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May 24, 2006

What's the Problem?

By Jonathan B. Wilson

With Larry’s response to my last point, I think the issue of lawyer licensing comes to a head.

Larry endorses my recommendation for a Presidential Blue Ribbon Commission, but he says that the panel should focus “on problems in the market for legal services, not just one for abusive litigation.”

And that prompts me to ask, “What are the problems in the market for legal services?” Larry’s position is that lawyer licensing does not address these problems. In response to my contention that lawyer licensing ensures lawyer competence and honesty, he conceded that the licensing contributes to these goals, but questioned, “How much, at what cost, and compared to what?

I’m not sure that Larry has articulated what he perceives to be the problems in the legal marketplace, so let me suggest a few and see how lawyer licensing functions as a possible solution.

The Competence Problem

I think we’ll all agree that the skill levels of lawyers in America vary. Some are great. Some are not so great. Most are in between. But is there an endemic problem with basic legal competence?

I don’t think so. With lawyer licensing, no one gets to practice law who cannot pass the bar exam. Gross violations of competence are often (though not always) prosecuted through bar grievance programs. While there will always be problems of professional competence in any service market, having an entrance exam ensures that, at least when they began their careers, everyone licensed to practice could at least pass a test.

But if lawyer licensing doesn’t solve the competence problem, what would? Professor Ribstein alludes to the data he reviewed in his publications – and I don’t claim to know nearly as much as he does about that data – but what alternative to the bar exam would ensure that lawyers are competent?

In his first post this week, the Professor suggested that private certification organizations could regulate lawyers (and presumably ensure competence), but how would that work? How would non-professional consumers distinguish between the qualities of one private certifying organization against another? And why would a private certification organization operate more efficiently than the public certification that licensing provides?

In one of his posts, Larry suggested that today's lawyers receive too much education and that this education does not ensure competence. Perhaps not, but it's not clear how less education would give greater assurances of competence.

The Honesty Problem

Like the competence problem, the honesty problem is also addressed by licensing.

While the vast majority of lawyers are honest, some are not. Dishonest lawyers are routinely disciplined and disbarred when their abuses are uncovered. The bar’s prosecution mechanism, even if it leaves some wrongs undiscovered, at least serves an in terrorem effect to squelch any temptation in the hearts of those who would be tempted. It may not be perfect, but it’s better than nothing.

And "nothing" is what eliminating lawyer licensing would offer. Would a private certification organization do a better job at policing legal ethics than the mandatory bar? Doesn’t the mandatory bar already have adequate market incentives, as well as a legal mandate, to police lawyer ethics?

The Pricing Problem

Professor Ribstein’s initial comments suggested that lawyers somehow use licensing to create a “legalized cartel”. The problem with cartels is that they artificially restrict supply and inflate price. Does the Professor believe that lawyer licensing creates artificially inflated prices for legal services?

I’m not sure there’s evidence for the claim that legal services are over-priced. Lawyer incomes vary dramatically by region and by practice type. The $700 per hour Wall Street lawyer who can advise you on a public company proxy fight would be of no value in defending against your DUI prosecution or closing on a home financing. Likewise, the DUI lawyer and the home financing lawyer – whose services are valuable to their clients – don’t charge 10% of the hourly rates of the Wall Street lawyer.

A Google search for “personal bankruptcy lawyer” yielded more than 20 million hits. Some of them offer “same day filing” for $125.

I have no idea if these lawyers are offering competent service or not, but they don’t seem to be that expensive. At the same time, pricing for the most expensive lawyers in the U.S. seems to be flattening out. This year’s AmLaw 100 survey claims that the revenue per lawyer (or “RPL) of the country’s top 100 firms is stagnating:

“In the U.S.'s 100 highest-grossing firms, in other words, additional lawyers are slowing the rate of revenue growth. Firms have continued to improve profitability by cutting costs, boosting efficiency, and making equity partnership more exclusive, but RPL remains the barometer of The Am Law 100's overall health. And, over the long term, RPL expansion is not keeping pace with head count increases.”

The article concludes that the 100 largest firms in the U.S. have hurt their profitability by growing too fast. In other words, too many lawyers; not too few.

I often see a line at the counter at McDonald’s. I’ve never seen a line outside a lawyer’s office. I would be interested to see alternative data but my experience tells me there is no shortage of legal services in the marketplace and therefore no effective cartel created by lawyer licensing.

So what exactly is the problem that Professor Ribstein would solve by eliminating lawyer licensing? It wouldn’t make legal services more competent, more honest or less expensive. And even if we wanted to eliminate lawyer licensing, how would we get there?

The Transition Problem

Let’s assume that I’m completely off my rocker and that Larry is right that we should eliminate lawyer licensing at the state level and replace it with private certification organizations. Let’s also assume that we could all agree on what these certification organizations would do and how they would work.

How would we manage the transition from state-licensing to private certification? You couldn’t just de-bar the practice overnight and allow all willing applicants to seek certification the next day. There would have to be some kind of lengthy transition period in which licensing would sunset and certification would arise as an alternative means of regulation.

With 50 separate state regimes to manage, policy-makers would either have to endure a decades-long transition in which some states deregulated and others didn’t or there would have to be some kind of nationwide, federally-mandated deregulation that trumped state law. How would that work? How could it work?

In short, I can see no evidence that lawyer licensing is driving up the cost of legal services. Legal services of the kind often purchased by the poor and the middle-class seem to be readily available at more-or-less reasonable prices.

Larry is right that lawyer licensing is no panacea. We both agree, I think, that there is much room for improvement in our legal system. Where we disagree is over the question of whether lawyer licensing, on balance, is a positive or a negative contributor to the legal marketplace.

I'm prepared to say that licensing provides a net positive contribution.

Posted at 01:57 PM | TrackBack (0)




Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.