Gillian Hadfield on Right-Regulating Legal Markets

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.