Democratic capitalism poses an enduring tension or contradiction. In given settings or historical moments, the “democratic” side of that equation can operate to ensure that the “capitalist” side is more palatable or equitable. Democratic aspirations might be decisively constrained by market imperatives, or they might transcend them. The range and viability of those alternatives, in turn, are shaped not just by market constraints but by political institutions. The architecture of political representation, participation, and policymaking can amplify democratic voices or stifle them; it can invite democratic (even systemic) alternatives or litter the path forward with obstacles.

By almost any contemporary or historical measure, the American version of democratic capitalism is remarkable for its firm commitment to the “capitalist” side of that compromise and a correspondingly weak commitment to productive democracy. The “New Deal order” and the social movements that gave it meaning now seem like a momentary exception in a long march of unbridled accumulation and neoliberal rule. Modern American political history plays out like endless variations on a “why no socialism?” riddle whose solution is at once elusive and overdetermined. The many failures of progressive politics, and the ease with which its few successes have been rolled back, reflect a wide array of political obstacles, hurdles, or choke points. One of the most important of these, underappreciated as both cause and consequence of our limited political horizons, is federalism.

In its idealized and abstract form, American federalism parcels out political responsibility across tiered jurisdictions (federal, state, local) in the pursuit of three interrelated goals. First, it promises democratic engagement and political responsiveness by vesting responsibility in the smallest practical unit of government, confining the federal role to those realms (national defense, interstate commerce) beyond the capacity of individual states or localities. Second, federalism envisions state governments as guarantors of liberty, protecting ordinary citizens — and especially regional minorities — from the tyranny of national rule. And third, federalism is routinely lauded as an opportunity for policy competition, innovation, and diffusion across state-level “laboratories of democracy.” Federalism, in this view, structures political representation at a scale large enough to accomplish policy goals but small enough to ensure a nimble response to policy challenges and a meaningful civic connection between the government and the governed.