Alice M. Rivlin was appointed vice chair of the Board of Governors of the U.S. Federal Reserve System in June 1996. From 1992 to 1996, Rivlin served as deputy director, then director of the White House Office of Management and Budget. She has held other Cabinet positions and was director of the Congressional Budget Office from 1975 to 1983. In 1992, she published Reviving the American Dream, in which she called for returning to state and local governments many responsibilities and tasks that had been assumed by the federal government during the previous 60 years. Contributing editor Warner Rose asked Rivlin to discuss some of the ideas presented in her book.   Photo from the Board of Governors of the Federal Reserve System.




Question: Since the 1930s, the federal government has taken on many responsibilities and tasks previously left to states and localities. In your book Reviving the American Dream, you say that it is time to begin returning these responsibilities; can you explain this proposal?

Rivlin: The basic thesis of the book is that we need a clearer division of labor between the central government and the states and localities, in part, to clarify in citizens' minds where the responsibility lies and which level of government they should hold accountable. That's gotten very confused in the public mind because lots of powers have been moving to Washington.

So it would help the functioning of democracy to make it clearer where the responsibility lies. Then, the question is: What kinds of things must be done by the federal government and what kinds of things could better be done locally or at the state level? Certain things have to be done at the federal level to be effective. Obviously, anything that involves the whole nation with the rest of the world, such as defense and foreign affairs, must be done by the federal government, just as things that move clearly across state lines, like the problems of air pollution, for instance, cannot be controlled by a single state.

But, there are public functions that probably work best when citizens can really see what's going on and adapt the service to their particular needs in the community. An example is education. There is the perception that schools don't work well unless local citizens are really involved in the school itself as parents, as community leaders, working with the teachers and with the whole community to have a good school. And there isn't one blueprint that works everywhere.

I certainly wouldn't argue that there is no role for the federal government in education, especially higher education. But, what should that role be? The national government can participate by setting standards or in cheerleading the community effort, but the responsibility has to be clearly at the community level. People can't say, "Oh, well, that's somebody else's problem. They will fix that in Washington. We should ask them to write a better law." I don't perceive that that can really change what happens in local communities and their schools.

There is no obvious bright line here, but services that need to be adapted to what the community needs, and in which community participation and accountability of the managers to the local community is important, seem to me to be candidates for handling at the local or the state level.

Q: What are some functions where the federal government has successfully moved to turn more responsibility over to the states?

A: Let's take housing, for instance. We perceived in the post-World War II period that there was a serious problem with the quality of housing for low-income people. The federal government took on the task of building public housing for low-income people on a fairly uniform basis across the country, in big blocks of public housing. I think it's now perceived that this was not a very good idea.

It didn't work, and it didn't work in part because it was imposed from outside the community and not integrated into the community itself. Now, it's not that you don't need some outside resources in poor communities. You do. But the more hopeful perception, I think, is that communities can come together and improve their neighborhoods and put less obtrusive housing for lower-income people scattered in mixed-income areas so that you don't segregate low-income people off to one side in big federal housing projects. I think that's a very clear example of where the national government tried to do something that didn't work very well.

Policing is probably another example. Americans are very worried about crime, particularly in the inner cities, and it's been much publicized around the world. The most successful efforts in fighting crime have been so-called "community policing," where the local-law enforcement authorities have gotten back into the neighborhoods very intensively, out of squad cars and on foot, and have been living and working in local neighborhoods.

Q: What about federal regulations and mandates, where the federal government requires that local governments do certain things, which sometimes are quite costly and intrusive. Supporters say the mandates are needed, or state and local communities might decide to allow inequities to fester. How should this issue be approached?

A: In a large country with a very diverse population like the United States, we have to recognize that there is always a tension between desires of local citizens for autonomy and the sense that there are some national values that have to be observed everywhere.

We've made a lot of progress in defining those, I think, over the last few decades. One has been racial and gender equality enforced at the national level. I'm not proposing that we throw out the Constitution or go back to a situation where we didn't have citizens' rights that were uniform around the country. I'm talking about how to get services that work and that are responsive to what local citizens want. Can those all be controlled from the national level, or would they work better if you divided the list and had some things that were clearly the responsibility of the local group? If people at the local level felt they weren't getting the services that they needed or that their rights were being trampled upon, they have democracy there, too, and the authority to vote out of office those who aren't providing the services.

Q: What about the inequality of resources among the different states and local governments?

A: There is the problem of unequal resources. I think one has to deal with that in any country, but certainly if one is proposing some reduction of central responsibility, you have to deal with how resources can be distributed more equally across jurisdictions.

The proposal that I have made is a variation of what we've called "revenue sharing." We would have some taxes which are common across states, in the sense of common rates, but are then shared among the jurisdictions on a redistributive basis, so that poorer jurisdictions get relatively more. A sales tax of some sort would be a natural for a uniform levy across the states. Almost all states do have sales taxes, but they are at different rates, and that means there is some competition at the border: The lower-tax state tends to pull potential buyers across the border.

Q: Are systems like that workable?

A: Sure. The Germans do it. They have a national value-added tax which is shared by the states on a redistributed basis. And we, of course, have redistributive grants from the central government out of federal taxes.

Q: But don't states naturally compete with each other?

A: Well, I think that competition among states is not a bad thing, but what one would like to see is for states to compete with each other for the excellence of their schools or the excellence of roads rather than the low level of their taxes.

Q: What happens when local governments simply fail, such as by going bankrupt?

A: In the United States, local governments are the creatures of their states, so the states really have to deal with that. Of course, if it's a big city -- like New York City -- it becomes a national problem.

Q: What happens when the federal government isn't performing its function? For example, California sued the federal government over certain costs caused by illegal immigration, arguing that the federal government was not enforcing national immigration laws.

A: That's an issue to be resolved in the courts. Certainly, national policies such as changes in the immigration laws affect states differentially, depending on where they are. Because there are so many recent immigrants in coastal states, particularly in Florida and California, the impact of any change in immigration policy or in other policies will hit those states the most heavily.

Q: In your book, you wrote that among the tasks that the federal government should handle are the old-age pension program, Social Security, and health care. You advocated keeping health care costs down and making health care universally available. Is this still your view?

A: Old-age pensions are a very good example of something that functions very well at the national level, and almost no one would think about devolving them to the states. It wouldn't be efficient, and it would be very confusing since we are a fairly mobile society and people work in different parts of the country.

Health care is more difficult. Unlike many other countries, we have never had a national health-insurance system here. When I wrote the book, we were having a serious national debate about whether we should have one. Since then, the debate has swung the other way, more towards devolving the responsibility for health care -- particularly health of low-income families -- to the states.

Q: Should governments that are currently in transition from authoritarian to democratic systems adopt federalism?

A: I think federalism is a very difficult system, in the sense that there is always a tension between the center and the constituent states. Power tends to move back and forth. It is my perception that we got off course not necessarily because we've put too much power in the federal government, but that we did it in a way that makes it very unclear to citizens as to how they could improve the services that they needed, in that the responsibility was so divided between three layers of government -- local, state and federal.

Q: What is the status of the movement toward giving the states and local governments a bigger share of the responsibility?

A: I think the big dilemma now is that most of the functions that are very clearly national functions, such as defense and foreign affairs -- but also the control of the macro economy -- are going very well in the United States right now. We have a prosperous economy, we have high employment, we are not threatened as a nation by any outside power. So people are not terribly worried about those things.

What people are worried about is what goes on in their local neighborhood. They are worried about crime; they are worried about education; they are worried about housing; and it's very hard for the federal government to figure out how to respond to those concerns.

On the one hand, people want to feel that their national leaders are concerned about what's important to them. But aside from expressing concern, it is not very clear what the national leaders can do to help that really makes a difference, because most of those things really have to be solved at the community level.

So I think we have a very serious dilemma now for national politicians and for communities. How do we energize that community effort that needs to come forward without the appearance that the federal government is preempting it or taking it over or imposing a set of rules that don't make sense in that community? That's the dilemma.

Issues of Democracy
USIA Electronic Journal, Vol. 2, No. 2, April 1997