cent of all government expenditure. The national government spent 34
per cent of all public outlay and the state a nominal 8 per cent. In 2010, the
national government spent 57 per cent of its budget on governments’
expenditure. The 50 states spend 22 per cent, and the nation’s local governments’
account for 21 per cent (United States Census Bureau 2008; Henry, 2010).
In the past (and currently), grants-in-aid from the national government to the
local levels may be needed to stimulate regional spending for national purposes.
The national government also provides for uniform or minimum services level,
such as in education, or in compensation to citizens of one area for the benefit
from services they finance that spill over to residents of another area.
In the United States, fiscal federalism emerged as the cornerstone of the grant-in-
aid, (or a conditional gift) from the federal government to the state and local
government in order to subsidise an existing programme or encourage new ones
(Henry, 2010). Forty-seven per cent of all federal grant money sent to state and
local governments is for health programmes. Fourteen per cent pertains to
education, training, employment and social services. Eleven per cent of federal
aid supports transportation projects, two-thirds of which is funnelled to
highways, and four per cent is used for community and regional development.
Other forms of federal grants to state and local governments in the United States
include:
 federal categorical grants, and
 federal block grants.

16
 C6: Public Systems Management-MCP1606

Fiscal federalism also flourishes within the states and local governments in the
United States (Henry, 2010; Shafritz et al., 2011). States’ grants to local
government on education are about 62 per cent and 12 per cent goes to county
governments. States’ general local government support is about eight per cent of
total revenue. States also spend about four per cent of revenue on local
governments’ roads. Another four to eight per cent of state revenue is given to
local governments for health, transit subsidies, corrections and housing (Cox,
2011; Starling, 2011). State grant-in-aid has also accounted for no less than 30
per cent of all local outlay in the past 30 years in the United States.
Fiscal federalism in Canada is based on four factors:
1. Shared cost programmes or conditional grants
2. Tax collection agreements
3. Established programme financing
4. Equalisation
(Bird, 1978)
According to Kernaghan & Siegel (1987), shared cost programmes or conditional
grants involve payments by the federal government to provincial governments
that choose to undertake programmes according to conditions specified by the
federal government (Schultz, 1980). The tax collection agreement between the
federal government of Canada and the nation’s nine provinces allows the federal
government to collect both federal and provincial personal taxes (except for
Quebec), and corporate taxes (except for Alberta, Ontario and Quebec), and to
remit the provincial portion of the taxes to the provinces. Kernaghan and Siegel
(1987) contend that the purpose of this agreement is to provide an administrative
convenience to provincial governments and limit tax competition between
provinces by establishing uniformity in the method of calculation.
Another method of fiscal federalism in Canada is the established programmes
financing. This method of innovative transfer payment began in 1977 (Bird,
1978). The established programme financing is the mechanism that the federal
government used to pass the Canada Health Act, which reduces the cash
payments to any province that allows physicians to extra-bill (Schultz, 1980).
One provision of the established programme financing is that the provincial
governments were not obliged to spend the money on medical, hospital care or
tertiary education. The nine provinces could use the funds generated for purposes
of their own choosing (Kernaghan & Siegel, 1987).
Unlike the other three methods of fiscal federalism in Canada, the equalisation
approach is a programme through which the federal government makes
unconditional grants to those provinces that have a weak tax base (Courchene,
1984). Unconditional grants from the Canadian perspective are a payment which
can be used for any purpose that the province desires. One reason why the
federal government introduced the equalisation programme was to allow the
poorer provinces to provide adequate public services to their citizens without
imposing excessively high taxes. Recipient provincial governments tend to
favour unconditional grants because it maximises their freedom.
In Canada the federal government has the largest taxing authority. As a result,
the federal government has a tendency to create programmes which it can
mandate for the provinces. This has caused some tension, particularly with
respect to the French-speaking province of Quebec. In the past three decades

17
 several countries have adopted extensive regional development and adjustment
programmes. Canada has an extensive network of regional support and
equalisation programmes that are embedded in the constitution.
Fiscal federalism in Nigeria is a bit different from that of the United States. Since
1992, the share of the national government revenue has remained at 48.5 per
cent. State governments are allocated 24 per cent. The 774 local governments
receive an annual allocation of 20 per cent. The remaining 7.5 per cent belongs to
special funds. Out of the 7.5 per cent earmarked for special funds, 6.5 per cent is
set aside for development of oil-producing areas. The remaining one per cent is
shared among mineral producing states on the basis of derivation (Mbanefor &
Egwaikhide, 1999). According to the National Revenue Mobilisation
Commission (NRMAFC) recommendation made to the formal Armed Forces
Ruling Council (ARC), the sharing of revenue to state governments in Nigeria is
based on the following five principles:
1. Population with a weight of 30%
2. Equity of stat 40%
3. Social development factor 10%
4. Internal revenue efforts 10%
5. Land mass and terrain 10%
Source: Mbanefor & Egwaikhide (1999)
It is important to note that Nigeria has a quasi-federal political system that is
characterised by federal government domination of the state governments. The
36 state governments also dominate the local governments. In the Nigerian
federal system the president tends to be the head of the state governors. At the
state level, the governor has often been the chief executive and assumed the
responsibility of hand-picking local government chairpersons. Although the
constitution of Nigeria vividly prescribes a true federal system, in practice the
nation’s political leaders tend to practise an advanced unitary system or quasi-
federalism. This practice has also affected the nature of fiscal federalism in the
country.
In regard to fiscal federalism, the national government of Nigeria is viewed as
more efficient in raising revenues, whereas regional governments are seen as
closer to the people and thereby better at spending revenues in ways that are
more responsive and accountable to the taxpayers (Bowman & Kearney, 2011).
Rosenbloom et al. (2009) argue that under a federal system the national
government may confront problems and be able to finance programmes that
benefit economies of scale. Several scholars contend that federalism tends to
cope with fundamental economic problems well because it is more flexible
(Coulter, 1994; Nagel, 2002; Nathan, 2006; Stillman, 2010). The national
government is better able to provide answers to the question of equitable
distribution of income and maintaining high employment while avoiding
excessive inflation. Regional governments are, theoretically, better in distributing
resources efficiently.
Generally, revenue in the form of grant-in-aid programmes could enable the
national government, whose resources are stronger and more resilient to
economic upswings and downswings, to assist regional governments in
stimulating spending to support national policies and goals (Radin, 2011). Such
co-operative gestures could help set nationwide standards for uniform or minimal
service purposes or to compensate for problems of externalities (Lehne, 2006).
The cost and benefit of one thing affects another. This is because the cost and

18
 C6: Public Systems Management-MCP1606

benefit are not accounted for by the free-market exchange (Dye, 2011).
Externalities and government services cut across jurisdictional boundary lines,
particularly in programme areas such as air-pollution control, clean water, health,
education and public safety. These services are most often provided by local
government agencies, frequently in compliance with policy standards set at the
regional government level.
The good news is that inter-governmental programmes that provide goods and
services may separate responsibility from accountability for policy decision-
making. Both national and regional governments may spend monies not collected
from taxpayers in their jurisdiction. Most federal systems would have national
and regional governments that have legal jurisdiction over the same geographic
area. Sometimes this raises problems with voters, who fail to see the need to pay
taxes to two or more authorities, and it may not persuade taxpayers of the
fairness of taxing them for some benefit that largely assists some other
jurisdiction. At the same time, it is good to know that some regional governments
are not all equal in their capability to raise revenue, in part because they rely on
different sources of revenue and in part because other levels of government may
be able to legally constrain the type (or rate) of revenue the regional governments
might be able to acquire.
Some federal systems have developed grants-in-aid programmes as one method
to address their fiscal federalism problems.

19
Activity 7.4
1. Who benefits and loses when the growing centralisation of powers
shifts from the national to regional governments in a federal system?
2. Describe the major premises of fiscal federalism? To what extent do
you think fiscal federalism has been successful in your country?
Activity
3. What are the major principles of fiscal federalism? Can regional
governments completely achieve the provisions of these principles?
Why?
4. What are the fiscal and non-fiscal aspects of federalism? In what ways
has fiscal federalism helped to enhance inter-governmental relations?

The future of inter-governmental

relations
The future of inter-governmental relations is quite bright in several federal and
unitary systems of government around the world. One of the main areas of
growth comes from the increasing impact of public administration. This goes far
beyond the financial issues to other significant public policy areas. In the future,
more policy and the administrators of that policy will help shape the values of
societies and nations. It is likely that value conflict would continue to affect
public administrators in some countries. Inter-governmental relationship will
continue to reflect, and sometimes structurally establish, certain values in
administrative politics more than it does now.

One other aspect that will be affected in the future is that the national
governments will continue to provoke growing criticism from the regional
governments for trying to hand out mandates, pre-emptions, and confused and
conflicting policy directives. Most regional governments want to become more
creative, but may be forced (in the future) to figure out how to implement and
pay for federally mandated requirements.

The question of balance of power and responsibility between regional and

national governments in Canada, Brazil, India, Switzerland, Nigeria and the
United States will continue to be very important issues. The focus of the debate
will be geared to a pragmatic interest in how the responsibility of governing
should be structured.
One aspect of inter-governmental relations that may benefit from the future
complexity of fiscal federalism is the expansion of inter-governmental units and
regional governments. This might create more employment opportunities at the
regional level. Local governments will have to recognise that there are many
services that they can or should charge for. One option for regional governments
afflicted with fiscal problems is to try to shift the burden of providing service to
another government in the near future.
In the future, inter-governmental relations, like reinventing government, will
have to pay special attention to the entrepreneurial model of public management

20
 C6: Public Systems Management-MCP1606

that the new public management encourages. Regional governments should

consider the implications of the new public management for democratic
governance. Furthermore, the impact of global reforms will affect inter-
governmental relations in Australia, Brazil, Canada, the United Kingdom, Korea,
China and several other countries (Danziger, 2003). Future inter-governmental
relations might be able to adopt the use of administrative technologies such as
customer service, performance-based contracting, competition, market incentives
and deregulation. Improving the performance of public administrators in inter-
governmental relations will demand that public managers be freed from the
pervasive red-tape mentality.

21
Module summary
This module has examined inter-governmental relations among various
levels of government. It argues that inter-governmental relations affect
virtually every policy filed, and have significant political, economic,
social and cultural consequences. Furthermore, it contends that inter-
Summary governmental relations affect the day-to-day lives of citizens by helping
to determine such things as the cost of the quality of hospital care, the
availability of television programmes, fuel and oil.
This module also defined federalism as a political system in which the
powers of a country are formally divided between central and regional
(state and local) governments by a written constitution (Rosenbloom et
al., 2009). Under a federal system, the national and regional governments
are linked in a mutually inter-dependent political relationship (Nice,
1987; Bardes et al., 2010). The public administrators and political leaders
of state and local government are directly involved in the day-to-day lives
of citizens. Health care, education, crime and welfare are among the
many concerns of state and local governments. And these issues affect all
citizens.
Inter-governmental relations between levels of government in several
federal systems affect public administration. One very important point
covered in this unit is that inter-governmental relations also embraces not
only national and state relations but also inter-state (national and local),
state and local governments relations. The inter-governmental relation
system in several countries has changed considerably since pre-
independence eras. Co-operative national-state-local relationships that
had been nurtured in previous years were disrupted by either:
 political conflict,
 conflict over economic development policies,
 neglect of some regions,
 ethnic conflict,
 religious conflict, or
 diversity problems.
According to Stillman (2010), there is no quick and easy recipe for
returning to more co-operative inter-governmental relations in most
commonwealth countries. It will definitely take hard work, experienced
public administrators and political leaders to build and nurture trust
between different levels of government.
In all inter-governmental relationships, public managers are challenged to
be fiscally prudent. Public managers who are responsible for revenue
collection and appropriation must frequently juggle with what is a fair
and efficient tax. Taxes should be fair and collectable. The process of
local governments receiving revenue from national government is not
always constant. National fiscal policy could change and fiscal federalism

22
 C6: Public Systems Management-MCP1606

revenue may not be forthcoming. When this happens, state and local
governments must go through a painful withdrawal as they learn to live
within their reduced financial means. When the inter-governmental fiscal
trough begins to run dry, state and local governments are forced to search
for other revenue-producing alternatives.
Finally, in order to effectively build smoother inter-governmental
relations in most countries, there will be the need for a sincere
commitment of resources and the political will to resist opportunistic
politics. There is also the need to rebuild a culture of inter-governmental
relations. Adamolekun (1999) and Shafritz et al. (2011) contend that
elements of positive development of inter-governmental relations are
beginning to emerge in public management. However, institutional
support in the form of the allocation of an appropriate budget is needed.
The next module will discuss some of the premises of development
administration. It will define development administration as the process
of guiding an organisation towards the achievement of development
objectives. The module rightly demonstrated that there must be sufficient
political and administrative leadership to co-ordinate both government
and private sector efforts, assigning to each those tasks which are most
appropriate.

23
References
Adamolekun, L. (1999). Public administration in Africa. Boulder, CO:
Westview Press.

Bardes, B, Mack, S., & Schmidt, S. (2010). American government and

References politics. Belmont, CA: Thomas/Wadsworth.

Bird, R. (1978). Financing Canadian government: A quantitative

overview (p. 5). Toronto, Canada: Canadian Tax Foundation

Bowman, A. O’M. & Kearney, R. C. (2011). State and local government

(8th ed.). Belmont, CA: Thomas/Wadsworth.

Coulter, E. (1994). Principles of politics and government (5th ed.).

Madison, WI: Brown and Benchmark.

Courchene, T. (1984). Equalization payments: Past, present and future.

Toronto, Canada: Economic Council of Canada.

Cox, R., Buck, S., & Morgan, B. (2011). Public administration theory
and practice (2nd ed.). New York, NY: Longman/Pearson Press.

Danziger, J. (2003). Understanding the political world (6th ed.). New

York, NY: Longman.

Dye, T. (2011). Understanding public policy. Upper Saddle River, NJ:

Prentice Hall.

Goldstein, J. (2009). International relations (5th ed.). New York, NY:

Longman.

Henry, N. (2010). Public administration and public affairs. New York,

NY: Longman.

Kernaghan, K. & Siegel, D. (1987). Public administration in Canada.

Toronto, Canada: Methuen Press.

Kincaid, J. & Cole, R. (2003, Summer). Public opinion on federalism in

Canada, Mexico, and the United States in 2003. Publius: The
Journal of Federalism, 33.3, 31–48.

Lehne, R. (2006). Government and business. Washington, DC:

Congressional Press.

Mbanefor, G. & Egwaikhide, F. (1999). Revenue allocation in Nigeria:

Derivation principles revised. In K. Amuwo, R. Suberu, A.
Agbaje, & G. Herault (Eds.), Federalism and political
restructuring in Nigeria (pp. 213-228). Ibadan, Nigeria:

24
 C6: Public Systems Management-MCP1606

Spectrum Books.

Nagel, R. (2002). The implosion of American federalism. New York,

NY: Oxford University Press.

Nathan, R. P. (2006). There will always be a new federalism. Journal of

Public Administration Research and Theory, 16(1).

Nice, D. (1987). Federalism: The politics of inter-governmental relations.

New York, NY: St. Martins Press.

Radin, B. (2011). Performance management and inter-governmental

relations. In P. Poster & T. Conlan (Eds.), Inter-governmental
management for the 21st century. Washington, DC: Brookings
Institution Press.

Rosenbloom, D., Kravchuk, R., & Clerkin, R. (2009). Public

administration: Understanding management, politics and Law in
public sector (9th ed.). Boston, MA: McGraw Hill.

Schultz, R. (1980). Federalism, bureaucracy and public policy. Montreal,

Canada: McGill-Queen’s University Press.

Shafritz, J., Russell, E.W., & Borick, C. (2011). Introducing public

administration (7th ed.). New York, NY: Longman/Pearson.

Starling, G. (2011). Managing the public sector (9th ed.). Boston, MA:
Wadsworth Cengage Learning.

Stillman, R. (2010). Public administration. Boston, MA: Wadsworth

Cengage Learning.

United States Bureau of the Census. (2008). Statistical abstract of the US

(127th ed.), (p. 442). Washington, DC: US Government Printing
Office.

Van Dyke, V. (1996). Introduction to politics (3rd ed.). Chicago, IL:

Nelson-Hall Publisher.

Weatherby, J., Arceneaux, C., Evans, E. B. Jr., Long, D., Reed, I., &
Novikova-Carter, O. D. (2009). The other world: Issues and
politics of the developing world. New York, NY: Longman.

25
Further reading
Beer, S. H. (1981). The future of the states in the federal system. In P.
Woll (Ed.), American government: Readings and cases (p. 92).
Boston, MA: Little Brown.

Reading Conlon, T. (1986, Winter). Federalism and competing values in the

Reagan administration. Publius: The Journal of Federalism 16,
29–47).

Kernaghan, K. (1977). Public administration in Canada: Selected

readings (3rd ed.), (p. 80). Toronto, Canada: Methuen.

Kincaid, J. & Cole, R. (2003, Summer). Public opinion on federalism in

Canada, Mexico, and the United States in 2003. Publius: The
Journal of Federalism, 33.3, 31–48.

Schultz, R. (1980). Federalism, bureaucracy and public policy in Canada

(pp. 27–51). Montreal, Canada: McGill/Queen’s University
Press.

Straussman, J. (1990). Public administration (pp. 303–331). New York,

NY: Longman.

Walker, D. (1996, May/June). The advent of ambiguous federalism and

the emergence of new federalism 111. Public Administration
Review, 50, 271–180.

26
 C6: Public Systems Management-MCP1606

Activity feedback
Activity 7.1
1. First, despite the modern methods of telecommunication and
transportation, the diversity of the population and the geographic
size of some countries make it impracticable to locate all political
Feedback authority in one place. Second, the federal system of government
brings government closer to the people. Federalism allows big
countries such as Canada, India and the United States to function
diligently as well as delegate authority to the states or provinces.
2. Inter-governmental relations are an important body of activities
or interactions that occur between governmental units of all
types, and levels, within a federal system of government. Inter-
governmental relations embrace not only federal, state relations
but also include inter-state, federal-local, state-local or local to
local government relations. Federalism and inter-governmental
relations are not the same thing. Federalism provides the
structural framework within which inter-governmental relations
are conducted.
3. A confederation is a system of government consisting of a league
of independent states, each having essentially sovereign power.
The central government created by such a league has only limited
powers over the states. Federalism is a system of government
whereby a nation’s power is divided among two or more levels of
government. Each level of such divided governments will have
formal authority over the same area (land) and people (Bowman
& Kearney, 2011; Shafritz et al., 2011). Federalism can also be
defined as a system of shared power between units of
government.
4. The division of powers between the national government and the
local units is a real division of power that cannot be changed
without constitutional amendment, requiring the consent of the
governed citizens. The boundaries of the national and regional
governments cannot be significantly changed without the consent
of the citizens (inhabitants).

Activity 7.2
1. One of the most important administrative machineries of inter-
governmental relations can be seen in the financial and human
resources devoted to conduct the relationship between national
and regional governments.
2. The co-operation model refers to inter-governmental

27
 relationships involving, to a large extent, public administrators or
programme specialists from national, state and local governments
working together in a harmonious manner.
The bargaining model stipulates that inter-governmental relations
mostly involve senior public administrators from the national,
state and local governments. The bureaucratic model refers to
negotiations over inter-governmental matters among ministers
and senior public administrators in the departments and agencies
within each level of government.
3. This answer will be student-specific, however an example answer
is provided.
Example: Public administrators in my country are involved in
inter-governmental relations in the co-operation model, the
bargaining model and the bureaucratic model.
4. This answer will be student-specific, however an example answer
is provided.
Example: In the federal system of my country, all the
relationships with the national government tend to involve a co-
operative arrangement with business and state agencies involving
the use of federal money on a voluntary basis or the control of
business through national regulations for the public benefit.

Activity 7.3
1. Globalisation trends may have very important implications for
national and regional governments. Federalism is but one aspect
of decentralisation. The federal system of the United States
allows important functions to be performed at local and state
levels. Most states and their local governments are now
responsible for many public policy issues such as education,
public health, fire protection, police protection, highway
maintenance, public welfare, rubbish collection and so on. The
states and their local governments are a diverse group, but each
has a government that makes, enforces and interprets laws for its
citizens. In the past three decades, governments at national, state
and local levels have expanded their roles in response to three
historical developments: technology, urbanisation and a growing
dependent population.
2. In the past three decades, governments at national, state and local
levels have expanded their roles in response to three historical
developments: technology, urbanisation and a growing dependent
population. These three factors have forced state and local
governments to adopt programmes that are: (a) regulatory; (b)
distributive; (c) redistributive in nature. The expansion of state
and local responsibilities did not come automatically. It resulted
from thousands of conscious decisions to establish hundreds of
programmes.
3. This answer will be student-specific, however an example answer
is provided.

28
 C6: Public Systems Management-MCP1606

3. Fiscal federalism also refers to the granting of funds by one

government to another for the purpose of achieving specific
policy goals. The theory of fiscal federalism addresses the
question of the optimal design of government in a multilevel or
federal system. The theory of fiscal federalism postulates that a
federal form of government can be especially effective in solving
the following problems: (1) the establishment of an efficient
pattern of resource allocation; (2) the attainment of the most
equitable distribution of income; and (3) the maintenance of high
employment with stable prices. No, regional government cannot
achieve the goals of fiscal federalism.
4. The fiscal aspect involves inter-governmental revenue. The non-
fiscal aspect of federalism involves the interaction of public
administrators in the various levels of government.

29