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It appears as if the concept of a stratified market for legal services, may have a future in the state of Arizona. Well… sort of. Back in October 2020, the state legislature passed a measure that allows nonlawyers to own law firms and on a limited basis represent clients. This alteration to Arizona state law came in the form of ACJA 7-209 (Alternative Business Structures). It could be argued that the loosen of these restrictions have more benefits than drawbacks. Like most forms of occupational licensing, it does more to inhibit the interests of the consumer than it does advocate for it. Concerns linger about legal services being commodified, resulting in perverse incentives driving law firms rather than acting in accordance with the best interests of the clients. It has been cited that a firm owned by business interests would be ignorant of the “culture” encompassing legal services. Such as law firms heavy on investor input may not take up pro bono cases. Are these concerns of twisted incentives guiding investor founded law firm legitimate or merely perceptions facilitate by many of the fallacies implicit in anti-market bias. 

Does a founder of a tech firm needs a degree in Computer Science? Not necessarily. So why should be incredulous of the fact that a law firm is founded by a businessman? Yes, legal services do entail a lengthy array of ethical obligations that may not be required in other service professions. State law does mandate that at least one lawyer works at the firm for it to be legally recognized. That lawyer would be the influence guiding how to the legal philosophy of the business. The operative phrase in this sentence is business. Making it kind of absurd to preclude a seasoned entrepreneur with some insight into legal services from engaging in forming such an enterprise. Due to merely not having a degree and having based a state-sanctioned exam. Any shrewd businessman regardless of the law would hire on a consultant a knowledgeable consultant to help fine-tune operations. In the case of a law firm, it would probably be a veteran attorney. 

The qualms regarding a nonlawyer owned law firm not being privy to the “culture” of legal services is another perplexing criticism. Any proprietor in any service industry worth their weight in salt will “learn the rules of the game”. If you want to stay in business, you are going to have to become acclimated to the customs and norms of the industry. If not, under entrepreneurial natural selection, the business will fail. The successful law firms will be

self-selected through a process of consumer sovereignty. Those firms completely driven by an ethos of profit-above-all will crumble and be victims of their avarice. If the customer does not come first you cannot possibly succeed. Part of that would be adhering to customs such as pro bono cases for low-income clients. One only needs to briefly walk down the aisles of Costco to see that the concept of pro bono services hasn’t been lost on private industry. The mundane example of the omnipresent free samples of food. Some may argue that the scale of a free sample of salsa cannot compare to that of free legal services. They are both predicated on the same principle, reciprocity. Money comes and goes. Your pro bono bankruptcy today may be keeping you on retainer tomorrow once they hit the lottery. It makes business sense to sometimes give out free services. 

Some of the most puzzling critiques of this legislation revolve around allowing nonlawyers to represent clients in legal matters. Creating the potential of a subclass of legal work, paralegals can presents clients for “simple civil and criminal cases”. Hypothetically, creating a tiered market for legal services. Those who cannot afford to hire a bar accredited lawyer would have to settle for the more limited expertise of paralegal. Forming the foundation for an archetypical socio-economic objection to this policy. This ignores the fact that this greatly benefits economically disadvantaged defendants and paralegals. If an individual is accused of a crime and cannot afford a reputable lawyer they either must represent themselves or be provided a bottom-rung public defender. Hiring the paralegal at a rate lower than that of an accredited lawyer is a far superior option than the public defender or self-representation. A well-trained and diligent paralegal is vastly superior to self-representation. Odds are the paralegal has a much stronger command of the law than the defendant. The paralegal also is a better option than the public defender. Public defenders have a  reputation for providing low-quality legal services. They are often overworked and earn significantly less than the average lawyer. Given the incentive structure of a public defender, enlisting their help in legal matters is a recipe for subpar results. No one who is underpaid and overworked is going to have the drive to overachieve. A wide-eyed and quixotic recent law school graduate may be eager to join the fight to represent the economically dispossessed. After years of stress, low pay, and disenchantment with bureaucratic institutions and humanity could make even the most bleeding-heart crusader jaded. In contrast, a paralegal providing legal representation would most likely do so as a side-job. Undertaking such a “gig” to supplement their regular income could be viewed as advantageous. Versus the public defender drowning in law school debt and disillusionment.

Placing tight restrictions on who can provide legal services is nothing more than a broad form of occupational licensing. Occupational licensing gives the initial impression of protecting the best interests of the consumer. In theory, limiting who can practice law is intended to shield the customer from the consequences of malfeasance. It limits the pool of representatives the poor can hire for legal defense. It also reduces opportunities for paralegals to earn some side cash. It outright eliminates the potential to gain some hands-on experience if they one day aspire to become a lawyer.

5 thoughts on “Alternative Business Structures- Steps Towards a Stratified Market

      1. Agreed; the problem, however, as mancur olson has taught us, is that the benefits of occupational licensing are concentrated on those bootleggers, while the costs are diffused among the most vulnerable; if we could only get the “Baptists” to see this!

        Liked by 1 person

        1. Case and point: The minimum wage debate. The harm outweighs the benefits. Typical characteristic of price controls, they end up making matters worse. Aside from defying the basic tenants and laws of economics.,it only serves to keep inexperienced workers out of the job market. Further benefiting union workers by reducing competition. Typically union workers are guaranteed above market wages to begin with. Yet, they still engage in other anticompetitive measures to reduce private sector competition.

          Driving up the minimum wage to out-price lower wage labor is nothing more than the icing on top. Just another competitive segment of the workforce eliminated. Why else would well paid (overpaid in my opinion) workers care if a day laborer makes $15/hr. This is not altruism by any means! It is important to remember they are members of a large lobbying /rent-seeking apparatus that insulates them from the dynamism from market processes. Most union employees would not directly benefit (most make more than 15/hr.), but circuitously from inflating the mandatory minimum cost for low skill labor.

          Liked by 1 person

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