By Jonathan B. Wilson
Posted on May 19, 2006, 11:52 AM
The topic must have touched a nerve, as a number of the leading blawgs chimed in and even the Wall Street Journal conducted an online poll on the topic. (Smug aside: As of Friday afternoon the "yes" votes commanded a 59%/41% lead.)
Our hope in this week's Featured Discussion is to dig into this topic further. My own view is that this question, when viewed from the proper angle, offers a number of suggestions for how the legal profession and the American system of litigation can and should be reformed.
What is Lawyer Licensing?
By defending lawyer licensing, I am defending a system whereby, in order to legally practice law, an individual must receive a license at the state level. In nearly every state, this license takes the form of admission to the bar, usually following successful completion of an ABA-approved course of study and passage of the state's bar exam.
Most state bars also require an applicant to complete a "moral fitness" examination. In my home state of Georgia that entails a detailed personal application, identifying every place of residence, job, and course of study taken by the applicant since the age of 18. The moral fitness exam in Georgia also includes an investigation of the applicant by the bar's examiners (many of whom are former FBI agents) and contacting the applicant's relatives, friends and neighbors to validate the applicant's claims.
So what is it, exactly, that lawyer licensing is supposed to achieve?
Lawyer Licensing Ensures Competency and Moral Fitness
As one of the pamphlets for the Georgia Office of Bar Admissions states:
When a client walks into a lawyer's office, he has the right to assume both that the lawyer is competent in the law and that the lawyer will conduct the client's matter in a professional and ethical manner. The responsibility of ensuring that those who seek licensure as attorneys are competent and are fit to be licensed is shared by two separate and equal boards: the Board of Bar Examiners, which deals with the questions of the applicant's competence; and the Board to Determine Fitness of Bar Applicants, which inquires into the character and fitness of the applicant.
The chief purpose of lawyer licensing is to ensure technical competence and at least the minimum level of moral character required to perform as an attorney. This aim supports a number of public policy goals:
1. The public is protected by the state mandate that only licensed attorneys can hold themselves out to the public as qualified, both technically and morally, to practice law.
2. The state is protected by ensuring that attorneys who appear in its courts have a sufficient level of competence. (An excessive number of incompetent practitioners could clog the courts with inappropriate or excessive process. [More on this later]).
The moral examination, at least in Georgia, is quite rigorous and includes questions and third party validation of the following points for each applicant:
unlawful conduct; academic misconduct, including plagiarism; making of a false statement, including omission of relevant facts in the fitness process; misconduct in employment; acts involving dishonesty, fraud, deceit or misrepresentation; abuse of legal process; neglect of financial responsibilities, especially failure to repay student loans; neglect of professional obligations; violation of an order of a court, especially failure to pay child support; evidence of mental or emotional instability; evidence of drug or alcohol dependency; denial of admission to the bar in another jurisdiction on character and fitness grounds; disciplinary action by a lawyer disciplinary agency or other professional disciplinary agency of any jurisdiction
So, at its heart, the issue of lawyer licensing is one of protecting the public from the baneful effects of incompetent or immoral lawyers.
But the Current System is Flawed!
Readers of these pages know that our litigation system is flawed and at least some measure of responsibility for those flaws rests with attorneys, the bar associations that license and police the attorneys and the judges who began their careers as attorneys. Supporting the continued licensing of lawyers does not necessarily entail blindness to the shortcomings of the current system.
Indeed, the flaws in the status quo suggest that lawyer licensing should be improved and strengthened, rather than eliminated.
The Laissez-Faire Argument
Of course all students of the school of law and economics prefer a market solution where one exists. In his paper on the subject, Professor Ribstein suggests that lawyer licensing is unnecessary, except to the extent that it facilitates the involvement of attorneys in the law-making process.
Without addressing the professor's theory of lawyers' property rights in the law of their home states, I think a more direct justification for lawyer licensing is that laissez-faire simply doesn't work when it comes to the market for legal services.
In classical economic theory, a free market works efficiently to set prices among competing goods when there is ubiquitous and accurate information concerning the relative merits of competitors.
As I describe in Out of Balance: Prescriptions for Reforming the American Litigation System, in the market for apples, there is exactly this kind of information. Everyone knows what they like (or don't like) about apples. A consumer who wishes to compare the apples from producer A and producer B, for minimal cost, can sample both and choose the one that presents the preferred qualities and price.
Legal services are utterly unlike apples. Consumers are ill-equipped to evaluate the skills of competing attorneys and the cost of "sampling" attorneys is very high. Indeed, the cost of sampling an attorney's services (and the possible consequential damages if the attorney proves to be unskilled) could be disastrously high. An ex post facto analysis of the quality of the service will, in nearly all cases, be completely inadequate.
Bad Facts Make Bad Law
Professor Ribstein began this debate by recounting a particularly ugly story in which Brian Woods represented his autistic son in litigation against the Akron school board involving the son's access to educational facilities. After successfully obtaining a remedy, Mr. Woods was rewarded by an unauthorized practice of law prosecution, initiated by the Cleveland Bar Association. Professor Ribstein connected this case to lawyer licensing when he wrote:
Since Mr. Woods could have acted as his own lawyer, and for his son in finding a lawyer, there's obviously no reason not to let him decide to dispense with the lawyer rather than paying the huge fee a lawyer would have asked or having to drop the case.
The Ohio Supreme Court was right to have chastised the Cleveland bar and there seems to be widespread agreement that the bar should not have gone after Woods. I would even be amenable to a more general rule that permits close family members who are unlicensed to represent each other in non-criminal cases. The family relationships in those situations generally eliminate the client-protection rationales for lawyer licensing.
But Brian Woods' good fortune as a pro se litigant does not mean that every Tom, Dick and Harry should be permitted to hang out his (or her) own shingle.
In-house practitioners like myself quickly amass a treasure chest of war stories involving pro se litigants. Litigating against a pro se plaintiff, in many situations, is more costly than litigating against a well-heeled attorney. The plaintiff who represents himself will often get "velvet glove" treatment from the judge (who fears looking like a lout on appeal) and the professionally-represented defendant will be forced (via the American rule of attorneys' fees) to literally pay for the plaintiff's education on the finer points of law.
Rather than the somewhat orderly pre-trial and discovery process that results when professional lawyers practice their craft, the self-represented plaintiff will force his professional opponent to respond to out-of-order motions and arguments, helter-skelter, in an inefficient and lengthy march towards the likely conclusion of a defense victory.
So, while I applaud the individual merits of parents like Brian Woods and am somewhat embarrassed when bar associations create this kind of bad publicity for themselves, stories like this one do not justify the wholesale elimination of lawyer licensing. At most, they may suggest the need for limited exceptions to the general rule that attorneys must be licensed.
What Would an Unlicensed Bar Look Like?
Perhaps the best argument against eliminating lawyer licensing is asking the question, "what would our litigation system look like if lawyers were not required to be licensed?"
Do you think our courts have too many weak or unjustified cases?
An unlicensed bar would compound that problem as individuals with no legal training would be free to make up whatever legal theories they wish. With the American rule of attorneys' fees, defendants will bear the costs of disproving every harebrained theory that comes along.
Do you think our courts are two willing to consider unscientific legal theories and novel theories of liability?
If every citizen were free to hold himself out to the public as a legal advocate for hire there would be no end to the novel legal theories these hired guns would be able to pursue. Perhaps judges might be prompted to clamp down on novel claims in a post-licensing era, but the past offers little reason for optimism.
Licensed attorneys have enough difficulty applying the Daubert rule to their cases in the current regime. Do you think that unlicensed attorneys would have a better chance of getting it right?
Are the existing limitations on lawyers' ability to pursue weak or frivolous cases toothless and ineffective?
Imagine how toothless and utterly irrelevant they will become when unlicensed lawyers can defend themselves against Rule 11 sanctions by complaining that they had never heard of Rule 11. If any person could act as an attorney, why even bother having principles (like Fed. R. Civ. P. 11) that hold some persons to a higher standard than others? How could an unlicensed attorney, perhaps with no legal training whatsoever, distinguish between those arguments that are valid and those that are not?
Criticizing the legal profession for protecting its turf via UPL prosecutions is fair game. Lawyers are often their own worst enemies when it comes to their public reputations and their share of the public trust. When the legal profession allows its sense of professionalism to atrophy and when the state bars become little more than trade associations for a guild that protects its own, its entirely understandable for sensible persons to question why the state bars should hold a monopoly on the licensing of lawyers.
But this criticism ought to remind us why lawyer licensing is necessary and the flaws in the status quo should give us reason to preach reform, rather than deregulation.
Lawyers behaving badly is a far too common occurrence. The solution is to tighten the rules of ethics and to empower prosecutors to pursue lawyers who breach those rules.
A related solution for the problem of a profession that has lost its sense of professionalism is to reform those laws that tend to encourage lawyers to think of their craft as just another good in the marketplace. If our sense of civil justice is offended by "complaint mill" plaintiffs who churn out hundreds of filings in the hope that a handful will result in a lucrative payday we should reform the laws that permit this practice, rather than empowering the general citizenry to engage in the practice.
Deregulating lawyers as punishment or retribution for a profession that has lost its way would be a recipe for disaster. Deregulating the practice of law would open the floodgates to fraud of every conceivable variety and would only compound the problems that the readers of these pages see in our civil justice system.
By Larry Ribstein
Posted on May 22, 2006, 07:29 AM
Jonathan Wilson says that licensing protects the public and the courts from incompetent and immoral lawyers. Although I have proposed a limited and tentative defense of licensing based on motivating lawyers to participate in law reform, I question licensing laws designed to address the broad goals Jonathan articulates. Although licensing doubtless contributes to these goals, my questions are: how much, at what cost, and compared to what?
As for protecting clients, the problem with legal representation is that it's hard for the client to judge the lawyer, so the client needs some assurance of the lawyer’s quality. But how much assurance does a license provide? As a law professor it would be hard for me to deny that three years of law school do say something about legal competence. But passing a bar exam doesn't guarantee the lawyer’s willingness and ability years later to attend to clients' problems. A fitness investigation at the outset of a lawyer’s career is likely to reveal more about youthful indiscretions than about how the lawyer will face up to the temptations of an adult career. And keep in mind that, unlike a physician, a lawyer need not have any hands-on experience to be licensed.
Yet while a license arguably communicates little useful information, in many respects licensing sets too high a bar. How much legal history, philosophy and economics, to name a few of the subjects students learn in law school, does a lawyer need to handle a real estate conveyance, to name one of the subjects few students learn in law school?
Because all this costly learning reduces the availability and raises the costs of legal advice, licensing hurts the poor and lower income people licensing it is supposed to help. Their only recourse may be self-help. I’m reminded here of a study showing that regulation of electricians increased electric shocks to do-it-yourselfers.
And remember that lawyer licensing turns regulation of the legal profession over to, guess who, the legal profession. In other words, it creates a legalized cartel. How likely is it that lawyers themselves will come up with precisely the regulation that protects the public and no more?
There are better ways to protect clients. Big law firms provide a strong reputational "bond" (see my article, Ethical Rules, Agency Costs and Law Firm Structure, 84 Virginia Law Review 1707 (1998)). Lawyers can be certified by private organizations, including existing bar associations, which can compete with each other by earning reputations for reliability. These are market-oriented, consumer-friendly, ways of dealing with information asymmetry. Private organizations could accommodate a variety of standards, suitable for the range of clients' needs. The main regulation that would be necessary in this market regime is protection against practitioners misrepresenting their level of certification.
What about protecting the courts from the unskilled? Here’s where the anti-litigation folks like Jonathan and the free marketers like me really seem to divide on lawyer licensing. Again I’m skeptical about how much help licensing can provide. After all, abusive litigation has been brought to us by licensed attorneys. Jonathan asks how “an unlicensed attorney, perhaps with no legal training [could] distinguish between those arguments that are valid and those that are not?” The answer is common sense. Only trained lawyers could come up with, and vigorously defend in court, the legal theories and clever tactics that litigation critics deplore. We're not going to get more ethics and common sense from beginning-of-career character and fitness exams. Licensing, which turns regulation over to the very people who got us into this mess, is not likely to be the best way out of it.
There are better ways to deal with excessive litigation. We could have stricter pleading rules, or require losers to pay winners’ fees. Or how about this: let anybody into court, but adopt a loser pays rule for parties that come into court represented by anything less than a lawyer with the highest possible trial certificate.
Even if only licensing would effectively deal with this problem, the licensing scheme should be designed specifically to protect the courts. Instead of requiring the same all-purpose license to handle a real estate transaction and to prosecute a billion-dollar class action, we could have a special licensing law for courtroom practice, backed by tight regulation of trial lawyers’ conduct – something like the traditional barrister/solicitor distinction in the UK.
As I noted above, I don’t propose completely eliminating lawyer licensing. My limited licensing proposal would not impose high legal representation costs on those who can least afford them. Moreover, even without a broad licensing requirement, there would (I certainly hope!) be a significant demand for trained legal professionals. The difference is that the market, and not the legal profession itself, would determine the extent of that demand.
As Jonathan pointed out, the pro-licensing folks won the WSJ poll on lawyer licensing by around 60-40. That’s not an impressive win given all the lawyers and other professionals who read the WSJ. There’s a lot of discontent with lawyers. The masses are ready to storm the citadel. The time has come to contemplate the end of the lawyers' cartel.
By Jonathan B. Wilson
Posted on May 22, 2006, 10:06 AM
Larry’s argument seems to have a central premise: requiring lawyers to be licensed decreases the supply of lawyers and increases their price; the public would be better served by increasing supply (via reduced licensing requirements) with a consequently lower cost:
“Yet while a license arguably communicates little useful information, in many respects licensing sets too high a bar. How much legal history, philosophy and economics, to name a few of the subjects students learn in law school, does a lawyer need to handle a real estate conveyance, to name one of the subjects few students learn in law school?
I agree that there are days when I wonder why I needed to sit through all those hours of classes. I have the same thought when I go into to see my doctor about a wart on my arm and he proceeds to burn it off with some liquid nitrogen, only to bill my HMO $85 for an exercise that took him only 3 minutes. (That’s $1,700 per hour for you lawyers who don’t have calculators).
But then I remember those moments in my career when I spotted an issue my client missed because something in my legal training allowed me to pull together disparate pieces of information. And that is why both lawyers and doctors should be required – by law -- to have a substantial course of training before they can practice in public.
The nurse (who is also licensed, by the way) could have burned off my wart, but every now and again my overly-trained doctor is going to spot an issue the nurse might have missed. Individual transactions might create an appearance of overpricing, but each transaction comes loaded with liability for the doctor. A substantial part of the doctor's value rests in issue-spotting and being able to react immediately to an emergent situation. So it is also with lawyers.
Does this tend to decrease the supply and increase the price of lawyers? Perhaps.
Those corporations who purchase legal services from the AmLaw 100 probably would not notice a difference if lawyer licensing were eliminated. The unlicensed Tom, Dick and Harrys of the world probably won’t be competing for the same clients as, say, Cravath, Milbank, King & Spalding, and so on.
The impact will be greatest on those who cannot afford lawyers now, the poor and the middle class. Today they rely on Legal Aid, legal clinics, friends, neighbors, relatives and self-help. They’ll still rely on these old standbys in a deregulated future, but they’ll also be tempted to try unlicensed alternatives and here is where the mischief will be made.
Online services and other unlicensed individuals will setup shop to sell legal services that they are prohibited from selling today. Their contributions to the legal “marketplace” will have no effect on the price of legal services to corporations, who will continue to buy top shelf lawyering, but they will sell their services to the poor and the middle class. To the extent their unlicensed services are deficient; it is the poor and the middle class who will feel the brunt of those failures.
Will some unlicensed practitioners supply a need that is unmet today? Probably so. And so would the unlicensed doctor who might provide unlicensed healthcare at a cut rate with 90% accuracy. The problem will come from the 10% error rate.
Imagine the horror stories that will quickly abound when the floodgates to the legal market are flung open. Dateline, 20/20 and every investigative reporter that ever caught a scoop will do a piece on some middle-class family who was duped by unlicensed lawyering. Inevitably every piece will end with a “call to action” which will quickly become a “call to regulation”. Either the legal profession will be re-regulated (and under what scheme we cannot know) or the legislature will be called upon to regulate whatever particular transaction seems to be causing the most pain.
The outcome, for those free market advocates among us, will be one with more regulation, and not less.
Professor Ribstein suggests that we might return to the English distinction between barristers (who are licensed to appear in court) and solicitors (who may practice law without appearing in court). This distinction appears in many other first world legal systems and might well be an improvement on our own.
But we could implement a distinction between barristers and solicitors without abandoning the state licensure of attorneys. If you would like to increase the licensure requirements for lawyers who file pleadings, but decrease the requirements for lawyers who don’t: go right ahead.
But if Professor Ribstein’s central thesis (that restricting the supply of lawyers artificially inflates the price of lawyers) wouldn’t this restriction exacerbate the problem?
Larry reacts to my argument that the loss of licensure would stimulate further unnecessary or non-meritorious litigation:
“There are better ways to deal with excessive litigation. We could have stricter pleading rules, or require losers to pay winners’ fees. Or how about this: let anybody into court, but adopt a loser pays rule for parties that come into court represented by anything less than a lawyer with the highest possible trial certificate. “
These are all great tort reform ideas, of course, and many have been discussed on these pages. As our dedicated readers know, however, most litigation reform proposals get shot down either (a) in legislatures dominated by the trial bar or (b) by state supreme courts who find constitutional infirmities in any changes to the rules. Both efforts are often supported by a credulous and uninformed mainstream media that is too quick to believe the trial lawyers' spin that reforming litigation will “lock the doors to the court house” etc.
If litigation reform is tough when every plaintiff is represented by a licensed attorney, how much more difficult will it be when pro se plaintiffs are going to bear their adversaries' costs in an unsuccessful suit? From a “free marketer’s perspective” there is a certain theoretical elegance to a loser-pays rule for pro se plaintiffs, but if 45 of the 50 states (plus the federal courts) are already frightened by loser pays, they’re never going to accept loser-pays for those who cannot afford licensed attorneys. All of the “eat the rich” arguments that the trial lawyers use to defeat these proposals today will have even more teeth when the proposals are selectively aimed at those with unlicensed attorneys.
A Truly Better Way
Professor Ribstein is right when he says, “There’s a lot of discontent with lawyers. The masses are ready to storm the citadel. The time has come to contemplate the end of the lawyers' cartel.”
Here’s a better way to do it:
The President has carped about “frivolous lawsuits” for years but, apart from supporting the Class Action Fairness Act, he really hasn’t done anything about it. Here is a modest proposal through which the President can harness the energies of those who would “storm the citadel” and simultaneously allow the President to take the moral high ground in this debate:
Empanel a blue ribbon commission of lawyers, academics, economists and business leaders to examine the question: Why is there so much litigation in American and what should we do about it? In the dialogue before the commission is announced, float a trial balloon that one of the ideas the commission will investigate is the elimination of state lawyer licensing.
Merely whispering this idea will prompt the state bar associations to reform in ways not previously imagined. There is nothing that they fear more than losing the power to regulate their profession. (As a former member of the Board of Governors of the State Bar of Georgia, I’ve been party to conversations along these lines).
The process, with public hearings and the inevitable report and sound bites, will educate the public and the media. The state bars will spring to action, tightening their licensing requirements and toughening their reactions to rogue lawyers.
This may not be a perfect plan, but it’s better than eliminating lawyer licensing.
By Larry Ribstein
Posted on May 23, 2006, 08:07 PM
In responding to Jonathan Wilson's latest post, I think it's useful to discuss the defects of lawyer licensing in terms of its distinct objectives.
1. Protecting clients from dishonest and incompetent lawyers.
As I said in my initial post, licensing communicates little useful information to the client and serves mainly as an entry barrier. Indeed, the exhaustive research that I did for Lawyers as Lawmakers: A Theory of Lawyer Licensing, 69 Mo. L. Rev. 299 (2004) revealed no credible arguments or data in support of the client protection rationale for lawyer licensing. Of course legal training provides important skills, as Jonathan argues in his recent post, and as I said in my post. But that doesn’t support licensing. Clients could be protected by markets, including certification by private organizations.
The challenge in defending lawyer licensing is that it's not enough to argue that licensing addresses the problem of incompetent and immoral lawyers. This is true. The question is whether legally enforcing the lawyer cartel does a better job than markets alone would – a much more dubious proposition.
Jonathan says the poor and middle class will be hurt if they can hire unlicensed practitioners. But, again, there’s no evidence that licensing is a cost-effective remedy for this problem.
I can’t guarantee that the legal profession and journalists won’t demand regulation when the inevitable horror stories occur. But that’s an argument for appropriate skepticism about such demands, not for regulation.
2. Protecting against abusive and irresponsible litigation.
As I argued Monday, there is no reason to believe that our current licensing system protects against excessive litigation. Anybody with a grievance can find somebody to argue it. I suggested some possible reforms, but whether they would work or are politically feasible is tangential to the present debate.
3. Enforcing ethical rules.
The legal profession has been notoriously lax at disciplining itself. Bribing litigants, as alleged in the Milberg case, is serious misconduct (though I don’t think the nuclear option against the firm is appropriate). Where was the state bar? Where, indeed, is Eliot Spitzer? Even with lawyer licensing we had to rely on federal criminal prosecutors. Moreover, as I’ve argued in Ethical Rules, Agency Costs and Law Firm Structure, 84 Virginia Law Review 1707 (1998), ethical rules often disable the very market mechanisms that could provide real protections.
4. Ensuring that lawyers fulfill their obligations to the public, as by monitoring corporate clients.
The appropriate extent of such obligations is an open question, in my view. In any event, since the bar has refused to impose meaningful obligations in this regard, we now have SOX 307.
5. Giving lawyers incentives to engage in lawmaking.
This is the argument I made in my lawyer licensing article. Some would say that if licensing encourages lawyers to make law, that’s a reason not to have licensing, given lawyers’ perverse effects on the law. I agree that this argument for licensing is a close call. In any event, even if I’m right, this argument supports only a limited licensing requirement for high-end law practice, mainly for transactional lawyers. It would not impose significant constraints on the availability of legal services for the poor and middle class.
* * *
Having said all that, I’m hardly sanguine about the prospects for meaningful reform of our current system, supported as it is by our most powerful interest group. Nevertheless, I support Jonathan’s recommendation of a blue ribbon commission. However, I would argue that we need a commission focused on problems in the market for legal services, not just one for abusive litigation. The commission I have in mind would be explicitly tasked with analyzing the functions of lawyer licensing, and whether it is fulfilling its goals. The case for such a commission is made, in my view, by concerns about excessive litigation and by significant changes in the markets for legal services and the functions of lawyers. These changes should prompt a reexamination of our more than 100-year-old system that the profession, on its own, would be unlikely to undertake.
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.
By Larry Ribstein
Posted on May 25, 2006, 12:16 PM
This is the final post in the featured discussion. Thanks to Jonathan and the folks at the Manhattan Institute for making it all possible.
In my last post, I listed supposed problems in the legal marketplace that lawyer licensing is supposed to deal with, and summarized why it is at best a flawed response to these problems.
Jonathan persists in his claims that mandatory licensing would work better than the market, but has no support for those claims other than repetition. I can only again point to my lengthy article on the subject cited in early posts and repeat that the absence of mandatory regulation does NOT mean that there would be no mechanisms for dealing with these problems, but only that they would be dealt with through a competitive market rather than by the lawyer’s cartel.
Jonathan asserts in response to my argument that licensing inflates the price of legal services that, in fact, lawyers charge a wide variety of prices, and it’s not clear lawyers are “overpriced;” that legal services “don’t seem to be that expensive;” that “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;” and that “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.”
I would prefer a more scientific approach to the problem. I don't know what the “right” price for lawyers is. We have markets for that. What is the “length of line” test supposed to prove? Those who can’t afford a lawyer are not waiting at the lawyer’s office – they’re doing without the advice.
I do know that reducing the supply of something usually raises the price. Ideally this would invite more supply, unless it’s restricted by a licensing law. The law of supply and demand suggests that the price is higher given licensing than it would be without regulation. I suspect that an unregulated market would look very different at the lower end, maybe not so different at the higher end. The big question is whether the higher prices are worth it, which gets back to the value of licensing.
As for evidence, the best measure of the economic effect of lawyer licensing that I’m aware of is Dean Lueck et al., Market and Regulatory Forces in the Pricing of Legal Services, 7 J. Reg. Econ. 63 (1995). They show no correlation between barriers to entry (e.g., bar passage rates) and the price of legal services, but they do show a correlation between sets of regulatory barriers and lawyer earnings. A detailed analysis of this paper is in my article.
There is a lot of analysis of the discriminatory effects of licensing laws: Milton Friedman, Occupational Licensure, in Capitalism and Freedom 137, 150-51 (1962); S. David Young, The Rule of Experts: Occupational Licensing in America, 75-80 (1987); Richard B. Freeman, The Effect of Occupational Licensure on Black Occupational Attainment, in Occupational Licensure and Regulation 1 (Simon Rottenberg ed., 1980) at 165; Benjamin Hoorn Barton, Why Do We Regulate Lawyers?: An Economic Analysis of the Justifications for Entry and Conduct Regulation, 33 Ariz. St. L.J. 429, 444 (2001); Walter Gellhorn, The Abuse of Occupational Licensing, 44 U. Chi. L. Rev. 6, 18 (1976).
Josh Wright, over at Truth on the Market asks:
"I am curious as to the state of the empirical evidence with respect to lawyer licensing and its impact on consumers. If I recall, the Federal Trade Commission has recently been involved in some advocacy efforts in favor of limiting the scope of unauthorized practice of law statutes. My sense is that a number of states must have relaxed unauthorized practice of law restrictions (I think Arizona is one), or similarly relaxed restrictions on lawyer licensing, such that one could directly test the impact of these restrictions on consumers in terms of prices and quality of service. There must be work on this somewhere. My quick Google search did not return anything right away, but does anybody know of empirical work in this area?”
Good questions. Joyce Palomar, The War Between Attorneys and Lay Conveyancers—Empirical Evidence Says “Cease Fire!”, 31 Conn. L. Rev. 423 (1999) found little evidence of risk to the public from lay providers of real estate settlement services. But there’s obviously a lot more work to be done. Fred. S. McChesney & Timothy I. Muris, The Effect of Advertising on the Quality of Legal Services, 65 A.B.A. J. 1503 (1979) and Advertising and the Price and Quality of Legal Services: The Case for Legal Clinics, 1979 Am. B. Found. Res. J. 179 found that a legal clinic using advertising in high-volume practice reduced costs without compromising quality.
There’s obviously a lot more empirical work to be done.
This gets to Jonathan’s question about “transition” to a market regime. Actually, it would be a fairly simple matter for states to simply decide to allow people to do what they previously couldn’t do. Most of the adjustment would be for the previously protected class of lawyers.
But that doesn’t mean we shouldn’t proceed carefully, and our federal system allows us to do just that. Jonathan decries the fact that “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 fact, these separate regimes are a blessing, not a curse. With 50 (actually, 51) different regulators we have an opportunity to test how reforms actually work, as Josh Wright suggests. This sort of test doesn’t have to wait – and indeed shouldn’t wait – for some “blue ribbon commission” to complete its work. I don’t see a problem with such a commission, as I said before, but the best possible commission is the formidable laboratory enabled by our federal system. The time to start is now.
FEATURED DISCUSSION ARCHIVE:
Obamacare Decision: Reactions, July 2012
Law School Faculty Diversity, May-June 2012
Class Actions, May 2012
Constitutionality of Individual Mandate, March 2012
Human Rights and International Law, February-March 2012
The constitutionality of President Obama's recess appointments, January 2012
Do caps on medical malpractice damages hurt consumers?, December 2011
Trial Lawyers Inc.: State Attorneys General, October 2011
Wal-Mart v. Dukes, April 2011
Kagan Supreme Court nomination, May-June 2010
Election roundtable, November-December 2006
Who's the boss, September 2006
Medical judgement, July 2006
Lawyer Licensing, May 2006
Contingent claims, April 2006
Smoking guns, July 2004
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