States, Intergovernmental Relations, and Market Development

The introductory chapter first defines the major question to be addressed by the book, that is, the so-called fundamental state-market dilemma, and then briefly describes existing solutions and their merits and weaknesses in overcoming the state-market dilemma. After that, the chapter presents the book’s major argument: dual intergovernmental transformation for market development (DITMD). Finally, the chapter discusses the comparability of the two cases of China and United States and describes the organization of the book as well.

This chapter takes a critical review on the current literature on decentralization, federalism, and economic growth. It defines several basic concepts about decentralization and summarizes contemporary debates on decentralization for economic growth in general and the theory of “market-preserving federalism” particularly. Through an in-depth review of the literature, the chapter answers the question of why existing wisdom is insufficient in overcoming the “fundamental state-market dilemma.”

Based on the preceding literature review, this chapter theorizes the main thesis of this book, that is, the model of "Dual Intergovernmental Transformation for Market Developemnt" (DITMD), and explains the meaning of this new framework. It argues that while decentralization may promote governmental incentives to preserve markets, it also incurs tremendous transaction costs in markets. In order to take advantage of economic benefits of decentralization and also avoid its disadvantages at the same time, this chapter further designs the DITMD model to allocate the state’s coercive powers appropriately in order to sustain market development, theoretically.

This chapter is a case study of the political foundation of market development in the nineteenth-century United States and an application of the dual intergovernmental transformation for market development (DITMD) model in the American case. It focuses on examining the impact of federal-state relations on the rise of the American domestic common market in the first century of the United States, roughly between the founding of the republic and the end of the nineteenth century. It first briefly introduces the general allocation of governmental powers in the antebellum American economy and then discusses state activism in the antebellum American corporate regime. Subsequently, the double economic effects of state activism on the corporate economy are analyzed. After that, the chapter further examines the contribution of jurisdictional competition and judicial nationalization to the national market respectively. Finally, there is a concluding remark on this case study.

This chapter gives a summarized comparison between the two cases of China and the United States. It describes both similarities and differences between the two cases in terms of intergovernmental transformation and market development. The chapter first compares the American and Chinese ways towards a domestic corporate market and then discusses how to understand the two different models of dual intergovernmental transformation for market development (DITMD) and market-preserving federalism (MPF) and the implications of this study.