Consider the efforts of the Reagan and Bush administrations in the 1980s to cut taxes and reduce the role of the federal government in providing social services. Just as the federal government reduced taxes and weakened regulatory efforts, states responded by raising their own taxes and beefing up regulatory activity. Far from reducing their own social and regulatory services as federal support dwindled, state governments became innovators in areas such as economic development, environmental regulation, and welfare reform. Because state governments retain a good deal of independence under federalism, the influence of the national government is often checked at the state and local level. The second implication is perhaps more troubling.
Federalism tends to produce biased outcomes in policy-making.
Biased outcomes result when states undertake policies that disproportionately give advantage to some sectors of the population and make other sectors disadvantaged. At the state level, industry groups and businesses are far more concentrated and effective than at the national level. Consider the dairy industry in Wisconsin. At the state capitol in Madison, there is relatively little opposition to meeting the needs of dairy farmers and businesses. At the national level, however, the dairy industry must compete against numerous other agricultural interests, as well as against environmental groups seeking to change agricultural practices harmful to the environment.