After hearing in one of our lastest posts that China may be the United States of the 21st Century, is there any arena where the US still clearly reigns supreme? Niall Ferguson, a Harvard University professor and Hoover Institution fellow, tackles that question in his recent book, the cheerfully titled The Great Degeneration: How Institutions Decay and Economies Die (Penguin Books 2012). According to the research he has mustered, the U.S., and particularly the U.S. legal system, fits within that title.
In the World Economic Forum’s most recent Global Competitiveness Report, the U.S. doesn’t make it into the top 20 on nearly any measure, and on eight it doesn’t even make it into the top 50, ranking 59th, for example, with respect to government officials not showing favoritism, a measure as to which seven Asian countries scored higher than the U.S.
For years, the International Finance Corporation has compiled data on the difficulty of conducting business in different countries. Since 2006 most countries have significantly reduced these difficulties. In only 21 countries has the difficulty of doing business gotten worse. The US shows the sixth-greatest decline in ease—just behind Burundi, Congo-Brazzaville and Yemen.
In the voting with their feet department, there is recent evidence that Harvard Business School grads prefer foreign locales to U.S. ones for new investments. In 607 decisions in which HBS alums had to choose between domestic and offshore operations, only 16% of the investments remained in the U.S. The foreign location was chosen primarily for the 1) effectiveness of the political system, 2) simplicity of the tax code, 3) regulation, 4) efficiency of the legal framework, and 5) flexibility in hiring and firing.
As to the U.S. legal system specifically, both the Fraser Institute and the World Bank contend that it has declined significantly since 2000. The World Justice Project’s Rule of Law Index for 2012–2013 ranks the U.S. 26th out of 97 countries on effectiveness of the criminal justice system, 25th on fundamental rights, and 22nd on access to civil justice.
According to Ferguson, “Today only lawyers think the United States has the world’s best legal system. Everyone else knows it has become a nightmare of impossibly complicated statutes (example: Dodd-Frank), open-ended liability (tort costs are the highest in the industrialized world relative to GDP), and eye-watering billable hours.”
Time for some remedial action before the great degeneration becomes irreversisble?