In Law & Economics in Japan, Harvard’s Mark Ramseyer tries to explain why Japanese scholars have mostly not embraced law and economics to the extent of their peers elsewhere. He tries on some explanations — “the location of legal education in the undergraduate curriculum, and the long-term Marxist domination of economics faculties” — but is ultimately unsatisfied with these explanations. Here’s why:
The reason for the explanatory difficulty lies in the absence of a profits constraint at the modern university. For-profit firms adopt efficient technologies or die. By contrast, university departments with preposterous theories can survive for decades (witness literature departments in the U.S.). Universities do compete, whether in the U.S. or Japan. But they do not compete with anything approaching the intensity of ordinary economic markets. Spared that intensity, they need not converge on superior scholarly technology. In some departments in some universities in some countries, scholars will adopt the better technology. Elsewhere, they will thrive for decades without it.
In other words, how can we really explain what does and doesn’t work in academia when schools and scholars everywhere lack the profit motive to compete?
As with many things, Henry Manne noted this long ago. As I summarized his views (published in Henry Manne: Intellectual Entrepreneur, in Pioneers Of Law And Economics (Lloyd R. Cohen and Joshua D. Wright, eds.,. Elgar Publishing, 2009):
Manne (1993) pointed out that universities are run as non-profit institutions under a board of trustees, a system in which nobody has a property right in the institution’s success. Power therefore has devolved to university faculties. This is complicated in the case of law schools by the lawyer cartel’s significant control over legal education. In other words, unlike the corporations that Manne studied, universities and law schools are not basically market institutions. Thus, even if the market demanded specialization and product differentiation, it is not clear that the governing bodies of universities would respond to this demand. Instead, schools could be expected to continue to make things comfortable for their tenured faculties. There is no market for control to deal with recalcitrant university administrators.
Manne’s article is Comment On Peter Byrne’s “Academic Freedom And Political Neutrality,” 43 J. Legal Educ. 340 (1993).
Manne notes that the lawyer cartel (aka licensing and accreditation laws) is at least partly responsible for the lack of competition in legal education. I emphasize that in a forthcoming and soon-to-be posted paper. Elimination of the accreditation constraint could take care of both problems by enabling for-profit law schools.