Business, the States, and Federalism's Political Economy

Article excerpt

I. INTRODUCTION

The origin of this Conference and Article is a highly publicized conflict between business and, on the other side, state officials and conservative Congressmen and Senators over a legislative effort to limit federal preemptions of state and local laws. (1) The nasty spat caused consternation among parties who consider themselves political allies, inconvenience for conservative federal legislators who consider themselves friends of both business and states' rights, and gleeful if uncomprehending, coverage by the Washington Post. (2) Occurring as it did under a liberal administration, the conflict between business and state and local interests seemed particularly gratuitous to participants and well-meaning observers. Businessmen and governors (at least, conservative, pro-business governors), the thinking goes, share anti-"Big Government" interests and values. Thus, they ought to be able to agree on a whole host of issues and, in particular, on federalism. Surely, their residual disagreements rest upon iron-outable misunderstandings.

Much more is at stake in the dispute than a temporarily entertaining K-Street squabble. Most obviously, mutual respect and understanding are essential to a productive relationship between state governments and corporations. (3) From a broader, non-participant perspective, the state-business relation merits attention because on any given issue, a national coalition of States and business is very difficult to beat. Thus, the possibility that such a coalition might assemble regularly, on federalist ground and across a range of issues, raises the hope that federalism faces a very bright future.

On a wide range of issues that are chiefly a matter of state and local concern, governors and business executives are in fact accustomed to productive, mutually advantageous relations. State officials recognize that the creation of a favorable business climate--through favorable tax and regulatory regimes, an educated labor force, a workable infrastructure, and sensitivity to "quality of life issues" that are of great concern to employees and employers--is foremost their responsibility, not the national government's. (4) To be sure, not all forms of state competition for business and productive citizens are efficient. (5) Moreover, state officials are often constrained, and their decisions are often entangled with, federal regulatory and funding regimes. Even so, American federalism offers an amazing range of jurisdictional diversity, choice, and competition, and for all the friction created by multiple, overlapping jurisdictions, these federalist virtues have served us well. On the many issues where diversity and state competition are an asset rather than a hindrance to commerce, both business and the States have powerful incentives to maintain state primacy and to arrange their mutual affairs in a decentralized fashion, one State and industry at a time.

At the national level, however and alas, the comforting picture of a natural, if temporarily confounded and distracted, anti-nationalist coalition between business and States is mistaken. If that coalition existed, the national administrative state as we know it would not: the anti-nationalist coalition would be strong enough to defeat any proposal not to its liking. In fact, such a coalition would quite probably be sufficiently strong to dismantle the national regulatory state. The fact that Leviathan is very much with us (and, quite probably, here to stay) should prompt us to contemplate an alternative, more accurate picture.

Such a picture emerges from a broad-brush application of public choice theory to federalism and the political demand for national legislation. (6) Under conditions of a national government that faces few, if any, meaningful constitutional constraints on its authority, the theory predicts, business and the States alike will often demand and lobby for centralized policy intervention. …