The Continuing Conflict over Standards

Business has had a lot of success setting voluntary standards that prevent regulation from Washington. States are having a harder time finding the cohesion to do the same.
by | September 21, 2011

Over the past 50 years at least, as the federal government has become a more centralizing force, the globalization of the economy and the cries of interest groups have led to waves of preemption that have supplanted state and even local regulatory policy.

But in areas ranging from insurance to sales taxation and now education, a new movement has arisen to nationalize standards not through federal action but through the collective actions of states banding together voluntarily.

To a great degree, this movement tracks what has long been the case in the business sector, where self-regulation is the most prominent form of standard setting in areas ranging from cola production to movie making. These standards not only have promoted confidence among consumers and prevented races to the bottom by businesses seeking competitive advantages, but also have helped to thwart federal regulations. Indeed, in some cases, agencies like OSHA have used these voluntary standards as the basis for federal regulations.

At the state level, one successful example of standard setting is the work of the National Association of Insurance Commissioners, which develops model law for state insurance agencies. A 1999 federal law reforming regulation of the financial-services industry directed the insurance commissioners to promulgate uniform standards for insurance sales and licensure; 39 states adopted those standards.

In the area of education, state responses to federal No Child Left Behind mandates prompted many to call for stronger common standards to prevent states from weakening criteria for student learning and testing. The states banded together with researchers to create their own standards for English and math; these "common core" standards were subscribed to by 46 states after the federal government made adoption a criterion in the competition for Race to the Top grant funds.

In other areas, however, states have had more difficulty achieving that kind of consensus. For instance, in the wake of U.S. Supreme Court rulings preempting the collection of state sales taxes on mail-order or Internet purchases, many states have banded together to adopt a more uniform sales-tax base. However, a number of key states with important shares of national markets have not adopted the model rule. The absence of state cohesion, as well as continued opposition by remote sellers such as Amazon, continue to cloud the prospects for Congress to ease preemption of states' authority to tax these sales.

The states' motor-vehicles administrators sought to adopt common driver's-license security standards to prevent drivers with poor records, and even terrorists, from gaining access to licenses. While these standards were adopted by most states, they did not gain universal agreement across all of them. But, following the September 11, 2001, attacks, federal officials proved more than willing to legislate new driver's-license standards with the enactment of the Real ID law.

This issue of standards for driver's licensing illustrates the challenges facing the system in protecting state regulation during a time of intense nationalizing pressures. The states' capacity for self-regulation is undercut by their difficulty in orchestrating consensus on standards and procedures among politically divergent jurisdictions. This lack of cohesion is among the reasons why self-regulation may not work as well among states as it does in highly concentrated business sectors, where companies share common interests and incentives to address collective problems.

Indeed, the success of states in joining together may be predicated on the federal government. It seems that only when Washington threatens preemption or adopts state-based voluntary standards as a condition of aid do the states gain sufficient momentum to overcome their own differences. This doesn't mean that state-based standards are not appropriate. But it does suggest that in matters pertaining to broad programs affecting the entire nation, it takes concerted action by all levels of government working together to solve national problems.

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