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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