Shifts in the Institutional Firmament

As late as the 1960s, our federal system was undergirded by systemic political factors as well as social and economic forces that placed limits on the role of the federal government, reflected in a general forbearance and restraint that federal officials demonstrated in policy formulation. The position of state and local governments in the federal system was protected by the party system itself. As late as 1960, Morton Grodzins noted that the party system was decentralized, with its power base concentrated at the state and local level. National office holders, whether they be presidents or congressmen, owed their nominations and political allegiances to state and local party leaders, embedding a sensitivity to the prerogatives of state and local officials in fundamental political incentives. Federalism was an important line of cleavage between the parties, with the Republican party dedicated to preserving states' authority and constraining the growth of federal power. The interest group system served as a bulwark of federalism as well —business was the preeminent interest in our system and their interests were viewed as being better protected by states than by the federal government. In fact, national policymakers did observe forbearance and restraint on federalism issues prior to the 1960s. Daniel Elazar (1991) wrote that before the 1960s, Congress generally protected states in federal legislation. Even as the federal role expanded over the economy in such landmark statutes as the Fair Labor Standards Act, the Social Security Act and Title VII of the Civil Rights Act of 1964, state and local governments were exempted. Indeed, federalism was accepted as one of the primary “rules of the game.”

Many of these forces have shifted dramatically, leading to the unraveling of the constraints that bolstered the position of states in the system. The nationalization of policy has its roots in deeply seated trends in national politics and governance that show no signs of reversal (Posner 1998B). Since Grodzins' time, our party system has fundamentally changed as candidates for national office have been forced to assemble their own coalitions to compete for nominations and elections. Interest groups and media have eclipsed state and local parties as gatekeepers of candidate recruitment and legitimation; national elected officials have converted from being ambassadors of state and local party leaders to independent political entrepreneurs anxious to establish their own visible policy profiles to appeal to a diverse coalition of interest groups, media, and an increasingly independent base of voters. Far from allies, the relationship between congressional officials and state and local elected colleagues from their districts resembles more of a competition among independent political entrepreneurs for money, visibility, and votes.

These trends toward congressional and presidential policy activism span partisan boundaries, obscuring differences on federal role questions that used to define our party system. The Congressional Quarterly discontinued its Federal Role Index as one of its measures of congressional voting behavior in 1969 as the gap between the parties withered on this dimension.

These nationalizing trends were echoed and bolstered by other trends in our political system and the broader economy. The growth of national media institutions focused on Washington created a powerful resource for those groups wishing to nationalize problems and issues, and reporting increasingly sought to find national dimensions or applications for state and local problems or solutions. The advent of lobbies representing broad, diffuse interests, the so-called public interest groups, has fueled national policy advocacy as many of these groups have settled in Washington rather than the states.

Perhaps the most important development in the interest group sector was the pronounced, but little noticed, shift of business groups from allies of the states to advocates of national regulation by federal agencies. This trend underscores the impact of the nationalization and globalization of the economy on our federal system. As corporations increasingly operate in a global environment, coping with 50 separate state regulatory regimes is seen as a hindrance to economic efficiency and competitiveness. This trend is reinforced by trade agreements which have been interpreted by the courts and international bodies as having preemptive effects on state and local laws. The European Union has identified state product labeling and recycled content laws as trade barriers, and foreign investors have challenged state fuel additive and other standards as violating trade agreements. Even the National Governors Association has come to recognize the powerful centralizing forces that globalized economies create by noting: “The patchwork quilts of state laws, regulations, and tax systems cannot effectively address the dynamics of a new economic order shaped by deregulation and economic transformation” (2000).

The states played ambivalent and unexpected roles in this centralizing process. Three models can be useful to understand how states contributed to these trends. Fundamentally, one might expect that states' position in the system might be bolstered by the maturation of their own policy leadership and capacity over the past 40 years, a process we might call the “forbearance model” of policy development. However, the nationalization of policy occurred precisely during the period when states became capable of playing more sophisticated roles in our system. For example, state political systems became more open and diverse as a wider range of interest groups gained access to state processes and officials (Thomas and Hrebenar 1996). Such changes have stimulated a period of state-led policy activism and innovation across a wide range of policy issues.

Ironically, in the contemporary environment of nationalized economic, social, cultural, and political forces, the very innovations that states pioneered have helped fuel the nationalization of policy. In a process more aptly described as the “feedback model” of policy development, state innovations and differences are no longer cause for celebration, but rather for alarm and further federal action from advocates who want to expand state initiated policies to the nation as a whole and from business and others who are opposed to these policies. In either case, mandates and preemptions are tools used to either expand or override these policies. Baumgartner and Jones (1993) describe these policy dynamics as “venue shopping,” which they argue can promote greater policy activism at all levels as advocates and opponents opportunistically find that level of government most hospitable to their position.

Finally, one might expect states to forcefully argue for their views as powerful interest groups represented in Washington. However, state leaders are often neutralized and even champion particular mandates and preemptions—a process we might describe under the rubric of the “collective action model.” First, state and local groups are often disarmed by their lack of political cohesion on key policy issues; lacking agreement they are often unable to articulate positions in national debates (Haider 1974). Second, as political leaders, they are often swept away by the compelling political appeal of major federal mandates and preemptions, whether they be elections reform, education standards, or homeland security requirements. Third, state leaders have come to endorse certain preemptions and mandates to address collective action problems stemming from intergovernmental competition that can undermine states' incentives to assume policy leadership in key areas. Competition can drive policy down to the lowest common denominator by putting leading states at a competitive disadvantage. Indeed, governors and other state leaders have become supporters of mandates in such areas as environmental protection, highway safety and even health care for low income families to put a floor under competition from other states that can undermine their policy initiatives. Progressive or advanced states have incentives to champion federal mandates that place a floor on standards as well as partial preemptions that enable advanced states to exceed federal minimum standards. However, these same advanced states may oppose federal preemptions that define standards down to levels below their own with no state flexibility to exceed these levels—what is called here total preemption.

Bringing the States Back In

As the foregoing suggests, states and our federal system face unprecedented challenges. A globalized economy, an increasingly, nationalized media culture, and a more centralized political system all portend the eclipse of federalism as a guiding principle in responding to the wide range of issues and problems on the national policy agenda. Whether it be regulation of the private sector in such areas as energy, telecommunications, or securities or the regulation of such public services as education and elections, nationalized problem definitions will place states increasingly on the defensive in asserting their traditional regulatory prerogatives. What has emerged is an opportunistic federalism where the federal role is defined with little regard to traditional notions of propriety or appropriateness.

Confronted with what appears to be an inexorable dynamic of continuing policy centralization through preemptive tools, what strategies can states adopt? First, while federalism may no longer inform the decision about whether the federal government takes on a new responsibility, federalism values and interests do inform the decision about how these new programs are designed and implemented. Simply put, the policy ambition of the federal government far exceeds its administrative, legal, fiscal, and political capacity to implement federal programs, mandates, and preemptions. Accordingly, states and local governments, as well as a wide range of nonprofit and private corporations, are bought in as third parties to carry out federal initiatives through a host of governmental tools, including grants and loans in addition to regulatory tools (Salamon 2002). The states bring such resources as staff, expertise, legal authority, fiscal capacity, and the potential to provide political legitimacy to federal regulatory programs. For instance, in the area of motor vehicle administration alone, federal preemptions have included establishing clean air monitoring requirements as a condition for car registrations, commercial motor vehicle licensure, and new security requirements for the driver's permit. However, the federal government had neither the budgetary resources, expertise, legal presence, nor legitimacy to totally preempt the states by taking over this entire function of government. This same pattern is repeated in countless areas, whether it be election reform standards, education goals, or homeland security preparedness.

Zimmerman (2005) underscored the prevalence of significant state roles in preemption implementation through his description of the use of partial and contingent mechanisms featuring state actions and participation. Similarly, a recent U.S. Government Accountability Office (2002) study found that states often have significant roles in the implementation of preemptions—through the enforcement of federal fixed standards, through policies exceeding federal minimum standards in partial preemptions, and even in cooperative standard setting through national associations of state officials in certain programs such as food safety. While perhaps falling short of the cooperative partnerships observed for federal grants, these substantial state roles nonetheless promote a degree of decentralization thanks to the critical role played by states in implementing, and in some cases promulgating, national standards. Studies of federal intergovernmental programs long have observed that the relationships between the federal government and the states can be best characterized as a bargaining, rather than a hierarchical, process (Ingram 1977). In fact, both sides have leverage and resources prized by the other. The federal government has standards and the legal authority to enforce them, as well as federal grants to help states fund implementation costs. The states, on the other hand, can opt out of participation, leaving federal officials with the responsibility for enforcement with limited staff and appropriations. Although nonparticipation is not a viable strategy for larger grants, it is for partial preemption programs where many states have decided to vacate the field to the federal agency. Even when states do participate, it is often very difficult for federal agencies to impose real sanctions such as withdrawing federal funds, as this would leave the federal government with no program in those states or with the total responsibility for assuming enforcement (Posner 1998B).

While the states gain a role by participating in the enforcement of federal regulatory policies, they have lost the ability to frame the agenda in these areas. One potential approach to recapture the policy initiative and high ground for states may lie in the strategy of self-regulation used by the private sector. When confronted by the threat of federal regulations, business interests have often resorted to self-regulation to head off federal regulatory programs. For example, Bardach and Kagan (1982, 221) report that soft drink bottle manufacturers adopted voluntary safety standards which succeeded in deterring federal regulation of the industry; indeed, the Consumer Product Safety Commission mentioned the industry's voluntary efforts as a reason to back off its proposed regulations. In fact, they note that much of the regulation in place today is in the hands not of government, but of business officials.

Can the state and local sector emulate the business community and adopt voluntary collective standards to address national or global pressures on their own and thereby deflect federal preemptions and mandates? One successful example is the National Association of Insurance Commissioners, which develops model law for state insurance agencies. The Gramm-Leach-Bliley Act of 1999 reforming federal regulation of the financial services industry directed this organization to promulgate uniform standards for insurance sales and licensure; if a majority of states did not adopt this code, the federal government would establish a new national instrumentality to provide for uniform insurance laws. Faced with this pressure, 39 states adopted the standards.

Faced with the threat of federal preemption, states are working toward self regulatory strategies in other sectors, but the prospects are not as clear or encouraging. For instance, the terrorist attacks on September 11, 2001, highlighted the important role played by driver's licenses as a de facto national identification card—the illegal possession of licenses allegedly permitted the terrorists to gain access to the U.S. air transportation system. States were challenged by this national tragedy to prevent issuance of licenses to national security risks—a challenge that involves both enactment of new screening requirements in each state as well as cooperation among states in sharing data and tracking potential problem cases. The failure of even one state to cooperate in sharing information and promoting secure identification procedures can undermine national protection by providing havens for evaders of enforcement regimes. Indeed, the association of state motor vehicle administrators has adopted a voluntary national code and model legislation to promote secure driver's licenses. However, since it has had trouble gaining universal state participation, this group of state officials advocated federal legislation with incentives and sanctions to force recalcitrant states to adopt uniform procedures that they have failed to voluntarily enact. Congress responded by enacting a far stronger program of federal standards and controls than the states recommended—the legislation prevents federal agencies, including airports, from accepting driver's licenses unless the issuing states incorporate federally defined features to prevent counterfeiting and tampering and share information across states. The House passed legislation in early 2005 that would go further by prohibiting the issuance of licenses to illegal aliens, responding to strong national interests clamoring for more stringent national immigration and border protection policies.

These same tensions among the states and between states and national interests have been manifest in other areas as well. For instance, states sales taxes have been under scrutiny due to the growth of remote sales through mail order catalogs and the Internet. The U.S. Supreme Court has ruled that states cannot collect sales taxes unless companies have a physical presence in the state—a nexus frequently absent for mail order sale—but has opened the door for Congress to provide this authority. Congress, starting in 1998, has preempted the states' ability to tax access to the Internet as well at the behest of businesses benefiting from electronic sales. Hoping to regain their foothold in the area, states have developed various intergovernmental self regulatory mechanisms to promote greater uniformity in the base and rates for sales taxes, thereby hoping to gain support from the business community and Congress to approve states' ability to tax remote sales. The states first organized the Multistate Tax Commission in 1967 to protect states' sovereignty in this area and recently established the Streamlined Sales Tax System (2003) to harmonize rates and base definitions across and within states. So far, over 30 states have adopted the agreement and over 20 have changed their laws to conform to the model legislation. However, a number of key states with important shares of national markets have not adopted the model rule. The absence of state cohesion, as well as continued opposition by remote sellers in the business community, will cloud the prospects for Congress to ease the Court's and their own preemption of states' authority to tax remote sales.

This issue illustrates the challenges facing the system in protecting state regulation during a time of intense nationalizing pressures. The states' capacity for self-regulation is undercut by their difficulty in orchestrating consensus on standards and procedures among politically divergent states. This lack of cohesion is among the reasons why self-regulation may not work as well among states as it does in highly concentrated business sectors where firms share a common interest and incentives to address collective action problems (Olson 1965).

However, the important political asset of cohesion has a decidedly mixed impact on the relative balance of power between the federal government and the states. While states as a collective group are weakened by political dissensus, so too is the federal government. At least until very recently, the capacity of the federal government to launch bold new policy initiatives was undermined by the lack of cohesion and gridlock between the president and a Congress controlled by different political parties. While the advent of a more “unified government” in Washington in the past several years offers the potential for more aggressive national policy activism, the ability of the myriad interests represented in national policy communities to reach sufficient agreement to overcome the natural hurdles to act in the Congress, particularly the Senate, might give some comfort to champions of the states. As states have taken the initiative in areas where national leaders refuse to tread, such as global warming and stem cell research, the greater internal political cohesion within individual states has enabled these states to assert policy leadership and play the time-honored role as an outlet for aggrieved interests and a laboratory for policy change. In fact, Richard Nathan (1991, 231–262) argues for a cyclical theory of policy change, where states emerge as de facto policy champions for those interests and ideas discouraged by Washington during particular political epochs.

These state-led innovations suggest that the political cohesion that eludes states operating as collective interest groups on the national scene in fact helps fortify the role of individual states as policy innovators and catalysts. Notwithstanding the growth of state and local interest groups in Washington, the greater cohesion of individual states compared with the federal government remains their most important political asset and a continuing source of vitality in our federal system.