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Posts Tagged ‘occupational licensure’

Why do lawyers cost so much?

In Economics, Law on December 20, 2017 at 6:45 am

This speech was delivered on September 21, 2017, at a “Law & Liberty” conference cosponsored by the Foundation for Economic Education (FEE) and the Blackstone & Burke Center for Law & Liberty on the campus of Faulkner University.

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Razing the Bar

In American History, History, Humane Economy, Law, Legal Education & Pedagogy, Liberalism on June 17, 2015 at 8:45 am

Allen 2

This piece originally appeared here in The Freeman.

The bar exam was designed and continues to operate as a mechanism for excluding the lower classes from participation in the legal services market. Elizabeth Olson of the New York Times reports that the bar exam as a professional standard “is facing a new round of scrutiny — not just from the test takers but from law school deans and some state legal establishments.”

This is a welcome development.

Testing what, exactly?

The dean of the University of San Diego School of Law, Stephen C. Ferrulo, complains to the Times that the bar exam “is an unpredictable and unacceptable impediment for accessibility to the legal profession.” Ferrulo is right: the bar exam is a barrier to entry, a form of occupational licensure that restricts access to a particular vocation and reduces market competition.

The bar exam tests the ability to take tests, not the ability to practice law. The best way to learn the legal profession is through tried experience and practical training, which, under our current system, are delayed for years, first by the requirement that would-be lawyers graduate from accredited law schools and second by the bar exam and its accompanying exam for professional fitness.

Freedom of contract

The 19th-century libertarian writer Lysander Spooner, himself a lawyer, opposed occupational licensure as a violation of the freedom of contract, arguing that, once memorialized, all agreements between mutually consenting parties “should not be subjects of legislative caprice or discretion.”

“Men may exercise at discretion their natural rights to enter into all contracts whatsoever that are in their nature obligatory,” he wrote, adding that this principle would prohibit all laws “forbidding men to make contracts by auction without license.”

In more recent decades, Milton Friedman disparaged occupational licensure as “another example of governmentally created and supported monopoly on the state level.” For Friedman, occupational licensure was no small matter. “The overthrow of the medieval guild system,” he said,

was an indispensable early step in the rise of freedom in the Western world. It was a sign of the triumph of liberal ideas.… In more recent decades, there has been a retrogression, an increasing tendency for particular occupations to be restricted to individuals licensed to practice them by the state.

The bar exam is one of the most notorious examples of this “increasing tendency.”

Protecting lawyers from the poor

The burden of the bar exam falls disproportionately on low-income earners and ethnic minorities who lack the ability to pay for law school or to assume heavy debts to earn a law degree. Passing a bar exam requires expensive bar-exam study courses and exam fees, to say nothing of the costly applications and paperwork that must be completed in order to be eligible to sit for the exam. The average student-loan debt for graduates of many American law schools now exceeds $150,000, while half of all lawyers make less than $62,000 per year, a significant drop since a decade ago.

Recent law-school graduates do not have the privilege of reducing this debt after they receive their diploma; they must first spend three to four months studying for a bar exam and then, having taken the exam, must wait another three to four months for their exam results. More than half a year is lost on spending and waiting rather than earning, or at least earning the salary of a licensed attorney (some graduates work under the direction of lawyers pending the results of their bar exam).

When an individual learns that he or she has passed the bar exam, the congratulations begin with an invitation to pay a licensing fee and, in some states, a fee for a mandatory legal-education course for newly admitted attorneys. These fees must be paid before the individual can begin practicing law.

The exam is working — but for whom?

What’s most disturbing about this system is that it works precisely as it was designed to operate.  State bar associations and bar exams are products of big-city politics during the Progressive Era. Such exams existed long before the Progressive Era — Delaware’s bar exam dates back to 1763 — but not until the Progressive Era were they increasingly formalized and institutionalized and backed by the enforcement power of various states.

Threatened by immigrant workers and entrepreneurs who were determined to earn their way out of poverty and obscurity, lawyers with connections to high-level government officials in their states sought to form guilds to prohibit advertising and contingency fees and other creative methods for gaining clients and driving down the costs of legal services. Establishment lawyers felt the entrepreneurial up-and-comers were demeaning the profession and degrading the reputation of lawyers by transforming the practice of law into a business industry that admitted ethnic minorities and others who lacked rank and class. Implementing the bar exam allowed these lawyers to keep allegedly unsavory people and practices out of the legal community and to maintain the high costs of fees and services.

Protecting the consumer

In light of this ugly history, the paternalistic response of Erica Moeser to the New York Times is particularly disheartening. Moeser is the president of the National Conference of Bar Examiners. She says that the bar exam is “a basic test of fundamentals” that is justified by “protecting the consumer.” But isn’t it the consumer above all who is harmed by the high costs of legal services that are a net result of the bar exam and other anticompetitive practices among lawyers? To ask the question is to answer it. It’s also unclear how memorizing often-archaic rules to prepare for standardized, high-stakes multiple-choice tests that are administered under stressful conditions will in any way improve one’s ability to competently practice law.

The legal community and consumers of legal services would be better served by the apprenticeship model that prevailed long before the rise of the bar exam. Under this model, an aspiring attorney was tutored by experienced lawyers until he or she mastered the basics and demonstrated his or her readiness to represent clients. The high cost of law school was not a precondition; young people spent their most energetic years doing real work and gaining practical knowledge. Developing attorneys had to establish a good reputation and keep their costs and fees to a minimum to attract clients, gain trust, and maintain a living.

The rise in technology and social connectivity in our present era also means that reputation markets have improved since the early 20th century, when consumers would have had a more difficult time learning by word-of-mouth and secondhand report that one lawyer or group of lawyers consistently failed their clients — or ripped them off. Today, with services like Amazon, eBay, Uber, and Airbnb, consumers are accustomed to evaluating products and service providers online and for wide audiences.  Learning about lawyers’ professional reputations should be quick and easy, a matter of a simple Internet search.  With no bar exam, the sheer ubiquity and immediacy of reputation markets could weed out the good lawyers from the bad, thereby transferring the mode of social control from the legal cartel to the consumers themselves.

Criticism of the high costs of legal bills has not gone away in recent years, despite the drop in lawyers’ salaries and the saturation of the legal market with too many attorneys. The quickest and easiest step toward reducing legal costs is to eliminate bar exams. The public would see no marked difference in the quality of legal services if the bar exam were eliminated, because, among other things, the bar exam doesn’t teach or test how to deliver those legal services effectively.

It will take more than just the grumbling of anxious, aspiring attorneys to end bar-exam hazing rituals. That law school deans are realizing the drawbacks of the bar exam is a step in the right direction. But it will require protests from outside the legal community — from the consumers of legal services — to effect any meaningful change.

The Lawyers’ Guild

In America, American History, History, Law, Legal Education & Pedagogy, Nineteenth-Century America on August 27, 2014 at 8:45 am

Allen 2

This piece originally appeared here as a Mises Emerging Scholar article for the Ludwig von Mises Institute Canada.

Last month, thousands of recent law school graduates sat for a bar examination in their chosen state of practice. They were not undertaking a harmless rite of passage but overcoming a malicious obstacle: an artificial barrier to entry in the form of occupational licensure.

Barriers to entry are restrictions on access to, or participation in, markets or vocations. Occupational licensure is a type of barrier to entry that regulates professions by requiring certification and licensing in the manner of medieval guilds. Medicine and law are perhaps the most recognizable professions to require their practitioners to obtain and maintain licenses.

The purpose of occupational licensure is to reduce competition by using government power to restrict membership eligibility in a profession. The criteria for membership are often prohibitively expensive for low-income earners. To be admitted to the law in nearly every state in the United States, you must not only pass a bar examination but also earn a law degree from an accredited law school, admission to which requires a bachelor’s degree from an accredited university.

The average student-loan debt for graduates of American colleges is around $29,400. The average student-loan debt for graduates of American law schools is between $75,700 and $125,000, depending on whether the school is public or private. The American Bar Association imposes heavy burdens on law schools such as accreditation standards that are inefficient and that drive up costs so that over time the high price of legal education is passed on to the public in the form of attorneys’ fees and costs. Having already saddled themselves with student-loan debts, recent law-school graduates pay thousands of dollars for bar-preparation courses to study for an examination that, if passed, will open the door to a job market that is the worst in recent memory. Nobody struggling financially should attempt to leap over each of these expensive hurdles.

Before the rise of bar examinations and professional licensure during the Progressive Era in the United States, aspiring attorneys simply “read law” as apprentices for practicing attorneys or as clerks for local law firms. Once they achieved a certain level of competence, apprentices were released from their tutelage and eligible to accept clients. Those jurisdictions that did require examinations allowed judges to conduct informal interviews with candidates to determine the candidates’ moral and intellectual fitness for practice. Such examinations were typically mere formalities: few candidates failed; few careers were at stake as the interview took place. Newly admitted attorneys had to demonstrate their excellence in order to gain clients. They launched their careers by charging low fees that even the poorest in society could pay. Attorneys who did not prove fit for practice never gained enough clients to sustain their business and were forced to embark on other professions.

In the late-nineteenth and early-twentieth century, energetic and entrepreneurial members of the middle to lower classes in cities such as New York and Chicago began to threaten the legal establishment that had previously been comprised of a mostly wealthy and elite fraternity. This fraternity simply could not compete with low-cost providers of legal services because, for example, the most elite attorneys considered it unseemly and degrading to advertise for services or to offer contingency fees. Bar associations that were once voluntary organizations of upper class professionals therefore began to use their political clout and government connections to obtain powers conferred by legislatures. They wanted to keep the lower classes out of their profession and to preserve a highbrow reputation for lawyers. They began to exercise a monopolistic control over the practice of law within their respective jurisdictions. Today they constitute authorized arms of the State.

In most jurisdictions’ bar associations determine who may be admitted as members and who must be excluded, whether and to what extent lawyers may advertise their services, what constitutes the “authorized” practice of law, whether a law firm must have a physical office with a non-residential mailing address, and under what conditions contingency fees are permissible. These anti-competitive practices hit communities most in need the hardest by increasing the costs of legal services beyond the ordinary person’s ability to pay.

The bar examination is the most hyped precondition for membership in a state bar association. Like hazing, it is more ritual than training; it does not help one learn to be an attorney or indicate any requisite skills for practice. It tests how well someone can memorize arcane and esoteric rules and their trivial exceptions, many of which have no bearing on actual practice. Few if any lawyers spend their days memorizing rules for courts or clients, and no one who intends to practice, say, corporate law in a big city needs to memorize obscure criminal law rules that were long ago superseded by statute.

Despite reciprocity among some states, the bar examination restricts the free flow of qualified attorneys across state lines, forcing even the best attorneys to limit their services to certain jurisdictions. The bar examination also creates racial disparities among practicing attorneys as minority passage rates tend to be lower, a fact that flies in the face of nearly every bar association’s purported commitment to diversity.

Keeping the number of lawyers low ensures that lawyers may charge higher fees. Keeping the barriers to entry high ensures that the number of lawyers remains low. It’s a popular fallacy to complain that there are too many lawyers. We don’t need fewer lawyers; we need more, so long as we gain them through competitive forces on a free market.

We need to unleash capitalism in the legal system for the benefit of everyone. We could start by eliminating the bar examination. Doing so would have no marked effect on the quality of lawyers. It would drive down the high costs of legal services by injecting the legal system with some much-needed competition. It would make practitioners out of the able and intelligent people who wanted to attend law school but were simply too prudent to waste three years of their lives and to take on tens-of-thousands of dollars of student-loan debt while entry-level legal jobs were scarce and entry-level legal salaries were low. Justifications for the bar examination are invariably predicated on paternalistic assumptions about the ability of ordinary people to choose qualified attorneys; such arguments ignore the number of ordinary people who, today, cannot afford qualified attorneys at all under the current anticompetitive system.

Abolishing the bar examination would benefit the very community it is supposed to protect: the lay public.

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