An inflexible US system for law-school accreditation and moribund ownership rules for legal services providers are exerting a chilling effect on competition in the sector and inflating prices, says think tank the Brookings Institution.
In an opinion piece for the Wall Street Journal, Brookings economics fellows Clifford Winston and Robert W Crandall take issue with the American Bar Association (ABA) ethos on ratifying places of legal education. ‘The reality,’ they argued, ‘is that many more people could offer various forms of legal services today at far lower prices if the ABA did not artificially restrict the number of lawyers through its accreditation of law schools – most states require individuals to graduate from such a school to take their bar exams.’
According to Winston and Crandall, occupational licensing automatically limits competition and raises the costs of legal services – costs that are ‘not justified’ at a time when service offerings in the sector are becoming gradually more commoditised and pared down. The economists also argued that, by inducing states to bar non-lawyer-owned entities from providing legal services, the ABA is squeezing competitive spirit out of the industry. In their view, the emergence of new-style providers – ‘who may or may not have some type of law degree and may even work for a non-lawyer-owned firm’ – would lead not just to price competition, but a search for ‘more efficient methods to serve clients’.
Comparing the lack of progress in the legal sector with rapid developments elsewhere, Winston and Crandall wrote that the entry of new service providers into the US mobile phones market has led to the ‘lowest wireless rates in the developed world’ and helped to stimulate jobs in the drive to construct new networks. ‘Entry by new firms – sometimes from other industries – spurs innovation,’ they stressed. ‘Allowing accounting firms, management-consulting firms, insurance agencies, investment banks and other entities to offer legal services would undoubtedly generate innovations in such services, and would force existing law firms to change their way of doing business and to lower prices.’
Winston and Crandall’s argument has come at a time when discussion of liberalisation in the US legal sector has become increasingly lively. Other recent events to have addressed the issue include a keynote speech at the ABA’s 2011 annual meeting, legal action to push liberalisation in New York State launched by law firm Jacoby & Meyers, and North Carolina senator Fletcher Hartsell’s introduction of a non-lawyer-ownership bill in his state.
Adding a minor qualification to their entry in the debate, Winston and Crandall wrote that, in a deregulated climate, large companies embarking on complex financial deals would probably still look to established lawyers for advice – although it would be more likely that those lawyers would work for corporations rather than traditional law firms.
Major non-profit policy research outlet the Brookings Institution argues that US accreditation and ownership rules are keeping prices of legal services high and competition low