A recent study conducted by NERA Economic Consulting provides that the American legal system is the world’s most costly! The study compared litigation costs between the U.S., Canada, and Europe, looking at liability costs as a percentage of a country’s gross domestic product (GDP). While countries such as the Netherlands, Belgium, and Portugal had costs around 0.4 percent of GDP, the U.S. costs were noticeably higher – 1.7 percent. In addition, legal liability costs in the U.S. were found to be about 50 percent higher than costs in the U.K.
So, why is the U.S. legal system so expensive? The president of the U.S. Chamber Institute for Legal Reform (ILR), Lisa Rickard, says that the answer to that question is excessive litigation. Often, American businesses litigate issues which can be solved in ways not involving a lawsuit. While legal fees are becoming higher and lawyers are becoming richer, excessive litigation is “putting U.S. companies at a competitive disadvantage globally.” Lawsuits generally tremendously increase costs for businesses, not only affecting consumers and employees, but the overall economy as well.
These high legal costs are worrisome for businesses of all sizes, but especially for smaller businesses. It takes no more than one expensive lawsuit to shut down a small business, Rickard says. In addition, expensive litigation also has a negative effect on U.S. business relations with other countries. The more expensive a litigation system becomes in a country, “the more companies think twice about whether or not to do business there, to locate there, to expand there.”
If the U.S. wants to continue to successfully do business internationally and become competitive with other industrialized countries from a cost perspective, a number of reforms must take place to discourage such costly litigation.