Business, the states, and federalism's political economy.

• Author: Greve, Michael S.
• Position: Legislative efforts to limit federal preemption of state and local law

1. 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. The issues on which the States will act nationalist are not always the same issues on which business will display that orientation. Conflicts between the two constituencies are thus pre-programmed, and their intensity will rise in proportion to the degree of unanimity on either side of the divide.

   Pro-federalist coalitions between the States and business are not an outright impossibility. Neither, however, do they constitute a normal state of affairs. Rather, they depend on political circumstances and pre-existing institutional arrangements, and the task of forming state-business coalitions should be approached with a sense of realism and awareness for the other side's tolerance and interests. In that spirit, this Article attempts to sketch some of the conditions and political constellations that are conducive to state-business coalitions on federalist ground.

   Before embarking on that program, two preliminary qualifications are in order. First, many of the national federalism issues and policy areas that most concern the States are of little immediate interest to business. (The reverse is not true: virtually every business issue and interest will be of concern to the States.) Education, welfare, and crime control fit this description. Still, business has every reason to be supportive of the States' devolutionary agenda on these issues, not simply because corporations should and do desire to be good corporate citizens, but also because federalist initiatives in those areas may well spill over into areas where the business community's interests are directly affected. Some of those interdependencies are economic, as when the sorry state of America's educational institutions constrains the supply of qualified labor. Others are political. For example, the devolution of welfare policy-making authority to the States long foundered on fears of a "Mississippi effect," meaning that the States could not be trusted to discharge their public obligation to the poor. Now that the States have proven their detractors wrong on welfare, we may be able to overcome "Mississippi" fears and devolve policy-making authority in areas with tangible, direct effects on business, such as certain environmental issues. (7)

   Second, the picture of "the States" and "the business community" as homogeneous constituencies is an oversimplification. Most national policy issues with federalism implications divide both the States and business interests among themselves. Still, an explanatory model that starts with the generic interests of "the States" and "business" helps to explain when, where, and under what circumstances those constituencies can expect to agree, and when they must agree to disagree, on federalism issues.

2. BIG BUSINESS AND BIG GOVERNMENT

   Once upon a time, big business was as adamantly opposed to the national regulatory state as its present-day reputation would lead one to suspect. The business community resolutely fought the national impositions of the New Deal--not unanimously, but with a remarkable measure of consistency and breadth of support. That era and political constellation, however, ended six decades ago.

   Constitutional Supreme Court decisions do not fully capture the richness and complexity of the changing relation between business and the national regulatory state, but they provide a useful prism. Resourceful private corporations launched most of the constitutional challenges to New Deal legislation; the case names-Steward Machine Co., (8) Panama Refining, (9) Carter Coal, (10) Jones & Laughlin Stee (11)--tell the story. At other times, the corporate community showed its determination by bankrolling constitutional challenges to the New Deal, as when corporate interest prompted the whitest of white shoe law firms (Cravath, Swaine & Moore) to represent a kosher chicken business in the last great, successful Commerce Clause attack on a federal regulatory statute. (12)

   That pattern ended with two devastating defeats in cases challenging, on Commerce Clause and other grounds, the Fair Labor Standards Act and the Agricultural Adjustment Act. (13) Since that time, federalism challenges to national legislation for the most part have been the business of state and local governments, criminal defense lawyers, and public interest law firms. Business-initiated federalism cases in the post-New Deal era have fallen into two broad categories: lawsuits in which business interests insist on federal preemption of state law under federal labor relations, environmental, and health and safety statutes, (14) and lawsuits aimed at curbing the exercise of state taxing and regulatory authority under the dormant commerce clause. (15) Both types of cases usually serve nationalist rather than federalist objectives.

   What happened? The conventional story of the collapse of the old constitutional order and of the business community's nationalist shift is that the economic world became more complex and interdependent. (16) The distinctions that had marked the limits of national power, such as the distinction between "commerce" and "manufacturing" and between instate and interstate commerce, no longer worked. Business came to depend on uniform, harmonizing, national legislation.

   This conventional account of the matter cannot be dismissed entirely. In particular, it is silly to deny that economic interdependence means that fewer matters of economic consequence are "completely internal" to one State, as Chief Justice Marshall famously defined the state governments' police powers. (17) Although the dilemma of sorting state police power regulation from interstate commerce regulation, in areas where those powers overlap, is at least as old as Cooley v. Board of Wardens, (18) increased economic interdependence means that the tension becomes more pronounced, in a much wider field of action. That alone explains much of the friction between state officials and business interests. State officials will understandably insist that matters affecting the State's...