Business and the U.S. Constitution

The parameters established by the U.S. Constitution affect business and commerce through federalism, judicial inter­pretation, and politics. Federalism is the relationship (divi­sion) of powers between the national government and state governments and, along with separation of powers and checks and balances, forms the foundation of the Con­stitution. Judicial interpretation resolves conflicting con­stitutional issues between national and state authority over business, namely through the COMMERCE CLAUSE (Article 1, Section 8), which gives Congress the power to regulate commerce among states. The policies of Franklin Delano Roosevelt’s New Deal in the 1930s and of Lyndon B. John­son’s Great Society in the 1960s are examples of extending national authority over business and commerce. Former Presidents Richard M. Nixon (1969–73) and George H. W. Bush (1989–93) supported transferring power from the national government back to state authority through the appointment of Supreme Court justices committed to lim­iting national power.

Although the theories of federalism provide a means of ensuring a federal system of government, politics ulti­mately determine the division of power between the national government and state governments. The two fun­damental models of federalism are dual federalism and cooperative federalism. Dual federalism holds that the powers of the national government are fixed and limited and that all rights not explicitly conferred to the national government are reserved to the states. This model was appropriate for American society (business and com­merce) from 1789 to 1933. The GREAT DEPRESSION, however, required a more cooperative relationship between the states and the national government in dealing with the social and economic deprivation of that era.

Cooperative federalism theory states that there is no discernment between state and national powers; their functions and responsibilities are intermingled. This model relies on the elastic clause of Article 1, Section 8 that gives Congress the power to “make laws which are necessary and proper for carrying into Execution the fore­going powers” and confines the Tenth Amendment to spe­cific limitations not given to the national government. Cooperative efforts between the states and national gov­ernment that influenced business and commerce in the 20th century have now shifted the power back to the states in the 21st century, limiting the national government’s scope.

Since the 1960s the federal government’s use of cate­gorical and block grants has become prevalent as a means of shaping its relationships with state governments. Cate­gorical grants are conditionally given for specific purposes; they increase national government power and reduce state government’s power, because states must relinquish the freedom to set their own standards in order to receive financial assistance. Block grants are given for general pur­poses and allow greater flexibility in state spending, there­fore increasing state powers and reducing national power. Greater discretionary state spending may also increase business enterprise with additional financial assistance available to businesses that work in cooperation with state agencies. Since the late 1960s, presidents have revised cat­egorical and block grants in order to return business and commerce regulation to the states. Furthermore, the courts’ interpretation of policies and society’s social and economic welfare influence the continued shifting of busi­ness regulation and responsibilities.