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OpEdNews Op Eds    H3'ed 2/22/13

Lawyers: Rent Seekers or Problem Solvers?

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by Southern Arkansas University

In a cemetery, a man was walking back to his car after visiting the grave of his father when he noticed a tombstone inscribed with the words: "Here lies a lawyer and an honest man." He said to himself in surprise: "I didn't know they could bury two people in the same grave!"

While this may be a fanciful joke, it nonetheless underscores an important concern--the extent of public dissatisfaction with the legal profession. According to a report in the latest issue of The Economist magazine, "Lawyers generate more hostility than the members of any other profession--with the possible exception of Journalism." Lawyers are often accused of "rent seeking", which is an attempt by certain individuals or business firms to gain a larger and larger share of national income without making positive contributions to the economy. In other words, they become wealthy not by creating wealth but by taking wealth away from others.

Rent seeking creates distortionary consequences for the economy in many ways--higher prices for example, because it is often carried out through pricey lawsuits against business firms and the costs are passed on to consumers. This is especially true for mighty corporations like pharmaceutical companies, which are also shielded by the patent system. Frivolous lawsuits are often unnecessarily brought on by companies against their rivals, especially companies in high-tech areas. They spend exorbitant amounts of money and resources suing one another for patent infringements. In a recent highly publicized lawsuit, the jury awarded Apple $1 billion in damages to be paid by Samsung for allegedly copying some aspects of Apple's wildly popular iPhone and iPad. Given that America is the world's largest market for consumer electronics, such costly court cases will have a widespread impact on the American consumer. Obviously, lawsuits like this are instigated by lawyers who will gain handsomely regardless of the outcomes. They may also encourage companies to file even more lawsuits in anticipation of monetary gain as well as monopoly of power. Propagation of such cases can divert companies' attention away from focusing on their products and redirect it toward gaining easy money at the expense of their rivals.

While rent seeking can be accomplished through various channels, large companies have hired skilled lobbyist/lawyers to influence the course of politics and the laws and regulations enacted by the U.S. Congress, thus augmenting their rent-seeking ability. For instance, according to Joseph Stiglitz, a Nobel laureate in economics, "There are more than 3100 lobbyists working for the healthcare industry (nearly 6 for every congressperson), and 2100 lobbyists working for the energy and natural-resources industries."

The U.S. ranks at the top when it comes to its number of licensed lawyers.   There are currently 1,143,358 of them, one per every 265 people. Meanwhile, the inverse correlation between economic growth and the number of lawyers has been properly documented by some research; for example, see .   Dr. Stieglitz believes that people living in countries having fewer lawyers are economically better off and the country's economy grows faster. He maintains that "researches suggest that the main channel through which a high proportion of lawyers in a society hurts the economy is the diversion of talents away from more innovative activities (like engineering and science)". Another costly aspect of this problem is the use of scarce resources on frivolous litigation that serves no purpose other than to enrich the corporations and their lawyers.

Despite oversupply, the costs of legal service keep rising at usually twice the rate of inflation, according to The Economist. The mounting spending on legal services is partially due to additional demand created through vigorous advertising by lawyers seeking to find lucrative targets for possible lawsuits.   Such solicitation efforts have been proliferating in the mass media and particularly in the form of billboard advertising in the aftermath of the Great Recession.

Established economic theory tells us that excess supply should drive prices hence profit down, unless demand is successfully stimulated. Thus,  considering the oversupply of lawyers,  creating demand becomes a necessity for the survival and flourishing of the legal business. Soliciting business through adverting is a catalyst for creating a market for legal services that seem to be in a distressed condition. Understandingly, greed is always tempting and an innate trait of capitalism, but sometimes it drags capitalism in an asinine direction.

Lawyers, just like medical doctors, have to go through rigorous training and a time-consuming licensing process. They incur an immense amount of debt upon graduation. Once they finally begin practicing, they feel the need to generate as much money as possible to pay off that debt and make up the opportunity cost of the time they have invested in education and demanding internships. Like many other business people, lawyers often tend to create a market for real or imaginary problems because they have already a solution for them. The solicitation of business through advertising undertaken by an increasing number of lawyers may well be an indication of creating demand. Additionally, lawyers, like doctors, earn income when things go wrong. So, when there is a possibility of fleecing the public, there is a chance for frivolous lawsuits, the fertile ground in which greedy rent seeking thrives.

It is, indeed, hard to convince some people that rent seeking is counterproductive if they have a big stake in perpetuating it.

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Reza Varjavand (Ph.D., University of Oklahoma) is associate professor of economics and finance at the Graham School of management, Saint Xavier University, of Chicago. He has been an avid participant in many professional organizations and active in (more...)
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