Balkanizing America

As fast as the Feds deregulate business, the fifty States are re-regulating it.

October 1 1990 by James H. Dowling


It is an axiom of economics that the larger and less restricted the market, the more efficient it becomes. A liquid market is good for enterprise and good for consumers. The U.S.-Canadian Free Trade Agreement has expanded the North American market. Europe is on a relentless march toward the largest single market in history. And on a more esoteric level, the current GATT negotiations are designed to create level playing fields for whole new categories of products and services on a worldwide basis. No wonder today’s marketplace is constantly referred to as “global.”

It is ironic, therefore, that the shining example of the large and efficient market-the United States-is rushing headlong in the other direction. The trend to “commercial Balkanization” threatens to divide the American marketplace into a series of micro-markets, each with its own rules and regulations that are laid down by 50 state legislatures, not the single Union. The Balkan states divided up the European remnant of the old Turkish empire, and feuding among the Slays, Serbs, Greeks, Bulgars and Albanians over the territory sparked World War I. The Balkanizing of America is a serious threat to our competitiveness, which is already under siege worldwide. It is sure to confound and confuse our trading allies as well.

The second irony of this trend is that it is an unintended dividend of the Reagan years. The Reagan Revolution was intended to fulfill the ex-President’s dream of reducing government involvement in our lives. Instead, Reagan’s decentralization policies have spurred statehouses to more legislation, more regulation and less uniform national policy than ever before.

LEAVE IT TO THE LOCALS?

As Ralph Nader put it, “When Washington is closed down by the Reaganites, you have to go to the other end of the Federalist system.” Activist organizations, well intentioned or not, took heed. They opted to achieve parts of their agenda at the state level, rather than risk losing it all in Washington. State and even local governments, with breathtaking speed, are throwing up an incredible array of barriers to the free flow of capital, goods and labor. The result is a less efficient market.

Commercial Balkanization could undo hundreds of years of progress in the other direction. The numbers are already staggering. Since 1968, the number of bills introduced in Congress has declined by more than 60 percent. Over the same period, the number of bills introduced in state legislatures has increased by more than 60 percent. Last year alone, 139,000 bills were introduced in the states. And today legislation introduced at the state level is becoming law. While the 100th Congress approved only 6.4 percent of the bills introduced (and only 2 percent of all bills considered during its last session), state legislatures enacted 21.6 percent of the bills put before them. Last year, five states enacted more than 50 percent of the bills put before them. Arkansas passed an incredible 64 percent!

State legislatures have replaced the single federal source of regulation and created a 50-headed monster for both the domestic and international business community to deal with. More than simply multiplied, -the examples show exactly how the deregulatory agenda has been supplanted: Last year Vermont banned the sale after 1992 of new cars with air conditioners using CFCs as coolant-despite a longer CFC phase-out period approved by federal regulators. Proposition 65 in California requires warning labels on thousands of foods, drugs, cosmetics and other items that could differ significantly from the uniform labeling requirements of traditional federal regulators. The result in both instances will be consumer confusion caused by duplication at the state level intended to re-regulate what has already been regulated.

In research, finance, labor regulation and advertising, the states are rapidly redoing what the federal government has only recently undone. Blunting the scientific cutting edge in biotechnology, state legislators and regulators are moving to control research, development and dissemination of new products-even before federal regulators have completed their examination of the efficacy and safety of both processes and products. Many states have proposed measures affecting corporate mergers and acquisitions-without giving serious consideration to the overall impact on the flow of capital. Seventeen states have tougher requirements than the federal government for notice of plant closings. State regulators have questioned the credibility of some advertising-raising questions about the traditional role of the Federal Trade Commission in determining advertising standards.

Perhaps the best example of confusing state initiatives is the growing array of solutions to the solid waste crisis. Several states propose that after a variety of different dates, newsprint must contain varying amounts of recycled newspaper. Viewed in isolation, a single state’s program may seem innocent, but on a national basis, the result will be chaos. Paper companies cannot simply change recycled fiber content the same way we adjust our hot and cold water taps. This is not to deny the existence of a solid waste crisis. The problem is simply that in this case and many others, a thousand points of light may create commercial darkness.

SOLUTIONS THROUGH COMMUNICATIONS

The clash of states’ rights and federalism is as old as the Constitution. Finding solutions is more difficult when the public is demanding action in many areas and when political ambition is sometimes put ahead of careful consideration of policy impact. But disagreements over solutions are mediated when communication is continually emphasized.

We all need to recognize that when it comes to most public policy questions there are no villains or heroes. There is a lot of disagreement at the margin, but there is no sense in turning disagreements over percentages of recycled fiber or the wording of advertisements into epistemological debates.

Decision making at the state level cannot be an isolated process. Companies have to explain themselves better and in a timely fashion at both the state and federal level. This means real-time monitoring of the fast-moving state legislative and regulatory process and a willingness to work with the states early in that process. A two-way street is necessary too. States themselves can do a better job of seeking uniformity and exchanging information. Existing networks such as the National Governors Association, the National Conference of State Legislatures and the National Association of Attorneys General could be empowered by their members to develop and promote more model statutes, to comment on individual state proposals and, in some cases, to actively advocate that states refrain from moving into areas where uniform federal standards are essential.

In return, the federal government may need to examine some basic regulatory structures to make sure they are designed properly. EPA administrator William Riley recently suggested that we stop looking at air pollution, water pollution and thermal pollution separately and begin developing an overall strategy for reducing pollution before it occurs. At the same time, we have to consider the impact of operations and policies of this kind throughout the business community and not solely on a single industry. Large scale initiatives of this kind may help convince states that they need not take disruptive, unilateral action. The media too needs to look more closely at the national impact of state and local proposals rather than simply viewing them in isolation. 

CAPITALISM AND FEDERALISM

The United States was not born as a single free market. Each of the 13 original colonies carried its own sets of rules, regulations and restrictions into the original union. But early on, the likes of Alexander Hamilton saw the benefits of breaking down harriers to promote commercial efficiency. And today 12 European countries are not surrendering substantial amounts of sovereignty and forming a single market for the fun of it. They are doing so because their individual and collective commercial survival is at stake.

In Hamilton‘s opinion, the lack of uniformity impeded the growth of the economy by hampering business ventures and entrepreneurs. “The want of concert, arising from the want of a general authority and from clashing and dissimilar views in the States, has hitherto frustrated every experiment, and will continue to do so as long as the same obstacles to a uniformity of measures continue to exist,” wrote Hamilton on the economics of federalism. State sovereignty has to adjust to economic efficiency. Interstate commerce was born out of economic necessity.

This is not to suggest that the states blindly give way to an all-powerful federal government. The states have the ability to provide innovative, thoughtful solutions to difficult problems. That is one of the strengths of our federal system. But the existence of a single American market remains one of the most critical commercial advantages we have. Oh, Mr. Hamilton, where are you when we need you?


James H. Dowling is president and chief executive of Burson-Marsteller, an international public relations firm.