GM Fiasco Shows What's Right About The Civil Justice System

GM Fiasco Shows What's Right About The Civil Justice System

The last several months have seen one grim revelation after another about GM's ignition system problems. We've learned that GM may have known as early as 2001 that its ignition switches could shut off, killing power steering and causing crashes. We've also learned that a part which costs about 57 cents could have fixed the problem. And we've learned that there was no recall of the dangerous cars until this year, even though GM may have known about the problem for more than a decade.

We've seen this movie before. Recently, Toyota was forced to admit its cars could experience "unintended acceleration" and cause drivers to lose control. This happened after Toyota denied the existence of the problem for years, and scorched the earth defending unintended acceleration lawsuits. A few months ago, Toyota agreed to pay $1.2 billion to the Justice Department to avoid prosecution for misleading the public about this problem.

In fact, this sorry tradition goes back decades. There are many other notable examples, including rollover and roof crush problems with Ford SUVs and exploding gas tanks on Ford Pintos all the way back in the 1970s. These recurring episodes make two things clear: first, that the industry will not police itself; and second, that the government can't be counted on to hold the industry responsible for safety issues.

The reason an industry will not police itself is simple: bottom line concerns. Employees and officers who are evaluated on financial performance have enormous incentives to ignore or hide problems which hurt profits. In general, design changes only happen when the cost of dealing with the lawsuits or regulatory fines exceed the cost of making the changes.

The reason government can't be counted on is more complex, but is largely the result of two factors. The first problem is one of resources. Many government regulatory agencies have so little funding and so few employees that they simply can't address all the problems caused by an industry. Even the most committed regulators end up dealing with only the problems they perceive as the most serious, and let others go by the wayside. Safety issues only get attention when the death toll rises or a disaster occurs.

The second problem is what economists call "regulatory capture." That's the insidious process by which a government agency designed to protect the public gradually gets infiltrated by the industry it is supposed to regulate. The agency ends up advancing the interests of the industry rather than the public, and it falls asleep at the regulatory switch.

Because industry and government aren't the answer to the safety problem by themselves, there needs to be another watchdog. Fortunately, we have one: the civil justice system. Civil trials concerning dangerous or defective products can result in substantial verdicts against careless manufacturers. While these manufacturers don't want to police themselves, they do understand the affect that large damage claims can have on their bottom lines. They will change, even if they do so grudgingly, when the alternative is to get clobbered in court.

In the auto industry, civil lawsuits have resulted in an impressive number of safety improvements. Besides the examples mentioned above, litigation has led to safety changes such as safer door latches, which prevent car doors from flying open in accidents; electronic stability control, which helps prevent rollover accidents; better tire design, to prevent tread separation and loss of control; stronger seats, which are less likely to collapse in accidents; and side impact protection, which helps prevent serious injuries or deaths in those types of collisions.

In effect, the civil justice system acts as a powerful safety regulator, picking up the slack when government lacks the resources or fortitude to require positive changes. Countless lives have been saved, and countless injuries have been prevented, by this de facto regulation. This is worth remembering when the insurance industry and corporate America demonize consumer attorneys and the work they do in our courtrooms.

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