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Law, Innovation & Growth

By 10 February 2011 One Comment

For over 20 years, I have observed with alarm the steady expansion of legal and regulatory quantity and complexity, combined with serious excesses in the use of criminal sanctions. I have so often voiced an anguished “this can’t go on” that I have become an object of mockery to my children, who have known no other world except that of the imperial legal system.

Perhaps, though, the day is coming at long last when the society will begin to rebel against the steady rise of the legal empire and its stifling effects on innovation, entrepreurship, and productive activity generally.   Three recent events give hope:

First, the Kauffman Foundation just released Rules for Growth: Promoting Innovation and Growth Through Legal Reform. It is what its title says – an analysis of ways to promote innovation and growth by reforming legal institutions, and judging by the first few chapters, it is an excellent work. The book is the product of several years of effort by a high-powered academic task force, but it is not really academic (meant as a compliment). It is specific in its diagnoses and prescriptions, written with clarity, quite free of cant and, for the most part, free of the common copouts that “we need more research” and “new ideas are necessary.”  It presents many ideas, some new and some not, but the problem is not that we need to invent some hypothetical silver bullets but that we do not even shoot the ammunition we have.

For a good commentary, see Dianna Furchtgott-Roth, “Legal Reform As Economic Stimulus.”

Second, the House of Representatives and George Mason Law School have gone into cahoots to create two new institutions. Six House members have created a bipartisan Congressional Civil Justice Caucus, chaired by Rep. Goodlatte (R-VA) and Rep Boren (D-OK):

The goals of the Congressional Civil Justice Caucus include promoting a civil justice system that respects the rule of law and advances the United States’ leadership in innovation, job creation and economic growth, advancing the public’s understanding of how civil justice issues affect the free enterprise system, America’s global competitiveness and businesses large and small, providing a bipartisan forum for discussion and debate of policy issues related to our nation’s civil justice system, and promoting the education of Members of Congress and their staff on civil justice policy issues.

At the same time, the GMU Law & Economics Center created the Congressional Civil Justice Caucus Academy, an independent organization that shares the goals of the Caucus. A series of events are planned, including discussion forums and an annual dinner.

The first forum, on Feb. 17, will take up How the U.S. Civil Justice System Impacts American Free Enterprise and Global Competitiveness, with John Castellani (CEO of Phrma) and Lisa Rickard (U.S. CofC Institute for Legal Reform).

(Castellani will avoid saying anything so crude, but it is likely that U.S. regulation of both pharmaceutical and medical device research is becoming so dysfunctional that the R&D segments of these industries could easily be stolen by any major foreign government willing to set up a more rational system.)

I don’t know of any prior effort to create such a sustained partnership between Congress and an educational/policy institution, and it is an intriguing concept. Both sides will benefit from the interaction.

And I hope the GMU people read the Kauffman book, which contains some serious chiding of the Law & Econ movement as a whole for its focus on static analysis, which lends itself to modeling but is mostly useless, and neglect of dynamic analysis, which is useful but messy.

The third optimistic event is the publication of a recent book by Benjamin H. Barton on The Lawyer-Judge Bias in the American Legal System, which argues:

This book argues that these lawyer-judges instinctively favor the legal profession in their decisions and that this bias has far-reaching and deleterious effects on American law. . . . The book begins with a theoretical explanation of why judges naturally favor the interests of the legal profession and follows with case law examples from diverse areas, including legal ethics, criminal procedure, constitutional law, torts, evidence, and the business of law. The book closes with a case study of the Enron fiasco, an argument that the lawyer-judge bias has contributed to the overweening complexity of American law, and suggests some possible solutions.

As Barton says, non-lawyers regard this as obvious, and most of us will indeed regard this as a Casablanca moment – “I am shocked, shocked to discover . . . .” that lawyers rig the system for their own interests. A general problem of Washington is that the special interests, especially the lawyers and lobbyists, have become a special interest dedicated to preserving the power of special interests.

But the documentation provided by Barton helps, and his theme has been picked up by such sources as star blogger Glenn Reynolds and Heritage tax policy expert Dan Mitchell. Rules for Growth also has a good bit on the pernicious effect of the self-interests of the legal profession, and it is an issue which must be confronted if substantive reform is to be achieved. It is a fit topic for GMU’s new enterprise.

Perhaps if these trends continue, my children will someday regard me as prophetic rather than pathetic.

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