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Jewish World Review July 31, 2000 /28 Tamuz, 5760

Thomas Sowell

Thomas Sowell
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Costs and decisions

http://www.jewishworldreview.com -- OF ALL THE WAYS of making decisions, one of the most ridiculous is putting decisions in the hands of third parties who pay no price for being wrong. Yet that has been one of the most fashionable -- and most disastrous -- methods used in this century in countries that embraced socialism.

Now that communism and other forms of socialism have been discredited by their failures around the world, you might think that the assumptions and methods of such economic systems would also be discredited. But you would be wrong.

Third-party decision-making is alive and well in America today. There was even shock when it suffered a minor setback in California recently.

The Sierra Club and other environmentalist groups asked Judge Quentin Kopp to issue a temporary injunction, pending a trial, to stop a lumber company from using helicopters to lift logs out of a forest. Judge Kopp agreed that the temporary injunction was called for because of irreparable damage that could already be done before a trial on the merits of the environmentalists' contentions.

On the other hand, Judge Kopp ruled, damage could be done to the lumber company if the environmentalists' claims did not stand up in court. So he required those who wanted an injunction to post a bond of $250,000 to cover the damages that the lumber company might sustain from an injunction based on unfounded allegations.

This ruling brought shrill outcries from environmentalists and their lawyers, who are used to imposing huge costs on others at no cost to themselves. One San Francisco environmentalist group calling itself the Earthjustice Legal Defense Fund claimed that requiring bonds in order to get a temporary injunction could have "a chilling effect" on environmental litigation.

It didn't seem to matter to them that an injunction could have a freezing effect on the lumber company, which could lose millions of dollars if it had to suspend operations and lay off workers while a trial dragged on -- workers they might not be able to hire back to resume work if they won in court.

The Earthjustice folks were shocked because, they said, such a large bond requirement had been imposed on them only once before in 20 years of litigation nationwide. Maybe that is what is wrong with our courts -- that they let some people impose huge costs on others at no cost to themselves.

One of the secrets of the environmentalists' success is precisely their ability to delay costly projects with legal challenges, even if the basis for these challenges turns out to be pure hogwash. It is not just that workers who are laid off when a project is halted may go find other jobs and not come back. Banks that have lent millions of dollars to those seeking to build apartment complexes, office buildings or other structures expect to be paid back with interest, regardless of whether those projects are completed sooner or later.

If you have borrowed $10 million to build a project, and are paying 8 percent interest to the bank, then you have to pay $800,000 a year -- even during those years when your project is halted and you are tied up in court answering environmentalist claims that turn out in the end to totally unfounded. But it costs the Sierra Clubbers nothing.

When there are blackouts and brownouts this summer, because of inadequate electricity generating capacity, that is another of the costs imposed on other people by environmentalists who fight against the building of power dams, nuclear power plants or other ways of generating electricity at a cost that the public can pay. But, again, it costs the environmentalists nothing.

Environmentalists are just one of many groups who impose large costs on others at no cost to themselves. Government itself is one of the prime culprits when it comes to imposing costs on people who have not been proved to be guilty of anything. The Clinton administration recently warned gun manufacturers of the litigation costs it could impose on them if they did not knuckle under.

In some countries, people who bring lawsuits and lose have to pay the legal bills of those they sued. Even that is inadequate because the real costs extend far beyond what it costs to hire a lawyer. But we are not yet ready to go that far.

Requiring a bond to be posted by those who seek injunctions that will be costly to others is a step in the right direction. But a lot more steps will be needed to make those who create costs for others bear some of those costs themselves.


JWR contributor Thomas Sowell, a fellow at the Hoover Institution, is author, most recently, of The Quest for Cosmic Justice.

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© 2000, Creators Syndicate