No one person decided to shut down the work of the Missionaries of Charity in the South Bronx. The whole sad affair began in the winter of 1988, when nuns belonging to Mother Teresa’s religious order trudged through the snow and trash along East 148th Street, looking for an abandoned building that they might convert into a new homeless shelter. When they found a Madonna amid the rubble of a fire-gutted ruin, they knew they had found the place. The city welcomed their presence, and offered them two adjacent properties at $1 apiece. The Missionaries of Charity set aside $500,000 to repair the fire damage and open the shelter.
For 18 months, the nuns were stalled, forced to submit (and resubmit) plans and appear (and reappear) before hearings. Not until September 1989 were they given permission to start work on the buildings. Six months into the remodeling, a building inspector informed them that they were required by law to install an elevator. It would cost upward of $100,000, shattering their budget. Besides, it was utterly pointless. The nuns understood their vow of poverty to entail avoiding modern conveniences like dishwashers, washing machines, and elevators. Even the patient spirit of the angels of Calcutta proved inadequate to the task of navigating New York’s building codes. The nuns withdrew from the project with a politely worded statement noting that the experience had “served to educate us about the law and its many complexities.”
Again, no one person decided to shut down the work of the Missionaries of Charity in the South Bronx. (Perhaps no person could: The nuns today run the Queen of Peace shelter on East 145th Street.) But blame for their thwarted efforts elsewhere in the South Bronx falls to a tangled mess of nearly incoherent codes and regulations.
Untangling that unholy mess is the goal of a number of donors who are working to simplify and reform the law, all in an effort to ensure that other such private initiatives have a fair chance to get off the ground. For the funders of Philip Howard and the group Common Good, it means taking what he calls a “grasstops” approach, bringing together leaders in academia, public policy, business, and government to brainstorm ways to replace regulation-choked institutions with newer, more flexible codes. In Texas, a group of business leaders paved the way for statewide tort reform. And Robert Litan of the Ewing Marion Kauffman Foundation is planting seeds—that is, working to cultivate the next generation of intellectual leaders in the law and economics school of legal thought.
Start at the Top
Philip Howard first told the story of the nuns’ plight in his 1996 bestseller, The Death of Common Sense: How Law is Suffocating America. His book described a nation drowning in laws and regulations, where public officials had virtually no discretion and decision-making was effectively paralyzed. If anything, Howard has grown more convinced since 1996 that the mushrooming regulatory state has created “a legal system that is so scared of a bad decision that nobody ever makes any decision at all.”
Skeptical of efforts to “prune the jungle,” Howard is looking for systemic change, change in the fundamental relationships that drive institutions such as courts, schools, hospitals, and governments. “You can’t take a 200-page handbook of student rights, rewrite 10 pages, and change the paradigm of student-teacher relations,” he explains. “It’s time to start over.”
With that goal in mind, Howard founded Common Good in 2002. The public policy group has always been what Philip Howard calls a “grasstops”—as opposed to grass-roots—organization. Common Good seeks to bring together and initiate conversations among leaders from fields such as medicine, law, academia, public policy, and government. The goal is to cultivate their expertise to find ways to cut through the red tape and regulatory sclerosis in Common Good’s three focus areas: health care, law, and education. Once a set of commonsense reforms have been devised, Common Good advocates for them before legislative bodies and regulatory agencies.
The idea appealed to a wide range of business leaders and private foundations. Common Good’s biggest supporters include oil and entertainment entrepreneur Phil Anschutz, growth investor Richard Gilder, private equity giant Henry Kravis, Home Depot co-founder Bernie Marcus, and retired hedge fund manager Julian Robertson. It likewise receives major support from the Robert Wood Johnson Foundation, the Ewing Marion Kauffman Foundation, and the Lynde and Harry Bradley Foundation.
The grasstops strategy is undertaken partly out of a cost-benefit calculation; as Howard notes, such efforts “take less money.” That in turn can be problematic, he acknowledges, because it can be difficult for a group like Common Good to meet many donors’ demand for immediate, measurable results. “When you have a project that seeks to vaccinate kids or raise test scores—that’s a more quantifiable goal, where you can show the effect of your work more clearly. An organization like ours is really about marketing an approach, getting together with editorial boards and industry leaders to explain ideas. It’s hard to measure that, except over years.”
Despite the challenges, Common Good recently scored a major victory in one of its key focus areas. The 2012 budget President Obama presented to Congress includes $250 million in federal grants to help states implement specialized health courts. These administrative courts would feature knowledgeable arbiters, independent expert witnesses, a predictable and reliable system of non-economic damages, and a new “avoidability” standard to replace the old—and often difficult to apply—“negligence” standard. The hope is that these courts will, over time, develop consistent standards of care through the accumulation of informed judgments by specialists, rather than the haphazard results of the present system.
Howard hopes that the development of this body of law and the removal of medical malpractice suits to a specialized court with streamlined procedures will also cut down on legal expenses and speed up the process of getting economic relief to victims. At present, the average medical malpractice suit takes five years to resolve itself, and more than half of any damages award is consumed by fees and expenses. But the larger goal is nothing less than reshaping the nature of patient-provider relations, which is undermined by an adversarial legal system that puts the interests of doctors and their patients into conflict, resulting in often unnecessary—even wasteful—defensive medicine.
The idea has the potential to fundamentally reshape the convergence of law and health care. As such, says Howard, it “encountered enormous resistance.” After years of bringing together experts and asking them to devise ways to reform the medical malpractice system, “we realized that you can’t do it in existing institutions. Eventually a consensus developed that existing institutions lacked the capacity to change.” New institutions, Howard realized, needed to be built. The project took off when it attracted the support of the Robert Wood Johnson Foundation (Common Good’s biggest funder) and the Harvard School of Public Health, the combination of which gave the idea credibility among other donors and policymakers.
Howard is optimistic that the launching of health courts indicates a gradual coalescing of experts around the notion that medical malpractice is so broken that it needs a complete overhaul. Nonetheless, he is fully aware of the challenges. “Every part of government or law, no matter how inefficient, has some special interest that benefits from it, if only the lawyers and lobbyists and consultants who try to explain it to people,” he says. “But I’ve been at this for a long time, and I think we’re beginning to see the fruits of these efforts.”
Case Study: Texas Tort Reform
In 2010, Texas business leaders and entrepreneurs created over 230,000 new jobs—more than in any other state, and more than two and a half times the number of jobs created in more populous California. This surge in economic growth is no accident. Indeed, it’s a long-term result of a concerted effort to make Texas a more welcoming place for business.
It also represents a remarkable turnaround. In 1994, the Wall Street Journal dubbed Texas the “lawsuit capital of the world.” The state’s capricious juries were known for making unpredictable—sometimes jaw-dropping—awards in civil cases. The state became a magnet: attracting trial lawyers and repelling doctors, businessmen, and entrepreneurs. As medical malpractice insurance premiums skyrocketed, 10 percent of Texas’ counties were left with no emergency room physicians, and doctors with riskier specializations like neurosurgery and obstetrics began retiring early or leaving the state. The insurer Lloyd’s of London began charging a “risk-of-lawsuit” surcharge on any firm that did business in Texas.
A group of business leaders decided it was time for change. In 1995, Dick Weekley co-founded Texans for Lawsuit Reform (TLR). Dick Weekley had witnessed firsthand the effects of bad tort law on business growth; with his brother David, he had co-founded Weekley Homes (one of the nation’s largest privately held home-building firms) and Weekley Development. Dick Weekley was joined in his effort by Leo Linbeck Jr., chairman and CEO of Linbeck Construction, and by Houston retail chain owner Richard Trabulsi Jr. With support from other entrepreneurs and businessmen across the state, TLR began making the case for tort reform in Austin.
TLR employed a two-pronged strategy in pursuit of tort reform. First, it engaged in direct, non-tax-deductible political activity. Second, it undertook public interest research and education through an affiliated, tax-deductible 501(c)(3). In 1995, under then-Gov. George W. Bush, TLR achieved its first success, a tort reform law that limited punitive damages and joint and several liability, imposed sanctions on frivolous suits, limited venue-shopping and out-of-state filings, and modified medical malpractice reform.
An even bigger breakthrough came in 2003, when the legislature approved a more aggressive reform that further limited non-economic damages, medical liability lawsuits, and class actions. The state’s voters also approved Proposition 12, a constitutional amendment eliminating court challenges to the $750,000 limit on non-economic damages.
How did TLR help to shepherd these reforms through the legislature? “You must base everything on comprehensive research,” Weekley explains. “We do market research, hire a legal team to write statutes, hire a lobby team, hire media consultants to communicate with the media, recruit speakers, build grass-roots support, recruit civic leaders, recruit trade associations like homebuilders and realtors, raise money, and most importantly, get involved in politics.”
The results of TLR’s efforts have been striking. Medical malpractice insurance premiums have fallen by as much as 50 percent. Today, every county in the state has an emergency room physician. Texas has added obstetricians, surgeons, and other specialists. In Harris County, the state’s most populous, legal reform led to an increase in doctors of more than 8 percent. The Journal may have named Texas the “lawsuit capital of the world” in 1994. By 2006, however, the Pacific Research Institute named its tort law “best in the nation.”
“We have made dramatic strides in Texas,” Weekley concludes, “reforming our system of civil justice in ways that have limited meritless lawsuits and improved the competitive environment for business and industry.”
Perhaps no academic theory of the past half century has so thoroughly riled the halls of courts and legal classrooms as has law and economics. Its seminal moment came in the early 1960s through the publication of two groundbreaking articles: Ronald Coase’s “The Problem of Social Cost” and Guido Calabresi’s “Some Thoughts on Risk Distribution and the Law of Torts.” Both authors took the controversial view that, as a matter of economic efficiency, it does not particularly matter how property rights are distributed, since in a world of strong property rights and few obstacles to bargaining, property owners would negotiate economically efficient outcomes among themselves.
The classic example is that of the rancher and adjoining property owner. If the law allows the rancher to let his cattle roam free, his neighbor suffers an economic loss. But if the law keeps the cattle penned, the rancher loses the benefit of free-ranging cattle. Between the two of them, however—and regardless of where the law places the property right, either to let cattle roam free or to be free of cattle—the two will negotiate a mutually agreeable outcome.
The basic method of law and economics is to seek economically efficient outcomes through “static analysis,” which takes the inputs of the world as givens. In the example of the cattle rancher, static analysis takes the amount of land and the number of cattle as constants and seeks to generate the “best” or most efficient result from these inputs. Applying static analysis to real property law, environmental law, tort law, and especially antitrust and intellectual property law, scholars and judges developed probing re-evaluations of fields that had settled into dusty scholasticism.
Many years after the publication of his original article, Calabresi would write of the two articles that “much that was novel then seems obvious today.” But if that is so it is only because of the extraordinary influence that law and economics had on legal scholarship and, through that scholarship, on judges and practitioners. Coase and Calabresi (the latter became a federal appeals court judge in the 1990s) continued their contributions, but a younger generation—most prominently Richard Posner, a University of Chicago professor and now also a federal appeals judge—would take the insights of law and economics and apply them to a variety of legal fields.
Of course, to say that law and economics burst onto the scene is something of a simplification. As a movement, it was nurtured by steadfast private support, first at conferences sponsored by Liberty Fund and later through the long-term support of the John M. Olin Foundation. Their funding helped nurture the field of law and economics, and was indispensible to its ultimate rise and flourish. With its influence and maturity, however, some of the creative drive was lost. “There was this burst of creative activity in the 1970s and 1980s,” says Robert Litan, vice president for research at the Ewing Marion Kauffman Foundation and a legal and public policy scholar, “and then there has been an incremental leveling off.”
Rejuvenating the law and economics movement is the goal of Kauffman’s recent, $10 million policy initiative, “Law and Economics 2.0.” The project seeks to reorient law and economics away from the older “static analysis” model that takes current resources as a given and rearranges them efficiently. In its place, it intends to construct a “dynamic analysis” model that seeks to uncover the conditions that create growth. This new focus, Litan hopes, will “jump-start the field and breathe new life into it. There is so much that law and economics can do besides simply rearrange resources.”
To effect this transformation of law and economics, Litan and Kauffman are taking what might be called a “seedling” approach, more narrowly focused than Howard’s “grasstops” consensus building. Kauffman is funding 30 or so research positions for young scholars at 6 major law schools—the legal equivalent of a post-doctoral fellowship. Fellows are given the time and funding to apply dynamic analysis to a specific legal field or issue, in order to uncover the reforms and innovations that will maximally foster economic growth.
The first fruit of this effort is a recently published book, Rules for Growth: Promoting Innovation and Growth through Legal Reform. Co-edited by Litan and three others, the book presents the initial research of this new crop of scholars. Topics range from law and economics standbys such as antitrust law, intellectual property, and land use and zoning, to new areas such as cyberlaw, immigration, and even loosening the process of licensing attorneys—a recommendation, Litan chuckles, that is likely to cause heads to explode at state bar associations nationwide. “When you look at the healthcare market,” he notes, “you see Wal-Mart and CVS increasingly providing routine health care. The doctors can’t stop it, which is good because it lowers costs. The same model is coming to the legal field, or should.”
The fearless assault on an entrenched, century-old system of state bar licensing is illustrative of the spirit of the book. Litan admits that the prospects for wholesale adoption of its recommendations are dim, and that the proposed changes to legal process, statutes, regulations, and judicial doctrine will “move at different paces in different fields.” Stimulating discussion and seeding future scholarship is the method, but there is a long-term goal: identifying the next generation of law and economics leaders, the ones who will adapt and refine the insights of the older generation. As Litan puts it, “Somewhere in this book is the next Coase or Calabresi. That’s what we’re looking for.”
Contributing editor Justin Torres is an attorney in Washington, D.C.