In the inimitable words of Yogi Berra, it's déja vu all over again. One year ago, we wrote on this page "The world's greatest deliberative body, a.k.a. the U. S. Senate, has labored mightily and brought forth failure." The issue then was medical liability, the Patients First Act of 2003. The issue now was the Class Action Fairness Act.
The runaway tort system in America is a genuine debacle that is of direct and vital interest to the manufacturing community because it is causing serious economic harm and, perhaps more importantly, distorting the cause of justice. The National Association of Manufacturers (NAM, Washington) examines the magnitude of this economic harm in great detail in its report How Structural Costs Imposed on U.S. Manufacturers Harm Workers and Threaten Competitiveness, which you can find on NAM's Web site, www.nam.org.
The report cites data from the most recent analysis of the U.S. tort system performed by Tillinghast-Towers Perrin (St. Louis) and released in February 2003. The firm reported that the costs of the U.S. tort system reached $205 billion in 2001, or just over 2 percent of GDP. It concluded that without sweeping structural changes, double-digit growth in costs could drive the tort cost-to-GDP ratio to an all-time high of 2.33 percent by 2005.
The Senate just had another opportunity to start making structural changes. Once again, legislation to rein in class-action lawsuits passed the House and moved to the Senate. The bill would have moved class-action lawsuits in which there are more than 100 plaintiffs, where at least one plaintiff is a resident of a different state from the defendant, and where the suit is worth more than $5 million dollars into the jurisdiction of federal courts.
Once again, the legislation was defeated in the Senate. Commenting on the Senate's defeat of this much-needed reform, Michael Baroody, vice president of NAM, said "At some point, the Senate is going to have to get real about the devastating drag that shamelessly irresponsible tort litigation imposes on our economy. Business spends about $230 billion on tort litigation each year," he continued, "and every dime a company spends defending itself against excessive lawsuits is a dime not spent on worker training, job-creating investment, new product development and expansion."
Jeremy A. Leonard, economic consultant at Manufacturers Alliance/MAPI (Arlington, VA) and author of the NAM report, compared manufacturing tort costs, as a percentage of manufacturing output, in the United States and its nine largest trading partners for whom he could obtain data. Even though data were limited for several trading partners, he estimated conservatively that tort costs reduce the cost competitiveness of U.S. manufacturers by at least 3.2 percent, probably more.
U.S. manufacturers and, indeed, all U.S. citizens, have been betrayed again.