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Be careful what you wish for. For years, conservatives in Washington preached the gospel of states' rights. But they didn't quite imagine that 50 separate states and their attorneys general would become a significant part of the 21st century business landscape. Today, New York State Attorney General Eliot Spitzer is leading the campaign against corrupt Wall Street stock analysts, as Securities & Exchange Commission Chairman Harvey L. Pitt huffs and puffs to catch up. Missouri State Attorney General Jay Nixon, in the name of competition, is leading a coalition of 30 AGs against the merger of satellite TV giants Hughes Electronics Corp. and EchoStar Communications Corp. Nine AGs are pressing their own antitrust case against Microsoft Corp. And then there is California limiting auto emissions of carbon dioxide, Georgia and North Carolina curbing "predatory lending," and Maine capping drug price hikes. This is quite a bottom-up movement with a decidedly anti-Big Business tone to it.
The danger, of course, is that having the states make their own regulatory policy risks balkanizing the large U.S. market and hurting economic growth. As European countries integrate their many economies into one, America may well be on its way toward disaggregating its huge market into many. That would be terrible mistake.
But a greater danger may lie in business ignoring the populist message. If states and their AGs can be said to speak for their local constituents, then people are saying that they want greater honesty from Wall Street, cleaner air, real competition in cable- and satellite-TV markets, and some control over health care and drug prices.
The failure of federal regulators to check Enron Corp.'s apparent manipulation of California's energy market and the SEC's hesitancy to crack down on auditors and analysts only makes federal regulatory efforts look all the more lame. Both the business community and the SEC would do well to catch up to popular sentiment, if only to preserve a unitary economic market. Federalism could be very costly to business.