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Crony Capitalism Watch
The ABA Cartel

Despite the highly-publicized headwinds facing recent law school graduates, lawyers—at least those at the top of the food chain—are still doing quite well in America: More than one-in-seven are in the top one percent of income earners, according to 2012 data. Meanwhile, hourly fees are so high that quality legal services are increasingly inaccessible in underprivileged areas.

Do lawyers’ generous salaries merely reflect the fact that talent and brilliance are rewarded in a competitive marketplace—and that very few people are able to perform the tasks that most lawyers do on a daily basis? Not exactly, according to a new essay in the American Economic Review by Brookings’ Clifford Winston and Yale Law School’s Quentin Karpilow.

The reality, they say, is that the American Bar Association functions as a kind of pseudo-cartel that controls the marketplace for legal services by throwing up gratuitous barriers to entry for individuals and firms, squelching technological innovation, and blocking innovative new delivery methods that might be unleashed through deregulation. As a result, lawyers enjoy artificially-inflated wages, and working class Americans struggle to afford legal help when they need it. Some excerpts from the piece:

Under ABA requirements, firms that sell legal services must be owned and managed by lawyers who are licensed to practice in the United States, meaning that corporations and foreign law firms cannot compete in this market. […]

Notwithstanding their intended function, entry barriers in legal services have created inefficiencies that parallel those generated by entry regulations of US network industries (i.e., transportation, communications, and energy). In particular, entry barriers limit competition and raise prices. In the long run, they compound those inefficiencies by impeding operations, innovation, and technological advance. […]

Moreover, it is likely that current entry barriers do little to improve lawyer quality in the first place. For example, the standards of lawyer quality represented by the bar examination amount to legal rules that can be looked up in a book, and that, once memorized, can be easily forgotten after the test is taken.

The truth is that allowing people without law degrees to perform basic legal tasks—and allowing firms run by technologists or businessmen, rather than lawyers, to enter the legal services market—would probably dramatically cut costs without any appreciable impact on quality. In fact, a more open market might well dramatically improve the quality of service available to low-income populations, many of which are shut out of the market altogether.

As Jonathan Rothwell has written, “politicians and intellectuals often champion market competition—but what they mean by that is competition among low-paid service workers, production workers, or computer programmers who face competition from trade and immigration, while elite professions sit behind a protectionist wall.” Subjecting lawyers to the same kind of competitive market forces that have been unleashed on lower-income workers would do much to ameliorate this inequality. But reformers pushing for deregulation should gear up for a grueling battle: The well-funded ABA cartel and its members will fight tooth-and-nail to keep their racket in place.

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  • Jacksonian_Libertarian

    Back during medieval times, Guilds were one of worst roadblocks to improvements and advancements. Today we seem to have returned to those times, with licenses required by dozens of trades from Doctors, to Hairdressers. All of this crushes the all important “Feedback of Competition”, and thereby prevent the improvements in Quality, Service, and Price that would have occurred in a free market.

  • rheddles

    Lawyers being treated like coal miners. Whodda thought it would come to this? Actually I expect this to have no impact on the 1 in 7 one percenters. They already get paid for the value they deliver. It’s the 6 in 7 wannabes who are protected and will suffer more than they do now. An attorney’s life is not an happy one.

  • Surely all the Republican “global free trade” supporters/lawyers will support the “delicensing” and deregulation of the business of providing legal services so that online “lawyers” from every nation can compete in the US with Wall Street’s “white shoes” firms. Not.

  • frisco kid

    One small step from the Texas GOP 2016 Platform: Licensing- We support allowing any person to sit for the Texas State Bar Exam regardless of where he or she received their law education as long as criminal and ethical background requirements are met.

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