The Race to the Middle
55 Pages Posted: 22 Jul 2019 Last revised: 15 Oct 2019
Date Written: July 19, 2019
How does federalism affect the quality of law? It is one of the fundamental questions of our constitutional system. Scholars of federalism generally fall into one of two camps on the question. One camp argues that regulatory competition between states leads to a “race to the bottom,” in which states adopt progressively worse laws in order to pander to powerful constituencies. The other camp, conversely, argues that regulatory competition leads to a “race to the top,” incentivizing states to adopt progressively better laws in the search for more desirable outcomes for their constituencies. Despite their apparent differences, however, both the “race to the bottom” camp and the “race to the top” camp share one fundamental assumption—that federalism leads to extremes. In other words, when states compete on regulatory regimes, they inevitably race to high or low levels of regulation, hoping to outdo one another by distinguishing themselves from their peers. This Article, however, argues that both these models of federalism fail to account for another powerful dynamic that pushes states, not to distinguish themselves from the crowd, but rather to fit into it. This “race to the middle” leads states to adopt regulations that are similar, or even identical, to the regulations adopted by large numbers of other states. The resulting “race to the middle” causes state law to gravitate towards mediocre but satisfactory regulatory outcomes, not efficient or inefficient ones. The Article demonstrates how the “race to the middle” is driven by four inter-related factors: first, the informational benefits that accrue to states that adopt well-established legal regimes; second, the demand by constituents, and in particular corporations, for familiar regulatory regimes; third, the network effects from interoperable regulatory regimes; and fourth, the reduced risk of federal intervention that arises when states adopt mainstream regulatory structures. The Article concludes by assessing the implications of the “race to the middle” for theories of federalism and democratic governance.
Keywords: federalism; corporate law; regulatory competition; race to the bottom; race to the top
JEL Classification: K10, K20, K22, K31, K32
Suggested Citation: Suggested Citation