Life in the Tort Lane

Gunnar Peterson begins a post with:
American corporations spend more on tort litigation than R&D. Full stop.
and ends it with:
Tort litigation can be viewed as a spend since it protects existing assets, R&D is a speculative investment, what is the right balance?
I agree with everything in between those two quotes, and I probably agree with them, too.

However, too many people read this situation to mean that tort reform is the answer. Set legal limits on how much juries can award plaintiffs and corporations expenditures on tort lititgation will go way down. That particular outcome probably would result, but that’s not all that would happen.

If it’s no longer possible to get a multi-million dollar award for burns from spilled coffee that disguised its low quality by being served so hot that no one could drink it; so hot that it was a physical risk to the customers, then a major means of calling corporations to account for misbehavior goes away. Not to mention it would greatly reduce a major source of contributions to the U.S. political party that wants corporations to be accountable, leaving the field even more to the pro-corporation party.

Much better would be for corporations to find ways to maximize profits that were actually good for their customers. Funny how McDonalds suddenly started offering salads after a humorous semi-documentary came out illustrating how their previous offerings might be bad for their customers’ health. I’m sure it took some research to figure out what sorts of salads could work with that particular franchise system. But in the end that little bit of research will probably be worth more than tort reform.

Increasing the size of the pie through research is better risk management than focusing ever more tightly on getting more slices out of a fixed size or shrinking pie.

I think this is at least as true of telecommunications and the Internet as it is of fast food. More on that later.

-jsq

1 thought on “Life in the Tort Lane

  1. Gunnar

    The other point around spend versus invest is that when you are spending to protect assets the supplies get longer, and they make growth more difficult. For this reason, there are very few big companies that do innovation well.
    Also, I don’t think McDonald’s coffee is that bad. It certainly is not as good as Dunkin’ Donuts, but if you are outside a major metro driving around it is likely to be your best bet.

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