The Politics of Fiscal Federalism: Neoliberalism versus Social Democracy in Multilevel Governance is a guide to understanding the politics of economic policy in the context of multilevel governance. Adam Harmes argues that left–right battles over where to assign policy authority (e.g., to Sacramento or to Washington, DC) help explain the evolution of federal, regional, and global governance arrangements. His starting point is research on economic policy within the comparative federalism literature (i.e., fiscal federalism), which is why he frames his left–right focus as a corrective to theory that overemphasizes sovereignty fights between levels. Yet like scholarship that begins elsewhere (economic sociology, European Union studies, American political development, comparative capitalism), his conclusions speak to the intricate but patterned relationships among rules, markets, governments, and society. In a nutshell, markets are never politically neutral because policy choice affects their social and economic outcomes. Harmes’s contribution features the distributive politics associated with the congruence (or incongruence) between the boundaries of markets and economic policy authority. Readers will leave The Politics of Fiscal Federalism better equipped to think clearly about winners and losers in the many possible types of federal, regional, and global arrangements on offer.

Harmes provides a political economy perspective—following in the tradition of Smith, Marx, Polanyi, Keynes, and Hayek—to help explain the location of economic policy authority within multilevel governance systems. The existing literatures are right to pay attention to sovereignty concerns and classic center versus subunit turf wars, but they do not, Harmes maintains, give enough explanatory weight to the historical and ongoing clashes between neoliberals and social democrats. He argues that a better understanding of the objectives behind these two “social movements” results in a richer account of the preferences and politics relating to the assignment of economic policy authority in federations and in regional and global arrangements.

The first two chapters delineate how central actors on the Right and the Left have long seen multiple levels of governance as an opportunity for achieving economic policy agendas. In the case of neoliberals, Harmes lays out how a deep aversion to the “coercive” “rent-seeking” tendencies of governments translates into a set of preferences over policy assignment. Neoliberals want to centralize markets—that is, lock in open trade, capital mobility, and property rights—but decentralize tax and regulatory authorities used to provide public goods and dampen business cycles. The objective is to create mobility for firms and workers and thus the power to evade the reach of local welfare policies and, by consequence, impose policy competition and discipline on the subunit jurisdictions. By contrast, Harmes shows that social democrats, driven by social justice aims, strive for the exact opposite. To preserve the government autonomy necessary for welfare programs and market-correcting public goods and to avoid race-to-the-bottom policy competition, the main social democratic objective with respect to multilevel governance is to achieve “perfect mapping”—in which authorities thereby create markets and carry out Keynesian economic policies at the same level of governance. The social democratic desire for congruence between the boundaries of markets and the reach of welfare policies sets up a perfect clash with neoliberals over the sites of political authority.

That the various forms of multilevel governance shape the relative mobility and power of capital, labor, and government is not new. Nor is the left–right politics over policy assignment. Even so, Harmes’s book makes important contributions. Readers will appreciate its initial sections that map out the positions within the “neoliberal” and “social democratic” coalitions. These chapters, which ought to be required reading for graduate students and seasoned scholars alike, provide the necessary foundation for grasping some of the book’s other takeaways: for example, consideration of where neoliberals align with economic nationalists (“neoliberal nationalism”) and with classical economic liberals and why the disparate strands within the two social movements hang together over time (note well the sections on recent successes of neoliberal framing in spite of a crowded, eclectic conservative camp) despite divisions (within social democrats over the EU and neoliberals over monetary union) and how such preference complexities spawn consistent sequences, across federal, regional, and global cases, wherein social democrats and neoliberals alternate between assignment preference in response to the other’s policies. The details of these sequences, which echo James Mahoney’s path-dependent reactive sequences, unfold in the three empirical chapters on global agreements, regional cooperation (UK/EU and NAFTA), and federalism (Canada and the United States). By making these and other incisive points, the book connects political ideology to debates on global governance, eliminating unnecessary distinctions between levels of analysis and elevating the role of classic policy preferences.

Harmes delivers what he promises: to demonstrate that left–right politics, properly discerned, ought to be part of, though not a complete, explanation for evolving forms of multilevel governance arrangements and that scholarly books cannot be expected to do everything. Nevertheless, the political economy of The Politics of Fiscal Federalism raises important questions for future research.

First, systems of governance with multiple levels frequently arm social democrats in at least some subunit jurisdictions with additional resources that enable them to fend off pressures from policy competition. One such power source derives from internal institutional configurations, highlighted by historical and sociological institutionalists, that can buffer subunits and preserve enough policy autonomy to maintain welfare programs. The main examples have been rich European countries that have shown relative resilience and adaptability in the face of capital mobility and open trade. Another source of power comes from asymmetries in interdependent economic relationships. International political economy (IPE), comparativist, and legal scholars have all shown that lopsided interdependence can be a power resource for jurisdictions with large markets. Well-known illustrations can be found in the US federation (the California Effect), in the EU, and at the international level (the Brussels Effect). Adding these two sources of power—internal configurations of small jurisdictions and the leverage stemming from asymmetrical interdependence for large ones—complicates Harmes’s framework. Based on his analysis, it stands to reason that key players on the Left and the Right have also recognized that mobility is only one of several potential sources of power and have strategized accordingly. How do social democrats and neoliberals line up with respect to these aspects of multilevel governance?

Second, in his examination of the global level, Harmes leaves out a major development of the last 30 years—the rise of international soft law (sets of written advisory prescriptions created in treaty-based and non-treaty-based organizations). The omission means that Harmes’s framework does not include central designers of the global multilevel architecture—subnational regulatory authorities, mostly from the United States and Europe, organized via transnational networks—whose primary motivations do not fit snugly into his left–right schema, as Abraham Newman and I argue in our recent book under review here (Voluntary Disruptions: International Soft Law, Finance, and Power, 2018, chapter 3). Indeed, it would be interesting to know how technocrats and regulatory agencies intersect with the broad coalitions detailed in Harmes’s book. Moreover, the example of soft law—voluntary at the international level but politically disruptive and often legally binding at the EU and domestic levels—reveals additional complexity not included in Harmes’s depiction of policy authority as assigned cleanly to single levels of governance. Indeed, soft law sets off reactive sequences of its own that are reminiscent of, but quite different from and messier than, those outlined in The Politics of Fiscal Federalism. The creation of standard-setting bodies at the global level provides new political arenas that probably play to the advantage of mobile actors, a pattern that Harmes’s neoliberals likely support. Yet who benefits from other second-order effects is probably indeterminate. Who is likely to benefit in Brussels and Washington regulatory contests from the global institutionalization of policy arenas and the creation of soft law?

These dangling questions notwithstanding, The Politics of Fiscal Federalism, with its focus on the left–right politics of multilevel governance, is a welcome and timely addition to the social sciences of markets. Policy makers would be wise to keep its conclusions in mind when striving to rebuild post-pandemic economies in ways more consistent with societal goals.