More on the Law School Business Model

A few days ago I posted on WSJ and NYT articles talking about the opening of new law schools in the midst of a crash in law student applications.  Since then, a couple of other professors have posted comments on the topic, and I thought I’d flag them.  NYU law professor Robert Howse, writing at Prawfslawblog, argues that the gloom and doom is overwrought, and suggests that American law schools will be able to look to foreign students, not just to fill LLM slots, but JD classes as well:

Application for JD slots are down-we all know that. But even assuming that’s a longer-term trend rather than a reflection of th economic anxieties and difficulties of the last years, there is no reason for panic or despair.  The potential of America’s law schools is only starting to be realized.

The global market for US legal education was traditionally regarded as composed of a relatively small group of foreign-educated lawyers seek advanced degrees. But this changing. Increasingly, a US JD degree is an attractive option for foreign students. And you have probably noticed more non-US JDs in your classes. In most countries law is the subject of a first degree after high school. The market could be expanded of US law schools were to offer a combination undergraduate degree in another discipline and a law degree-what about a 5 or 6 year program that leads to a BA in economics or political science or philosophy and a JD?

The fact is that American law schools have a competitive advantage. To be sure there is excellent legal education in some other countries. But my considerable global experience suggests to me that those countries are few. In most places, legal education is dominated by old-fashioned rote learning and by professors who spend much if not most of their time in private practice. Innovation is rare and slow. Class sizes are often huge.

If we are not distracted by US News rankings, we will observe that in all kinds of law schools all across the US there are world class intellectuals and leading specialists on the faculty. Of course national law schools abroad have a captive audience of students who can’t study in English and/or whose first and immediate priority is to qualify for the local bar or who can’t afford foreign study (though we can reach out to the last group through distance education and foreign campuses).   But overall the number of students with global ambitions, and the prevalence of English as a global language of law, are growing, from what I can tell.

This post prompted some pushback by my Opinio Juris colleague Kevin Jon Heller, an American legal academic who has moved to Australia to be a law professor at Melbourne University:

It is nice to see someone dissenting from the conventional doom and gloom, and Rob [Howse] makes a number of valuable points. But I feel compelled to take issue with (1) his description of non-American legal education, and (2) his assessment of the potential for American law schools to attract large numbers of foreign students …

I am also skeptical of Rob’s belief that foreign law students represent a vast and largely untapped market for American law schools.  His point about the greater value of a JD on the international market is well taken; my law school, Melbourne, recently shifted to a JD-only model precisely in order to maximize the international marketability of our law graduates. I also agree that a graduate law degree can be a significant draw for students in countries where law is an undergraduate subject; approximately 15% of our JD students come from outside Australia.

That said, I question whether American law schools are particularly well-situated to attracting foreign students who don’t intend to practice in the US. Most obviously, American legal education is absurdly insular — far more so than legal education anywhere else in the world. Outside of the elite American law schools, students receive almost no education in international law. Comparative law is almost non-existent. All, or nearly all, of the professors are American. Exchange options are limited — and many foreign law schools are off the table, no matter how elite, because they don’t offer graduate-level classes. How much do most non-elite American law students know about how law functions in the rest of the world when they graduate? I’d venture it is vastly less than law students who graduate from law schools almost anywhere else.

And then, of course, there is the expense of American legal education — something that Rob doesn’t even mention. Why would a large number of foreign students want to spend $200,000 on an American JD when they can get law degrees in their home countries for next to nothing (even at the most prestigious law schools) or can attend elite non-American law schools for half the price? (Melbourne falls into the latter category.) Rob suggests that universities create five or six year joint BA/JD programs to attract foreign students. Barring a radical transformation in financial-aid practices, however, attending such a program would simply mean more debt for a foreign student — perhaps more than $300,000. How many non-wealthy foreign students would want, or could handle, that expense?

To be sure, for students able to afford Yale, Stanford, or NYU, the additional expense of a JD may well be worth it — even taking into account that starting legal salaries tend to be much lower outside of the US. But lower-ranked schools? I don’t see it.

Professor Howse has responded at Opinio Juris:

[T]hese days the notion of American decline is it seems so widely held among pundits and professors that saying that America remains a leader in anything may start sounding atavistic and unappreciative of the genuine achievements of other societies.  My sense is that the demand for high quality legal education cannot be met in many countries by existing institutions in those countries as they now operate. That’s not based on some kind of personal arrogance but two decades of globetrotting as a legal academic. Mostly I am reporting the judgments of students and professors themselves in the countries in question.

I hope I did not say or imply that the foreign JD market is “vast”. Indeed, I mentioned one of the main limits of that market in my original post-law is a first degree in most countries and so we would need to rethink our own approach to address that extremely important factor.

Kevin makes a very important point about the expense of an American law degree compared to the cost of studying in one’s own country (or even an elite institution in a third country).  Some of my readers took me to be suggesting that I think students will pay that cost because they will have access to high-paying jobs at prestigious law firms as a result of the American degree.  That is far from certain, and we shouldn’t be marketing ourselves based on that premise.  I’ve talked to foreign students who have chosen JD study in the US, and not only in the so-called “elite” law schools.  The reasons they give for this choice are multiple, but usually involve both a perception of the relatively higher quality of US legal education to that which would be accessible to them at home and additional reasons for choosing the US over some of the great institutions in other countries that Kevin mentions.  Again, I emphasize that I am not talking about a “monopoly” by any means.  But rather that we have a degree of competitive advantage in a real market that we need to understand better, and better serve.

Volokh Conspiracy readers might also be interested in a new leader in the Economist this week, “Guilty as Charged: Cheaper legal education and more liberal rules would benefit America’s lawyers – and their clients.”  This editorial is not very persuasive, in my view, though phrased in the Economist’s house style of unshakeable self-confidence. One reason is that it runs very distinct things together.  It talks about the cost of legal education and asks whether the third year of law school is worth it, and also asks whether it would be better to make law a graduate, rather than undergraduate, degree.  Certainly these are ideas under discussion.  But it then turns to claim that a proximate cause for why the costs of legal education are so high is the guild rules that won’t allow law firms to have non-lawyer owners (save in the District of Columbia) or have public shareholders.

Does the capital financing of law firms really have much bearing on the cost of legal education?  Of course in some general way, restricted access to capital puts upward pressure on legal fees, but even so, wouldn’t things like the availability of student loans be more relevant to law school costs?  As a law professor, much as I would like to blame the massive costs of legal education on the financing of law firms, that hardly seems the direct or primary culprit.

As to the Economist’s outré idea, public shareholders for law firms, it is anything but obvious to me that law firms stand in need of that kind of capital or that it would produce very much besides mischief and unintended consequences. What is public shareholder capital required for, anyway?  Not to render legal advice; a chief reason would be to finance lawsuits, I suppose.  Given the general criticisms the Economist has made over the years of America’s lawsuit industry, making (more) capital available to finance lawsuits does not seem like such a brilliant idea.  Traditionally law firms were partnerships, in order to ensure attention to things like lawyer ethics (both through unlimited partner liability but also by not having shareholders and the conflicts of interest they present).  But it was also also because professional partnerships don’t require massive amounts of capital in order to provide professional advice; they are not engaged in industrial production.  (The Economist seems to think that the fact that an Australian law firm has gone public shows how unremarkable the idea is; as with so many of these facile cross-border comparisons, the below-decks dissimilarities greatly outweigh the above-decks similarities).

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.

Finally, several readers emailed me to comment on the reasons why high achievers on the LSAT – 170 or 175+ scores would be skipping law school, given some modest softening of the competition at the top schools.  One suggestion was that these LSAT takers could essentially “bank” the score and take up law school at a top school later; they retained the option to do so.  Could well be, though I don’t think LSAT scores remain valid forever and re-taking the LSAT years and years down the road does entail some risk.  I also query whether the next year or two might not mark a bottom on terms of competition among students applying to the very top schools, as students realize that competition is indeed less stiff at the very top, and they then apply and arbitrage it away.  I’m speculating, that’s all.

My general sense about the foreign student market is, first, that for a decade at least, high education in the US, including the law schools, have been anticipating that it would be its salvation as the baby boomlet tapers off in the US.  I think there are many problems with that scenario, both from the business model of the university and the educational and mission model as well.  That, for universities generally, another day.  But for law schools, it’s simpler, I think – speaking as someone who teaches many, many LLM students from around the world, at a mid-tier school with a very strong reputation worldwide among potential LLM students.  There aren’t that many potential LLM students to go around and certainly not enough at the rates US schools charge; I’ve had family members of LLM students from past years tell me that they just can’t afford a US LLM, much as they’d like to do one.  The JD of course even more so.  Attempts to brand a law school in China and capture value back to the home US school might conceivably work for a handful of schools – NYU, perhaps, or a few others, but that model is not going to save the bricks and mortar US law schools and their professors, I think.

So I don’t think foreign students will save the law school business model, and in any case, all these considerations point to a basic conclusion.  The fundamental problem is less quality than cost.

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