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Malcolm Mercer
Toronto, Canada
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Richard, I agree with all of what you have just said. The essential and difficult issue is how to actually address the problem as you rightly frame it. My main point is that part of the answer (and only part) is recognizing that labour-intensive legal advice can't do everything and that we need to permit other ways of providing legal services.
Richard: We don't start with a disagreement at all. Taxes and mandatory pro bono are both obligations. As a good liberal, I see taxes as necessary social obligation both to fund social infrastructure and to redistribute income. However, I think it best to be plain-spoken about MPB. Compelling labour or payment of money is a tax. Nothing wrong with taxes per se. However, how taxes are spent is worth thinking hard about. On the lawyers per capita over time issue, the intended point is that increasing the number of available lawyer hours per capita doesn't seem, to make a difference. I think that this is, in part, because many unmet legal needs are not cost effectively addressed at a cost of hundreds of dollars per hour. Some needs, of course, are. As for MPB efficiency, I think that you underestimate the overhead of getting a Wall Street M&A lawyer, or an in-house environmental compliance lawyer, trained to truly assist a working person with a social assistance problem and the cost of the infrastructure required to onnecting the working person and one of those lawyers. My point here is not anything more than getting the biggest social bang for the buck. The goal is to reduce unmet legal needs. If we are going to tax lawyers to fund the service of unmet legal needs let's get the resources to lawyers who actually know what they are doing and are positioned to do it. As for the available hours, let's start with 1,200,000 lawyers and your 50 hours per year for 60 million hours a year. What is the value of that tax. At $100/hour, the tax is $6 billion or $5,000/lawyer. A lot of money for most lawyers and no much for some. 60 million hours sounds like a lot. But is it (even using CAPS)? In his January 5, 2105 article of The Legal Whiteboard, Bill Henderson estimates current legal service spending in the US by individuals at $75 billion per annum. Adding $6 billion in free legal services would add 8% to existing paid services. And this assumes 50 hours annually from each and every one of the 12,000,000 lawyers which is a high annual tax perfectly collected and delivered at no cost. Another way to think about 60 million hours is to calculate the number of full time lawyer equivalents. 60 million hours is 40,000 lawyers at 1,500 hours per annum. The US Census for July 4, 2014 found the population to be 318,881,992 - so 60,000,000 hours is approximately one free lawyer per 8,000 people. Far from a silver bullet. Your final point is interesting. You acknowledge that pro-bono would require rationing by eligibility requirements. This is because it won't come close to addressing unmet legal needs else no raioning would be required. You then say that what is required is to deliver existing market-based services. Your claim seems to be that these paid services work fine, it's just that people don't know about them. I find this hard to believe as being the central problem in a vibrant free market economy. No doubt more information can be made available about existing resources. But the more important truth is that much of what people need doesn't justify the price inevitably charged per hour by smart well educated lawyers especially when the amount of time that will have to be spent by the lawyer isn't predictable. Another way of looking at the 60 million hours This equates to 40,000 lawyers working at client work at the rate of 1,500 hours/annum.
Richard: Mandatory probono for the purpose of addressing unmet needs is a tax on lawyers for that purpose (which is not to say that MPB is per se a bad thing). If the issue under consideration is unmet legal needs, the question is whether MPB realistically addresses that issue. I think not for three reasons. The first is that raising taxes to fund legal services just from lawyers, rather than from all tax-payers, is to tax a limited tax base. If legal services were seen as a public right rather than a market commodity, what would be required to truly fund that public right (think education, health)? A lot, I expect and far beyond the tax capacity of just lawyers. It is hard to imagine that legal aid, whether state funded or lawyer funded MPB, has any real prospect of being a broad answer rather than, at best, a partial income-tested answer to unmet needs. The second is the MPB is a very inefficient way of providing needed legal services for individuals. Having a Big Law lawyer provide MPB services to working people requires both training and an infrastructure to connect the lawyer and the client. If MBP is really about unmet legal needs, it would be much more efficient to levy a monetary tax on lawyers with the proceeds used to pay qualified lawyers who know how to serve people with the unmet needs and are close to them. Having all lawyers spent, say, ten hours on MPB is a high overhead, low return exercise. The third (which is the point of the article) is that spending lawyer-time on many legal problems isn't cost effective. Lawyering is a highly-labour intensive mean of providing legal services where the labour is expensive and highly-skilled. Raising taxes, whether from the public or from lawyers, to fund a cost-ineffective solution is not good policy. Better to permit new cost-effective ways of providing legal services. All of that said, MPB would provide something to address unmet needs(and we need many somethings)and may shape the nature of the profession over time in a positive way. But MPB isn't "what hasn't changed". What hasn't changed is continuing to prohibit "others" from doing that which lawyers don't (and apparently can't) do.
Richard: I think that you frame the answer nicely and I agree that lower salaried work won't make a dramatic difference (although dramatic may not be the standard for reform). In addition to simpler procedures and more radical use of technology as the basis for more dramatic change, I would add process engineering whereby work is broken down into component parts and addressed efficiently including using technology. That requires larger and beter capitalized consumer-facing practices than tend to exist now.
Laurel: As you say, people must be at least reticient, and perahps unwilling, to engage a lawyer where it isn't possible to price compare and/or where the total cost isn't foreseeable given uncertainties about how much work will be required. It is at least arguable that there is an economic/business point here as well. Generally speaking, law for individuals is delivered by sole practitioners or lawyers in small firms. One result is that lawyers, with limited resources and limited ability to stand out amongst so many competitors, will find it difficult to market their services and so consumers will not really be able to select from many many lawyers. As another result, lawyers in sole or small firm practice should be more risk averse in pricing. Taking on a big file at a fixed price is more dangerous for a sole practitioner than a firm that can take on hundreds of such cases and thereby know the stats for pricing purposes and can recognize that some cases will be more profitable (and some less) and be able to take on that risk which is much less where the averages have time to play out over many cases. The interesting economic question is why firms serving individuals are generally very small. One hypothesis is that limiting access to capital as a matter of conduct rules limits growth in the size of firms. Much of the debate around non-lawyer equity assumes that nothing changes with liberalized investment except who gets the profits. If that were true, there would be no point in change. But if access to capital changes the way that things are done , whether by lowering costs by changing the means of production, or by allowing firms to more easily grow, then access to legal services can change. Of course, there may be risks and unintended consequences to be thought through and guarded against.
Toggle Commented Jun 24, 2015 on A Little Microeconomic Puzzle at Legal Ethics Forum
Alice's proposition is consistent with survey research in Ontario (of lawyers and of the public) that says that lawyers who serve individuals work principally in criminal law, personal injury,family law, real estate and wills/estates. The first three aren't really a choice but also really can't be afforded by most real people since many hours are usually needed. Hence public defenders/legal aid, contingency fees and self-representation. For people who have assets of sufficient value to transfer, real estate and wills/estates assistance are needed and can be afforded. So law is mostly for people who have no choice or are wealthy enough to have sizable assets that justify spending the legal costs. I might quibble with Alice's framing that people have zero disposable income. For smaller consultations, an alternate framing is again that people weigh their alternatives. For most of us, a night out with friends seems worth more than getting a will done. Perhaps irrational but perhaps not given current enjoyment vs long term cost avoidance for someone else. But whether viewed as zero disposable income (and so a constraint) or as a matter of preferences, people don't buy legal services (at current pricing) unless they have to. The ultimate point is the spread between the price at which lawyers can practice and the price that people will/can pay for that service.
Toggle Commented Jun 20, 2015 on A Little Microeconomic Puzzle at Legal Ethics Forum
It seems to me that "having alternatives" and constraint on the means of production are part of the answer. Lawyers have labour market alternatives to be compared against practicing law. Assume a lawyer in sole practice working 1,500 billable hours a year with no overhead (and there is at least some overhead costs and non-billable time has to be spent finding clients, running the office, etc etc). Assume $30/hour (which isn't $30 since it isn't paid right away and some isn't paid at all). The simple arithmetic result is $45,000 per annum. Different lawyers have different market alternatives and preferences. At some point taking into account the economic return and the effort/risk required to achieve the return, alternatives are preferable. There is a lower limit beyond which doing something else is preferable. Potential clients have alternatives too. They can seek assistance from "non-lawyers" whether in the market or friends/family. They can try to sort out their legal issues for themselves. They can do nothing and "lump it". Assuming a low cost of $30/hour (which actually is more given the cost of finding/seeing a lawyer etc), the cost of obtaining legal services should be compared by a potential client to the alternative. For some legal issues, a few hours be sufficient (say a will). For other legal issues, many hours are required (say family litigation). A potential client (as assumed by traditional economists) will look at the comparative cost/benefit to them and choose the better alternative from their perspective. In the real world, potential clients are constrained by their economic resources. Many legal problems are better addressed by "lumping it", trying to solve oneself or getting other help rather than spending $30(or $50 or $100 or $200) per hour on the problem. The means of production is important. Lawyers spend their time solving problems. The ubiquitous hourly rate reflects the reality that lawyer labour is the means of production. The lower limit to the price of legal services under this “consultancy” model is ultimately determined by the market price of those hours. The means of production is limited to lawyer labour by limiting access to capital and access to other expertise. The result is an expensive labour intensive model that isn't cost effective in addressing many "legal" problems.
Toggle Commented Jun 20, 2015 on A Little Microeconomic Puzzle at Legal Ethics Forum
This is not an extreme possibility. One of the actual examples in England is BT Law Legal Week last year reported as follows at http://www.legalweek.com/legal-week/news/2251876/bt-moves-into-legal-services-as-abs-licence-comes-through [British Telcom] has become one of the largest UK companies to launch a legal services arm, with the telecoms giant today (4 March) awarded its alternative business structure (ABS) licence by the Solicitors Regulatory Authority (SRA). BT Law launches today to provide legal services to corporate customers, initially in the motor claims market. It will incorporate BT Claims, the company's motor claims management group, which handles more than 35,000 corporate fleet vehicles. The company will cover all motor claims matters from incident notification to investigation and resolution and litigation management. BT said it plans to grow the service to other types of work, potentially including public liability and employment law. ...
Toggle Commented Sep 20, 2014 on In-sourcing continues apace at Legal Ethics Forum
Milan, I take it from your comment that your critique about the absence of data is more a comment about the CBA Futures report as such than being your substantive position. My concern and the reason for my comment above is that your critique could be taken to suggest that all is well, that there are no access issues to address. You have effectively suggested scepticism because of the involvement of Richard Susskind and you say that there are other unanswered questions namely “How might "innovation" address these problems? What innovations are occurring in countries with ABS that are not occurring in Canada? How much business is going to alternative providers of legal services? Is there any evidence to suggest that ABS invest heavily in R&D?”. These points are related. The starting point here is that we know that individuals in Canada are overwelmingly served by lawyers in small firms and sole practice. These firms have limited human and economic capital. Legal services are delivered under what may be described as the professional consultancy model. The lawyer, perhaps with the assistance of a secretary or a clerk, spends time adddressing the legal problem brought by a client. Whether directly by the ubiquitous billable hour or indirectly by fixed rates set based on time estimates, the lawyer charges amounts that are sufficient for the lawyer to earn a living (or corners are cut). The result is that legal services cost hundreds of dollars per hours In your critique, you say that many people do not conceptualize their problems as legal problems and so don’t use lawyers to solve those problems. This is no doubt right. But this both reflects the problem and is part of the problem. If lawyers cannot deliver services at a price and in a way that makes any sense for categories of problems, people will rightly not see these problems as being “legal problems” (ie problems that lawyers can solve). It is also true that people may not have enough information to know that they have a “legal problem” or how a lawyer could help. The central observation made by Richard Susskind is that the bespoke model is expensive and is not the only way to provide services. The small professional consultancy is inherently a bespoke model. Susskind’s point is that there are problems that don’t require the bespoke model and that there are other ways of effectively and efficiently providing services. The point in respect of access to legal services is that some problems can not be economically addressed by the bespoke model. To be clear (and like you, I think), I don’t suggest that the professional consultancy is doomed (by disruptive innovation) to replacement by other means of production. The CBA Futures Initiative did not only consider Susskind. The work of Professors Ray Campbell, Gillian Hadfield, Edward Iacobucci, Noel Semple and Michael Trebilcock was also important as was evidence of actual innovation in the marketplace. A point made by Gillian Hadfield is that the small professional consultancy, as currently regulated, is inherently expensive because much of the work done by the lawyer is non-lawyer work that could more economically be done by others. While many lawyers don’t like the business aspects of practice and prefer to practice law, the point is that it would also be better if they didn’t have to be both lawyers and business preople from a cost perspective. A point made by Noel Semple is that the small professional consultancy has neither scope nor scale. A larger organization permits, for example, specialization, knowledge management, standardized processes, quality assurance, effective marketing/brand development and sophisticated use/development of technology. Permitted specialization is not just legal specialization but includes specialized business and technological expertise. This point addresses both aspects of the problem that people don’t see their problems as legal problems. Scope and scale permit greater efficiency and therefore lower unit costs. Scope and scale permit effective communication with the market. Edward Iacobucci and Michael Trebilcock make the point that limiting equity capitalization limits innovation and risk taking. Lawyers in small firms whose net worth is on the line will be risk adverse because failure is so devastating. The same lawyers will be less inclined to fix fees in many matters because the impact of being wrong is so significant. These lawyers won’t (and can’t) invest in material technological innovation as the cost is beyond their means and the risk of failure is too high. The point made by Ray Campbell is that it is difficult for one business model to evolve another business model. A bespoke professional consultancy does not easily evolve into something else. One need not see this as Clayton Christensen’s Innovator’s Dilemma to accept a market of lawyers providing their personal time and expertise in small consultancies does not easily create a Legal Zoom or other essentially different model. All of the above is tied to capitalization. The current regulatory model results in small undercapitalized professional consultancies limited to the personal resources of consultant lawyers and the debt that can be borrowed against the net worth of these lawyers. Permitting non-lawyer investment is not an end in itself but rather is a way of allowing services to be provided differently. But to be clear, it doesn’t follow that the current small professional consultancy model should or will disappear. But as the small undercapitalized professional consultancy can’t address problems that need to be addressed, other models must be allowed to evolve. Alice is right in her comment above. None of the above is necessarily accepted to justify liberalization. But addressing access to legal services by permitting access to human and economic capital to innovate is powerful justification. The final point is this. Currently lawyers do not address significant categories of legal problems. Yet current regulation prohibits non-lawyers from helping to solve the problems that lawyers don’t address. The alternative to liberalization to permit delivery of regulated legal services in these unserved areas is deregulation (i.e. an end to UPL in unserved areas). Your critique of Legal Zoom spending helps make this point. Legal Zoom has spent large amounts developing a sophisticated web-based service delivery system that is limited to what it can deliver by UPL restrictions. And so, Legal Zoom spends large amounts to market that which it is allowed to provide.
Milan, I’m perplexed by your criticism that the CBA Report does not provide the data to show that there are issues to be addressed. You ask “For example, are clients dissatisfied with the services provided by their lawyers? Are they unhappy with the fees they are being charged? Has access to justice worsened in Canada and in what areas?”. Milan, is there really any doubt? While it may not be obvious outside of Canada, the CBA Futures Initiative is one of two major projects by the CBA. The other CBA project is the Envisioning Equal Justice Project which has undertaken consultations, research and has reported. The Futures Report does not stand alone. The CBA is far from alone in being concerned about this issue. Under the initiative of the Chief Justice of Canada, the Action Committee on Access to Justice in Civil and Family Matters was established under the leadership of Justice Cromwell of the Supreme Court of Canada. There have been parallel initiatives across Canada including the Ontario Access Group on Access to Justice. In terms of data per se, there are two areas to explore namely areas served by lawyer and areas not served by lawyers. In Ontario, we know that individuals use lawyers for criminal law, family law, personal injury, real estate and wills & estates. The data demonstrating this can be found in the Report of the Law Society of Upper Canada Sole Practitioner and Small Firm Task Force and the 2009 Ontario Civil Legal Needs Project with analysis thereof found in Professors Trebilcock, Duggan and Sossin Middle Income Access to Justice. With approximately 70% of family law litigants not using lawyers, we know that there is a problem in family law. We also know that the majority Canadians do not have wills nor powers of attorney (for personal care or property). We know that most Canadians can’t afford to lawyers to defend themselves in criminal proceedings absent l)egal aid (we don’t have the same public defender system that you do) and that legal aid is stressed as everywhere. Where we don’t seem to have an access or cost problem in real estate although there are some quality concerns. As for personal injury work, contingent fees permit substantial services to be provided but we don’t have a good handle on what is not being done nor on the quality and cost of much of what is being done. The other part of the story is where lawyers are not involved. This is noted by you in your reference to the “study is that Canadians seek legal advice for only 11.7% of “justiciable events”. So, the bottom line is that we have ample evidence that there is a problem to be addressed. What lawyers do for individuals is relatively narrow. Where lawyers do provide services, there are areas of real concern. I doubt that any of this is surprising to American lawyers. To quote the ABA President Hubbard as just reported in the ABA Journal: [the issue] “starts with the understanding that, despite all the good efforts of so many lawyers, through their pro bono efforts and support for the Legal Services Corp. and its local affiliates, we still have a huge gap in our justice system, a justice system that is still not accessible to a majority of the poor of this country and an ever-growing number of moderate-income people,” The CBA Futures Report should not be taken to be saying that we don’t have enough data to know whether we have a problem but rather that we need to know more than we do. I recognize that you say that there were other unanswered questions namely “How might "innovation" address these problems? What innovations are occurring in countries with ABS that are not occurring in Canada? How much business is going to alternative providers of legal services? Is there any evidence to suggest that ABS invest heavily in R&D?” I’ll address these points later. Like Alice, I’m not disinterested having been involved with the CBA Futures Initiative. For references to some of the data above, see www.slaw.ca/2014/02/26/being-in-favour-of-reform-just-not-change/
Milan's comment raises important points. Broadly speaking, there are three different approaches to thinking about new ways of providing legal services. Prohibition is the current approach. Permitting new service models within the regulated sphere is another. Allowing new models on an unregulated basis while continuing to regulate lawyers is the third. Milan's point that consumer surveys are not necessarily useful must, at least in part, be true given that consumers have limited ability to judge the quality of legal services that they receive. This is one of the reasons that legal services are properly regulated. As well (although probably not true for Legal Zoom currently), it is important that legal services be delivered with "fidelity to law". Consumer surveys won't reflect whether the public interest is protected and may not reflect whether the private interest is effectively served. The market doesn't provide sufficiently effective regulation for legal services either in terms of private and public interests. But consumer satisfaction is not irrelevant. To the contrary, it matters a lot. While I can see reason to be sceptical as to whether lawyer-controlled regulation will properly regulate new entrants as opposed to self-protect, it seems clear that sensible and appropriate regulation of new entrants such as Legal Zoom would be appropriate and would permit new entrants to do more than if they were unregulated. Effective regulation facilitates liberalization. The arbitration point provides an example, In Canada, lawyers can't limit personal liability and must carry mandatory insurance. I would think that alternative legal service providers should be regulated in the same way. Focusing on what should properly be required of new entrants is more useful than trying to stop the inevitable (and useful) tide. Milan's focus make sense.
Toggle Commented Jul 30, 2014 on The ABA Journal on LegalZoom at Legal Ethics Forum
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