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November 12, 2002

Chamber Points to Legal Climate Impact on Economies

WASHINGTON, D.C. – The United States Chamber of Commerce today released a study showing that a state’s liability system has a “statistically significant” impact on its economic development.

“This research shows what we have suspected all along – economic growth is greatly affected by the kind of legal environment in which businesses must operate,” said Thomas J. Donohue, President and CEO of the U.S. Chamber.

The study – conducted by former White House economic adviser Todd Buchholz, now a managing director with ENSO Capital Management LLC, and Robert Hahn, resident scholar and director of the AEI-Brookings Joint Center for Regulatory Studies – found that “a state that imposes a capricious or arduous court system on business is likely stunting its growth compared with a state that offers a more reasonable structure.”

In January 2002, the Chamber’s Institute for Legal Reform released a survey of 824 senior litigators and in-house general counsels who ranked the states by the perceived reasonableness and fairness of their tort liability systems. Delaware was ranked first; Mississippi was ranked last. As a follow up to that study, Buchholz and Hahn examined whether economic growth among the 50 states correlated with the legal framework of those respective states.

The research showed that the 10 states that ranked highest on the Harris survey averaged 15.72 percent growth, compared to 11.63 percent growth rate for the 10 states that ranked lowest – a 4 point difference that represents a 35 percent increase in economic activity for those top 10 states.

Buchholz and Hahn conclude that states that have less fair legal regimes would attract less business and therefore generate less income. “U.S. companies are operating in an extremely competitive environment,” according to the study. “States that hang a sign on their borders saying, ‘You’re Not Welcome Here,’ will find that they will get their wish.”

The Chamber Institute for Legal Reform is working to make America’s legal system simpler, fairer and faster for all. The U.S. Chamber of Commerce is the world’s largest business federation representing more than three million businesses and organizations of every size, sector and region.

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