The Benefits of Federalism and States' Rights

After a brief and failed experiment with the Articles of Confederation, our Nation’s Founding Fathers created a unique and ingenious system of governance called federalism. This system produced an additional checks and balance system and separation of powers between the national government and the states’ governments, while recognizing the difference in interests between the 13 states. The most important aspect of Federalism can be seen in the 10th Amendment to the Constitution, which states “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.” This is a paramount system that is more evident and important today as it was 200 years ago. It is the foundation that has allowed economic prosperity when respected, all while allowing for economic collapse when violated.

The largest benefit of federalism is that it has provided for a system of competition between the states. One state’s policies can not only affect it, but can affect another state. For example, recently, Illinois, in dealing with its budget crises, chose to raise income taxes. This negatively affects residents and small businesses of Illinois. At the same time, Wisconsin, Illinois’ neighbor to the north, has introduced a climate friendlier to businesses and individuals. The effect of this will be movement of individuals and businesses from Illinois to the north, and to surrounding states with similar legislation to Wisconsin’s. In other words, there is competition. In essence, this system allows for policy experimentation, 50 different experiments to be exact, to best suit their needs.

This further becomes essential when the states learn from each other and begin to model policies after each other. When Wisconsin’s Governor Walker signed the public employee collective bargaining bill, Indiana soon followed suit. As the benefits to Governor Walker’s bill have been realized, more states have begun to introduce similar legislation seeking similar results. We see similarities with Right to Work States. Those states, such as South Carolina, are attracting more business, allowing for job creation. If the federal government dictated these policies, it would be difficult to find the best, most efficient policy.

The benefits of this system cannot be seen if the federal government dictates a national economic policy. Essentially, what works in one state will not necessarily work in another state. What works in one region, may not necessarily work in another region. The best federal economic policy is to allow the states to determine their destination, to compete with each other for the most beneficial policies.