The Ethics of Regulatory Competition
"The political air is now filled with proposals, of which President Reagan's 'New Federalism' is only the most dramatic, to turn various activities of the federal government over, or back, to the states. Among those activities is regulation: environmental regulation in particular, but other sorts as well.
Critics of these proposals often object that the states, in order to keep or attract business, would compete with each other to offer firms the lowest tax rates or the laxest regulations. Many fear that, especially in a time of low growth and plant closings, such competition among states would set in motion a dynamic that would 'gut' environmental protection, spending to aid the poor, and so forth. They also note that after this competitive process reached a resting point, no state would actually turn out to have gained an advantage in attracting industry: all (or most) states would end up at the same level of lax regulations, large tax incentives, and low spending for the poor. The suggestion, often unarticulated, is that it would be 'unseemly' for states to compete for business in such ways, and that these environmental and social issues should be decided 'on their own merits,' not subjected to an auction among states anxious to attract new jobs."
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