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Globalization's effect on states

Twenty years after he attended his first meeting of the National Governors' Association as the freshman governor of Arkansas _ and the youngest in the nation _ President Clinton came back here Sunday to meet again with his former colleagues in the NGA. He talked about the "partnership" he had promised to forge in 1993 and said that, at least from the White House vantage point, "it has worked."

Rhetoric and partisanship aside, most governors agree. And clearly from the perspective of two decades, the balance of power and responsibility between the states and the federal government is far removed from where it was in the 1970s _ and a lot closer to what the authors of the Constitution had in mind.

From the New Deal to the start of the Reagan administration in 1981, the flow of dollars and power was heavily toward Washington. Since then it has slowed, and in some respects, reversed. The Supreme Court has played a major role.

But having former governors in the White House for all but four of the last 20 years also has had an impact. Jimmy Carter, Ronald Reagan and Clinton all had observed firsthand the growth in fiscal capacity and organizational talent in the states and, more important, had experienced their own frustrations in dealing with federal bureaucrats.

Slowly at first, and then at an accelerating pace since Republicans took control of Congress in 1994, the states' role in vital areas of government has been increased.

The numbers tell the story. Peter Harkness, editor of Governing magazine, said here that, putting aside Social Security and Medicare, state and local governments now outspend Washington. Only 13 percent of public employees are on the federal payroll, he said. And every public opinion poll shows greater trust in local and state government than in Washington.

With most states enjoying prosperity _ Hawaii being the most notable exception, because of its dependence on the Japanese economy _ it seems to be a golden age.

But there is a real question how long it may last. Prudent governors of both parties have insulated their states against a recession by building up their rainy-day funds to record levels. What they cannot do is turn back the process of globalization that is remaking the economic world _ and inevitably will reshape the political world as well.

No one understands this process _ and both its promise and peril for the states _ better than Utah Gov. Michael O. Leavitt, who became chairman of the NGA this week. For years, he has been preaching to his fellow governors that the communications and technology revolution that facilitates the flow of capital, information and jobs across old national boundaries will force a redefinition of the role of states.

The issue already has arisen in connection with the taxation of Internet commerce. States now derive about two-fifths of their revenue from the sales tax, but as more and more goods and services are offered on the Internet, the collection of those taxes has become more and more problematical.

Leavitt clearly sees a serious threat to the single greatest state revenue source.

At the same time, he recognizes that multinational businesses have a legitimate need for simplicity. The more complex the tax systems they face, the greater the friction and loss of efficiency.

What Leavitt grasps is that the same economic force that has required the nations of Europe to surrender some of their sovereignty to the European Union will be applied domestically to the 50 states.

How the devolution forces in our political and judicial systems confront the economic pressures of globalization will challenge political leaders for at least the next 20 years.

David Broder is a Washington Post columnist.

Washington Post Writers Group