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Affluent Investor | July 27, 2017

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Do Lawyers Cost Too Much?
Make the Bar Exam Optional

The correct answer is false. Instead of ensuring that all legal practitioners are competent, the bar exam (and its long prelude, law school) merely creates an artificial barrier that keeps many people from competing in the market for legal services.

That has two main consequences. First, some people who could earn a pretty good living as attorneys are prevented from doing so; they have to look for work in other fields. Second, some people (quite a large number in fact) are unable to afford legal help when they need it because few of those who do overcome the barrier to entry can accept cases that won’t pay them enough to cover their heavy costs.

But back to the competency question.

Whenever special interest groups seek to stifle competition so those in the group can earn more, they try to justify their restrictions as consumer protection measures. That is exactly what Erica Moeser, president of the National Conference of Bar Examiners told New York Times writer Elizabeth Olson for her March 19 article “Bar Exam, the Standard to Become a Lawyer, Comes Under Fire.” Moeser declared that the bar exam “is a basic test of fundamentals that has no justification other than protecting the consumer.”

Not so, responded law professor and former dean Kristin Booth Glen, who observed that the bar exam “only shores up the guild mentality that there should be a barrier to prevent the legal market from being flooded during times when fewer jobs are available.” She’s right. In truth, that was the original reason why the legal profession began pushing for high barriers to entry back in the 1920s. The rhetoric was about “raising standards” but the motive was to limit competition in the field.

Lawyer Allen Mendenhall argues in The Freeman that the bar exam does not test competence, but merely one’s ability to memorize a wide array of material. It’s more a “hazing ritual” than a useful means of separating those who could become capable lawyers from those who couldn’t.

“The bar exam tests the ability to take tests,” he writes, “not the ability to practice law. The best way to learn the legal profession is through experience and practical training, which, under our current system, is delayed for years, first by the requirement that would-be lawyers graduate from accredited law schools and second by the bar exam and its accompanying exam for professional fitness.”

In support of Mendenhall’s argument, it’s worth observing that quite a few eminently capable individuals have failed the bar exam, sometimes several times, among them Kathleen Sullivan when she was the incoming dean of Stanford Law School. Sullivan and the others had not adequately memorized the array of material to pass the exams they took, but that did not mean they couldn’t have competently provided any legal services to anyone.

Our system of mandatory government licensing of lawyers means that if you’ve become certified (by passing the bar) you are allowed to offer the entire range of legal services, but if you haven’t become licensed, you are not allowed to offer any service at all. Someone who does that, however competent his work, is in violation of the ubiquitous “unauthorized practice of law” prohibitions that bar associations enforce with a vicious tenacity.

That all-or-nothing “light switch” approach doesn’t make sense.

Consider another professional field – accounting. Individuals who want to be known as having achieved a very high level of knowledge can take the CPA exam and advertise their CPA status if they pass. However, it isn’t illegal for a person who has some accounting knowledge but isn’t a CPA to work as a bookkeeper. Individuals with some knowledge can offer their services in the free market and find jobs commensurate with their abilities.

Suppose that accounting had the same licensing system as the legal profession, so that only CPAs were permitted to do any work having a connection with accounting – would that be better? Would businesses and organizations be “protected” against the possibility of incompetent work?

Certainly not. In fact, the non-profit organization I work for has employed non-CPAs to handle our work. Before hiring them, we checked for evidence of their capabilities. Consumers always do that when their money is at stake.

The supposed need for government tests like the bar exam arises out of a fear that without them, many fraudsters and con artists would prey on unsuspecting people. While that isn’t impossible, it’s extremely rare. For one thing, as I noted above, people are usually careful with their money. Before they’ll spend money on the services of someone who claims to have the ability to handle a legal problem, they usually check to see if that claim is credible. The proliferation of online information makes that easier than ever.

Second, it is quite costly to set yourself up in a business. Even if you are good at doing something, business is risky. Trying to make money by deceiving consumers into thinking you’re good at something that you aren’t good at is very likely to lead to big losses. The high risk of failure deters the incompetent from pretending to be capable legal practitioners.

And third, there is the prospect of being sued for fraud or breach of contract if you hold yourself out as having abilities that you don’t possess.

In short, market competition is a very effective regulator. In comparison, government licensing raises costs without any quality improvement.

If states were to deregulate the practice of law, the costs of getting into the profession would fall substantially, but there would be no loss in competence. Mendenhall correctly observes, “With no bar exam, the sheer ubiquity and immediacy of reputation markets would weed out the good lawyers from the bad, thereby transferring the mode of social control from the legal cartel to the consumers themselves.” He’s right; reputation markets are much more effective than a single test in protecting consumers.

Elizabeth Olson’s article points out that a few states are taking halting baby steps toward liberalizing entry into the legal profession. That’s good, but complete deregulation is optimal, leaving legal education up to the market’s competitive discovery process and the certification of competencies up to voluntary methods.

 

Article originally published on Forbes.com.

 

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