Exorbitant lawsuits carry with them a variety of economic consequences that place a significant strain on American businesses and consumers. A recent study by The Institute for Legal Reform shows litigation costs at an annual rate of 6 percent from 2016 to 2020. That rivals the inflation rates that have hamstrung the economy of late.

The problem continues to get worse. More suits are being filed against companies, so their communities feel the effect. Businesses are constantly at risk of being hit with frivolous lawsuits and dealing with costly litigation fees, regardless of whether they win or lose. These unnecessary expenditures hinder the nation’s economic development.

Excessive litigation naturally limits resources companies could otherwise devote to investment and hiring. Most defendants settle in court and disburse large sums. This, in turn, stifles investment and innovation that could better promote consumer welfare, further impeding economic growth.

Moreover, excessive litigation increases the likelihood that businesses will avoid certain states altogether. For example, business owners may flee adversarial jurisdictions to decrease their chances of facing predatory lawyers. As upsetting as it is, businesses can’t be blamed for avoiding areas known for costly litigation issues. As understandable as this avoidance is, this will create innovation “dead zones,” punishing small businesses and consumers.

Enterprises often counterbalance costly litigation by increasing insurance premiums or product costs to stay afloat. Not only will consumers miss out on opportunities, but they will also experience added inflationary pressures. Frequent litigation does not benefit communities but instead forces businesses to sacrifice their earnings and resources.

Frivolous litigation is financially burdensome and time-consuming. Any business, from mom-and-pop shops all the way up to Fortune 500 companies, will face unnecessary obstacles and added stress. These burdens will be reflected somewhere, either layoffs, hiring freezes, higher prices or even closing up shop altogether.

Aside from harming businesses, workers and customers, frivolous litigation also strains the court system. Frivolous lawsuits not only clog up the courts and slow case processing but also make it easier for claims with questionable merit to slip onto the court dockets. The inefficiency of the courts in sorting cases due to excessive caseload leads to a deviation of effort toward unproductive and impractical objectives.

Predatory lawyers inundate courts, making it harder for courts to consider each request adequately, increasing the need for taxpayer money to fund our courts. The more taxpayer money that goes into supporting a flooded court system, the fewer resources available for other public services, such as education and healthcare. This diversion of our taxpayer funds can lead to the neglect of critical areas or necessitate tax hikes.

The lesson is that costly, frivolous litigation aggressively harms communities, not just companies. These lawsuits stunt job growth, economic production and industry development. Businesses must be allowed to thrive unencumbered to ensure our communities will continue to keep up in an increasingly competitive global economy. Tort reform is a logical and needed first step toward this end.

David Williams is the president of the Taxpayers Protection Alliance. He wrote this for InsideSources.com.

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