Lawyers and economic development, or why we stumble oftentimes

The announcement of the list of new lawyers – law students who took the bar examinations and passed – is one of the most awaited events concerning the profession. Newspapers in the country give this event prominent coverage and use it to twit the competition between the country’s top law schools.

Although not as heavily discussed, the percentage of failures of such exams is high. This year’s passing rate is 17 percent, which means 83 percent of those who took the bar did not pass. The average passing rate has been around 25 percent, so that from year to year, 75 percent of those who want to become lawyers actually fail in their ambition.

“Lawyers, litigations, lobbyists, legal processes.” Even as the law is a very select profession and lawyers are needed wherever laws and regulations are written, a relevant question that can be asked is, Do we have too many lawyers in this country?

Another important question is, do we train them sufficiently so that they acquire the learning tools to understand society’s problems and the nature of economic markets?

Lawyers are needed to enable society to adopt the appropriate legal frameworks, the rules and the proper interpretation of the spirit of the laws so that the nation achieves forward motion – progress, reform, and fulfillment for its citizens. A growing economy is needed to solve the nation’s social and economic ills. That includes an understanding of markets and how they function.

Lawyers are needed by enterprises, companies, and individuals to preserve or enhance the benefits derived from the provisions of laws and regulations. Governments hire lawyers to help advance society’s laws and to enable their proper administration.

When economic reforms are proposed, those who could lose from the change protect their gains vehemently. Groups that benefit most from declining institutions or arrangements will expend resources to resist change. This explains why economic reforms are often very difficult to pursue.

It goes without saying that lawyers will do their utmost to defend and advance the interests of those who hire them. Threatened interest groups will do so as long as the benefits exceed the costs of the actions. Lobbying, and predatory tactics, sometimes even of corruption, could result from such efforts.

In addition to the legal framework and the courts, lawyers are crucial to the resolution of legal disputes. Lawyers are the active agents for interpreting the law for their clients. Dispute resolutions often involve the ownership of property rights (assets such as land, capital, permits, patents, goodwill, brands, and so on).

The resolution of such disputes invariably implies the transfer of questioned property rights. To the winners come the rewards, and often, the rewards are significant for the lawyers. This is one reason for their high supply.

Disputes are inevitable in society, but too many disputes often hinder progress, economic and otherwise. Hence, less disputes encourages more development.”

When “restrictions” or “special access” are made the rule in favor of “tolerance or openness for all participants;” when regulated activities are preferred to market based resolutions of disputes; when “monopolies” or “solutions favoring a few” are preferred to institutions supporting greater competition among economic participants, then the economic system is prone to the presence of more legal disputes and raises the cost of doing business.

“A litigious society that raises economic costs for all.” Some time ago, I wrote a paper entitled, “Legal and constitutional disputes and the Philippine economy.” This paper was later published in the Philippine Law Journal (vol. 87, December, 2007). It described the litigious character of Philippine society that has affected seriously the manner in which the country’s economic affairs are guided. The original sin in this setup was the introduction of the restrictive economic provisions in the Philippine Constitution in 1935 and reaffirmed as well as expanded in 1987.

The litigious character in society has created stalemates, setbacks and mis-directions of the Philippine economy, both in large as well as in small business affairs that affect everyone.

It is possible to settle small cases when property rights and contracts are followed. Yet, small cases do not get settled at the neighborhood (barangay) level. Often such cases get elevated to the metropolitan courts where they essentially get unresolved. Standards of contract fulfillment give way to a surfeit of tactics to delay and further delay the movements.

Of course, there are much bigger affairs in which “constitutionality” issues reach the Supreme Court. There have been many such cases that have hindered the country’s forward motion in industrial and commercial development. Decisions of the Supreme Court, when they become final resolutions of existing issues, could determine the extent to which the nation is allowed to move forward or to step backward. In many cases in the past, the country had stepped backward.

“The optimum number of lawyers: an issue for all nations?” An interesting paper to ponder about is that of Stephen Magee (“The optimum number of lawyers,” Department of Economics, University of Texas, November 2010).

The author is steeped in the field of public choice economics. His studies include big questions on the reform of the legal profession in the context of economic growth and, in particular, the US economy. Using a data base of around 40 countries, this study tried to find answers to the relationship of number of lawyers to the nation’s economic growth.

His international data shows a negative linear relationship between lawyers as a presence in the lower houses of parliament. Though this finding is not statistically strong, he speculates on the basis of nuanced analysis of the problems of “rent-seeking” that is prevalent in many countries. His data set does not include the Philippines, but includes many Asian economic neighbors, like Japan, Korea, Malaysia, Singapore, Hong Kong, China and so on.

In his data, the US has four times as many lawyers as the average for the countries in his data set. The relative number of lawyers (lawyers per thousand population; lawyers as percent of parliament members; lawyers ratio-to-physicians) in the Philippines is likely to be closer to that of the US than in any of the countries enumerated above.

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