If States Want Jobs, They Should Fix Their Lousy Legal Climates

The Pacific Research Institute has released its 2010 U.S. Tort Liability Index, an analysis of which states impose the highest and lowest tort costs and risks. This is the third such report PRI has produced, done this year in conjunction with the Manufacturers Alliance/MAPI.

With the nation, officials and candidates making jobs an imperative, the study drives home a critical point some policymakers choose to ignore: Bad legal climates discourage the creation of jobs. As co-author Hovannes Abramyan reported, ““If lawmakers want to put people back to work, without costing taxpayers another penny for so-called ‘stimulus’, they should enact needed lawsuit reform. Job growth was 57 percent greater in the 10 states with the best tort climates than in the 10 states with the worst tort climates.”

From the news release, “2010 Tort Liability Index Ranks States’ Tort Climate: Alaska ranks best, New York and New Jersey worst“:

The Best

  1. Alaska
  2. Hawaii
  3. North Carolina
  4. South Dakota
  5. North Dakota
  6. Maine
  7. Idaho
  8. Virginia
  9. Wisconsin
  10. Iowa
The Worst

  1. New Jersey
  2. New York
  3. Florida
  4. Illinois
  5. Pennsylvania
  6. Missouri
  7. Montana
  8. Michigan
  9. Connecticut
  10. California

The bottom 10 put themselves at a disadvantage against the top 10 and other states when seeking to recruit new business. As the report explains, the low-ranked states had more costly and riskier business climates due to larger plaintiff awards, larger plaintiff settlements, more lawsuits, or some combination of the three. States can to counteract those negatives by tax breaks, subsidies, blandishments and political promotion, but then the taxpayers pay the costs.

Competition isn’t just among the states anymore, either. It’s a global competition, in which New Jersey and New York are competing not just against Virginia and North Carolina, but also against Singapore and Brazil. In that context, lousy tort climates harm overall U.S. competitiveness.

As Lawrence J. McQuillan, Ph.D., director of PRI’s Business and Economic Studies, and co-author of the report, explains:

Direct tort costs account for almost 2 percent of GDP in the United States—that’s the highest in the world. These high costs impact American businesses when firms have to divert revenue to fight lawsuits. But all of us ultimately shoulder the burden through higher prices and insurance premiums, lower wages, restricted access to health care, less innovation, and higher taxes to pay for court costs.

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