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CRACKS IN THE LAWYER CARTEL?

A number of interesting occurrences over the past few days with respect to the efforts by lawyers to maintain and expand our cartel.

First, this interesting paper by Mario Pagliero on the effects of professional licensing in the US market for lawyers finds that the structure of lawyers' cartel entry-restrictions and rules is better explained by a capture theory of regulation, rather than a public interest theory of regulation. The author concludes that licensing "increases annual entry salaries by more that $20,000" and that this implies a total transfer from consumers to lawyers of 36% of lawyer's wages and a total welfare loss of over $6 billion.

Meanwhile, efforts by lawyers to increase those figures continue apace. Fortunately, the FTC has had two recent successes in trying to roll back overzealous efforts by lawyers to expand their cartel through expansion of Unauthorized Practice of Law (UPL) regulations, to try expand the definition of the "practice of law." In Ohio this effort was defeated, as the state Supreme Court has just ruled that one need not be a lawyer to represent someone else in a proceeding before the state workers' compensation board. This ruling is especially important, in that lawyers appear to have staked out state workers' compensation systems as a new frontier for expanding lawyers' exclusive control. In fact, of course, the whole point of workers compensation systems was to have an informal mechanism for processing these sorts of claims, thus it is especially ironic that lawyers have tried to expand their reach into this area.

In West Virginia the state Supreme Court of Appeals overturned an opinion of the state bar's unauthorized practice of law section which had attempted to require that lawyers perform many functions in real estate closings that are currently performed by title insurance companies and lay closers. The effort of lawyers to expand their monopoly on real estate closing services if, of course, a longstanding one and as the FTC reports in its submission, empirical evidence indicates that consumer real estate closings costs substantially more in states where lawyers are required to conduct the closing than in states that allow "lay closings," with no discernible change in quality.

These sorts of results explain the value of the FTC's competition advocacy program as I have explained in a forthcoming article on "The Theory and Practice of Competition Advocacy at the FTC". Lawyers always have a narrow and parochial interest in expanding the domain of human activity subject to their cartel. This is especially dangerous in a situation such as UPL rules, where the rules are usually set by the state supreme court, rather than by a legislature. As Pagliero concludes, lawyers have been quite successful at this and the result has been a substantial wealth transfer from consumers to lawyers. By commenting on the competitive consequences of these sorts of regulations, the FTC can shine the light of economic reasoning on these self-serving laws. While not always successful, as the successes in Ohio and West Virginia indicate, they are often successful in preserving the benefits of competition and consumer choice for American consumers.

Of course, strong kudos to the Supreme Courts of both the states of Ohio and West Virginia are also appropriate, as their willingness to stand up to their colleagues in the bar and do the right thing for consumers in these cases is crucial.

Update:

And this from the FTC and DOJ, hot off the presses this afternoon. From the press release:

The Federal Trade Commission and the U.S. Department of Justice's (DOJ) Antitrust Division today released a joint letter urging the Massachusetts Bar Association to narrow substantially or reject a proposal by the Massachusetts Supreme Judicial Court that would unnecessarily reduce or eliminate competition between nonlawyers and lawyers to provide many services. The FTC and the Department said that the proposal likely would lead to higher prices and a reduction in competitive choices for consumers.

According to the letter, signed by FTC Chairman Deborah P. Majoras and the Department's Assistant Attorney General for Antitrust R. Hewitt Pate, the proposal, a model definition of the practice of law, could be interpreted to prevent real estate agents from explaining smoke detector or lead laws to clients; prohibit software makers from selling will-writing and other software; and prevent many advocacy organizations and individual advocates from competing with lawyers to provide citizens with information about legal rights and issues and to help them negotiate solutions to problems. The proposed definition also could prohibit income tax preparers, accountants, investment bankers and other business planners from providing advice to their clients that includes information about various laws.