The Growing Threat to Economic Development:
Wisconsin's Immediate and Critical Need for Legal Reform

Madison September 25, 2006 WEDA President James Otterstein unveiled findings of a study examining the role of legal reform in economic development at a meeting of the Wisconsin Coalition for Civil Justice. "For some time, WEDA and its members have been concerned about the negative national business news which Wisconsin has received, due to recent changes in the civil justice system. Consequently, WEDA commissioned the Wisconsin Economic Development Institute (WEDI) to research this perceived economic development threat." According to Otterstein, "The threat turns out to be real and confirms our conclusions that Wisconsin's litigation atmosphere is a growing hindrance to economic development."

According to the study, numerous national studies have confirmed a significant drop in Wisconsin's overall economic development climate ratings. In an annual ranking by the U.S. Chamber's Institute for Legal Reform (Harris Poll), Wisconsin's "litigation atmosphere" rank has fallen during a three-year period from 10th to 23rd. Another study commissioned by the National Association of Manufacturers ranks Wisconsin 30th. Meanwhile, the WALL STREET JOURNAL noted several 2005 Wisconsin Supreme Court cases and vetoes of the subsequent legislative corrective action attempts, as contributing factors for these negative rankings. Recently, FORBES MAGAZINE reporting on the "Best States to do Business" ranks Wisconsin 42nd in Regulatory Environment, including tort climate.

The research concludes that reform is needed. Nationally, the tort system is large, the largest of any country and growing rapidly. However, the system is not working; injured parties receive only a fraction of awards with the balance going toward overhead costs, including attorney fees. In 2006, this "tort tax" is estimated to be $1,000 per person, equivalent to a 2% national tax on consumption or a 3% tax on all wages. The research also notes that in spite of the rhetoric, small businesses bear the majority of these litigation related costs. Even though the scope of the research did not quantify the opportunity costs lost due to an uncertain litigation atmosphere, the results indicate that Wisconsin's business climate most certainly suffers.

The research further concludes that the civil justice system is obviously not working and it is exposing existing Wisconsin employers and prospective new businesses to unwarranted risk; thus hindering new capital investment and employment retention / expansion efforts. WEDA supports initiatives that restore fairness to our legal system and that bring Wisconsin into parity with other states. Restoring these economic development climate ratings will contribute positively towards ensuring that Wisconsin will be in a position to compete for future private sector capital and employment related investments.

The Wisconsin Economic Development Association (WEDA) is a statewide non-profit organization of economic development professionals dedicated to expanding the economy of the State of Wisconsin.