This essay and the longer paper it is based on were written for the Law of Abundance project at the Johns Hopkins University Center for Economy and Society.
It is an extraordinary fact about the 2024 election that the areas that turned most aggressively toward President Trump were cities and states that have long been Democratic bastions. In election post-mortems, debate has raged over whether this shift was a cry of protest from voters in the bluest cities and states against the dysfunction of governance in these jurisdictions.
Whatever explains the election results, we think the electorate in fact has plenty of reasons to be unhappy with the quality of American governance. Housing shortages, crumbling infrastructure, urban violence, the opioid crisis, climate change — feckless government is implicated in all of them. For the past decade, an ideologically disparate group of scholars have warned that America faces a crisis of “state capacity”— the ability of government officials to translate policy goals into action and produce good outcomes. This concept, borrowed from development economics, has traditionally been used to explain why some nations succeed while others fail. A state with strong capacity can enforce contracts, prevent private violence, supply public goods, mobilize capital, and deliver basic services. A state with weak capacity struggles with these tasks.
The United States is very far from a failed state, but many of its most urgent political and policy problems can be traced to the perception that government is unable or unwilling to meet people’s basic needs. By linking the American government’s weakness to concerns about state capacity, scholars suggest that our day-to-day political dysfunction is not just a garden-variety problem. Instead, it may foreshadow political collapse or, at least, declining economic growth and international standing.
Yet scholars diagnosing America’s state capacity crisis have mostly focused on the federal government, blaming the problems primarily on issues like the filibuster or the National Environmental Policy Act. As flawed as those institutions are—and they are plenty flawed!— it is a mistake to put the primary responsibility for weakness in American state capacity on the federal government. The old joke is that the federal government is really just an insurance company with an army. It doles out checks for old people through Social Security and Medicare, and regulates all manner of conduct, but does not much involve itself directly in service provision.
In contrast, state and local governments provide almost all government services that people depend on—schools, police, fire protection, and more—either independently or in partnership with the federal government. They build and operate almost all public infrastructure. And they employ many times more people than the federal government does, by any measure.
So if we have a crisis of state capacity, its roots are in state and local governments. That simple point—one familiar to scholars of American political development—is mostly absent from the new state capacity literature. That’s a problem. While some of the stories that are told about the lack of federal capacity map more or less cleanly onto state and local governments, many have no application at all. State and local governments also face challenges that are quite distinct from difficulties at the federal level. Ignoring states and localities leads to a misunderstanding of why the American state lacks capacity—and to solutions that are unlikely to address the problem fully.
In our view, three main factors explain the weaknesses of state and local government in the United States:
First, voters know almost nothing about their state and local representatives and instead base their votes entirely on the national political climate. As a result, the leading determinant of which party wins state and local elections is which party won that district in national elections. This pervasive nationalization of state and local elections means that state legislative performance has little connection to electoral outcomes. The collapse of local media has made matters worse. When local newspapers fold, voters become even less informed about state and local issues. Bad governance at the state and local level is not punished, meaning that the incentives for officials to do better are limited.
Second, state administrative law is as strict, and often stricter, than federal administrative law, both with respect to the procedures it imposes and the intensity of judicial review. State and especially local governments have extremely powerful rules requiring lots of public participation in administration. Because small groups with members that care intensely about state and local decisions are much easier to form than groups representing a diffuse public interest, unrepresentative private interests—whether that’s the Chamber of Commerce or public employee unions or neighborhood NIMBYs—can and do overwhelm the administrative process at the expense of majoritarian preferences. State and local governments fail at providing basic services well because their processes slow things down and give veto rights to intense “policy demanders.”
Third, states face severe fiscal constraints that the federal government doesn’t. Every state is legally required, one way or another, to balance its budget. Further, no state can print money to inflate away its deficits, and all states face both legal and market limits on their capacity to borrow. When a recession depletes tax revenue, states have few choices except to increase taxes or reduce spending—right when public services are needed most. States’ limited fiscal capacity thus contributes mightily to poor governance, especially during recessions. Budget constraints are becoming increasingly salient as Medicaid consumes ever-larger fractions of state budgets, the costs of state and local public services increase faster than inflation, and states and localities try to cope with underfunded pension obligations. The cyclical and regularly-stressed nature of state and local budgeting undermines long-term investments in capacity.
The results of weak state and local government capacity are visible everywhere. Across America, our private sector outperforms the rest of the world, while public services wither. In San Francisco, a tech titan at the cutting edge of artificial intelligence can leave her office and hail a self-driving taxi—a miracle!—only to be driven down a road covered in potholes and lined with tent encampments. In New York, a mogul in the global financial industry might ride to work on a subway system that has barely expanded in the last 100 years and that has repeatedly broken records for history’s least cost-efficient capital programs.
This dysfunction isn’t because Americans inherently distrust government or prefer weak public institutions. In our most laissez-faire era at the turn of the last century, public infrastructure in American cities was far better than what was on offer in Britain or Germany. Our bridges and waterworks, our libraries and public street lighting, were the envy of the world. And today, many liberal democracies that are much poorer than we are and have less dynamic private sectors than we do have better public services. The problem is institutional, not cultural.
What’s the solution? We emphatically agree with the scholars who call for major improvements in the capacity of the federal government. But it’s crucial to recognize that our roads and schools won’t improve because Congress eliminates the filibuster or streamlines federal environmental review. They’ll improve when we fix the deeper problems plaguing state and local governments—the disconnect between governance and electoral accountability, the capture of administrative processes by narrow interests, and the fiscal straitjacket that makes it hard to invest in the future.
State capacity—in America at least—is about states and localities. That’s where reformers should target their efforts if they hope to improve the quality of governance in the United States.
David Schleicher is Walter E. Meyer Professor of Property and Urban Law at Yale University and a Senior Fellow at the Niskanen Center. Nicholas Bagley is Thomas G. Long Professor of Law at the University of Michigan and a Senior Fellow at the Niskanen Center.