The Competitive Environment: Interstate competition is based in the reality of the open economy which the U.S. Constitution guarantees to citizens of every state. It protects the rights of individuals to move to any state and enjoy the privileges of long-time residents. It permits firms from any state to sell in every state, free from tariffs and quotas, and subject to no higher taxes nor more stringent regulations than in-state firms. It permits firms to establish new plants anywhere and to abandon a state entirely for any reason — including dissatisfaction with policies of that state. Attempts by states to shelter their markets from interstate competition are consistently overturned by federal courts as violations of the Commerce Clause of the Constitution.
Changes in technology and the nation’s economy have been increasing the impact of competitive factors on state policies and are likely to continue to do so. Reductions in the weight-to-value ratio of goods, in transportation costs and speed, and in communications cost have liberated producers from the need to be in close proximity to customers. Whole industries — beer, potato chips, dairy products, hardware vendors, and banks — have been shifting from locally based businesses to national firms. Deregulation of public utilities is reducing the ability of state and local governments to continue policies which have imposed disproportionate taxes on them.