Lawyer licensing should not be completely abolished, but it should be made radically easier and cheaper by abolishing the requirement that lawyers attend law school to sit for the bar exam, and by only requiring passage of the bar exam for those who handle court cases.  Legal redress should also be made easier by allowing more cases to be brought in small-claims courts.

Read the full piece here.

Let’s start at the very beginning.  When analyzing the merits of any regulation — i.e., any rule that disrupts private ordering by threat of force — one should first ask what problem the regulation aims to avert.  When it comes to the rules banning sales (and thereby preventing purchases) of legal services by unlicensed individuals, most of the familiar market failures pose no concern.  There’s no technological externality (one not mitigated by the price mechanism).  There’s no monopoly problem.  There’s no public good.

The only widely recognized market failure that could exist in this context is information asymmetry — one party to a potential transaction (the provider of legal services) has significantly better information about the subject matter of the transaction (the quality of those services) than does the other (the client).  Not only may some poorly informed clients find themselves “ripped off,” but the market for legal services as a whole may be degraded by a version of George Akerlof’s famous lemons problem.

Akerlof illustrated the systematic adverse effects of asymmetric information by hypothesizing a used car market in which cars vary in value, which is known to the sellers but not to buyers.  Hoping to avoid overpaying for a “lemon,” rational used car buyers will pay no more than the average value of a used car.  This limitation on buyers’ willingness-to-pay causes sellers of above-average cars to withdraw their cars from the market, so that only lemons are available.  And if buyers are rational, they should anticipate that sellers of high-value cars will pull their cars from the market, which should cause them to lower their bid prices even further (to the average value of the non-withdrawn lemons).  Pretty soon, the market will unravel even though there are plenty of high-value cars that could have been sold to purchasers who would have paid a high price had they possessed better information about car quality.

Assuming providers of legal services have better information about service quality than do consumers, mandatory licensing of lawyers may boost consumer confidence and thereby help ensure that high-quality legal services remain available in the market.

Of course, there are downsides to mandatory licensing.  Requiring providers of legal services to attend a three-year accredited law school and to pass a bar exam that tests all sorts of subjects many lawyers never need to know (commercial paper?!) raises barriers to entry into the market for legal services.  Existing attorneys can charge high rates for routine, nearly ministerial tasks because they can avoid competition from individuals who are qualified to perform such tasks but have not jumped through all the hoops required for licensing.  And because licensing requirements raise the fixed cost of becoming a lawyer by mandating an expensive degree, an inordinate amount of class time, and mastery of all sorts of subjects that are, for many lawyers, irrelevant, such requirements tend to raise the rates for legal services even where there is significant competition among lawyers.  In short, any attempt to ensure quality and avoid a lemons problem via licensing will drive up prices and, to put it in terms more appealing to those who don’t like all this econ-talk, “reduce access to justice.”

So a third step in the regulatory analysis (after considering the problem to be averted and the potential adverse effects of regulating to avoid that problem) should be to consider less restrictive alternatives.  In this context, there are some attractive options.

The Kosher Model.  One obvious response would be for the government to do nothing.  All sorts of service transactions involve asymmetric information and yet commonly occur despite government inaction to fix the “problem.”  Housepainters, mechanics, landscapers, plumbers, general contractors, etc. all have better information about service quality than do their clients, but we still have thriving markets for their services.  All sorts of private certifiers – e.g., Better Business Bureaus, Angie’s List, etc. – have emerged to provide consumers with good information about service quality.  Such certifiers compete with each other on quality and often innovate to differentiate themselves from rivals, thereby providing more precise information to consumers.  There are, for example, more than 200 kosher certifying agencies in the United States, enabling observant Jews (who would otherwise be victims of asymmetric information!) to select a certifying symbol that corresponds to their own preferred level of kosher stringency.  It’s easy to imagine a similar certifying system for attorneys.  Some agencies could certify high-quality will drafters, others good DUI lawyers, etc.

The Organic Model.  A more “protective” (paternalistic?) approach would be for the government merely to prescribe a standard for what constitutes a competent lawyer.  The state would, in short, act as a certifier, conferring its seal of approval – the label “licensed lawyer,” or something similar – on individuals who had jumped through certain hoops.  Consumers could then choose to hire one of those individuals or, if their needs were more limited or they knew (perhaps from a private certifier) that a non-accredited individual was nonetheless quite good, could hire someone lacking the state’s endorsement.  This is the tack the government has taken with organic food:  The government has prescribed what the term “organic” means so that consumers will know what they’re getting when they buy an organic product.  But sellers of “nearly organic” foods can still sell their wares and advertise how their offerings differ from conventionally produced products as long as they don’t use the term “organic.”

The state could implement this sort of certification model on either an opt-in or opt-out basis.  Under the former approach, the state would permit providers of legal services to opt in to the lawyer licensing system—and perhaps thereby charge higher rates—if they met the prescribed requirements.  Under an opt-out approach, an unlicensed legal service provider could sell her services only if she first notified her client of her lack of certification and attained the client’s informed consent.

The Status Quo:  Enforce a Non-Waiveable, One-Size-Fits-All Standard.  The crudest possible approach to the legal services market’s information asymmetry problem is the status quo:  prescribe a set of prerequisites that anyone who sells legal services must satisfy.  Of all the approaches considered, this one thwarts the greatest number of mutually beneficial transactions.  While it is the most “protective” of the uninformed consumers who manage to purchase legal services, that protection comes at a cost.  The higher prices occasioned by the status quo render basic legal services beyond the reach of large number of consumers.  Licensed lawyers, of course, benefit from the system, as do the politicians that favor them.

We end up, then, with a spectrum of policy options that proceeds from most to least liberal, as follows:

• Kosher (rely on private certification) –>
• Opt-in Organic (define a label and allow service providers to use it if they meet criteria) –>
• Opt-out Organic (require service providers who do not meet the state’s standards to attain informed consent) –>
• Status Quo (preclude all sales by providers who don’t meet the state’s standards).

As someone who makes his living providing one of the prerequisites to a lucrative licensed lawyer career, I have a personal financial interest in maintaining the status quo.  But as someone who genuinely cares about access to justice and economic expansion, I find the current regulatory approach appalling.  In the end, I would much prefer something akin to the kosher (or maybe the “opt-in organic”) model.

I suppose we’re not all rational, self-interest maximizers after all.

When Americans think about governmental regulations meant to protect them against harm, they are prone to making two mistakes in judgment: first, they tend to overestimate the benefits that are supposed to result from regulation (including mandatory licensing) and second, they tend to underestimate (and usually to completely overlook) the costs and problems created by it.

Read the full piece here.

There is a Missouri statute that makes it a misdemeanor, punishable by $100 fine, for anyone who is not licensed by the Missouri bar to “engage in the practice of law or do law business.”  If convicted, violators can be sued by anyone that paid them for their services or by the state of Missouri; successful plaintiffs can recover three times the fees paid to the violator for their services.

Read the full piece here.

It is questionable whether states should have unauthorized practiced of law statutes and bar admission standards based on credentials rather than examinations. A first step, however, is to attack statutes that forbid a non-lawyer from giving free legal advice, whether to friend, family, or just someone who can’t afford all the legal help he needs. Should such charity be a crime?

Read the full piece here.

What will legal education be like in the significantly deregulated world I’ve predicted in prior posts?

I gave some thought to this question in my recent paper, Practicing Theory. There I pointed out that law schools, and particularly law faculty, have benefited from the same regulation that has benefited lawyers.  Although lawyers now complain that legal education is insufficiently “practical,” they have only themselves to blame for any deficiencies.  The legal profession has established law school accreditation as a costly barrier to entry, and then effectively delegated control over what was taught in law schools behind the regulatory walls.

I also argued in the above paper that the debate over the content of legal education in a deregulated world is not the one that we seem to be having — that is, between “practice” and “theory.”  When deregulation comes the market will control content.  It’s far from clear that the market will demand that lawyers keep doing what they’ve been doing, which is what lawyers mean by “practice.”  It follows that law schools should not necessarily train students to do what lawyers are doing right now.  New lawyers’ roles will require new types of education.

My article outlines some future roles of lawyers, and how law school can help train for these rules.

Lawyers as collaborators:   In the new world of legal services, the more menial tasks will be done by machines or non-professionals, leaving lawyers for the more sophisticated stuff.  This will require collaborations across the physical and social sciences.  For example, lawyers might work with psychologists to incorporate the tools of behavioral psychology into creating and applying consumer, securities, and other regulation. Legal experts also will have to learn to work with (or be) computer engineers to produce the powerful technological tools I’ve discussed in previous posts.

The lawyer as manufacturer: Lawyers will not simply be applying old cases to new fact situations to advise clients what they should do. Rather, they will be designing the products discussed in previous posts such as contracts and compliance devices.  As designers they will need to delve into basic theories of contract production, deterrence and the like.  While automation handles many legal tasks, designing the tools for these tasks will require experts who understand their basic architecture.

The lawyer as lawmaker: Lawyers, freed from simply applying the law, may be increasingly involved in designing it.  This entails an understanding of how and why laws, constitutions and procedural systems work.  The theory taught in law schools, including economics, philosophy, history and comparative law, was often not very relevant to routine law practice.  When software and low-paid workers take over those tasks, the legal experts who remain will need this theory.

The lawyer as information engineer: Lawyers and scholars might be able to use data to predict the future.  But to do that they will need theories from such fields as economics, psychology, sociology, decision theory, and political science to construct the models that make sense out of the raw data.  This work also provides another reason why lawyers will need to learn how to collaborate with (or be) computer scientists.

The lawyer as capitalist: Lawyers can make a lot of money in the capital markets from being able to predict legal outcomes that determine asset values. The demand for this expertise could increase the demand in law schools for training in securities and finance law. It also could refocus the study of such basic areas as contract, property, and tort law from advising and litigating to handicapping the results of litigation.

Global legal education: Legal educators increasingly cater to law students from outside the United States. They therefore need to focus on the basic principles of American common law and system of government.

Private meets public law. The theories legal experts will need to learn to move from applying existing law to creating new legal structures will have to meet market demands rather than educators’ preferences. While legal experts no longer may be able to ignore such fields as constitutional and administrative law, they will have to take with them into these fields the tools and lessons of private ordering and markets.

Educating business lawyers. Many legal experts will move directly into businesses.  But in-house lawyers’ tasks may change from the current model.  Increasing automation of corporate contracting and compliance may help embed legal work into the basic structure of business.  In-house lawyers will move from talking to business people to being business people.  This suggests that legal education and business education may merge for at least a subset of legal experts.

The end of one-size-fits-all:  Licensing, accreditation and bar exams have locked in a single model of three-years of law school with a fairly standardized curriculum.  The developments discussed in my previous posts make this model increasingly untenable.  The new legal expert must be trained for business, law making, technology design and many other tasks that cannot be encompassed by a single course of study.  Moreover, this world will rapidly evolve in uncertain ways once freed of licensing’s constraints.  Legal educators will have to be free to experiment with a variety of different approaches, much as business schools do today. The accreditation standards that survive as part of the new regulation of lawyers will have to provide this freedom.  This argues for the “driver’s license” approach to licensing suggested in a previous post in which lawyers can use their home state license to practice anywhere. Such an approach could allow for different forms of mandatory training for different types of specialties.  These requirements could evolve as states balance the need for some regulation against the clamor by local consumers for access to cheaper services.

Lessons for today’s law schools:  What should law school faculty and administrators do now?  The top six or so can probably keep plugging away at what they have done:  teaching high end theory to top law students.  These students likely will be the legal architects of the future.  When the new era comes, the top six schools will have the resources and reputation to turn on a dime and embrace the future.

But for the Harvard wannabes that think they can ignore the changes shaking the profession and party like it’s 1899:  you are ill-serving your students and will be fighting for your lives in a few years.  The time to think about the future is right now.

I’ve expressed doubts previously as to whether the simple model of licensure as incumbent protection adequately explains why our legal system (like all others I know of) limits who can be a lawyer, and in particular who can litigate in others’ interest. But if there’s one sector of the legal system that’s genuinely ripe for a critique of cozy cartelization, it’s the legal academy, a topic I tackle at more length in my recent book Schools for Misrule.

Read the full piece here.

A recent article argues “65 percent of today’s elementary aged kids may end up doing work that hasn’t even yet been invented.”  This is a thought provoking number and it points to the disruptive nature of innovation and its impact on a variety of labor markets.  There is a portion of the downturn in legal hiring that is associated with the business cycle.  When economic conditions improve – there should be a rebound.  However, starting even before the recession, it is reasonably clear that a serious structural change was underway.  Expect this broader trend to continue.  As Bruce H. Kobayashi & Larry E. Ribstein have argued, we are at the very beginning of Law’s Information Revolution. Whether we like it or not, informatics, computing and technology are going to change both what it means to practice law and to “think like a lawyer.”

Read the full piece here.

I may have missed it, but a topic that I don’t think has come up in the discussion thus far is unauthorized practice of law prohibitions. If we want to allow the free market’s discovery process to work – finding new modes of delivering services that serve consumers better than the old ones – we must get rid of unauthorized practice prohibitions.

Those vague laws can and often do ensnare anyone who assists anyone else in something that the bar association thinks should be its “turf.” Here’s a revealing case I learned about quite a few years ago when I lived in Michigan.

Read the full piece here.