The politics of blame and claim
Is the US legal system contributing to America’s economic decline?
Some years ago, Chrysler realised there was a problem with its minivan door latch. It decided not to recall the vans because the marginal benefits to a small number of consumers were outweighed by the considerable trouble and expense involved. The decision cost Chrysler punitive damages of $250million.
Did Chrysler make the wrong decision? The jury that awarded the blockbuster award of damages obviously thought so. But the jury made its decision within a legal framework that imposes onerous health-and-safety standards on product manufacturers, and within a culture that readily appreciates the harm caused to an injured litigant but which is less prepared to appreciate the harm caused to wider society from too much blaming and claiming. For example, the jury was not allowed to hear evidence that the fatality in question was actually caused or contributed to by the victim not wearing a seatbelt and by his mother running a red light.
Against a litigious background on both sides of the Atlantic, it is refreshing to come across a collection of essays that puts the US legal system in the dock and subjects it to the sort of forensic analysis that lawyers usually reserve for others. The 20-plus contributors to The American Illness focus on the relationship between law and economics and ask whether and why the US legal system has contributed to the country’s long postwar decline.
At the outset, there is a recognition that lawyers can be good for a country’s economy. By focusing on the law of product liability, many contributors note how lawyers can correct inefficiencies in the marketplace. Injuries have an economic cost. An injured person may not, for example, be able to work and may need medical treatment. If the market worked perfectly then the cost of an injury would be counterbalanced by the manufacturer’s awareness that dangerous products were bad for business. An equilibrium would be reached whereby the manufacturer incorporated that level of safety features that customers desired: dangerous products would drive customers away; equally, too many safety features would have the same effect by making products too expensive and dull.
But markets do not work perfectly and when it comes to product safety there needs to be a degree of legal regulation. Hence the intervention, that can be traced back to the nineteenth century and the law of negligence, whereby the legal system imposes a duty of care that requires manufacturers to produce goods that are reasonably safe. If that standard is breached then the manufacturer is liable to be sued for the consumer’s losses. Although it features less in The American Illness, the same need and law applies to the provider of services.
Negligence law raises product safety, imposes a degree of responsibility on manufacturers and enables injured persons to recover the costs associated with their negligently inflicted injuries. Different contributors point out how such a system can be an efficient way of meeting an injured person’s medical expenses and other losses while also stimulating product innovation. But the key to these consequential benefits is to hold the manufacturer to a standard that is reasonable, yet takes into account society’s wider interests. The benefits will be outweighed by burdens if the standard is too high or if the judges applying the law fail to appreciate the wider social interests in play, a mistake judges from an earlier age were not inclined to make.
Consider this direction from a judge to a jury in an English negligence case from 1937, Hudson v Governors of Rotherham Grammar School, when warning of the dangers of imposing too high a duty of care: ‘If the boys were kept in cotton wool, some of them would choke themselves with it. They would manage to have accidents: we always did, members of the jury – we did not always have actions at law afterwards… Has any reasonable parent yet succeeded in exercising such care as to prevent a boy getting into mischief and – if he did – what sort of boys should we produce.’
The seeds of America’s problem with litigiousness can be traced back to 1944 after Gladys Escola, a waitress in a Californian restaurant, was badly cut when a Coca-Cola bottle exploded as she opened it. There was evidence that Coca-Cola bottles had a tendency to explode and the court concluded that their manufacture was negligent. Had that been the extent of the judgment it would not have become so central to the subsequent development of American product liability.
But in the California Supreme Court, Justice Traynor found Coca-Cola liable for reasons that laid the basis for a subsequent expansion of liability. First, he eschewed the need for negligence on public-policy grounds: ‘Even if there is no negligence… public policy demands that responsibility be fixed wherever it will most effectively reduce the hazards to life and health.’ Secondly, he developed his public-policy argument on the grounds that manufacturers have deeper pockets that consumers: ‘The risk of injury can be insured by the manufacturer and distributed among the public as a cost of doing business.’
Traynor’s two public-policy arguments paved the way for the development of strict liability: a way of making producers liable for harm regardless of negligence and the reasonableness standard it required. Over subsequent years, strict liability was expanded beyond the confines of product liability. The public-policy ideas that informed the promotion of strict liability also had an impact on how judges framed and applied the duty of care that arose under negligence. For if, as Justice Traynor had argued, manufacturers had the ability and means to insure consumers against losses, then it was logical to apply those principles more widely to benefit plaintiffs at the expense of defendants.
Several authors draw attention to the harm that several decades of expanding liability is now causing the American economy. Whereas low levels of liability boost investments in novel technologies, product innovation is harmed at very high levels of liability. Nowadays, American consumers are effectively required to purchase product-liability insurance with everything they buy and producers have been turned into general insurers. This constitutes a deadweight cost that makes American producers less competitive in the international marketplace. Neither do consumers benefit because, apart from paying higher prices, the burdens imposed from a safety first-and-foremost regulatory framework reduces consumer choice.
The book’s strength is its compelling analysis of the relationship between law and economics. Too many lawyers, academic and practising, see law as a discipline to be understood on its own terms. Yet The American Illness makes clear that too many lawyers can be positively harmful for an economy. The recognition of the legal system as a means of making the economy work more efficiently is also welcome, not just because it is true but because it also raises this question: at what point does the legal system cease to be a force for good and become a force for harm?
When addressing this issue, the contributors demonstrate the need not just for an appreciation of economics and law, but also for an understanding of the overriding importance of politics. The argument that there can be an optimum number of lawyers per head of population is a technical approach to the issue that goes nowhere because it all depends what those lawyers do. Neither can it be right that increasing liability is merely a response to increasing wealth and consumer demand, as another contributor remarks.
Just as Justice Traynor keyed into public-policy arguments to set the course for expanding liability, so it is necessary to advance public-policy arguments for reigning in a litigious culture that exists in America and elsewhere, such as in the UK. The law of negligence is sufficiently flexible to allow judges to set the bar at an appropriate level. But it needs to be a level that requires producers to incorporate a reasonable number of safety features while balancing that requirement against all the others factors in play. Judges will continue to give undue weight to safety in a society that undervalues risk, innovation, progress and personal responsibility. By drawing attention to the significant economic harm that litigation is causing America, The American Illness is a welcome contribution to a debate that needs to be had. But if the safety first-and-foremost approach of legislators and judges is to end there needs to be a much wider debate about the political and moral values that fuel a blame-and-claim culture.
Jon Holbrook is a barrister in London. Follow him on Twitter @JonHolb.
The American Illness: Essays on the Rule of Law, edited by F.H. Buckley, is published by the Yale University Press. (Buy this book from Amazon(UK).)