DCM promised another post on cartels, and tomorrow is DCM's birthday so he makes the call. We suggested earlier this week that the high tuition currently collected by law schools might represent monopoly profits drawn from the profession's remaining trade restrictions. Law schools guard the gates to a profession that many still desire, despite the best efforts of bloggers and consumer advocates to warn 0Ls away. As gatekeepers to a government-protected profession, law schools are in a strong economic position to skim at least some of the profession's excess profits.
To explore that suggestion, I tried to think of analogies. My first google search of "gatekeeper cartel" turned up many references to the Mexican drug trade. That was intriguing (could we deem legal education an illegal substance?) but I was afraid that the DEA might show up at our house if I browsed too many of those sites.
Then I hit upon a more perfect (or at least wholly lawful) analogy: taxi medallions. Those are the licenses that New York City sells to taxis cruising its streets. Only a cab sporting one of the official medallions may pick up passengers who hail a ride at curbside. The city notoriously limits the number of medallions, although one owner may sell the precious emblem to another.
The demand for taxi medallions has raised prices even higher and faster than law school tuition. In October, two medallions sold for a million dollars apiece. In 1985, as the linked article observes, a medallion sold for "just" $100,000. That 900% increase in medallion value (thank you, commenters, for fixing my math) exceeds even the rise in tuition prices at both public law schools (820% for residents) and private law schools (375%) during roughly the same period. (I've drawn the latter figures from Brian Tamanaha's forthcoming book.)
Could it really be that lucrative to drive a NYC taxi? Should unemployed law graduates actually embrace the chance to drive cabs? Clearly not. Most cab drivers aren't reaping those huge cartel profits. Investment companies buy most of the taxi medallions, then lease the driving rights to cabbies. A driver pays a set amount to use a medallion-marked taxi for a shift; the lease price comes out of her fares.
In this analogy, the medallion owners are like law schools and the cab drivers are the law students. Cab drivers must rent the medallions to get access to the streets, just as students must pay law school tuition to get access to the profession. Restrictions on the number of cabs almost certainly raises fares for passengers on the street, but most of the excess profit goes to the gatekeepers who own the medallions. The medallion owners are the ones who control the keys to the gated taxi profession. That has given them the power to reap profits that, during the last thirty years, exceeded returns from the stock market, gold, or oil. That's the enormous economic impact of government-enforced restrictions on trade.
Law schools similarly seem to profit from their power to grant access to the legal profession. Except for rare "law readers" in a few states, schools provide the only path to bar admission. As DCM stresses, applicants don't realize how competitive practice has become. Some lawyers still benefit somewhat from trade restrictions, but others are hurt by those rules. Smaller firms, for example, probably would benefit from looser rules on multidisciplinary practice and opportunities for nonlawyer investment. Meanwhile, applicants perceive law as both a skilled profession and a strongly maintained cartel, a combination that should give them job security and high income. The law school "scam" is that schools charge tuition as if they were offering access to a tightly controlled profession.
But there is another actor in our law school story: the legal profession itself. Law schools hold their gatekeeper position at the profession's request.
As Richard Abel and others have written, American lawyers created formal legal education to limit entry to the profession. The academic gambit was originally quite successful: It tightly constrained lawyer growth from 1900 through 1950. But, as Abel recognized in 1986 (sub. unfortunately req'd), those walls had fallen by 1980. "Lawyers [had] exerted no restraint over the threefold increase in law students since the early 1960s," he wrote. As a result, "the greater number of lawyers, especially in recent cohorts, [had to] compete with each other more aggressively." Abel was far from the only academic to recognize this trend--and the potential problems for the profession--but he wrote frequently about it.
Since 1980, the profession has tried other means to make the path to bar admission longer and harder. During the 1990s, for example, states raised passing scores on the bar exam. That temporarily constricted access to the profession: nationally, bar passage rates dropped from 74% in 1994 to 66% in 1998. Rates have crept slowly back, but have not regained the 1994 level. New York's recent decision to mandate pro bono service from bar applicants falls in the same category; it adds another hurdle for potential lawyers to climb.
Whenever the profession builds barriers, it creates opportunities for the guardians to profit. Law schools profit from education requirements, and I suspect that bar prep companies profited from tougher bar exams. In response to NY's latest mandate, enterprising organizations may even start charging fees to find pro bono opportunities for time-strapped new lawyers.
Where does this leave us in 2012? As we hail a taxi to get out of Dodge and end our guest-blogging days, we offer these departing thoughts:
To law professors: Remember that we are the medallion owners. As long as the profession leaves those medallions in our hands, we should exercise those powers as fiduciaries for our students, the profession, and future clients--not for personal profit or prestige. That is the most important thought we wanted to share this week.
To practitioners: Reconsider the benefits of cartel restrictions. The profits may go to gatekeepers, rather than to the profession. Loosening some traditional restraints, like mandatory fee schedules and advertising bans, has helped clients. We have all benefited in many ways from the fact that white women, minority women, and minority men are now part of our profession. Keep pressing law schools, bar associations, and state supreme courts to find better, cheaper ways to educate lawyers--even if that puts DJM out of business. But keep thinking too about whether our remaining guild restrictions do more harm than good, even for lawyers.
And to new lawyers everywhere: We hate the fact that so many of you hurt so much. But you are the best of the best. Take the profession forward, as so many of you are already doing in your calls for reform.
Have a happy holiday weekend everyone--we've enjoyed our temporary stay and, like all of you, look forward to LawProf's return next week.