Rethinking Federalism

Federal preemption of state law is a huge topic, with battles ongoing over the wisdom of preemption at the Federal Communications Commission and in the Fair Credit Reporting Act. This analysis reviews and assesses the case for preemption generally and examines the case of the FCRA and in the FCC’s Triennial Review proceeding in more detail.

The various arguments are explored through a fictional dialogue between Ms. Scellfone, a representative of Estuff Corporation, and Dr. Freeman Tweedy, an economist. Ms. Scellfone argues that business support for preemption in finance and telecommunications is not merely a short-term strategy of the businesss community, but that it reflects a longterm need of markets for reasonably certain, uniform law. Dr. Freedom notes out that enlarging federal power is a road to uniformity fraught with peril, but agrees that state

action in finance and telecommunications make increasingly little sense, to say nothing of Internet commerce.

The analysis concludes:

• Uniformity over a fairly large scale is a very desirable feature of healthy commercial law systems; preemption is one legitimate road to this goal, but not the only road.

• Clear choice of law rules that minimize legal overlap (like an origin-based choice of law rule for web sites) can reduce the need for uniformity and scale, but not eliminate it.

• Competition between different states and nations does increase the quality of some laws and regulations, but it is no guarantee, and it is worth exploring other accountability mechanisms.

• FCRA preemption should be continued by legislation.

• State involvement in telecommunications and electronic commerce should decrease, through legislation and court action. The FCC’s decision to hand the states authority over telecommunications networks was a grave error.

Faced with the evolution of the federal system in response to the changing scale of the economy, we can only go forward, though, to paraphrase Frodo Baggins, we do not see the way.