Federalism Creates Both Advantages and Disadvantages for Business.

Decentralization, Economics

Question: Federalism creates both advantages and disadvantages for business. Discuss providing examples to illustrate your answer.

Since over 100 years, Australian federation has made outstanding changes for the interaction between inter-government relations and business community. It contributes to make Australia a truly national economy with significant mobility of capital, labour, goods and services (Wiltshire and Kenneth 2008, pp. 613). Nevertheless, it is argued that federalism creates both advantages and disadvantages for business. In this article, discussion of how federalism makes more advantages for business other than disadvantages is proposed, especially for the situation of Australian federation. The argument firstly presents the general advantages of federalism with discussing from flexibility and competition which assist and boost the development of business. Although federalism still confronts disadvantages for business like decentralisation and complexity of financial policies to globalisation, corrections and solutions are continuously promoted to prove federalism’s positive aspects for the business development.

In a federal system, according to Palencia (1974, pp. 16), “Federalism brings about political decentralisation through the distribution of responsibilities between central and local authorities.” It is also written (Eccleston et al 2009) that, multiple layers are composing in modern federation with relating to the size and activity scope. The multi-layers are formed by different governments at each level that defined with different roles and responsibilities. Therefore, by dividing power into different local governments, each level of governments has its own independent power and responsibility sphere. This distributing structure of federal system introduces several benefits for businesses.

Firstly, flexibility that accommodated different economic and cultural is endowed with the decentralisation of power which is under a...
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