Privatization's Preemptive Effects
Many states offer their citizens protections, benefits, and services that go well beyond those of federal law, ranging from consumer protection, education, environmental preservation, and healthcare. The Trump administration and an increasingly conservative Supreme Court disapprove of many of these measures. However, rather than forthrightly use its power to pass statutes that preempt state law, the federal government, especially recently, has removed its actions from the public eye by using private corporations as stand-ins. It has assisted, incented, and delegated power to private corporations to flout and displace state laws that are—from the corporations’ view—too protective of individuals.
The federal government uses private firms to displace state law in three ways. Under the preempt and delegate approach, the federal government preempts state law, and leaves private entities to regulate the area. State regulation is displaced by private contract. Under incented preemption, the federal government provides incentives to undermine state policies and programs. For example, the administration has sought to provide subsidies to private religious schools and health entities, which undercuts state policies and programs with which the private entities compete. Finally, under delegated preemption, the federal government has sought to devolve the power to preempt certain state industry regulation to a firm in the industry. Each approach presents escalating dangers to the structure of federalism, of government, and of individual-protecting laws.
In adopting a solution, I place the vast literatures on privatization and preemption in full conversation for the first time. Federalism can be used to check and balance privatization. Just as the constitutional structure contemplates a bilateral system in which states check and balance the federal government, I propose a trilateral system, in which states have greater authority with the federal government over private entities, but the latter continue to have a voice. The federal government should give states the option of carrying out the functions of federal contractors ex ante, create forums for ongoing interaction between the entities, and give states enforcement authority ex post to address the harms of privatized preemption in a structural manner.