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Do Too Many Lawyers Spoil The Economy?

One study suggests the US has 40 percent more lawyers than needed for optimal growth

By James H. AndrewsStaff writer of The Christian Science Monitor / February 15, 1994



BOSTON

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.

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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.