A New Threat

The unsettling trend of states’ increasing grip on interstate commerce

BY NEIL BRADLEY

TWO-HUNDRED and thirty-six years ago, when Delaware became the First State, a principal concern was the potential for economic conflict between the 13 states of the new union: states erecting tariffs or regulatory barriers to protect their businesses from the competition of businesses located in other states. In response, our Founders granted Congress the authority to regulate interstate commerce and prohibited the states from engaging in certain economically discriminatory practices.

Embracing the diverse natural advantages and industrial specialties across our growing nation, we achieved economic growth and prosperity that would have been impossible for each state to achieve on its own. The Constitutional mandate for states to give “full faith and credit” to each other’s acts made it possible for Delaware to become the home of incorporation to companies physically headquartered across the country. Delaware’s expertise in business law and adjudicating business disputes has not only benefited Delaware but the nation.

It is even more imperative that state governments leave business decisions to businesses, resist the temptation to start micromanaging businesses, and especially stop trying to regulate the conduct of businesses in other states.

Today, interstate commerce faces a profound new threat: the growing desire of individual states to micromanage the conduct of businesses both within their state boundaries and beyond.

A divided Supreme Court recently green-lighted California’s effort to regulate the conditions in which pigs are raised for pork products sold within their state. Since California consumes a lot of pork but has few hog farms, the natural result is California regulating the business operations of farms in other states. It seems like only a matter of time before another state retaliates against California by, say, regulating how the pinot noir sold in their state is produced.

This is already occurring when it comes to financial services. A few liberal-leaning states decided that if you are a financial services firm and you want to do business with the state, then effectively, your firm cannot do any business with any fossil fuel companies or firearm manufacturers. A few conservative-leaning states responded by declaring that if you are a financial services firm and you want to do business with their state, then you must have in place a policy that doesn’t preclude doing business with fossil fuel companies or firearm manufacturers.

While regulating the operations of energy companies or firearm manufacturers within their states would be well within their rights, these states are telling third-party companies whom they are prohibited from doing business with and whom they are required to do business with. Unable to comply with both mandates, firms must choose one or the other.

You can see where this can quickly lead—dividing the nation between blue-state and red-state banks, blue and red accounting firms, blue and red retailers, etc. Not only does our country become even more politically divided, but we end up poorer as we make it increasingly harder for businesses to operate across state lines or to be legally organized in one state but operate in another.

While these new efforts by states to micromanage business conduct beyond their borders certainly violate the spirit that drove our Constitution, it is not clear that they violate the letter of the law.

This means that it is even more imperative that state governments leave business decisions to businesses, resist the temptation to start micromanaging businesses, and especially stop trying to regulate the conduct of businesses in other states.

Expecting elected officials to exercise restraint may seem like wishful thinking, but it is squarely in line with public opinion. Polling done for the U.S. Chamber of Commerce demonstrates that when voters are given a choice between a politician who wants to micromanage business from the left, one who wants to micromanage from the right, or one who says “whether it comes from the right or the left, government micromanaging of business is a bad idea; and we should let consumers and the market punish or reward companies for their decisions, and keep government out of it,” more voters choose the third candidate.

Just as our Founders vigilantly safeguarded against economic warfare between states, we must now stand guard against excessive government intrusion that could splinter our nation, impede innovation, hinder economic growth, and stifle job creation. Our next two hundred- and thirty-six-years depend on it.

Neil Bradley is executive vice president, chief policy officer, and head of strategic advocacy at the U.S. Chamber of Commerce.