Secretary Paulson on Legal Reform and Regulation

By November 21, 2006General

Treasury Secretary Hank Paulson was in New York yesterday speaking to the Economic Club of New York about the competitiveness of capital markets. Along the way, he touched on a few issues near and dear to manufacturers. Among them:

  • Legal Reform
  • “[L]egal reform is crucial to the long-term competitiveness of our economy…

    A sophisticated legal structure — with property rights, contract law, mechanisms to resolve disputes, and a system for compensating injured parties — is necessary to protect investors, businesses, and consumers. But our legal system has gone beyond protection. In 2004, U.S. tort costs reached a record quarter-trillion dollars, which is approximately 2.2 percent of our GDP. This is twice the relative cost in Germany and Japan, and three times the level in the UK. The consulting firm Towers-Perrin found that the tort system is highly inefficient, with only 42 cents of every tort dollar going to compensate injured plaintiffs. The balance goes to administration, attorney’s fees, and defense costs. Inefficient tort costs are effectively a tax paid by shareholders, employees, and consumers. Simply put, the broken tort system is an Achilles heel for our economy. This is not a political issue, it is a competitiveness issue and it must be addressed in a bipartisan fashion.” (Emphasis ours)

  • Regulatory Structure
  • “A consequence of our regulatory structure is an ever-expanding rulebook in which multiple regulators impose rule upon rule upon rule. Unless we carefully consider the cost/benefit tradeoff implicit in these rules, there is a danger of creating a thicket of regulation that impedes competitiveness.

    Our rules-based regulatory system is prescriptive, and leads to a greater focus on compliance with specific rules. We should move toward a structure that gives regulators more flexibility to work with entities on compliance within the spirit of regulatory principles.

    We can only say that we wholeheartedly agree on all counts. Click here to read the full speech, including his thoughts on Sarbanes-Oxley.