The Commerce Department released an interesting paper yesterday on competitiveness and legal costs. It’s conclusion: support U.S. competitiveness by reducing legal costs and uncertainty. At a time when small IT firms are finding it harder to access capital from here at home, they need look far, wide, and global. (earlier this year ACT released a report on the importance of foreign direct investment to innovative technology startups).

And it appears that our litigiousness will end up hurting investment from overseas.

The paper, The U.S. Litigation Environment and Foreign Direct Investment: Supporting U.S. Competitiveness by Reducing Legal Costs and Uncertainty, notes that high U.S. tort costs are a competitiveness issue that merits sustained efforts aimed at getting these costs in line with those of other nations.  There is also a pressing need for additional economic research on the impact of a litigious society on a country’s ability to attract foreign direct investment (FDI).

Overall the U.S. legal system is the best in the world. But we can and should be better. America’s open investment policy is based on the principle that foreign investors should not be treated differently.

The new Obama or McCain administration needs to be a good promoter of this, even in the face of protectionist forces and a bad domestic economy.