How The US Legal System Became A Costly Nightmare
All around the world, lawyers generate more hostility than the members of any other profession--with the possible exception of journalism. But there are few places where clients have more grounds for complaint than America.
During the decade before the economic crisis, spending on legal services in America grew twice as fast as inflation. The best lawyers made skyscrapers-full of money, tempting ever more students to pile into law schools.
But most law graduates never get a big-firm job. Many of them instead become the kind of nuisance-lawsuit filer that makes the tort system a costly nightmare. According to a study in 2006, America has more lawyers per person of its population than any of 29 countries studied (except Greece), and it spends two to three times as much on its tort system, as a percentage of GDP, as other big economies (except Italy, where things are nearly as bad).
There are many reasons for this. One is the extortionate costs of a legal education. There is just one path for a lawyer in most American states: a four-year undergraduate degree in some unrelated subject, then a three-year law degree at one of 200 law schools accredited by the American Bar Association and an expensive preparation for the bar exam.
This leaves today’s average law-school graduate with $100,000 of debt on top of undergraduate debts. Law-school debt means that many cannot afford to go into government or non-profit work, and that they have to work fearsomely hard.
Reforming the system would help both lawyers and their customers--and these, at some point in a life, include most people. Sensible ideas have been around for a long time, but the state-level bodies that govern the profession have been too conservative to implement them. One idea is to allow people to study law as an undergraduate degree, as they can in common-law countries such as Canada and Britain.
Another is to let students sit for the bar after only two years of law school (see "Reforming America’s legal education: The two-year itch"); the third year of law school is too often filled with elective courses like "Nietzsche and the Law" (on offer at New York University) that make little sense for working attorneys. If the bar exam is truly a stern enough test for a would-be lawyer, those who can sit it earlier should be allowed to do so. Students who do not need the extra training could cut their debt mountain by a third. Those who stay should use the time to acquire practical expertise or develop a speciality.
Twelve angry customers
The other reason why costs are so high is the restrictive guild-like ownership structure of the business. Except in the District of Columbia, non-lawyers may not own any share of a law firm. This keeps fees high and innovation slow. At the top, lawyers’ fees have risen beyond $1,000 per hour. At the low end, companies such as LegalZoom, an automated online service providing wills, leases and simple contracts, is forced to limit its offering to customers lest it be prosecuted for practising law without a licence.
There is pressure for change from within the profession--one law firm, Jacoby & Meyers, is suing three states for the right to take in outside investments (see "America’s legal industry: The case against clones")--but opponents of change among the regulators insist that keeping outsiders out of a law firm isolates lawyers from the pressure to make money rather than serve clients ethically.
Far from undermining clients’ interests, allowing non-lawyers to own equity in law firms would reduce costs and improve services to customers by encouraging law firms, many of which are still knee-deep in paper, to use technology and to employ professional managers--the kind of people who tend to expect stock options as part of their package--to focus on improving firms’ efficiency. Anyone who thinks American lawyers do not already face pressure to make money could use the services of a different kind of professional.
Other countries have started liberalising their legal professions. Australia has the world’s first publicly listed law firm, in which anybody can buy shares. Britain has blessed "alternative business structures": lawyers can now link up with other professionals, be bought by private-equity firms and even go public. America should follow.
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