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26 September 2022

The Fractured Superpower Federalism Is Remaking U.S. Democracy and Foreign Policy

Jenna Bednar and Mariano-Florentino Cuéllar

Amid the continuing revelations about what led to the January 6, 2021, attack on the U.S. Capitol, one aspect of the crisis has received comparatively little attention: how the effort to negate the presidential election outcome was built on the malign use of the United States’ federal system of government. Since the slates of electors that collectively certify the presidential election are chosen at the state level, the January 6 conspirators sought to appoint alternative slates of electors in several states to overturn the results. In the end, Republican state officials in Arizona, Georgia, and other states refused to undermine democracy on behalf of their partisans. But the conspiracy underscored the far-reaching importance of the states in some of the most fundamental decisions of the U.S. government, as well as how much it matters who controls those governments and what interests they serve.

Although it was an extreme case, the January 6 crisis was not the only situation in recent years in which the states have played a crucial role in setting the direction of the country as a whole. In areas as varied as access to firearms, emergency health care, immigration enforcement, cryptocurrency regulation, and the climate crisis, states have been asserting their powers to influence, and in some cases to challenge, U.S. policy. State leaders aggressively litigate to block federal policy and are active in responding to federal developments that contrast with the preferences of state electoral majorities. And some of the largest states—California, Florida, New York, and Texas collectively account for about 37 percent of U.S. GDP—are becoming more involved in foreign affairs, not only on economic and social issues but also through the soft diplomacy of values and culture. In the summer of 2022, even as the Biden administration was reeling from West Virginia’s successful litigation before the U.S. Supreme Court to limit federal regulations on greenhouse gas emissions, the president asked California Governor Gavin Newsom to join a ministerial meeting on climate with Chinese Minister of Ecology and Environment Huang Runqiu.

To many observers, such examples may seem anomalous because—according to the most common understanding of the federal system—the U.S. government is the country’s preeminent source of policy direction and bears sole responsibility for foreign affairs. Together with lawmakers in Congress, the president and senior executive branch officials are viewed as the key agenda-setters on U.S. leadership and how it is exercised in a tumultuous world. And since the rise of the United States as a global power is closely associated with the growing centralization and capacity of the federal government during the twentieth century, U.S. authority on the world stage has often been associated with a federal system in which Washington is dominant.

But this conventional understanding is both flawed and out of date. It is true that the federal government imposes a variety of constraints on the states and controls key levers of foreign policy. When it comes to policymaking capacity and on-the-ground implementation, however, states increasingly hold a decisive edge—particularly in an era of partisan gridlock in Washington. And in a world in which economic, technological, and cultural influence is often spread through subnational regions, the largest U.S. states can make policies with direct global impact.

As the federal bargain moves in the direction of state power, it will have far-reaching consequences for the United States’ global profile and the conduct of U.S. foreign policy. Harnessed in the right way, the states can enhance U.S. power, providing new and more dynamic ways to advance an international agenda at a time of federal gridlock, while strengthening U.S. democracy at home. But as the January 6 crisis illustrates, states can also be used to undermine the country’s longstanding alliances or even to subvert the democratic process. How leaders in Washington, the courts, diplomatic circles in different regions, and local and state governments approach this shift will determine whether state-level action becomes a source of resilience or a destabilizing force for Americans and the world.

The Evolving Federal Bargain

By outward appearance, the expansion of federal powers in the twentieth century has given Washington the advantage in the federal-state balance. The Civil War, after all, established the federal government’s control of the military as well as the illegality of unilateral secession by any state. And the civil rights movement cemented a broad understanding of federal power to enforce desegregation, voting rights, and school integration. Moreover, states are limited by balanced-budget requirements, as well as by their dependence on federal funds for between a quarter and a third of their budgets—giving the federal government considerable leverage in getting them to do its bidding. Congress has made liberal use of its spending powers, for example, to direct state policy on K–12 education, on the conduct of public officials through the Hatch Act, and on the expansion of Medicaid through the Affordable Care Act. Bolstered by constitutional provisions, such as the power to regulate interstate commerce and fund the military, the federal government can sometimes preempt state action.

But this account misses much of the story. For one thing, it is true that the federal government’s overall spending is slightly higher than the combined total spending of states and local governments ($4.4 trillion to $3.3 trillion, respectively, in 2019). But states dwarf the federal government in their budgetary impact on voters: setting aside military funding, service on the national debt, and entitlements, in most years states and their dependent local governments are responsible for the lion’s share of government expenditures. Together, they also employ a far larger workforce. As of 2020, state and local governments employed nearly 20 million people, whereas the federal government had only about 2.2 million civilian employees and 1.3 million active-duty military personnel. State and local administrations, not the federal government, set most of the policies that affect the day-to-day lives of their residents, including policies relating to policing, education, land use, criminal justice, emergency response, and public health. States have far more control over education policy, providing over 90 percent of funding for schools in almost every state. Moreover, the federal government depends on states to implement nearly all major federal policies, including the most costly: health insurance and welfare. As states implement federal policy, they exercise discretion, adjusting it around the margins to suit their own interests. And thanks to their sizable economies, the largest states can make decisions that have an impact beyond their own borders. All this has meant that the federal system is far more adaptable, and states far more powerful, than has generally been recognized.

Particularly striking is the extent to which states can be centers of policy innovation. They have distinct economies, and although they vary greatly in size, even the largest and most diverse states have populations whose interests and attitudes are more cohesive than those of the country at large. States also tend to be better at assembling big coalitions to support major policy action, and they do not have the kinds of procedural hindrances—the filibuster and the absence of the line-item veto—that often hamper the federal system. As a result, states have long been drivers of progress and change. As early as the nineteenth century, for example, Iowa, Massachusetts, and Pennsylvania lifted bans on interracial marriage, even as other states imposed them. Over time, however, states with bans repealed them as public support for interracial marriage grew; the Supreme Court’s landmark 1967 Loving v. Virginia decision extended the repeal to the federal level. Indeed, many of the most important federal policy changes—including ending slavery; expanding marriage rights, voting rights, and civil rights; changing health-care access, reproductive rights, and welfare coverage; reforming public education; and protecting the environment—were first tried at the state level, making states what U.S. Justice Louis Brandeis called “laboratories of democracy.”

But states do more than test new policy; they also fill in existing policy gaps when the federal government stalls. Consider the issue of immigration. Despite an economy that relies heavily on an immigrant workforce, the United States often leaves those seeking permanent status in legal limbo for years. As a result, states have filled the policy gap, with blue states such as California and New York offering access to health care and education for the undocumented, and red states such as Arizona and Texas using their own resources to increase border enforcement and internal patrols. Similarly, when the federal government failed to impose a strict national standard on auto emissions, California created its own and, because of the size of its market, was able to force automakers to manufacture cars nationwide that meet California’s standards. And in the absence of federal policy to address social media companies’ banning users because of their political viewpoints, Texas legislators enacted a law in 2021 limiting content moderation. (The law has been temporarily blocked, pending a lawsuit now making its way through the courts.)

Over the past two decades, states have also gained leverage to experiment in areas such as legalizing marijuana, despite conflicting federal law. The states are taking advantage of a federal government that has pulled back on marijuana-related enforcement unrelated to organized crime but has failed to repeal federal criminal penalties on marijuana possession and sale. And with federal action on climate change increasingly impeded—including, paradoxically, by state-led challenges, such as West Virginia v. EPA—states have new opportunities to fill the breach. Already, many states are decarbonizing their energy sources, and 21 states have set 100 percent clean energy goals. Some are enacting zoning rules that ban gas hookups in new buildings and are prohibiting new industry on the basis of greenhouse gas emissions; New York State denied construction permits to a cryptocurrency mining operation on the grounds that it was at odds with the state’s sustainability goals. In this dance of adaptation and response between Washington and the states, the federal system builds in enough flexibility for U.S. policymakers to innovate and take on major issues facing the country, even when the federal government is hobbled by polarization, legislative gridlock, and court-imposed limits.

Networks, Not Nations

Despite their growing role in domestic policy, states may appear to have little sway in foreign affairs, where nation-to-nation diplomacy and hard power reign supreme. But in many regions of the world and on a host of issues such as aviation, ocean management, climate change, and refugee resettlement, those traditional tools now compete with other forms of influence. As the scholar Anne-Marie Slaughter has argued, networks of institutions and individuals—scholars and scientists, government officials, business executives, and the leaders of social movements—have long been sharing ideas and coordinating strategies across borders. In areas of technology policy, these networks have allowed smaller countries to have global influence that far exceeds their relative size and hard power: Estonia, for example, has played a leading part in counter-disinformation strategy, and South Korea has been a pioneering force in public-private partnerships for online authentication.

In the United States, international networks have become a critical way for the country to assert its leadership on many issues. When bolstered by state governments’ power to develop policy experiments and set international standards, such cross-border exchanges can drive policy innovations—including in such areas as artificial intelligence (AI), biomedicine, block chain, and renewable energy—that are becoming more difficult to achieve at the federal level. It was in part to buttress such networks in the face of rising geopolitical competition that the U.S. government was spurred in May 2022 to create the Indo-Pacific Economic Framework—a loose arrangement to promote standard-setting, sustainable growth and broader economic connections between the United States and its allies in the region.

States with outsize stakes in energy, trade, and technology have special incentives to engage in foreign policy. In economic sectors that are underfunded or left unaddressed by Washington, larger states are seeking their own international partnerships or agreements to compensate. In 2014, California began a cap-and-trade agreement with Quebec, allowing the two regions jointly to create the largest carbon market in North America; in 2022, the Massachusetts Biotechnology Council launched a partnership with a European Union health industry trade body to promote cross-border biotechnology research. Although the U.S. Constitution prevents states from entering into formal treaty arrangements, the State Department has interpreted these constraints to apply only to agreements that are “legally binding,” leaving plenty of room for states to make international arrangements by other means.

Even in hard-power conflicts such as Russia’s invasion of Ukraine, subnational networks can play an important role. Notably, since the war began, Western corporations, responding to pressure from shareholders and the public, have left the Russian market en masse. Civil society institutions are working with Ukrainian officials and technology companies to thwart Russian disinformation efforts. And local communities are signaling their openness to receiving refugees. Of course, different U.S. states have different geopolitical interests: a more open trade policy tends to benefit oil-producing Louisiana and Texas far more than it does Michigan or North Carolina, whose populations may fear losing more jobs overseas under such a policy. Rather than leading to greater centralization of power, then, the current age of growing geopolitical conflict and accelerating technological change seems likely to push more states to become involved in national and international affairs.

A Hidden Arsenal

As states assert their interests even more actively in the coming years, they will have a variety of tools to choose from. For one thing, they can count on broad public support. Consider the impact over the past year of public discourse about such national controversies as school shootings, court decisions, business and environmental regulation, and natural disasters. Polling data suggest that the failure of the federal government to address these and other issues has alienated significant parts of the electorate. Gallup reports that 39 percent of Americans trust the federal government to handle domestic problems, down from the historical average of 53 percent. At the same time, more than half of Americans continue to have confidence in their state governments and two-thirds express trust in their local governments. Civil society and state leaders may therefore be emboldened to reject or refuse to comply with unpopular federal laws.

During the implementation of the U.S.A. Patriot Act following the September 11, 2001, attacks, for example, people began to question the act’s loose definition of “domestic terrorism” and its provisions for information sharing, and they expressed concern that protest and civil disobedience would be classified as terrorist acts, dampening citizens’ First Amendment rights. Five states—Alaska, Colorado, Hawaii, Montana, and Vermont—passed resolutions questioning the act’s constitutionality and limiting its application. In the last decade, with respect to immigration policy, 11 states and hundreds of cities and counties have declared themselves to be “sanctuaries” for undocumented people, meaning that they will not comply with U.S. Immigration and Customs Enforcement requests to extend detention and will otherwise separate their law enforcement from federal deportation activities. And in response to the Supreme Court’s overruling of Roe v. Wade in June 2022—which occurred despite recent polling by Gallup showing that a clear majority of Americans (55 percent) identify as pro-choice—nearly 100 elected prosecutors, including several state attorneys general, have pledged that they will not enforce abortion bans.

In fact, West Virginia v. EPA is only one of the most recent cases in which a state has successfully challenged a major federal policy. In 2007, Massachusetts successfully litigated a case forcing the EPA to plan regulatory measures addressing climate change. During the Obama administration, Texas challenged an executive action that protected certain undocumented immigrants from deportation. California challenged the Trump administration’s move to reduce the state’s flexibility to set vehicle emission standards. Under extreme circumstances, civil society leaders, candidates for local and state office, and state officeholders could support changes in state laws to limit cooperation between state and federal revenue authorities or even encourage companies and individuals not to comply with federal tax or regulatory mandates. They could draw on anti-commandeering doctrines enshrined in Supreme Court jurisprudence, establishing that the federal government cannot coerce states or state officials to adopt or enforce federal laws. With such a range of tools, states are well positioned to take advantage of the federal government’s inability to act. As narrow majorities and growing polarization have made the federal government less functional, many states have become more politically homogeneous, with a single party now controlling both the legis

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