Will the Next President Remake Federalism?

It is safe to make two predictions about the 2012 presidential election.

First, it will be defined and dominated by the economy. At the most basic level, the United States needs more jobs — 11.4 million by one estimate — to recover those lost during the downturn and keep pace with population growth and labor market dynamics. Beyond job growth, we need better jobs to increase wages and incomes for American workers and reverse the troubling decades-long rise in inequality.

Second, President Obama and his Republican opponent – and the gaggle of national media, constituencies and political “experts” who follow, dissect and interpret their every pronouncement – will focus almost exclusively on federal solutions to the nation’s economic woes.

But the president is the leader of our nation, not the CEO of the federal government. While the federal government sets a platform for national growth, it does not construct one road, operate one port, educate one child, train one adult or cure one individual. It largely delivers these and a host of other economy-shaping goods and services through an intricate network of public, private and civic intermediaries and institutions.

If the next president really wants to create more and better jobs, he would be wise to enlist states and metropolitan areas as active co-partners in the restructuring of the national economy.

The genius of American federalism is that it diffuses power among different layers of government and across disparate sectors of society. States are the key constitutional partners, because they have broad powers over such market-shaping policy areas as infrastructure, innovation, energy, education and skills training. But other sub-national units – particularly major cities and metropolitan areas – also are critical, because they concentrate and agglomerate the assets that drive prosperity and share leadership with actors in the corporate, civic, university and other spheres. When the federal government becomes polarized and fails to act on critical issues of national importance, states and metros can step in to take on larger roles.

With Washington mired in partisan gridlock, the states and metropolitan areas are doing just that.

With federal innovation funding at risk, metros like New York City and states like Ohio and Tennessee are making sizable commitments to attract innovative research institutions, commercialize leading-edge research and grow innovation-intensive firms.

With the future of federal trade policy unclear, metro areas like Los Angeles, San Francisco and Minneapolis/St. Paul and states like Colorado and New York are reorienting their economic development strategies toward exports and the attraction of innovative foreign companies and skilled immigrants.

With federal energy policy in shambles, metro areas like Seattle and Philadelphia are cementing their niches in energy-efficient technologies, and states like Connecticut are experimenting with green banks to help deploy clean technologies at scale. State green banks can play a crucial role in financing clean energy projects by combining scarce public resources with private investment, and then leveraging the funds to make each public $1 support $5 or $10 or even more dollars of investment.

With federal transportation policy in limbo, metro areas like Jacksonville and Savannah and states like Michigan are modernizing their air, rail and sea freight hubs to position themselves for an expansion of global trade.

What unites these disparate efforts is intent. After decades of pursuing fanciful illusions (e.g., becoming the next Silicon Valley) or engaging in copycat strategies, states and metros are deliberately building on their special assets, attributes and advantages using business-planning techniques honed in the private sector.

The bubbling of state and metro innovation offers an affirmative and practical counterpoint to a Washington that has become increasingly hyper-partisan and overly ideological and gives the next president an opportunity to engage states and metropolitan areas as true working partners in a focused campaign for national economic renewal.

What would a federalist campaign look like? Here is one idea: Catalyze a Race to the Top competition across the states and metropolitan areas on the central issue of the election – creating more and better jobs.

The federal government could challenge states and metropolitan regions to articulate how they would attain a critical economic goal (say, doubling exports) over a set period of time. A consolidated competition could then be held to group together federal programs that fund advanced manufacturing, workforce, freight infrastructure, toxic cleanup and promotion of exports. States and their metro areas would be challenged to articulate a bold economic vision that builds from their special assets and advantages and then design strategies that carry out that vision through tangible projects and investments.

With the national and global economy in a period of disruptive change, now is a good time to challenge states and metropolitan areas to invent the next growth model. Several states and metro areas might, for example, pioneer a new way of supporting advanced manufacturing. Others might do the same with exports and attracting investment from foreign firms or with upgrading the skills of key advanced-industry workers. With federal direction, this could be a golden era of state and metropolitan innovation.

Federalism is not a gift that Washington bestows on statehouses and city halls. Rather, it is a special, often dormant vehicle for galvanizing and unleashing the talents and energies of an entrepreneurial nation. The next president has a historic opportunity to usher in a new era of pragmatic, collaborative federalism that capitalizes on the economic power of metropolitan areas and the policy creativity of state and local leaders. Remaking federalism is the path toward an economy that is productive, sustainable and inclusive. More broadly, it can be a vehicle for economic prosperity, fiscal solvency and political comity – if the next president is willing to take it.