The Real Cost of Regulation

“A fourth threat – especially apparent in the United States – is the mounting cost of the law. By this I do not mean the $94.5 billion a year that the US federal government spends on law making, law interpretation and law enforcement. Nor do I mean the spiraling cost of lobbying by businesses seeking to protect themselves or hurt their competitors by skewing legislation in their favour. The $3.3 billion cost of paying nearly 13,000 lobbyists is in fact rather small in itself.  It is the cost of the consequences of their work that is truly alarming: an estimated $1.75 trillion a year, according to a report commissioned by the US Small Business Administration, in additional business costs arising from compliance with regulations. On top of that are the $865 billion in costs arising from the US system of tort law, which gives litigants far greater opportunities than in England to seek damages for any “wrongful act, damage, or injury done wilfully, negligently, or in circumstances involving strict liability, but not involving breach of contract, for which a civil suit can be brought’. According to the Pacific Research Institute’s study Jackpot Justice, the tort system costs a sum ‘equivalent to an eight per cent tax on consumption [or] a thirteen per cent tax on wages’.mThe direct costs arising from a staggering 7,800 new cases a day were equivalent to more than 2.2 per cent of US GDP in 2003, double the equivalent figure for any other developed economy, with the exception of Italy. One may argue about such figures, and of course spokesmen for the legal interest reject them. But my own personal experience tells a similar story: merely setting up a new business in New England involved significantly more lawyers and much more in legal fees than doing so in England.