The journal of the New Rules Project - Fall 1999

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The New Rules- Fall 1999
Volume 1, Issue 4

Table of Contents

Features

Deep Pockets or Open Hands: Credit Unions Struggle Over Size
The credit union on your block is supposed to serve "people of small means." In today's economy can they do that better by staying small or by getting as big as...a bank? By Stacy Mitchell

Hogging the Market
Giant industrial hog producers have practically wiped out the family-owned hog farm, poisoning the land and weakening rural economies in the process. Dramatic shifts in agricultural policies are needed to rescue the independent farmer. By David Morris

Got (Local) Milk?
A few years ago, New England tried to save their local dairy farms with a regional pricing structure called a dairy compact. Now Congress has nixed the compact's renewal, blunting one of the small dairy farmer's only tools for surviving. By Stacy Mitchell

A Case of the Good Stuff
Small wineries have cleared themselves a space on the shelf, making them an unusual case in this era of consolidation. Now their alternative methods of distribution are threatened.

Departments

editor's note
Federalism asks the question "Who should have the power to make the rules?" and assumes the only contenders are Washington D.C., and the states. But why frame the question so narrowly?

place rules
Ohioans allow local control of power. Congress considers net-metering standards. Troy vetoes GM tax breaks. France fights unfair produce prices. Small Roquefort town imposes Coca-Cola tax. South Dakota's Amendment E bans corporate ownership of livestock.

[editor's note]

Devolution as if community matters

"Preserving our federal system...ensures that essential choices can be made by a government more proximate to the people than the vast apparatus of federal power."
--Supreme Court Justice Anthony Kennedy

In May 1998, President Clinton issued Executive Order 13083 on federalism. Its centralizing language generated such a firestorm of opposition from conservatives and state and local elected officials that the House of Representatives voted 417-2 to reject it. On August 5, 1998, the President "suspended" the order and went back to the drawing board.

Exactly a year later, the President issued a second executive order (13132). This one tilted in the opposite direction, forbidding federal agencies from preempting state law unless the Congressional bill contains an overt intention to do. In determining whether to establish uniform national standards, the President orders federal agencies to "defer to the States to establish standards."

Two days before Executive Order 13132 was issued, the Senate Governmental Affairs Committee voted 12-2 in favor of the Federalism Accountability Act of 1999, the contents of which are far more restrictive of federal actions than the President's, and, unlike the contents of an executive order, would be enforceable in the courts. This time the firestorm of opposition came from an unlikely coalition of centralists: 300 environmental, labor, consumer and business organizations. In late September they succeeded in derailing a companion federalism bill in the House (HR 2245).

"Who should have the power to make the rules?" is rapidly becoming a central question in American politics. Much of the discussion revolves around the relationship between Washington and the states. But why frame the question so narrowly? Brooklynites probably find Albany (New York's state capital) as remote and unresponsive as Washington. ILSR's position, outlined in the first issue of this magazine (see "Debate: The Devil in Devolution," Groundwork, Vol. 1, Issue 1, Summer 1998), is that whenever possible authority should be pushed down to the lowest possible level. Higher levels of government (and the courts) have the ultimate responsibility to protect minorities from the tyranny of the majority, especially with respect to civil liberties and rights. When higher levels of government do act, they should create minimum (not maximum) standards, allowing communities to craft superior standards at their discretion.

The articles in this issue of The New Rules reflect how the debate about devolution and preemption now pervades virtually every sector and every product we buy. My article on hogs, for example, explains that stripping communities of their authority was an essential first step in establishing giant industrial hog farms. Unable to regulate these enterprises and deprived of their right to sue over damages caused by the massive manure lagoons, communities were rendered helpless in the face of an invasion that threatened both their livelihoods and their health. As a result, the hog sector has been transformed from one populated by hundreds of thousands of family farmers to one controlled by a few dozen industrial hog facilities.

While states undermined the ability of local governments to protect family hog farmers and their communities, Congress was giving states more authority to protect their family dairy farmers. As part of the 1996 Farm Act, Congress allowed the New England states to collectively do what the Constitution bars them from doing individually: form a dairy compact that sets minimum farm prices for milk sold within the region. The compact expired in October and, as we went to press, Congress seemed unlikely to renew it. Yet as Stacy Mitchell reports, our short experiment with creating a tiny "dairy nation-within-the-nation" has much to recommend it.

Family hog farmers and family dairy farmers are dwindling in numbers, but the ranks of family wineries are swelling. Shut out of many markets by the increasing concentration of wholesalers, small wineries have begun to use the internet to sell directly to customers. This has raised federalism issues. Because of the historical controversies regarding the role of liquor in America, when Prohibition was repealed in 1933 states were allowed to continue to regulate and even ban the sale of liquor, even when their actions interfere with interstate commerce. That is why we still have "dry" counties and states where liquor can only be sold through government outlets. But although states can prohibit the sale of liquor, in the age of the internet they cannot reach into another state to penalize the seller. Today, as Simona Fuma Shapiro reports, Congress is deciding whether to give states the right to sue in federal court for "injunctive relief" to stop out-of-state sellers.

Electronic commerce itself has become another battleground in the federalism wars. To effect competition, the federal Telecommunications Act of 1996 banned local and state laws that "have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunication service." In several rulings regarding this provision, the Federal Communications Commission (FCC) seems to have come down on the side of eliminating local authority. When a Kansas town prohibited a private company from providing what the town thought were duplicative local phone services that would inevitably raise rates, the FCC warned it was violating the law. But when Texas eliminated the right of its cities to own telecommunications lines, even when those same cities owned roads and electric distribution lines, the FCC refused to intervene.

The FCC has also intervened on behalf of the centralists in a dispute between Portland, Oregon, and AT&T. As a condition for allowing AT&T to provide high-speed internet service through its newly acquired cable subsidiary, TCI, Portland required the telecommunications giant to allow customers to choose any internet service provider without having to pay a premium to AT&T own internet provider, @home. After a lower court upheld the city's authority to demand "open access," FCC Chairman William Kennard received a standing ovation from the National Cable Association members when he urged local governments to keep their hands off cable companies' internet services and invited opponents to formally request that the FCC strip Portland and other cities of their power. (Miles Fidelman, president of the Center for Civic Networking and director of the Center's Municipal Telecommunications Strategy Program, will examine the importance of local authority in the next issue of The New Rules.)

The debate over federalism is a debate about the locus of decisionmaking. As such it should not be restricted only to units of government. Consider the credit union, a financial institution owned by its depositors--one depositor, one vote. Recent changes to federal statute and regulatory rules have allowed--even encouraged--credit unions to expand. As Stacy Mitchell reports, the changes have sparked a debate within credit unions about the relationship of scale and geography to democracy and effectiveness. Some believe growth will enable credit unions to reach more people and remain competitive in an increasingly complex market. Others question the effect of this expansion on the community bonds once critical to the mission of these cooperative institutions.

In Washington, the debate about federalism often seems abstract. Indeed, even the cognoscenti get confused. On September 6, 1999, the New York Times issued the following correction. "A headline yesterday about efforts in Congress to shift political power to the states referred incorrectly to the movement to limit Congress' ability to impose laws on the states. It is known as Federalism, not anti-Federalism." But in our communities labels are far less important than content. For it is there that remote decisionmakers affect our personal lives. In order to sort out the needs and rights that must be balanced, we need to keep in mind Justice Kennedy's caution that proximity should be accorded a high value. As the articles in this issue reveal, the most important question of all might be, "How can we embrace a devolution as if community matters?"
-- David Morris

David Morris
Vice President, Institute for Local Self-Reliance
© 1999 Institute for Local Self-Reliance

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