Litigation's Stranglehold on Charities
Abraham, Spencer, The Public Interest
Our civil-justice system is out of control. The research group Tillinghast reports that we spent $132 billion on this system in 1991 alone. That number includes money spent on courts, lawyers, and lost time. It represents two-and-a-half times what we spend on police and fire protection nationwide. These costs are only the beginning. The "tort tax" or cost added to products by lawsuits and lawsuit avoidance is 2.2 percent overall, but far higher for certain items. The tort tax adds $100 to the cost of a $200 football helmet, $20 to the cost of a $100 step ladder, $500 to the price of a new car, and $170 to the cost of a motorized wheelchair.
For years, Congress has attempted to address the litigation explosion at the root of these high costs. Unfortunately, we have only been able to pass limited reforms, and those aimed only at securities litigation. We need to do more. We need to move beyond even the limited product-liability reform recently vetoed by President Clinton. We need systemic reform that will reduce the number of lawsuits since it is not just product manufacturers and securities companies that are suffering. All of us are suffering from the litigation explosion. The temptation to sue has become too great in America. It has turned Americans against one another. And it has begun tearing down the essential bonds and institutions on which our society relies.
Although many bemoan the damage done to our economy by the litigation explosion, I would like to concentrate on the harm done to institutions that help us care for one another: charities and other nonprofit organizations. Nonprofit organizations are not the only victims of frivolous litigation; they may not even be the greatest victims. But, as I will argue below, they are extremely important victims of litigation; they are important for our survival as a nation and must be protected by systemic reform.
To reduce and end frivolous litigation will ultimately require initiatives at the state and local levels. However, leadership at the federal level will still be necessary. For frivolous litigation means more than a price increase on goods. Frivolous litigation is an attack on altruism itself.
The rise and decline of voluntarism
In Democracy in America, Alexis de Tocqueville noted that "Americans of all ages, all stations in life, and all types of disposition are forever forming associations." Whether to repair a local road or combat drunkenness, Tocqueville observed, voluntary associations were Americans' answer to public ills. And, while the government might perform any one of these functions better than voluntary associations, "the morals and intelligence of a democratic people would be in as much danger as its commerce and industry if ever a government wholly usurped their place."
Tocqueville saw that private, voluntary associations are necessary to form bonds among people, to teach members of society to trust one another. Whether a local choral society or an informal group brought together by the need to repair a community building after a storm, nongovernmental associations bind people together. Particularly in democratic societies, in which we cannot be ordered to love our neighbor, we need to participate in associations so that we can learn to cooperate. Without some basic level of trust and cooperation, social, political, and economic institutions break down, leaving only violence and chaos.
Americans still value voluntary associations. And a key form of association for Americans, through which they learn to care for one another, is the nonprofit or charitable organization. We have a vast network of 114,000 operating nonprofit organizations, ranging from schools to hospitals to clinics to food programs, with total revenues of $388 billion in 1990. Meanwhile, revenues for the 19,000 support institutions (which raise money to fund operating organizations) came to $29 billion. Total revenues for religious congregations were $48 billion. …