ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, April 5, 1996 TAG: 9604050076
SECTION: EDITORIAL PAGE: A-9 EDITION: METRO
SOURCE: PIETRO S. NIVOLA
``WE BELIEVE in business. We believe in the marketplace. We know that economic growth will be the best jobs program this country will ever have.''
Bill Clinton and Al Gore put this emphatic declaration in writing during the 1992 presidential campaign. But this time around, Clinton has been penning something else: vetoes of bipartisan legislation of considerable importance to businesses, sound markets and growth. Last December, the target was a compromise bill that sought to discourage frivolous lawsuits by shareholders. Now it's a moderate plan to restrain punitive damages in product-liability suits. Congress managed to override the president on the first of these measures. The second, however, is probably a goner.
At first glance, who cares? Ninety-five percent of all tort cases are filed in state courts. The bulk of the caseload involves auto accidents. Most of the states have reformed aspects of their civil justice systems. The rapid rise in tort filings peaked in the mid-1980s. Contrary to popular lore, jury trials in tort cases are relatively rare, as is the awarding of punitive damages. The median award for all tort cases is a modest $52,000. All this might suggest that federal standards, however minimal, are not needed.
Unfortunately, they are.
The volume of civil suits in the United States appears to have leveled off, but on a high plateau. More than a million state tort cases a year were still being filed as of 1992. Conservatively estimated, the cost of America's penchant for tort litigation continues to exceed the total economic output of Sweden. The fact that product-liability disputes are only a fraction of the sum, and that the defendants in these cases are seldom socked with vast punitive damages, doesn't quite settle the issue.
The fear, not just the frequency, of costly lawsuits matters. Sometimes all it takes is the occasional outlandish verdict to terrorize companies into lavishing resources on dream teams of corporate attorneys, keeping voluminous legally bulletproof records, and devoting inordinate managerial attention to fending off potential plaintiffs.
Sooner or later most companies expect to get sued. And when their number is up, most entrepreneurs simply cannot risk incurring colossal legal fees and dedicating months of their time in open-ended pretrial discovery and other punctilious preparations for hearings and trials. So the prudent course is to settle out of court. With the overwhelming majority of cases ending in pretrial settlements, usually for undisclosed amounts, the rarity of punitive damage awards is beside the point. A lot more money is changing hands as our relentless litigation labors to remedy every imaginable injustice or misfortune.
Opposition to federal legislation like the Securities Litigation Reform Act and the proposed Product Liability Fairness Act presumably presupposes that the state governments have done enough, and that now the social benefits of the status quo surely outweigh the costs. But even people who attach near-infinite value to (and faith in) the capacity of the American legal system to deter negligent producers, rid us of risks, and redress our every grievance ought to wonder whether we really can continue to have it both ways: liberally suing in pursuit of more and more safety or satisfaction, while also expecting no significant erosion in civil trust, economic productivity and incomes.
America's high level of litigiousness, even if steady, has become less affordable in a global economy. Here's why.
Corporations in the United States are downsizing to remain competitive. Much of the cost-cutting by American industry over the past decade has come from reducing labor costs by shifting work outside the company or across borders. Contracting out is the name of the game. (The recent massive walkout in General Motors plants was all about this practice.) While most of this restructuring is driven by market forces, some of it has been more drastic than necessary and is abetted by other factors.
Not the least of these may be the continuing profusion of legal perils confronting businesses. Amid the forces of international economic integration, which have increased opportunities to move work around the global factory, firms acquire added incentives to limit their liabilities by outsourcing. Even the threat of this exit strategy can help restrain wages.
As legal pitfalls multiply in employment relations, for example, so do the inconveniences of maintaining full-time employees. Firms perceive further reason to shrink, to substitute contingent workers for permanent ones, and to relocate production to greener pastures. Thus, the burdensome legalities begin to act like a tax on wages. When suits at the workplace soared in California during the 1980s, a study by the Rand Corp. estimated that the direct and indirect costs for companies were equivalent to a 10 percent penalty on payrolls.
In Madison Square Garden almost four years ago, Bill Clinton scored more than a few points on his opponent. ``George Bush talks a good game,'' he stressed in his speech accepting the Democratic nomination, but has ``no game plan'' for helping America ``compete and win in the global economy.'' Not a bad rhetorical shot. But if benching national legal reform is now part of Clinton's economic game plan, his, too, seems long on talk and short on fundamentals.
Pietro S. Nivola is a senior fellow at The Brookings Institution, and is the editor of the forthcoming Brookings book, ``Comparative Disadvantages? Domestic Social Regulations and the Global Economy.''
- Knight-Ridder/Tribune
LENGTH: Medium: 98 lines ILLUSTRATION: GRAPHIC: Ed Freska/Cleveland Plain Dealerby CNB