In order to maximize economic growth, and the higher quality of life that comes with it, state policymakers should consider preempting local policy in situations where it violates generality or free exchange. The framework discussed below can help guide officials’ decisions on whether to preempt.
The first step is to start with a blank slate. State officials should explicitly approach the situation from the perspective of a blank slate to avoid status quo bias from influencing their thinking. This is important because the economy and society are constantly changing due to new entrepreneurial discoveries or shifting social preferences. Regulations are often an implicit attempt on the behalf of special interest groups to freeze the current state of the world in place, intrinsically limiting the potential for economic growth. Starting from a blank slate makes it more likely that state officials will consider solutions that are unlikely to be enacted at the local level due to the influence of local special interests.
The second step is to define the nature of the problem. State officials should explicitly identify what the local policy is trying to accomplish. Importantly, they should determine whether this goal lies within the purview of local government. If it does not, then there may be reason for the state to preempt the policy. Alternately, the problem might be better addressed by entrepreneurs because social problems often create profit opportunities for those who can solve them. Lastly, in some cases ex post solutions via the courts are a more effective and less intrusive way of addressing a situation that might or might not cause future problems.
Step three is to determine whether the policy violates generality or free exchange. State officials can use the litmus test of asking whether the policy imposes barriers to entry, affects prices via strict or implicit controls, or creates business practice mandates. However, local policies can violate these principles in other ways than these three main avenues, so state officials should be alert to any policy which appears to go outside the guardrails of generality and free exchange.
The final step is to decide to preempt or require revisions. State officials should preempt existing local policies or require them to be revised when they violate generality or free exchange. In cases where policies would inherently violate generality or free exchange, as in the case of strict price controls, state officials should proactively preempt them. For example, Mississippi precluded municipalities from implementing rent control in 1985. State officials should also consider proactive preemption when there is good historical evidence that local policy tends to violate these principles. Taxi regulations are an example of this because their history is rife with examples of regulatory capture and subsequent anticompetitive regulations.
Importantly, any regulations at the local or state level should focus on the goal to be achieved rather than mandating the method to solve the problem. This allows for innovation in compliance and encourages entrepreneurs to find better and lower cost means of satisfying the regulation, leading to greater economic growth.
Framework to guide local preemption
This is an excerpt from Local Governments Run Amok? A Guide for State Officials Considering Local Preemption by Michael D. Farren and Adam A. Milsap. It was published in Promoting Prosperity in Mississippi.