A legal argument for less regulation in the U.S.

I’m interning for a month in Aix-en-Provence, France with a French law firm.  As I have a few minutes of free time, I thought I’d throw out some of the perspective my time working at a French law firm has given me on the costs and benefits of the American and French legal systems.  A lot of what I write below might seem like obvious things to many readers, especially those who have studied history or law at all, but I just want to lay out all of the important facts so that even those readers with a very elementary knowledge of law can follow along.

Note: This is a long article, and I don’t expect everyone to read it.  Therefore, these two paragraphs in italics sum up my point:

Common law countries traditionally have less regulation but more litigation, while civil law countries have the inverse setup.  With more litigation and less regulation, we only have the courts deciding disputes when actual wrongs have occurred, contrary to an over-regulated system where companies are punished by the government for things they have not even done yet.  

I think that the United States’ traditional model of allowing a huge amount of litigation while having relatively small regulation has served us well, as it has allowed our economy to grow while punishing companies in court if and when they actually do something wrong.  However, now that we are maintaining our massive amount of litigation AND adding on a suffocating amount of regulation, we threaten to suffocate our economy and stifle any growth by businesses attempting to be honest who fear they will be punished at every term by both litigation and regulation.

Now, if you want to know the historical background and rationale for why I wrote the above paragraphs, keep on reading:

Traditionally, the United States has always had a lot of litigation compared to other countries.  That might surprise some readers, who might expect “socialist” countries like France or Italy to be even more litigious than the United States in the pursuit of making the “big evil corporations” pay up for their dirty deeds.  However, historically that’s not how things have worked.

As a former British colony (for the most part — I see you, Louisiania), the United States inherited its legal system from Great Britain.  It is for this reason that we have a common law system rather than a civil law system like one might see in France, which is based on Roman law.  I don’t know a lot about British law, so from here on out when I refer to “common law,” I am referring to it as it is practiced in the United States.

Common law systems allow the courts to, at least to some extent, create law.  Civil law systems do not allow their courts this power.  Instead, in civil law countries there is a large civil code that essentially codifies all of a country’s law.  (This is an oversimplication, but that is the general idea.)

Since their law is based in a civil code, civil law countries traditionally have much stricter regulations than common law countries.  However, along with these stricter regulations, they also have many more limitations on litigation.  For example, in France punitive damages traditionally have not been allowed.  While a recent case by the Cour de cassation, France’s highest court, calls this principle into doubt, it is still an important general principle of French law.  Also, in France, one has to choose in what specific field of law one is suing.  So, if you feel that someone has both breached a contract with you and committed a tort against you, you cannot sue for both, you have to pick one or the other.  So how do common law countries cope without the extensive regulation of civil law countries?

Common law countries allow much more litigation than their civil law counterparts.  In the United States, punitive damages are most certainly allowed. However, in recent years they have been limited to a maximum of 10x the regular damages.  Still, the threat of punitive damages is a big incentive for companies to not be negligent or reckless.  Also, in the United States, you can sue on as many theories as you want, granted you do not say anything too ridiculous to be sanctioned by the court.  So, if I think that you have breached a contract with me and committed a tort against me, I can sue you for both.

This large amount of litigation has traditionally been combined with a relatively small amount of regulation.  So, companies have been relatively free to do whatever they want.  However, if they do anything that ends up hurting someone, they will have to pay for it in court.

We now threaten to upset this system.  Recent presidents and congresses have not only been adding massive amounts of regulation onto our economy, but also have been empowering federal agencies to add on their own regulations.  If this trend continues, the United States will remain one of the most litigious countries in the world, but also will become one of the most over-regulated countries.  This would be dire for our economy.

With such a system in place, business growth would be at an all-time minimum.  Entrepreneurs would simply be afraid to take any kind of risk, because at every turn there would be either a government regulator or an angry litigant waiting to financially and legally punish them.

In my best-case scenario, we would get rid of the regulation that is strangling our economy, and allow litigants the chance to make companies pay for the real harm that they actually do.  Another option is to put restrictions on litigation and increase the amount of regulation, though I feel that this would be a far worse system than what we have had in the past.  

I do not think it is a coincidence that the United States and the United Kingdom, the two preeminate common law nations of history, have emerged as two of the wealthiest nations in the world with two of the highest standards of living on the planet.  Let’s hope that we can find a way to return to our common law roots, and have private citizens solve their disputes in court rather than having the government attempt to do it for us.

P.S. If you are an anarchist, anarcho-capitalist, or any of that, I know you won’t like any of the above options.  And, in theory I symphathize with you.  However, we do not live in an anarchist system, and we never will.  So, the best thing to do is to figure out which system of governance minimizes the harm that it causes.

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