Gillian Hadfield on Right-Regulating Legal Markets

totmauthor —  19 September 2011

Although it has the zing of a slogan that I myself have often used, the call to ‘deregulate’ the legal profession is misleading.  Yes, most of us who argue that the legal profession is excessively closed to competition—in a way that hampers both access and innovation, as I have argued in recent papers—think that the entry barriers are too high.  But the legal profession is not only over-regulated, it is also under-regulated.  The regulatory regime lawyers and judges have put in place is overly protective of lawyers’ interests and insufficiently protective of the public’s interest in an accessible, innovative, and efficient legal system.  So the goal should not be ‘deregulation’ but ‘right-regulation.’

Right-regulation of the legal profession would not only remove the barriers to the corporate practice of law and limits on the capacity for legal services to be provided by a much wider array of entities and individuals.  It would also expose suppliers of legal services to the consumer protection, professional negligence, antitrust, and other law that regulates ordinary markets.  Currently, many of these areas of law that support efficient markets are disabled or hobbled when it comes to the legal profession.  Bar disciplinary efforts are weak; legal negligence is much harder to prove than other forms of professional negligence.  The bar asserts immunity from antitrust laws under the state action doctrine.  Even the potential regulatory role of legislatures—both state and federal—is undercut in legal markets:  lawyers and judges claim an exclusive authority to regulate. (More about this in my next post)

The major flaw in the regulatory structure governing legal markets is that it is in the hands of lawyers and judges.  This raises problems, of course, of a conflict of interest.  But even if we think that lawyers and judges are sincere in their belief that the regulatory efforts of the bar and judiciary are necessary to protect the public interest, there’s no reason to think that lawyers and judges make good policymakers in this regard.  This leads to a lot of ‘wrong-regulation’ because the policymaking is poorly informed and poorly executed.  Lawyers and judges are not policy experts; they don’t have staffs devoted to collecting and analyzing data or exploring alternative regulatory models or consulting experts and market participants—all of which are the things that it usually takes to develop good policy.  This is how regulation in most areas of the economy is developed.  Bar associations and courts—operating in their administrative capacity—are poorly equipped to understand the impact of, for example, restrictions on outside capital or multi-disciplinary practice on innovation in business legal services or price in legal markets; or the impact of unauthorized practice of law rules on the cost, quality and availability of legal help to ordinary people.   Learning how to “think like a lawyer” is not a great way to learn how to structure a major piece of economic infrastructure.  But in large and important respects that’s what our legal system is:  economic infrastructure. The costs of leaving the regulatory reins of this critical infrastructure in the hands of lawyers and judges are mounting rapidly in the face of global economic change.

5 responses to Gillian Hadfield on Right-Regulating Legal Markets

  1. 

    Gillian Hadfield argues that “right-regulation,” not deregulation, is the right palliative for what ails the legal-services industry. But how are we to know what regulation is “right”? Nothing in her posting suggests that three years at an ABA-accredited law school is necessary for the execution of many of the tasks that we now confine to lawyers. Her plea for subjecting the legal services market to the general laws governing coinsumer protection, professional negligence, or antitrust does not translate into the necessity of retaining the current entry barriers for the practice of law. She also argues for transferring the regulation of the legal profession from lawyers and judges to other institutions without explaining why industry-specific regulation is necessary or could could possibly be welfare enhancing.

  2. 

    In the same vein, we could stop requiring law school but at the same time increase the quality of people allowed to enter the bar or call themselves “lawyers” (if we retain just that, for informational purposes) by just making the bar exam harder to pass.

  3. 

    As Professor Hadfield implies, the wrong-regulation of the legal profession is not so much a problem of over- or under-regulation, as it is a problem of *self-regulation*. The bar has established regulatory regimes in areas such as licensing and unauthorized practice that claim to act in the name of consumer interest, but do more to harm consumers through restricting choice than they do to protect them against bad actors. At the same time, the legal system often ignores malfeasance by lawyers, mistakenly thinking that the bar’s internal discipline mechanisms are responding sufficiently to such misconduct. (See this article for an example.)

    The problem is not necessarily that lawyers are consciously acting in a protectionist manner. However, our training as lawyers creates a mindset that emphasizes the potential pitfalls, however remote, that only a lawyer would spot when assisting a client. We are led to believe that if our client were to use a non-lawyer for assistance, that non-lawyer might miss a crucial element of the client’s situation that only we as lawyers would identify, causing great harm to the client. Putting aside the issue of how much better lawyers actually are at identifying such issues, this mindset leads to a false dichotomy between clients using a lawyer and clients using non-lawyer assistance. For most people, lawyers are prohibitively expensive. The real choice these people face is between trying to navigate the complexities of the legal system unaided and using some affordable form of non-lawyer assistance. No amount of insistence by the legal profession that consumers are harmed by non-lawyers will enable the majority of the public to affordably use a lawyer.

    Similarly, in the area of lawyer accountability, lawyers’ mindsets are too narrowly restricted to the realm of the bar. In the medical realm, a doctor who defrauded a patient of thousands of dollars would face civil charges, not only charges from the medical licensing board. There is no legitimate reason for a lawyer who does the same thing to only receive punishment from the bar. (I suspect that Professor Hadfield’s next post will provide statistics on rarely lawyers receive any actual punishment from the bar for their misconduct, so I will not steal her thunder by doing so here.)

    By not subjecting lawyers to the same regulation as any other service providers in the economy, while simultaneously granting them monopoly status, the government does a double disservice to consumers. Implementing outside regulation of the legal profession would ameliorate much of this harm.

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