Do Too Many Lawyers Spoil The Economy?

LEECHES, parasites, bloodsuckers. For centuries lawyers have been called these things (and worse) by people who think they have gotten the short end of the legal system.

But in recent years the notion that lawyers drain money out of people and organizations has assumed a macro dimension. According to some economists, lawyers are worse than mere vampires: They're ``rent seekers.''

Rent seeking is an economist's term for, in effect, thievery by organized interests that use political or legal clout to redistribute wealth away from producers. (An oft-cited example is lobbying.) In this reckoning, the upshot of rent seeking by lawyers, mainly through litigation, is that lawyers - or at least an excess thereof - impede economic growth.

No doubt some businesspeople will say they have long suspected this, extrapolating from their own companies' or industries' experience. But in the last few years, some economists, social scientists, and legal scholars have seriously studied the issue.

If lawyers in fact impair economic growth by diverting capital from productive uses, is it because they or their clients are greedy? Or is it because problems in the legal system, such as certain rules and procedures, facilitate frivolous lawsuits and other wasteful activities? Or is it just that too much lawyering drags against productivity and competitiveness like barnacles on a ship?

All these factors may be involved, but recently the scholarly focus has been on the sheer size of the legal system. Put simply: Does the United States have too many lawyers?

Yes, says Stephen Magee, a professor of finance and economics at the University of Texas in Austin - 40 percent too many.

Dr. Magee has plotted the relationship between economic growth rates and lawyer populations in various countries. His resulting ``Magee curve'' indicates that lawyers bring economic benefits to a country up to a point - by enforcing contracts, prosecuting criminals, etc. Beyond the optimal number of lawyers, however, the effects of their work are negative. In this graph, the optimal number of lawyers per 1,000 white-collar workers is said to be about 10; because the US has about 14, it has an excess.

By Magee's calculation, ``on average each excess lawyer knocks $1 million off US gross domestic product every year.'' He acknowledges that the number of lawyers in a society is just ``a proxy for the level of legal activity,'' but he concludes that it is the best one available.

Why don't the laws of supply and demand operate to keep the number of lawyers in a society at or near the optimal level? Magee says the US market for legal services has imperfections, in part by lawyers' own contrivance. Most notably, he says, lawyers use their domination of Congress and state legislatures to create new demand for their skills. Magee relies in part on the ``collective action'' theories of Mancur Olson, an economist at the University of Maryland, to suggest that lawyers organize themselves in legislative bodies and bar associations to engage in rent seeking.

Magee's conclusions find support in some other studies, but he also has strong critics within academic circles. In a symposium on his theories published last year in Law and Social Inquiry, the journal of the American Bar Foundation, scholars' responses to his findings ranged from respectful contradiction to the academic equivalent of ``baloney.'' And in a recent article in the Denver University Law Review, Marc Galanter, a law professor and director of the Institute for Legal Studies at the University of Wisconsin-Madison, denounced ``tendentious macro-economics and voodoo numbers.''

Some supporters of Magee's ideas regard the opposition to them as simply the revenge of the lawyers. But not all the naysayers are lawyers, and they raise scientifically valid issues.

The most direct rebuttal to Magee's research comes from a non-lawyer: Charles Epp, a political scientist and fellow at the Institute for Legal Studies. Mr. Epp challenges Magee's methodology and his numbers. In particular, he asserts that there are fatal flaws in Magee's data on lawyers in various countries, owing both to definitional problems and counting problems. Epp says the Magee curve disappears in computations using what he regards as more accurate data, and that there is little discernible correlation between lawyer populations and economic activity.

Epp also faults Magee for failing to suggest adequate reasons for the phenomenon. ``The expectation that lawyers contribute to rent seeking is supported only by the folk wisdom that lawyers are parasites,'' Epp writes.

Echoing this point, Frank Cross, an assistant professor of business regulation at the University of Texas, writes that ``the criticism of lawyer numbers is embarrassingly lacking in theoretical underpinning.''

Magee also is challenged for his failure to account for non-economic benefits of the US legal system. ``Lawyers produce social goods, like civil rights and social justice,'' writes Ronald Gilson, a professor at Stanford Law School. ``To that extent, measures of GNP [gross national product] growth ignore a critical aspect of social welfare.''

Magee sticks by his guns, however. He believes in his scholarship, which, he says, ``has highlighted the runaway legal system.'' And he thinks his work has policy implications. He favors many of the legal-reform proposals that have been suggested to reduce litigation. And he would raise barriers to entry into the legal profession by such means as stiffer law-school-admissions requirements and tougher bar examinations. Lowering the number of lawyers would, he admits, raise legal fees, but he thinks this would be more than offset by a reduction in costly and inefficient make-work litigation by ``excess'' lawyers scrambling for income.

Although he thinks he has demolished Magee's assertions, Epp says Magee's framing of the issue has been ``helpful, because it was simple and clear. He got the ball rolling. The ensuing debate has showed that Magee's theories don't match the complex realities. This has opened up opportunity for a more sophisticated understanding of the role of lawyers in the economy.''

Virtually all of Magee's critics agree on the need for research into issues suggested by Magee's hypothesis. But this should not be ``further aggregate statistical research,'' Epp writes.

Rather, Epp and others say, research should focus on what lawyers actually do. Professor Gilson writes: ``Learning much about the way lawyers impact economic growth requires careful study of the micro-structure of legal services.... This kind of analysis has policy implications; regressions of numbers of lawyers against GNP growth do not.''

Professor Galanter is fervent on the need for more research. It's ``the missing knowledge base,'' he writes, that lends currency to such ``voodoo numbers'' as the claim, made by former Vice President Dan Quayle and others in 1992, that the US has 70 percent of the world's lawyers. (After trying hard to locate a reliable source for that figure, Galanter concludes that it's fanciful.) But he notes: ``Our system of civil justice is beset by many problems, particularly problems of securing justice cheaply and expeditiously for all Americans.''

Galanter bemoans the fact that the legal system isn't studied by research institutions comparable to the National Institutes of Health and the Centers for Disease Control in the medical field.

The jury is still out on whether the US has ``too many lawyers.'' But there's at least a preliminary verdict: To better understand the relation between law and economics, the legal system should be put under the microscope.