The Legal Economy

The Legal Economy

A Thoughtpiece by the LEF Chairman, Guy Beringer

The Lord Chancellor recently announced that there will be a Global Legal Summit in London in 2015. The occasion arises because 2015 is the 800th anniversary of Magna Carta. The underlying purpose of the Summit is to ‘champion the UK as global leader in legal services and as a destination of choice for global business in the 21st century.’

If the Summit is to achieve its objectives, there will need to be some clear goals for the legal economy in the intervening period. Without such goals, the Summit will not be able to provide a story which can be put before the world.  These goals need to go beyond the narrow focus on City firms and international arbitration which has tended to dominate government thinking on the legal economy (as reflected in the Ministry of Justice Plan for Growth).

What might these additional goals be? Here are some suggestions:

  • To show that the UK is the global leader in the provision of affordable legal services which are accessible by all citizens;
  • To show that the UK is the global leader in the use of technology for the delivery of legal services;
  • To show that the UK is the global leader in the provision of both legal education and public legal education;
  • To show that the UK is the global leader in the training of judges and in the understanding of judgecraft;
  • To show that the UK is the global leader in advocacy training;
  • To show that the UK is the global leader in the rule of law both in terms of studying it and embracing it; and
  • To show that the UK is the global leader in the understanding and teaching of ethics in the context of the law.

It goes without saying that the goals of showing why English law should be the law of choice for international transactions and why the UK should be the centre of choice for international dispute resolution should be retained but the thinking should not begin and end there.

The Summit is a wonderful opportunity to show that leadership in the fields outlined above will translate into business opportunity and growth for the UK economy both domestically and internationally. The Summit is also a wonderful opportunity to remedy three key failings which threaten our national economic recovery plans if they are not addressed but which will give competitive advantage if they are.

First: we are complacent about the rule of law and its significance to our society and our economy.  We tend to assume that we can ‘export’ the rule of law to other jurisdictions as of right and we tend to forget that we can only export something that exists and is of sound quality.

Second: we have no measured understanding of what the legal economy is or what we would wish it to be.  This leads us to a narrow focus on City law firms and international arbitration (both of which are important and easily measurable) whilst ignoring much of the broader legal economy.

Third: we have no measured understanding of why the rule of law is a national business issue of comparable importance to, say, membership of the EU.

Why do these issues matter?  The answer is that our national economic health is heavily influenced by the state of the legal economy.  The law is a financial and business issue as well as being a social and political one.
Take the question of the legal economy.  This can be defined as all those activities relating to the law which provide either employment or valuable outputs. This would include at least the following:

  • the administration of justice through courts and tribunals;
  • the practice of law professionally by solicitors, legal executives and paralegals in private practice professional service firms;
  • the practice of law professionally by barristers in chambers;
  • the practice of law professionally within in-house legal departments;
  • the advice sector (which comprises a wide range of not-for-profit and hybrid entities);
  • the provision of legal education in schools, colleges and universities;
  • the provision of public legal education; and
  • the provision of legal support activities by the emerging Alternative Business Structure sector.

It can be seen immediately that this definition of the legal economy (which excludes law enforcement and related activities) contains a diverse variety of organisations and businesses and also offers a diverse set of benefits and earnings for those it employs and serves.  The following aspects of the legal economy are well known:

  • The law is a valuable source of export earnings as services are provided globally by UK barristers and by UK based law firms to their international clients.
  • The law is a valuable source of earnings from foreign businesses which choose the UK as a venue for resolution of their disputes.
  • The rule of law is an integral part of the intangible attraction of the City of London as a centre for international trade and finance.

Less well observed is the fact that the legal economy contains a very large number of SMEs.  Recent Law Society research shows that the part of the legal economy which comprises law firms and barristers’ chambers contains over 20,000 SME’s.  It is clear that much of the focus of activity across government outside the Minstry of Justice has been on SMEs and their potential role as an engine of recovery for the economy.  Many of these 20,000 SME’s lack investment in succession planning, technology, skills training, information and back office services.  If they were engaged in any other sector of activity there would be a concerted effort to assist them in obtaining investment, upgrading their skills and consolidating and becoming an engine for growth and employment.

It is worth noting that much effort in the SME end of the legal economy has been expended on the legal aid battlefield.  There is, in fact, a growing problem which is not directly attributable to legal aid cuts.  There is an increasing requirement within the legal economy for low cost legal services for people or organisations which can no longer afford to access legal services through conventional higher cost models. This requires new thinking and a new approach to discover the business solutions which must be incentivised and found.  This need arises in areas which have not been part of the legal aid remit.  It requires the legal economy version of Tech City.

It should by now be evident that we require a proper analysis of the legal economy through a business lens.  It is in part an SME problem.  It is in part a technology problem.  It is in part a consolidation problem.  It suggests, for example, that the civil legal aid budget would sit more logically in BIS than in the MoJ and that the focus should be more on outcomes and cross government savings rather than the bare legal services rendered and the time taken to provide them.  It suggests also that the focus should be on the sustainability of the businesses providing the service and their investments in efficiency.  Unless these problems are solved, we will not be able to deliver affordable legal services to a large part of society.  This will be a problem irrespective of the size and scope of the legal aid budget.  The Summit should be a catalyst for finding these solutions as, without them, we would be displaying a threadbare tapestry to the world.

It would be fair at this point to ask: ‘What does this domestic analysis of the wider legal economy have to do with the City, the international attraction of English law and the export of legal services?’  The answer to this question lies in the rule of law and it, like the legal economy, needs wider understanding.

David Kynaston, the leading historian of the City, concluded that there have been three figures of outstanding importance in the City since the end of the Napoleonic Wars:  Nathan Rothschild, Ernest Cassel and Siegmund Warburg.  All three were foreigners and outsiders. They came to the City because, although it was highly prejudiced, it was open to all.  It was reliable.  It was where skills and capital existed to develop an international business.  Warburg, in particular, changed the way the City worked because he knew that, in the end, the establishment would abide by its own rules and he was simply better at using those rules than they were.

Why do people, businesses and capital still come to London?  One part of the answer is that it is a self sustaining attraction- crowds gather where a crowd is forming.  The attraction, however, has identifiable components.  Two components high up the list are the rule of law and a justice system which draws no distinction between insiders and outsiders.

Elites tend to disappear when they believe they hold their position as of right.  Our national approach to the rule of law requires constant attention to avoid falling into this trap.  If the UK begins to restrict judicial review, it may tarnish the rule of law.  If a significant part of the citizenry cannot afford access to the civil justice system, that system will become discredited.  These are economic issues because they could erode the position of the City.  If we feel we need to have an environmental impact assessment for all new legislative measures because the environment is dear to us, why do we not have a rule of law impact assessment for all new legislative measures because the rule of law underpins our economy and the City?

We are a society that depends on the rule of law commercially as well as socially.  We are also a society which takes the rule of law for granted and that is like being a market leader in a business that is losing touch with its customers.  The Summit provides an opportunity to set ourselves the goals outlined above and to test ourselves against global best practice.  If we are to survive this test, we need to take a more strategic view of the legal economy.  This does not necessarily mean significant amounts of government funding but we need at a minimum a government which:

  • has measured the legal economy and understands it and its potential as a domestic business driver;
  • has measured the significance of the rule of law to our broader economy; and
  • has measured the significance of promoting English law and the UK as an attractive legal system and forum internationally.

It may prove impossible to provide conventional measurements of intangible matters but it is important to undergo the process of trying to measure them. It will then enable government to take strategic decisions about apparently unconnected matters which may otherwise impact the rule of law (judicial review being an example).

It should then be possible for government to see where it should provide its support and effort.  The promotion of Tech City is an interesting analogy.  Many of its features could be applied to the need to develop a new approach to a technology based provision of legal services which will reintroduce many citizens to the civil justice system.  The promotion of business angel groups and crowd funding could revolutionise provision of some legal aided services if coupled with payment by results measured by cross government savings.  The use of champions to promote change would provide an impetus for that change.

It should also be possible for government to identify nascent areas of excellence and to recognise and encourage them.  These might include the following four areas:

  • There are areas of our legal education system which are world class and which can be encouraged to export and helped to do so;
  • The Inns of Court are recognised as the home of world class advocacy excellence and should be encouraged to build on this global brand;
  • The UK is already home to several rule of law and human rights organisations which are world class.  The government should help them to find international platforms from which to develop their standing; and
  • The Judicial College is a centre of excellence which underpins the international standing of our legal system.

It is fair to say that the government has recognised only the first of these areas as having potential for active promotion.

We should also closely consider with universities and professional bodies the competitive advantage which would flow from making English law qualifications more accessible to foreign lawyers as part of their international legal education.  At present the New York Bar qualification is widely viewed as a more attractive option to such lawyers than the English equivalents.  We should use the period before the Summit to devise and launch a more accessible international qualification (perhaps using the English bar qualification).  If an attractive route is offered to foreign lawyers, this would tie a larger part of the international legal world into the English legal system.

It should also be possible to encourage the study of how to provide affordable legal services as a business school challenge.  It is currently sadly neglected.  We need to encourage proper global comparative studies to see where we are behind the competition.  We need to look at other service industries to see where best practice lies.

Those in government may fairly say: ‘Why is this aimed at us? What about the market?’  The answer is that the market is clearly responsible for doing many of these things itself as it should reap the benefits.  In the end, however, if we have any national brand at all, our legal system and the rule of law is a vital part of it.  The maintenance of that brand is a matter of national interest.  The Summit gives us an opportunity to hold our own feet to the fire in determining whether we are guarding that brand closely enough.

We are fortunate that we possess a global currency:  it is not a financial one but it is what the financial markets would call a stapled product.  It is the stapling of English law and the rule of law.  We have been selling it for centuries.  There is a gentle irony in the fact that Magna Carta requires that we sell to no man either justice or right but it is a little late to worry about that.  We need to use the Summit as an opportunity to reinforce the stapling of English law and the rule of law.  We need, however, to understand that this reaches down through the whole of our legal system and society and is an economic issue.  We must, as the marketing people say, live the brand if we wish it to flourish.

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