Punitive damages

National Review, Nov 4, 1991 by Ed Rubenstein

VICE PRESIDENT Dan Quayle this summer questioned whether the nation really needs 730 000 lawyers-70 per cent of the world's total-or 18 million new civil cases each year-one case for every ten adult Americans. He may have had the economy in mind.

A study conducted by University of Texas finance professor Stephen P. Magee found that predatory litigation reduced GNP by 10 per cent below its potential during the 1980s-a cost of about $1 million per lawyer. Only a fraction of this-some $80 billion-reflects legal fees, damage awards, and higher liability-insurance premiums. Most of the costs are indirect: the time wasted fighting spurious claims; the loss of potential engineers, doctors, and scientists to the legal profession; and the withholding of new products or technology from the marketplace to minimize legal exposure. The "tort tax" allegedly accounts for about 30 per cent of the price of a stepladder and 95 per cent of the price of childhood vaccines.

THE CASE OF LAWYERS V. PRODUCTIVITY

Lawyers               Scientists &     Output per Hour
per 100,000            Engineers       (Avg. Ann. Growth,
Population per         Lawyer             1973-1990)
  Japan          11        115.5           4.4%
  UK             82         14.5           3.3
  Germany       111          9.1           2.8
  U.S.          281          4.8           2.5

Surprisingly enough, scientists and engineers outnumber lawyers 4.8 to 1 in the U.S. In other nations-especially Japan-the ratio is considerably higher, as is economic productivity as measured by the increase in output per hour.

It's absurd to blame our sub-par productivity growth solely on a surfeit of lawyers. However, Magee's study found a universal tendency for economic growth to be negatively related to lawyers. At one extreme are Japan, Hong Kong, and Singapore-countries where lawyers comprise less than 1 per cent of the workforce. At the other extreme in his sample of 24 countries were Chile, Uruguay, and the U.S.-nations where lawyers account for nearly 5 per cent of white-collar workers, and where per-capita GNP grew at less than 2 per cent per annum between 1960 and 1985.

The legal profession has become increasingly engaged in redistributing property and income rather than protecting it. Punitive-damage awards are fingered by the White House Council on Competitiveness as a prime suspect. Once limited to cases of criminal intent, awards that exceed actual damages are now routinely bestowed in negligence and lesser civil cases. A survey of 24,000 jury trials found that the average award increased (in constant dollars) from $43,000 in the period from 1965 to 1969, to $729,000 in the years between 1980 and 1984-a jump of 1,500 per cent.

Pre-trial discovery, in which lawyers request obscene amounts of documents from the other side, has become a thinly disguised form of economic terrorism, forcing the less well endowed party to end the proceedings. One result is that when jury awards are made, the lawyers are the big winners: successful claimants receive only 15 per cent of litigation costs. To stymie these abuses the Council proposes that the initial round of discovery be free," punitive awards be capped, and losers in certain suits pay the costs incurred by the winner. Magee proposes that a 20 per cent federal tax be imposed on the "excessive claims" of predatory claimants.

The prospects for reform are not good. About 42 per cent of the House, 62 per cent of the Senate, and an overwhelming majority of the judiciary are attorneys. -ED RUBENSTEIN