A pair of Brookings scholars think we can fix the legal industry by deregulating it. If only it were that simple.
Foes of regulation have found a new and tantalizing target: The legal industry.
In recent weeks, a pair of Brookings scholars, Clifford Winston and Robert Crandall, have been on a whistle-stop tour around the media, preaching the need to open up law firms to new competition by tearing down professional licensing requirements. In addition to their new book, First Thing We Do, Let's Deregulate All the Lawyers, they have published op-eds in The New York Times, Wall Street Journal, and The Huffington Post.
Their theory is pretty simple. Right now, they say, the legal industry works like a cartel. Requiring lawyers to graduate law school and pass a state bar exam artificially limits the supply of lawyers, pushing up prices. The process also blocks potential business innovations that would bring down costs. As they put it on HuffPo:
ABA occupational licensing requirements have allowed lawyers to create a club with a limited membership that is able to raise prices to consumers, which is how top lawyers can get away with charging upwards of $1000 per hour for their time.
The cure-all: Nix the diplomas and the tests. Let anybody practice, and use third party publications -- a "Zagats for lawyers" as they call it -- to police quality. New players will enter the market and costs will come down.
But don't we already have too many lawyers? As The Times and other papers have amply documented, the U.S. currently faces a serious glut of attorneys, many of whom are finding it nearly impossible to get work as firms see profits shrink and governments face tighter budgets. Winston and Crandall have a ready retort. By bringing down prices, demand for services will increase, and that will create more legal jobs.
There's a certain appeal to the idea. After all, as they point out, neither Abraham Lincoln nor Clarence Darrow would be allowed to practice law under our current regulatory regime. Plus everybody likes tweaking highly paid lawyers. And I will admit, some of their substance does have merit. But unfortunately, like most cure-alls that look good on paper, a lot of it is also completely bunk.
BIG LAW VS. LITTLE LAW
Before I go any further, a disclosure: I used to work at a law firm (not as an attorney). So I have a little, though not a ton, of experience dealing with the business end of the "industry" -- a word I use hesitantly. In reality, there is no single legal market, but rather many markets that exist under the broad umbrella of the "law." There's the world of corporate law, which itself splits between small/mid-size firms and the pinstriped land known as Big Law. Then there's the legal market for the rest of us -- the small firms and solo-practitioners who handle family wills and DUI cases. I could bore you to death with more nuances, but that's the basic division.
To get a sense of how the market divides up, we can look at numbers from the Census Bureau. According to their latest snapshot figures, collected in 2007, law offices made about $228 billion, up about 31% from 2002. Just $71 billion of those fees were paid by clients who were individuals or estates. Meanwhile, the 50 biggest law firms alone raked in $23 billion, up 60% since 2002. Finally, about half of all lawyers work at firms that make at least $10 million a year, many of which presumably serve corporate clients.
What do we learn from those figures? First, you're talking about an industry with two fairly distinct halves that need to be addressed separately. Second, the costs (and profits) are growing at the very top.
Letting more people become lawyers won't drive down costs in high-flying corporate law. And although it could help control legal fees for the rest of us, we could wind up allowing under-educated people to represent important cases for families who can't afford the high-flying treatment.
BIG LAW: IT'S ALL ABOUT TALENT...
When it comes to the cost of hiring a corporate lawyer, labor supply doesn't matter. Talent supply does.