First, Let's Deregulate All the Lawyers
Unauthorized Practice of Law Statutes Make Many Consumers Worse Off
JUNE 01, 1997 by GEORGE C. LEEF
Organized groups—businesses, labor unions, professional associations—frequently lobby for laws and regulations to shield them from having to face wide open competition. Competition is great everywhere else, they say, but our particular field is different. We need sensible controls and regulations to protect the public against incompetence and the evils of cutthroat competition. What the group is really after, of course, is cartelization, backed up by the power of the government, without which cartels seldom work very well or last very long. In a free market, competition keeps breaking out, but if members of a group restrict competition, they enjoy exceptionally high profits or earnings for an extended period of time.
Occupational licensure is the technique most often used by professional groups that wish to restrict competition. Since the legal profession has always had a uniquely powerful position to influence the law, it is not surprising that it has been one of the most successful at the game of cartelization. Lawyers have maintained that their learned profession is somehow above ordinary marketplace competition, which is fine for plumbers and dry cleaners, but undignified in so cerebral a calling as theirs. To suppress the indignity of competition, the legal profession erected internal barriers against it—mandatory fee schedules and prohibitions against advertising were long a part of the bar’s canons of professional ethics—and obtained protection against external competition from state legislatures in the form of Unauthorized Practice of Law statutes. These statutes, in effect in every state except Arizona, make it illegal for anyone who is not a licensed attorney to engage in the practice of law, thus protecting lawyers against competition from people who have some legal knowledge, but aren’t licensed.
For decades, this scheme worked beautifully—for the lawyers, anyway. But the legal profession’s fortress has been crumbling since the 1970s, when the Supreme Court ruled against both mandatory fee schedules and advertising prohibitions on antitrust grounds. Only the unauthorized practice of law (UPL) statutes still stand. The question I wish to explore here is whether there is any reason to retain these laws. I conclude, both on economic and moral grounds, that there is not.
Protecting the Public?
Supposedly, UPL statutes are necessary in order to protect the public against incompetent provision of legal services. The assumption upon which this rests is that no person who has not successfully completed the three years of law school and passed the bar exam (the obligatory rite of passage for aspiring attorneys) can be competent to assist another person with a legal problem. Or, to put it another way, the law assumes that the only way to acquire the knowledge necessary to help others with legal problems is by going through the very costly, time-consuming process of earning enough course credits in law school and then memorizing enough of the smattering of legal knowledge that is tested on bar exams to pass. Is this assumption true?
No, it is not true. A law school education is very broad, but shallow. A law graduate has some knowledge about quite a few, but by no means all, fields of the law, but usually is not ready to handle cases on his own. After entering legal practice, he will develop a specialty. The broad study of the law undertaken in law school is not necessarily a waste, but neither is it indispensable. People can learn as much about the law outside of law school as they can in one. Throughout much of our history, most lawyers learned the law as apprentices rather than as students; graduation from law school has been obligatory in most states only since the 1930s.
Some aspects of the law are exceedingly complex and require many years of study to master—the tax code for instance. Many accountants, however, are just as conversant with the IRS code as are the best lawyers and they are more conversant than lawyers whose expertise lies elsewhere. But there are other aspects of the law that are not particularly hard to learn. Drawing up a will, for example, is not necessarily difficult and can be competently done by someone who has invested less than three years’ training.
By requiring that legal services be performed by (or at least overseen by) licensed attorneys, the price of those services is driven up. There would be a larger supply of people willing to provide relatively simple legal services if UPL statutes did not arbitrarily set such high standards for entry into the field. A larger supply of practitioners would mean lower prices and more options for consumers. Studies done by the American Bar Association show that significant numbers of people, mainly the poor, are priced out of the market for legal help. That would occur less frequently if we didn’t have UPL statutes.
But if we didn’t have these laws, wouldn’t that lead to a lot of incompetent, even dishonest, legal practitioners preying upon the poor? Might that not be even worse than getting no help at all? This counterargument seems to have some plausibility, but both theory and history collapse it.
Poor people are seldom foolish shoppers. They, like nearly all humans, try to protect themselves against bad contracting decisions by acquiring information about the other party before parting with any of their money. Reputation, references, location, advertising—these and other sources of information about a practitioner’s honesty and reliability help the consumer to filter out questionable service providers.
But the self-interest of the consumer is not the only filter at work here. The self-interest of the provider is also important. It is very much in the interest of providers of services that they not fail at their tasks and leave dissatisfied, angry, even litigious clients in their wake. To enter into a field and then fail to live up to expectations is very costly. You are likely to lose what you have invested and harm your future business prospects if you undertake work that you are not capable of doing. Markets, therefore, do not just filter out incompetents after they have proven themselves so, but to a great extent also filter them out prospectively. So when you put these two self-interest filters in place, as the market does, you would expect to find very few instances of consumer harm due to incompetence.
Experience confirms this. In Arizona, which has had no UPL statute since 1986, there is a robust market for legal services. People who have (or think they have) simple legal needs can and do patronize legal clinics staffed by non-lawyers who know how to do certain kinds of legal work. They charge the market price, which is often significantly less than licensed attorneys charge for the same service. There is no indication that consumers who obtain help from non-lawyers are more dissatisfied with the service they receive than are consumers who deal with lawyers. UPL statutes, the Arizona experience demonstrates, do not protect consumers; they simply take away from them the option of contracting with people who would like to serve them but haven’t gone through the steps necessary for licensure. You don’t make people better off by taking options away from them.
The question is not whether there will be competency standards or not. The question is how they will be established. UPL (and other occupational licensure statutes) work on the theory that government knows the optimal level of training. The market also sets standards, however. The standards of the market are not articulated as are legislated standards, but they are none the less real and far more useful than are arbitrary, politically driven standards. That is because the market’s standards focus on results (can you do this to the satisfaction of customers?) whereas government standards focus on credentials (have you completed the required studies?). Attorney licensing evidently adds only to cost for consumers, not to their protection against incompetence.
If we allowed a free market in legal services, would every transaction with an unlicensed practitioner turn out satisfactorily? No. That is an impossibly high standard, one not attained by licensed attorneys or anyone else. What we can conclude, however, is that most would turn out satisfactorily and that many people would be able to obtain legal assistance for a lower price than they would be able to under the market-restricting status quo.
Pro Bono Work and Legal Subsidies
Spokesmen for bar organizations readily admit that there is a problem with affordability of legal services for poorer people, but rarely will they consider the solution of opening the market up to individuals who haven’t gone through the proving grounds of law school. Instead, they usually suggest remedying the problem by increasing pro bono work (i.e., work done by lawyers for free) and increasing governmental subsidies for legal services for the poor. Neither is a good solution.
If a lawyer wants to donate some of his time to doing work for poor people, there is nothing wrong with that, but the poor would be much better served if they could shop in a free market and contract for what they need. A practitioner with whom they contract is going to be more accountable and more motivated to do a good job than is a lawyer who is grudgingly putting in his pro bono time. He also will probably be more competent in that particular field. A paralegal who handles lots of landlord-tenant disputes, for example, is likely to do better work than is, say, a patent lawyer who remembers little if anything about this field of the law, if he ever learned about it at all.
Government-subsidized legal services (such as the Legal Services Corporation) are both questionable and morally objectionable. Subsidizing legal services is an inferior solution because the funds are apt to be (and clearly have been) drained away into left-wing advocacy, but even if that weren’t true and every dollar appropriated actually went toward providing legal services for the poor, subsidies would still be objectionable. Taxpayers should not be forced to give up any of their money to subsidize anything. It is an abuse of governmental power to take money from Citizen A to give it, directly or indirectly, to Citizen B. Perhaps B does need legal assistance that he can’t afford (read: regards as less important than other potential uses of his money). But his need does not justify taking money away from Citizen A, who has needs of his own and is entitled to it. Besides, once an entitlement to subsidized legal services is established, the level of need for them will rapidly rise. It is easy to see why the legal profession advocates legal subsidies! But, again, a free market would do poor people more good.
There is a noncoercive alternative to licensure that is far superior, namely, certification. Certification is an informational device that helps consumers to find the practitioner they want more easily and also helps the practitioner market his services. Consider, for example, the designation Certified Public Accountant. It is not mandatory that people who wish to do accounting work first obtain C.P.A. status. There is no Unauthorized Practice of Accounting law. But people who desire to establish themselves as having attained a high degree of competence in the field of accounting voluntarily take the C.P.A. exam. Earning this certification helps to differentiate them from accountants with a lesser degree of (demonstrated) knowledge. People who have accounting needs that are simple don’t bother calling on a C.P.A., whose added expertise isn’t worth the added cost of hiring him; those whose accounting needs are very complicated don’t bother with non-C.P.A.s, who presumably aren’t capable of handling the work.
Certification is widely used in other professional fields, such as insurance and investment counseling, and the legal profession relies upon it once an individual has obtained his license. If a lawyer wants to be known as a good trial attorney, he can (but does not have to) seek certification from the National Board of Trial Advocacy. There is no law against Unauthorized Trial Practice and a bad trial lawyer can do a client at least as much harm as, for example, an unlicensed will- drafter (usually a lot more), but the profession relies on incentive-driven voluntary action by lawyers to obtain the highly specialized knowledge they need to capably represent clients in court. Why, then, can’t we rely upon incentive-driven voluntary action by non-lawyers to obtain the knowledge they need to assist their clients?
If we repealed UPL statutes, a system of voluntary certification would almost undoubtedly arise. Membership in the bar might survive the test of the market as a worthwhile certification, but so might others. Perhaps we would see phrases like Certified by the National Association of Criminal Defense Advocates by names in the yellow pages. Consumers would be guided thereby in narrowing their search for the right person to handle their problem, but they would always have the option of contracting with whomever they wanted.
Repeal of UPL statutes would have a major impact on the market for legal education. These laws set in stone the existing mode of legal education, since you can’t take the bar exam unless you first graduate from an approved law school. That requires three years of study covering a wide assortment of subjects. There is no other way of becoming a lawyer, so the law schools have, as Judge Richard Posner has put it, a captive market.
How do we know that three years of study is optimal as the minimum to enter the field of law? In the nineteenth century, before we had attorney licensing and law school accreditation, the number of years spent in law school ranged from zero to two. Many people who wanted to become lawyers learned the law as apprentices or read it on their own. Some chose to attend law schools, but the course of study was, in almost all instances, between one and two years.
The American Bar Association’s three-year standard is protected from the test of the marketplace. If we repealed the UPL statutes, people intending to enter the field would have to ask themselves, Is the cost of an additional year (or semester) of study here worth it? Does the present value of my expected increase in earnings exceed my costs for this additional period of study, or not? I surmise and am reasonably confident that many would answer no at some point short of three years.
The law’s insistence that individuals must put in three years of law school to become a licensed attorney almost certainly leads to an overinvestment in legal education that increases both the cost of such education and, subsequently, the cost of hiring a licensed practitioner. It is impossible to say just what effects the market’s discovery process would have if it were allowed to work in legal education, but it would certainly lead to a more efficient allocation of resources than currently.
I have saved the most important issue for last. Even if UPL statutes did not interfere with efficiency in the market for legal services, they would still be objectionable because they entail coercion (or threats thereof) against individuals who have committed no violation of the rights of others. When an unlicensed person announces that he is able to assist others with legal problems and contracts with them to do so, he violates no right of theirs. The contract they make is voluntary and peaceful. Both parties expect to and usually do gain.
UPL statutes, however, unleash aggression against people who wish to earn a living by providing legal services, but have not run the gauntlet of law school and the bar exam. They can be subject to arrest, trial, and legal penalties simply for having contracted with other willing people. (They can be punished, incidentally, even if the work they did was perfectly satisfactory to the other party. The vast majority of UPL cases are brought by bar organizations, not aggrieved customers.) The law is supposed to protect the rights of individuals to peacefully pursue their goals in life, not to attack them. UPL statutes, however, do not protect rights—they infringe upon them.
Frederic Bastiat proposed this test for bad laws: See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime. Let’s apply that test here. If one or more licensed attorneys discovered that Smith was practicing law by, let us say, helping clients prepare divorce papers and they came to threaten him with harm if he didn’t stop doing so, that would constitute criminal behavior on their part. Virtually everyone would condemn their aggression against poor Smith; it would be illegal. With UPL statutes, the attorneys have managed to get the state to commit their acts of aggression for them, but that doesn’t in any way cleanse the acts of their wrongfulness.
If one person wishes to contract with another for a service, what credentials or experience the service provider has is a matter to be considered by that person. It is no business of the government’s. But UPL statutes make it the government’s business, threatening legal action against those whom the state has not approved to practice law. The purpose of government is not to make our decisions for us, not to protect us by restricting our options, not to tell us when we may offer to contract with others. UPL statutes must be seen as an immoral abuse of governmental power, violating the rights of people to pursue an honest livelihood and enter into contracts.
Consumers are best off if they can shop for the goods and services they want in a free market. By coercively interfering with the market for legal services, imposing a very high barrier to entry, UPL statutes make many consumers worse off.
Workers are best served when they can pursue their self-interest by making what they regard as optimal human capital investments and then selling their labor for the best price they can get in a free market. By threatening them with punishment if they attempt to sell legal services without having obtained governmental permission to do so, UPL statutes make those whose best option would have been selling unauthorized legal services worse off.
But UPL statutes aren’t just objectionable on these utilitarian grounds. They are morally objectionable because they necessarily entail coercion against individuals who have committed no aggression against anyone else.
The legal profession would do both itself and the public a favor if it came out in favor of repeal of UPL statutes. Doing so could only improve the profession’s image and that might be important. After all, have you ever heard anyone say, First, let’s kill all the accountants?
Filed Under : Regulation, Subsidies, Competition