DMI Blog

Cyrus Dugger

Tort Reform: How to Get Countries to Outsource their Businesses —- to the US

One of the hottest issues today is the outsourcing of American jobs overseas. The story goes that America is not keeping up with its competitors. It is cheaper, easier, and more efficient to transport manufacturing and service jobs abroad. For clothing manufactures, sweatshops, while possible to maintain in the United States, are simply less publicly damaging, cheaper, and easier to run and maintain in different legal systems with relaxed worker safety standards. Indeed, the average businessman or businesswoman may find a whole host of reasons why operating in a developing country is more favorable: lower taxation, less regulations, less oversight, cheaper wages, less organized labor, a more economically desperate and compliant workforce, weaker civil society, smaller middle class (the list goes on). However, one especially important business advantage is - the absence of a robust and effective legal system.

In Indonesia, China, India, Honduras, Mexico or whichever developing country to which jobs are being outsourced, one shared characteristic is that these country's civil justice systems are rather weak. There are less suits against corporations being filed by well oiled effective plaintiff law firms. Because the courts in the home country cannot be trusted to be fair/are not fair, and/or the procedural barriers to get into court (let alone to do so in class action lawsuit) are immense, many major civil cases against corporations that harm others in developing countries have actually been brought under the Alien Tort Statute in US courts.

The hurdles to civil justice in many developing countries are not merely aspects of the legal system, but are also practical. In countries without significant access to the internet, without cheap access to phone service, with a poor system of public roads, or with a large inaccessible rural population, it is hard to get the information needed/hard for the information to surface and get to the right people.

The "tort reform" movement consistently emphasizes the "harm" that a robust civil justice system will do to a state's economy.

Let's assume, for the sake of argument, that they are right.

The argument then goes that the more protective we are of the bodily integrity, health, and safety of a state's residents, the less attractive we become for businesses. The less civil legal protections that we offer in our state, the more businesses will come to our state. Therefore, placing modest limitations on the ability of residents to hold corporations accountable will create modest gains in the state's economy. In this way, if Texas just minimizes its protections a little bit, it can gain a competitive advantage over, for example, Oklahoma.

But why stop here? If we're willing to cap non-economic damages, cap punitive damages, or if we're willing to require more proof of an injury or more severe injuries to get a day in court - why not just eliminate the system of legal protections entirely?

If we eliminated the system, all of those costly protections the average person has from being poisoned harmed, or in any affected by corporations and other wrongdoers dealt with. Indeed, we may get some of those outsourced jobs that went to work in India to come back this way.

Now this is obviously being discussed in an overly simplistic manner. Workers in developing nations have the competitive appeal of being willing to work for far less. Moreover, it is also not true that the "tort system" costs business money in the way the "tort reform" movement attempts to frame it. Businesses that abide by the laws adopted by the state legislature are unlikely to be overly and/or unfairly exposed to the civil justice system.

But the logical extension of the "tort reform" movement is that we would all be better off without civil law protections - because we would have more jobs. Many smaller developing countries adopt this logic as the rational for the creation of small free trade industrial zones. These localized free trade areas, free of taxes and most regulation or legal oversight, are notorious for permitting the mistreatment of workers and simultaneously giving little benefit to any but the few super-rich members of the county. Moreover, these zones are equally famous for providing miniscule wages to the workers they employ that does not support a fair standard of living based on the profits they provide for the foreign owners.

If the tort reform movement gets its way, the entire US would become a special commercial zone, with likely similar effect.

As I mentioned in a previous post, one of the tort reform groups, the Pacific Research Group ("PRG"), ranked states as to how "good" they were based on the laxness of their civil justices systems. Ironically, the top ten states, as ranked by PRG, have a personal income that is on average $4,021 lower than the ten bottom ranked states. As such, it appears that states with more robust civil justice laws have economies that provide more income for individuals in the state. (click here for more discussion of this issue)

Although the claim that a weak civil justice system helps business is a different discussion in and of itself - even if it does -

Do you really want to live in a developing world legal system?

Sure, maybe we may get jobs outsourced back to us from India - but - would you really want to live under these conditions - just for a few more jobs?

In any event, it is far from certain that a strong civil justcie system is actually bad for business, but even if it is - a few extara jobs can't be worth our basic human well being - wouldn't you agree?

If you or your organization is interested in learning more about or working on these types of civil justice issues, please feel free to contact me at

To read my previous posts on civil justice issues, click here.

For a comprehensive overview of the logical shortcomngs of the "tort reform" movement, read William Haltom & Michael McCann's Distorting the Law, or contact me for additional online resources.

Cyrus Dugger
Senior Fellow in Civil Justice
Drum Major Institute for Public Policy

Author Bio | Other Posts
Posted at 10:27 AM, Aug 14, 2006 in Civil Justice
Permalink | Email to Friend