Corporate & Securities Law

Law as an immature industry

It’s no news that law grads can’t find good law jobs and can’t pay their debts. Steve Bainbridge explains:

The post-war expansion of the regulatory state, the opening of the courthouse doors to new claims during the warren Court era, and the litigation explosion provided an exogenous shock that caused demand for lawyers to rise rapidly. Following a fairly standard s-curve model, the demand for lawyers grew faster than the population and economic expansion would have predicted, driven by the aftermath of those shocks. Over the last couple of decades, however, the market for lawyers has adapted to those shocks. Because there have been no comparable major exogenous shocks affecting the demand for lawyers, the market has matured. We would therefore predict that growth in the demand for lawyers would slow until it reaches a level that can be sustained by population and economic growth.

Steve says law has the characteristics of a mature industry: growth of large firms squeezing out smaller ones; stiffer competition and price-cutting; less innovation. The result will be permanent oversupply, a problem that law schools refuse to confront. Ultimately the market will shut down the lowest ranked schools.

Plausible but wrong. The real problem is that law is an immature industry. Constricted by heavy regulation of the legal profession and the absence of conventional property rights in legal knowledge, not only has it not matured, it has not really even achieved full-fledged existence. Innovation has not declined ? rather, it has not really even begun. Also, as I argued in Death of Big Law, this absence of a viable business model has led to the demise of large firms, and the industry’s devolution into smaller ones ? the exact opposite of Bainbridge’s symptoms of “maturity.” Big Law’s relatively brief period of success owed to a confluence of macroeconomic factors with the licensing-enforced monopoly. When this vein played out, the prospectors went bust.

Innovation and entrepreneurship can create the first legal information industry. Studying how this can happen is my next project, as I discussed a few weeks ago. More specifically, Bruce Kobayashi and I will be focusing on the creation of formal and informal property rights in legal knowledge. Tentative title: “Owning the Law.”

This has obvious implications for legal education. The winners will not necessarily be the current first tier, but the law schools that find a way to train the first generation of legal entrepreneurs.

Full post as published by Truth on the Market on June 17, 2010 (boomark / email).