President Barack Obama's recent announcement that he had signed an executive order to remove "outdated" U.S. regulations that "stifle job creation and make our economy less competitive" is a baffling about-face, given that it was his administration that presided over changes to banking, health care and other legislation requiring thousands of new regulations.
Business leaders say this regulation explosion has been a major factor in their reluctance to invest in job-creating expansion, resulting in a corporate cash buildup of almost $2-trillion (U.S.), the largest in the country's history.
Business Roundtable, an association of U.S. chief executives of major companies, has compiled a report providing a road map to eliminate what are, in Mr. Obama's words, "regulations that conflict, that are not worth the cost, or that are just plain dumb." But even if regulations are improved, it won't help much unless an equally serious problem is addressed: overzealous, witch-hunting, empire-building regulators.
In the book Preparing CEOs For Success, Leslie Braksickand James Halgren provide interviews with CEOs of several large U.S. companies. On the subject of regulators, this response was typical: "One significant challenge has been working with regulatory agencies, and the orientation of their members. I had a naive view that if we communicated with the agencies and told them what we were doing, and if I answered their questions candidly, we would move forward together. I discovered they are adversarial by nature. They operate with a mindset that seeks to find something to accuse you of."
Many a U.S. regulator has gained career-boosting fame from vindictive efforts to bag big corporate game, even if the initial allegations aren't sustained after costly and protracted litigation. The explosion of new regulations under Mr. Obama's watch, combined with his frequent public attacks on business leaders, has encouraged already overzealous regulators to behave even more aggressively.
While the private sector struggles with demoralizing presidential rhetoric and regulatory dysfunction, the legal profession emerges as a huge winner. Armies of lawyers have been retained to draft the complex regulations required to administer new banking and health-care laws. And the flood of corporate bankruptcies has been a legal bonanza. Documents filed with the bankruptcy court in Manhattan show that payments to 35 professional firms, mainly lawyers, has reached more than $1-billion. Lehman Brothers' bankruptcy law firm alone has racked up fees of well over $200-million. And these fees take priority ahead of beleaguered pensioners, creditors and bond holders, leaving them slim pickings from what's left of the corporate bones.
With one lawyer for every 265 citizens, the United States is the global litigation leader - and the cost to its society is staggering. Consider health care. Malpractice suits are a primary reason U.S. health care is the most expensive in the world. Outrageous "runaway jury" awards have driven malpractice insurance rates through the roof and forced physicians to spend countless hours in courtrooms rather than attending patients.
The American Medical Association, in a recent briefing to a congressional committee, said: "The medical liability system is in desperate need of reform." In last month's State of the Union address Mr. Obama conceded as much, saying he is "willing to look at … medical malpractice reform to rein in frivolous lawsuits." Why didn't he act earlier? Because members of the association representing trial lawyers are key donors to the Democratic party. Sadly, this illustrates how profoundly the President has failed to live up to his promise to change the way Washington works.
The medical lawsuit industry is just one of many litigation pathogens attacking the heart of U.S. economic competitiveness. The Bush administration was intensely disliked by trial lawyers for efforts to rein in "punitive" jury awards, which can be hundreds of times larger than actual damages. Those efforts have lain dormant under Mr. Obama.
Regulatory overkill, witch-hunting regulators, outrageous liability awards - how can any country's economy sustain such debilitating dysfunctions? U.S. political rhetoric keeps on blaming China for the country's downward slide, but the real culprits can be found by looking in the mirror.