The rise of a new US federalism With federal government largely paralysed, the future is being shaped in the cities Barack Obama will deliver his sixth annual State of the Union to Congress next week. He will beseech lawmakers to enact many things, few of which will happen. The same will probably be true of his seventh and eighth. Meanwhile, for good or for ill, a rising generation of city leaders across the US are pushing ahead with their agendas. At a time when US federal government is largely paralysed, it is in the states - and particularly the cities - where America's future is being played out. Call it the new US federalism. The term can befuddle foreigners and even Americans. At the start of the republic, it was the federalists, led by Alexander Hamilton, who centralised powers, such as the right to issue debt and maintain a standing army. In the 1850s it was the confederates who challenged Washington's right to impose federal laws limiting slavery. But the abiding lesson of most of US history is that when Washington fails to function, the action moves to the states, cities and municipalities. It is federalism, rather than the separation of powers at the federal level, that keeps the US moving. This is particularly true of cities. Mr Obama's agenda is stalled chiefly because of the fierce intensity of polarisation in Washington. But polarisation diminishes as you move further down. It is still visible at the state level - there are Republicans in Austin, Texas and Democrats in Sacramento, California who are every bit as ideological as their Washington counterparts. But it is rarely paralysing. Only in the cities does gridlock largely cease to exist. And it is in the cities where America's most significant 21st century trends - from deep inequality to cutting-edge innovation - are most vividly on display. They are also where the most interesting politics is taking place. Since Republicans control no US city of any significant size, the battles are largely intra-Democratic. In the Big Apple, Bill de Blasio came to power on a promise to address the "tale of two New Yorks" - one for the philanthropic elites and their charter schools, another for those living in ghettos such as Harlem (home both to Bill Clinton's Global Initiative and New York's poorest inhabitants). Mr de Blasio is sceptical of charter schools and wants to raise taxes on those earning more than $500,000 a year. Some of his wealthier fellow Democrats see him as a potential foe. Few, however, would dispute that it is in New York, rather than Washington, where the politics will be decided. Unaffordable property is a familiar story for young and middle class Americans generally. But it is being fought out neighbourhood by neighbourhood. Much the same is true in Rahm Emanuel's Chicago and Eric Garcetti's Los Angeles but with variations. Messrs Emanuel and Garcetti are more centrist Democrats who support charter schools and have forged close collaborations with downtown business leaders. One of Mr Emanuel's goals is reducing crime by whatever means will work. Mr de Blasio's focus is on reducing the alleged racial bias behind the "stop and search" methods championed by Michael Bloomberg, his (nominally independent) predecessor. Crime is higher in LA and considerably more so in Chicago, so Mr Blasio has more room to experiment. Either way, he is taking action. Meanwhile, Washington cannot pass a law that would moderately strengthen background checks on gun buyers. States and cities are an increasingly important battleground of the new fiscal era. A century ago it was the city bosses who built high-rise America. Their spoils system was not pretty. But it was unaffected by federal government. It is no coincidence the era of restless urban politics was also the most polarised in Washington's history. Only in recent years has Washington plumbed those depths again. Today, mayors and governors must budget on the fact that Washington's declining largesse will only dwindle further. Austerity is here to stay. The task of building roads, modernising ports and dredging harbours is increasingly local. So, too, is trade promotion and research and development. "If it was 50 per cent local financing and 50 per cent federal in the past, today it is more like 75:25," says Bruce Katz of the Brookings Metropolitan Policy programme. Washington is less and less relevant. A rising share of the economic action is also urban. Even in the tech sector, which is traditionally suburban, capital is following talent to the city. The newest social media companies, such as Twitter, Zynga and Pinterest, have chosen San Francisco rather than Silicon Valley as their headquarters. And in manufacturing, the suburban factory is becoming a thing of the past. New technologies such as 3D printing mean it is easier to make things in smaller locations and with fewer people. The latter tend to be better educated and prefer to live in the city, with its bike lanes and microbreweries. Entrepreneurialism and social liberalism tend to go together. The city is the place for serendipity. Not every US urban trend is positive - and not every city mayor can tackle it. But they have the means to try. They also have the leeway to innovate. Many do. Innovation is a mantra that is chanted in Washington in inverse proportion to the degree that it is practised. Everyone loves it. Few have direct experience of making innovative policy. America's most talented politicians are increasingly spurning Washington. Others are pulling out. In politics, as in business, we should follow the talent to where it lives.