Capitalism and Western Civilization: Law

William H. Young

In The Rise and Decline of Nations (1982), Mancur Olson warned that factions impose “rigidities and costs which cause nations to lose vitality.” One such faction that hinders entrepreneurial innovation, productivity improvement, small business job creation, and economic growth in America is our legions of lawyers, through exorbitant litigation and regulation. Let’s first consider some context.

“The Western legal tradition, like Western civilization as a whole, underwent in the twentieth century a crisis greater than it has ever known,” declared late Emory legal scholar Harold J. Berman in Law and Revolution (1983):

We are in the midst of an unprecedented crisis of legal values and of legal thought, in which our entire legal tradition is being challenged…In all countries of the West, the law is moving away from the individualistic assumptions that accompanied the change from a ‘medieval’ to a ‘modern’ political, economic, and social order, and toward one or another kind of collectivism…There has been a substantial break with the individualism of the traditional law, a break with its emphasis on private property and freedom of contract, its limitations on liability for harm caused by entrepreneurial activity…and many of its other basic postulates….

Contempt for law and cynicism about law have been stimulated by the contemporary revolt against what is sometimes called legal formalism, which emphasizes the uniform application of general rules as the central element in legal reasoning and in the idea of justice….Formalism is yielding to an emphasis on public policy both in legal reasoning and in the idea of justice. Policy-oriented legal reasoning…is characterized by emphasis on broad standards of fairness and of social responsibility….and ‘public policy’ has become dangerously close to meaning the will of those who are currently in control: ‘social justice’ and ‘substantive rationality’ have become identified with pragmatism; ‘fairness’ has lost its historical and philosophical roots and is blown about by every wind of fashionable doctrine.

Late Harvard sociologist Daniel Bell argued in “The Cultural Wars” (The Wilson Quarterly, Summer 1992) that Antonio Gramsci’s “hegemony” is

an essential tool in the Left’s effort to undermine the dominion of ‘capitalist culture,’ but as it is difficult to define the capitalist ‘culture,’ what this means in practice is the legitimacy of capitalism as a just system. The attack was developed most sharply by the Critical Legal Studies movement, which originated in the early 1980s at Harvard Law School and has now spread to the major law schools of the country. The contention of the movement is that law, especially judicial decisions, serves to reinforce the systems of power and privilege in the society… which is given here an Hegelian-Gramscian frippery… To the extent that one can state a central theme…it is the need for societies to find mechanisms to break up old, encrusted institutions and create new ones. The difficulty is the lack of a normative vision, namely, what should law be, what is justice?

The new statutory rights granted in legislation during the 1960s and 1970s, and the subsequent vast expansion of those rights by regulations and the courts, made America the most litigious nation in the world, explains Stanford law professor Lawrence M. Friedman in Law in America (2004). Litigation became the policy instrument of special interests (factions) as a means of extending the provisions and reach of laws and regulations. Litigation also transformed product liability and medical malpractice into a tool of wealth redistribution. Between 1900 and 1970, America had only about 1.3 lawyers per thousand citizens notes Paul Johnson in A History of the American People (1997); by 1990, there were 3 lawyers for every thousand citizens.

The concept of freedom as unlimited rights has spread to the expectation of entitlement to legal compensation from any danger, disagreement, disappointment, aggravation, or act of irresponsibility, argues attorney Philip Howard in The Death of Common Sense (1994). Ordinary choices by teachers, doctors, officials, managers, even volunteers are paralyzed by fear of legal action.

A report for the Institute for Legal Reform of the U. S. Chamber of Commerce (Creating Conditions for Economic Growth, October 26, 2011) about tort litigation against business, found that “small businesses bore 81 percent” of tort liability costs “but took in only 22 percent of revenue.” Harvard Business School professor Michael Porter observes that U. S. “product liability is so extreme and uncertain as to retard innovation.” “The U. S. tort system is more than twice as expensive as those in 10 countries with which it competes,” whose costs “are comparable to the levels observed in the U. S. in the 1960s and 1970s.”

Howard notes (“Starting Over With Regulation,” The Wall Street Journal, December 3, 2011) that “there are over 140 million words of binding federal statutes and regulations, and states and municipalities add several billion more.” James Madison warned in The Federalist, No. 62 against poisoning the blessings of liberty “if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood…or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow.”

Howard adds that “regulation is deliberately designed to avoid human discretion—to create a regulatory code that is self-executing. By making rules as precise as possible, we hope to avoid bad judgment. The unfortunate side effect has been to preclude good judgment. Modern regulation doesn’t just control undesirable practices—it indiscriminately controls all the work of regulated entities.”

A recent Gallup poll (“Health Costs, Gov’t Regulations Curb Small Business Hiring,” February 15, 2012) found that nearly half of small-business owners who aren’t hiring point to government regulations and potential health care costs as reasons. A multitude of existing and new laws and regulations have been accommodated to their competitive needs by big corporations, crony capitalists and their lawyer lobbyists. But such laws and regulations also inordinately affect small businesses.

Two Lafayette University economists, Nicole and Mark Crain, calculated that adhering to federal rules in 2008 cost $10,585 per worker for businesses with 19 or fewer workers.” (Scott Shane, “Small Business, Big Regulatory Burden,” The American, January 20, 2011) “Not only is small business’s regulatory burden disproportionately large, it has also gotten heavier in recent years….What small businesses pay per employee to adhere to federal rules increased more than 21 percent between 2004 and 2008.”

Our legions of lawyers are imposing the stifling rigidities and costs on American business against which Olson forewarned three decades ago. Ironically, contrary to accepted academic wisdom, the “socially responsible” thing to do is to unshackle productivity and eliminate job- and growth-killing laws and regulations, and innovation-inhibiting tort litigation. This would lift the blanket that smothers individual initiative and unleash small businesses, now the creators of most new jobs.

The 2010 Census found that, over the past decade, the share of STEM graduates associated with technological innovation and economic growth fell for the first time since 1950. The self-destructive agenda of the Obama administration and academic educationists “to litigate, regulate, and legislate” until women obtain half of all STEM degrees also should be overturned. See my previous article of last November. 

And the developments in law in America and their effects on business as well as individuals should be covered in the liberal education in the academy that NAS seeks.

Next week’s article will address the rise of the contingent worker or independent economic individual.

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This is one of a series of occasional articles applying the lessons of Western civilization to contemporary issues relevant to the academy.

The Honorable William H. Young was appointed by President George H. W. Bush to be Assistant Secretary for Nuclear Energy and served in that position from November 1989 to January 1993. He is the author of Ordering America: Fulfilling the Ideals of Western Civilization (2010) and Centering America: Resurrecting the Local Progressive Ideal (2002).

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