Beggar Thy Neighbor in US States
The Individual States Race to the Bottom and Everyone Loses
The idea that different states in the United States have wildly different laws from each other is well known here. But overseas few people understand that there are very different laws. Many “foreigners” think of the United States as a monolith. I just spoke with someone who said, “Europeans thinks about the United States as New Yorkers think about Florida.” So let’s take a look at this.
Why are there different laws in different states?
The United States Constitutional Amendment 10, ratified at the founding of the country, reads “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
We look back at that amendment now and think this was a way to allow different states to try different solutions to common civil problems. There a lot of things that require different solutions in different regions. Things like: different resources, different geographic areas (from the deserts of the southwest to the swamps of the south to the icy winters in the upper mid-west), and different immigrant cultures to name a few.
The 10th Amendment was explained in the Federalist Papers #32, by Alexander Hamilton. He argued that the principal was implied even before the Amendment was accepted. The right was embedded into the original Articles of Confederation and reinforced in the Constitution. None the less, some states would not ratify the Constitution with the Amendment.
This amendment also enshrined the rights of individual states to regulate slavery. Because slavery was not outlawed in the Constitution, the states were allowed to make decisions about slavery themselves.
Since the end of slavery by the adoption of the 13th Amendment in 1865, the 10th Amendment is commonly considered to allow states to be “laboratories of democracy”. Meaning that if a single state wanted some control that effected only people in their state, they could pass it.
This has lead to some serious disparities between states:
Positive Effects
This amendment has allowed for regional or state differences in reaction to a common situation. For example, the auto speed limit is different because the states are different. Montana is a vast open country with few people. Their speed limit is 90 mph on rural interstates, versus 55 mph in many states. Similarly, the use of the death penalty is different in different states. The death penalty has been abolished by 23 states where the population does not approve of it. It is still legal in 24 states (albeit there is a moratorium in 3 other states).
The 10th Amendment allows different laws across gun safety rights, abortion, legal liability, and pollution laws among others. Over time both conservative and liberal rulings in one state have led to Federal legal changes and regulations.
Negative Effects
Forgetting how conservatives and liberals view different examples as good or bad, there are quite a few negative effects that I think most people would admit are not helpful. These are the things that I see as a race to the bottom that detrimentally effect the common good.
Outcome
The states and their elected officials tend to modify laws and regulations in new areas or where their voters want a different path. I have highlighted some of the effects of these choices below. I have chosen the ones that are “good” or “bad” with my own biases. I think a longer life expectancy and lower infant mortality are “good”. I think higher rates of gun deaths are “bad”.
Voters in many states say that state income taxes drive better infrastructure and medical care. People choose to live in these states for their quality of life. A different voter might say that living in Florida and paying no state income taxes is worth a less robust infrastructure.
Many conservative voters could see a difference between “freedom loving states” those being defined by the rights of gun ownership, access to national spaces or lack of urban zoning laws. Many progressive voters see more rights for individuals, more bodily autonomy, and better anti-pollution laws as a reason to live in “reasonable states.”
What I mean here is that Americans tend to view good and bad with respect to both the results and the tradeoffs made to achieve those results. But there is a set of problems that are introduced by the 10th amendment that effect both the states who pass laws and those that do not.
How Companies Play States off one another and Everyone Loses
Competition for businesses
Multiple states compete for business headquarters of manufacturing sites against one another. The outcome is often far worse than it would be if all states had the same rules. This is called “beggar thy neighbor” at the state level. It is an economic policy that is used to entice investment over a neighboring nation or in this case US state.
Car Manufacturing in the 1980s
Honda was the first Japanese auto firm that built cars in America. It was not based in Michigan, as American car manufacturers were. One reason is that the Ohio facility allowed them to build cars without using unionized workers.
After this, all of the foreign car makers built facilities in the “right to work” states, where a union dues cannot be required – and hence union labor is not used. These laws allowed cheaper labor, which was great for the manufactures, but terrible for the workers.
Michigan and other northern states have long had unions that protected workers (although Michigan is a “Right to Work” state now..
GE Example of Company Headquarters
GE had their headquarters in Connecticut until 2016. After that they agreed to move to Boston, Massachusetts when that state offered a bundle of incentives and infrastructure to entice GE to move. GE agreed to move to Boston, build a 12 story office and employ at least 800 workers. Two years later GE dropped their promise to less than 200 workers and they cancelled the promised tower. They agreed to give $87 Million dollars of tax incentives back. MA spent $251 dollars just in building new infrastructure for GE. This will not achieve pay-back for decades, if ever. The same project that cost Massachusetts and Boston a quarter of a billion dollars also drove down tax revenue base of Connecticut down. This lose was not just based on GE’s move, but also by the cost of losing thousands of high paying jobs and the taxes associated with the.
Foxconn Example
Foxconn was looking to build a new manufacturing plant in the country. The company was enticed to build in Wisconsin with a $3 Billion Tax incentive. Foxconn agreed to bring at least 13,000 jobs to the state. The local city, county and state went forward with the plan. Hundreds of people were evicted from homes and family farms under eminent domain. The state and federal watchdogs suspended pollution and clean water rules to allow the manufacturing in. Subsides pre-paid included $300 million in public funds to get the land and start construction. Foxconn was going to pay this back with their profits.
Ignoring if the original deal was good or bad, Foxconn ultimately bailed on the project. It left a massive warehouse, office and a call center half finished when they pulled out. They dropped their estimates for investment from $10 Billion to $672 Million, about 13% of the Foxconn guarantees. But the residents of Wisconsin are responsible now for the $300,000 they paid for land taxes, payouts to the hundreds of houses and farms that were condemned by eminent domain, and still will get a fraction of the upside that FoxConn guaranteed.
Future
The growing political distance between conservatives and progressive means that states will probably drift farther apart rather than closer with there laws. This provides companies the opportunity to continue to play states off each other.