Like a good neighbor…

January 23, 2015 | By JONATHAN WOOD

In 2007, Minnesota passed a law to regulate emissions from power plants. But, because the increased costs of complying with this law would lead to more of the electricity consumed in the state to be generated elsewhere, Minnesota asserted the authority to regulate beyond its own borders. This week, PLF and the NFIB Small Business Legal Center filed an amicus brief explaining that Minnesota’s attempt to regulate its neighbors is an affront to the Constitution.

The Constitution creates a federal system, meaning that there are two levels of government: the national government, which has limited powers, and state governments, which have more powers but must compete with each other. This structural protection is one of the key securities for individual liberty. If a state adopts laws that it’s residents, taxpayers, and industries don’t like, they can flee for greener pastures. This has played out many times and, invariably, the state that loses will want to frustrate this competition. Recently, it has played out in a sharp competition between high-regulation states, like California, and economically-freer states, like Texas. In the past, it made it possible for African-Americans in the South to flee Jim Crow for a better life in the Northeast. The key is: people must be able to escape state regulations they don’t like so that the politicians who enact them are accountable to someone. If there is no means to escape, the government has no incentive to care about consequences.

The Dormant Commerce Clause – which forbids states from extending their regulatory reach beyond their borders – is a key guarantor of this competitive regime. Without this protection, states could do many mischievous things. A state with a high minimum wage could foist its wages on other states by prohibiting any goods from being sold within the state unless they were produced in compliance with it. A state with a politically-powerful union could frustrate other states’ “right to work” laws by forbidding the importation of goods produced by non-union firms. The core purpose of this clause was to dismantle barriers to trade among the states, which was a key motivation for replacing the Articles of Confederation with the Constitution.

Everyone, regardless of their political views, should be concerned about any erosion to this rule. Competitive federalism is neither conservative nor liberal. It merely ensures that government is accountable to the preferences of its residents. Minnesota’s law undermines that accountability by protecting its industry from competition from out-of-state businesses.