Crossville Chronicle, Crossville, TN

June 26, 2013

ABACUS COLUMN: The rule of lawyers

By Larry Backus
Sun contributor

CROSSVILLE — Excerpts from a new book by Niall Ferguson, an academic economist; entitled “The Great Degeneration: How Institutions Decay and Economies Die” was featured in the Weekend June 8-9 Review section of the Wall Street Journal. The author’s observations are rife with common sense and backed up by multiple statistical results of organizations that measure the ability of countries to develop and maintain a business climate. His findings clearly identified items that have created nagging doubts in my mind for the health and welfare of the U.S.A.  

“In America you have the right to be stupid-if you want to be.” A quote from Secretary of State John Kerry while speaking to students in Berlin, Germany. The author continues: “It is not a right the founding fathers felt they needed explicitly to enshrine. But it has always been there, and America’s leaders have frequently been willing to exercise it.” Please clap your hands or cheer, or yell “Yes!” if you agree with both statements.

Why is it getting harder to do business in the U.S.? A few examples of excessive legislation: The Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) is 848 pages and requires 243 regulator rules, 67 studies, and 22 periodic reports. The Patient Protection and Affordable Care Act are 906 pages and require thousands of pages of regulation. The author states that we do not have to be opposed to tighter financial regulation or universal health to recognize there is something wrong with laws so elaborate that almost no one affected has the time or will to read them.  May I have another yes; or a wistful amen? 

Who benefits from such legislation? The author tabs lawyers and adds lobbyists and compliance departments. Here I defer because lobbyists are usually the only source of knowledge for legislators prior to signing off on legislation that pours from our legislative bodies like a tsunami. Despite the misuse and abuse of class-action law suits against business they continue to escalate. I have three applications in my files for consumer class-actions that have failed to produce one thin dime after filling out voluminous applications; I wasn’t greedy, just curious. The law firms however collected millions. The author’s example was a recent class action against Southwest Airlines that any thinking person would consider laughingly frivolous. Due to the excessive cost of litigation Southwest settled for $3,030,000 rather than the $7 million plus costs and fees sought; The lawyers collected more than 40 percent, the “protected” will receive a fee drink voucher for any drink they did not receive due to not using their free drink vouchers issued by Southwest. With all of these new complicated regulations and the threat of private and government litigation, small businesses are in big trouble. Large business will survive but will pass the costs on to consumers. As the author states: “For (legal) complexity is not the friend of the little man. It is the friend of the deep pocket. It is the friend of cronyism.”   

About those statistics mentioned above: In 2012 the number of days it took to start a U.S. business, register a property, pay taxes, get an import/export license and enforce a contract was 433; it was 368 days in 2006. In 2000 the U.S. ranking for its legal system and property rights on the Frasier Institute’s Economic Freedom Index was #9 of 144 countries; in 2010 it was 33. The U.S. ranking on the World Economic Forum’s 2012-13 Global Competiveness Index was #7; in 2008-09 it was #1.  The author sights a 2012 Harvard Business School survey of alumni who were asked to name the most problematic factors for doing business. The number one reason was “inefficient government bureaucracy.”