DISUNITED STATES.

By John D. Donahue. Basic Books. 256 pp. $25

In 1939, only one in eight Americans said he or she trusted the state governments more than the federal government. Today, threefifths of Americans subscribe to that sentiment. In Disunited States, Donahue, a political scientist at Harvard University, assesses one of the more broadly accepted tenets of current conventional wisdom: that "devolving" federal power to the 50 states will improve American governance. Donahue is skeptical.

To be sure, devolution has benefits. States tend to be smaller and closer to those they govern (though not as small or close, Donahue suggests, as is widely assumed). Moreover, the states can serve as laboratories for policy reform, at least if they are willing to learn from their neighbors (which is not always the case, as Donahue shows). States can also promote diversity and choice. In the battle to attract families and businesses, New Hampshire keeps its taxes low while neighboring Vermont offers socially liberal policies.

But that battle sometimes goes too far. Donahue recapitulates the stunning string of concessions that states have offered automakers seeking new factory sites. In 1980, concessions cost Ohio $4,000 per newly created Honda job; by the early 1990s, Alabama was spending $168,000 for each new Mercedes-Benz job. Even Alabama may come out ahead ultimately, as economic benefits ripple throughout the state economy—but the inducements, the author notes, exemplify the rent-seeking, "industrial policy" behavior that repulses most economists (as well as the conservatives who are especially partial to devolution). Donahue points out that education spending, which one would expect to be a high priority for competitive states, may actually suffer in a business environment that emphasizes immediate results. Governors and legislators may worry that they will bear the costs and tribulations of education reform, while their successors will reap the benefits.

Devolution has other shortcomings as well. State lines often lead to jurisdictional conflicts, which can impede efforts to track incompetent doctors, regulate air and water pollution, and control interstate crime. Donahue points out that lobbying, a key factor behind citizens’ distrust of the federal government, is no less prevalent in state capitals. Indeed, state-level lobbying is often more opaque, less scrutinized, and potentially more insidious. The various interests lobbying the federal government frequently cancel out one another’s strength, whereas a locally powerful interest group can hold a state hostage.

Donahue’s most intriguing argument is that even if devolution did improve the quality of government, the financial gains would likely be small. "Suppose," he writes, "every last thing that the federal government does, aside from running defense and foreign affairs and writing checks (to entitlement claimants, debt holders, and state and local governments) were transferred to the states—national parks and museums, air-traffic control, the FBI, the border patrol, the Centers for Disease Control, the National Weather Service, student loans, the space program, and all the rest. Suppose, then, that the states proved able to do everything that the federal government used to do a full 10 percent more efficiently. The cost of government would fall by a little under one-half of one percent." Rather than squeezing blood from this administrative turnip, Donahue argues that the real way to cut the federal government is to reduce entitlements, an idea that is far less popular among politicians than devolution. Donahue also suggests privatizing and "voucherizing" certain federal undertakings, such as job-training programs, rather than devolving them to already-groaning state bureaucracies.

What is most notable about Disunited States is its painstaking fairness. When Donahue summarizes his arguments at the end of the book, the depth of his skepticism toward devolution comes as a surprise, given the scrupulous balance of his earlier chapters. This reasoned, constructive assessment of unpopular economic realities is a rare achievement: a book that boasts both a stunningly original concept and a near-flawless execution.

—Louis Jacobson