As a graduate law student, I have a significant concern with the consultation report of the Law Society of Upper Canada’s articling task force.
I believe the report, the problem it is attempting to solve, and the solutions it suggests are an illustration of the capture theory of regulation.
In my view, the law society is captured by the industry, especially the mid- and large-size law firms, in its regulatory solutions while trying to satisfy the government.
Ironically, while the report emphasizes its intention to “foster and stimulate constructive engagement on meaningful solutions to the issues, rather than proposals that will result in Band-Aid remedies or ad hoc approaches to the problem,” the options it outlines are in fact Band-Aid responses representing ad hoc approaches.
In order to analyze the report, it is important to first look at capture theory. According to U.S. law professor Nuno Garoupa, “the regulation of markets for professional services is seen to arise and be sustained because it is in the interests of the members of the profession.
It essentially allows for their cartel-like behaviour. As a result, the capture theory predicts that professional licensure should decrease the supply of professionals below social optimum, increase the prices charged by professionals, and increase existing professionals’ incomes beyond marginal productivity, thus generating rents and quasi-rents.”
Another U.S. academic, Barry Mitnick, looks at the issue from the perspective of the “iron triangle” that aligns the interests of industry, legislators, and regulators. In the legislator-regulator arena, the legislators seek to re-election.
They need votes and money. The industry can generate both. The legislator, through new legislation, can take the regulatory role away from the regulator.
As a result, regulators will be especially responsive to legislators and indeed will rationally try to anticipate their wishes rather than suffer the costs of learning those preferences due to later legislative interventions.
In the regulator-industry arena, regulators require large amounts of idiosyncratic information from the industry in order to regulate. Such knowledge is costly or impossible to obtain from sources other than the industry.
The regulators engage in extensive personal interactions with the industry, gain knowledge of industry networks, and come to see industry managers as decent people trying to be successful.
“The outcome is capture,” Mitnick concluded.
“Regulators do what industry wants and legislators do what regulators want in order to satisfy the industry. Regulators come to see the works as the industry sees it, develop non-adversarial relationship with industry, recognize personal opportunities in the future, and, eventually, do what industry wants regulation to do.”
Three elements illustrate the iron triangle of capture in the context of the task force report on articling. The first is that 71 per cent of the articling positions are at mid- to large-size law firms, while 50 per cent of the practising lawyers in Ontario work in small firms or as sole practitioners.
The second is the correlation between the growth in students graduating from foreign universities, the number of applications, and the rate of unplaced candidates. In the 2010 licensing year, almost one-third of the 148 unplaced students were students from foreign universities.
The third element is the assumption that most of the public receives its legal services from small firms and sole practitioners.
The LSUC’s proffered solution is to continue the current articling route while adding the alternative option of third-party training. The other options are variations on this alternative. This solution will increase the capture and decrease access to justice.
There will be two classes: the superior one of people who will complete articling at mid- or large-size firms, will be paid for the articling period, and will serve corporations and wealthy people as their clients; and the second inferior class of people who will receive training from a third party, will pay for it, and will probably work as sole practitioners in serving the public.
The public will have access to the second inferior class of licensed lawyers. These lawyers will need to pay for their education loans and build a practice, thus increasing the cost of legal service for the public.
In this solution, there are winners and losers. The winners are the law society and the industry. The law society continues to hold its regulatory role and the industry gets to monopolize the market and ensure a pool of first-class articling students.
The losers are the public that will end up paying higher rates for legal services with access to second-class lawyers and the law students themselves who will be divided into two classes and not always on the basis of their competence and achievements.
For a real solution, we need a study of the articling process that’s free from capture and the iron triangle.
The absurd aspect is that the law society’s attempts to maintain the iron triangle will be the force that will eventually cause the legislator to take this regulatory mandate out of its hands because of its failure to fulfil all of its principal duties.
Nachshon Goltz is a PhD candidate at Osgoode Hall Law School and chairman of its Graduate Law Students Association.
I believe the report, the problem it is attempting to solve, and the solutions it suggests are an illustration of the capture theory of regulation.
In my view, the law society is captured by the industry, especially the mid- and large-size law firms, in its regulatory solutions while trying to satisfy the government.
Ironically, while the report emphasizes its intention to “foster and stimulate constructive engagement on meaningful solutions to the issues, rather than proposals that will result in Band-Aid remedies or ad hoc approaches to the problem,” the options it outlines are in fact Band-Aid responses representing ad hoc approaches.
In order to analyze the report, it is important to first look at capture theory. According to U.S. law professor Nuno Garoupa, “the regulation of markets for professional services is seen to arise and be sustained because it is in the interests of the members of the profession.
It essentially allows for their cartel-like behaviour. As a result, the capture theory predicts that professional licensure should decrease the supply of professionals below social optimum, increase the prices charged by professionals, and increase existing professionals’ incomes beyond marginal productivity, thus generating rents and quasi-rents.”
Another U.S. academic, Barry Mitnick, looks at the issue from the perspective of the “iron triangle” that aligns the interests of industry, legislators, and regulators. In the legislator-regulator arena, the legislators seek to re-election.
They need votes and money. The industry can generate both. The legislator, through new legislation, can take the regulatory role away from the regulator.
As a result, regulators will be especially responsive to legislators and indeed will rationally try to anticipate their wishes rather than suffer the costs of learning those preferences due to later legislative interventions.
In the regulator-industry arena, regulators require large amounts of idiosyncratic information from the industry in order to regulate. Such knowledge is costly or impossible to obtain from sources other than the industry.
The regulators engage in extensive personal interactions with the industry, gain knowledge of industry networks, and come to see industry managers as decent people trying to be successful.
“The outcome is capture,” Mitnick concluded.
“Regulators do what industry wants and legislators do what regulators want in order to satisfy the industry. Regulators come to see the works as the industry sees it, develop non-adversarial relationship with industry, recognize personal opportunities in the future, and, eventually, do what industry wants regulation to do.”
Three elements illustrate the iron triangle of capture in the context of the task force report on articling. The first is that 71 per cent of the articling positions are at mid- to large-size law firms, while 50 per cent of the practising lawyers in Ontario work in small firms or as sole practitioners.
The second is the correlation between the growth in students graduating from foreign universities, the number of applications, and the rate of unplaced candidates. In the 2010 licensing year, almost one-third of the 148 unplaced students were students from foreign universities.
The third element is the assumption that most of the public receives its legal services from small firms and sole practitioners.
The LSUC’s proffered solution is to continue the current articling route while adding the alternative option of third-party training. The other options are variations on this alternative. This solution will increase the capture and decrease access to justice.
There will be two classes: the superior one of people who will complete articling at mid- or large-size firms, will be paid for the articling period, and will serve corporations and wealthy people as their clients; and the second inferior class of people who will receive training from a third party, will pay for it, and will probably work as sole practitioners in serving the public.
The public will have access to the second inferior class of licensed lawyers. These lawyers will need to pay for their education loans and build a practice, thus increasing the cost of legal service for the public.
In this solution, there are winners and losers. The winners are the law society and the industry. The law society continues to hold its regulatory role and the industry gets to monopolize the market and ensure a pool of first-class articling students.
The losers are the public that will end up paying higher rates for legal services with access to second-class lawyers and the law students themselves who will be divided into two classes and not always on the basis of their competence and achievements.
For a real solution, we need a study of the articling process that’s free from capture and the iron triangle.
The absurd aspect is that the law society’s attempts to maintain the iron triangle will be the force that will eventually cause the legislator to take this regulatory mandate out of its hands because of its failure to fulfil all of its principal duties.
Nachshon Goltz is a PhD candidate at Osgoode Hall Law School and chairman of its Graduate Law Students Association.
