For Israel's guilded lawyers, cheap, efficient service and job prospects for the young matter far less than monopoly-driven fees.
Like many other professional guilds in Israel, the Israeli Bar Association is a legally-enforced monopoly which forces customers to pay outrageously high prices for legal services · When companies like ‘Livnat Poran’ started to cut in on its business, charging lower prices and gaining popularity, the IBA declared war · If a recent Supreme Court Decision is any indication, the IBA is helping to destroy its own grip on the market · Yet another demonstration of how monopolies cannot survive a truly free market
Companies with monopolies in any market – that is, controlling more than half of it – are often accused of abusing their position to raise prices or lower the quality of their goods and services. In practice, monopolies in a free market rarely manage to do so for long, since there are always competitors both big and small who could come in and provide better prices and goods. The only time a monopoly can maintain and abuse its position for an extended period is when its dominance is enforced by law or government decrees and regulations which prevent or hinder the entry of competitors. It’s not hard to find examples of this, especially in Israel, the land of monopolies and guilds.
The 11th Plague: Professional Guilds
One of the most typical examples of legally-enforced monopolies is professional guilds. As described elsewhere in ‘Mida’, Israel has a plethora of such guilds in fields such as land assessment, legal practice, medicine, pharmacy, veterinary medicine, architecture and accountancy. The guilds, creatures of the corporate system of the Middle Ages, always argue that they are protecting the public from con men or people of doubtful professional competence, but it’s obvious to all that the same arguments could be made by graphic designers, ballet teachers, shopkeepers, shoemakers – if they were only granted a similar legal monopoly. In practice, the purpose of the professional guild was always to protect the veteran members of the profession from competition, keep prices high, and abuse apprentices trying to enter the market under their wing.
The legal profession is a great example of this transformation. In Israel, the Israel Bar Association has a legal monopoly on granting licenses to practice law. The purpose of the guild is to ensure lawyers are handsomely paid and to maintain their monopoly of providing a wide variety of legal services. Anyone who has ever consulted a lawyer, dealt with the authorities on a legal issue or had to come before a court, knows that a smart lawyer can be worth his weight in gold, even if he overcharges. But there are also many technical services which lawyers provide as part of their monopoly which could also be provided by someone with less professional education but who specializes in a small and specific area.
Livnat Poran cuts in on the action
In the past few years, a number of organizations a number of bodies were established, the most famous of which is Livnat Poran. These organizations provide advice for realizing their legal rights from the state, especially with Social Security. These bodies answered a real need: people had trouble getting the money owed them by the state, but without the deep pockets necessary to hire a lawyer to represent them, they weren’t able to get the state to pay up. These new consulting bodies were meant to fill that void. Like all guilds faced with competition, the IBA was not pleased with this. Rather than responding by lowering prices, or allowing for more limited training for the kind of technical consultation that places like Livnat Poran provide, it went to war to preserve the guild and destroy the competition.
The IBA ostensibly won a great victory on this front, in the form of a ruling by judge Yosef Shapira, which stated that medical consultation is exactly like legal consultation. This ruling established that all bodies which provide medical advice will have to either close their doors or fundamentally change what they are. But the cries of victory were premature. Livnat Poran appealed to the Supreme Court, and received the go-ahead to continue their work. Meantime dark clouds have begun to gather on the horizon, with organizations such as the Israel Civil Liberties Union, WIZO, Temura and others have joined Livnat Poran as friends of the court.
Senior jurists have also joined in criticizing the IBA. Haifa University Professor Eli Salzberger, an expert on legal doctrine and legal ethics, argued that:
The legal profession in Israel enjoys unprecedented monopoly and autonomy […] [expressed] by a very broad definition of services which can only be provided by a lawyer, and by the demand that lawyers be members of the bar.
Tel Aviv University Professor Neta Ziv, an expert in professional ethics, said that “in other places in the world, especially in the European Union, and even in England […] they have opened up the market.” Regarding the ostensible “protection” of clients from firms such as Poran, said Ziv: “This argument is irrelevant when you see just how satisfied the customers are from people who have been trained for it, but are not lawyers.”
The Supreme Court has yet to decide the case, but it would seem that the Association’s efforts to preserve its monopoly have undermined it in other areas. A truly pyrrhic victory: the Association tried to prevent the public from using needed services at a reasonable price, and has led many to question their necessity as a monopoly and led to a movement of support behind Poran.
The Solution to Too Many Lawyers? Ten Years of Training!
It’s difficult to defeat a monopoly aiming to preserve itself; guilds themselves often don’t realize they’re past their due date. Until the 1990s, the gateway to the legal profession was a narrow one, thanks to high entry requirements and the limitation of students in the universities. But with the opening of private colleges in Israel, which allow almost anyone to study in them, the number of those with a law degree has greatly increased. In theory, this is good news for the IBA, as the entry of a large number of new lawyers offers customers a greater choice of lawyers of different abilities and prices for their services, which could increase the number of customers and better compete with firms like Livnat Poran providing similar services.
In practice, the IBA saw this increase as dangerous. For instance, the Tel Aviv and Center district of the IBA has prided itself on “making the Association relevant,” actively lobbying for the following new requirements for prospective lawyers:
1) Only those with an MA may intern
2) The period of internship should be extended from one to one and a half to two years
3) The Bar exams would be even harder than they already are
4) Newly minted lawyers would be prohibited working independently for two years after they received their license (!).
If this proposal becomes law, the time it takes for a prospective law student to become an independent lawyer will be significantly lengthened. Today, a 21-year-old can go straight to studying law after getting out of the army and open a law office at the age of 25, after three and a half years of studying law and one year of internship. The law promoted by the IBA’s Tel Aviv District would force this same student to spend six years in college, two years of internship and an additional two years as a paid employee. He can open his own law office only a decade after he started studying law – at the age of 31.
The assumption of the IBA is simply that by increasing the obstacles and difficulty of being able to practice law, the quality of remaining students will increase, the number of new lawyers will decrease, and the prices lawyers can charge will rise. Just what the IBA is there to do. But things won’t work quite as they planned.
Extending the training period of lawyers by five and half years (or three and a half for lawyers who work as employees) means cutting off fully 10-13 percent of a lawyer’s working life. Considering the costs of additional study and training this amounts to trimming some fifteen percent of that prospective lawyer’s potential earnings.
This cut in earnings will mean that two major groups of new (and prospective) lawyers will drop out: the talented and the poor. Talented people who have other options of employment will prefer to look elsewhere to be rewarded for their talents. Poorer people will be deterred by the increasing cost of going into what used to be a few steps up the socio-economic ladder and will also choose a different career. Those who are poor and talented will disappear entirely from the legal profession.
The result? More lawyers who are less talented and wealthier, and particularly those who already have connections such as a father or mother who owns a law firm. Some of those lawyers will undoubtedly be talented, but by and large the quality of lawyers will likely decrease.
As mentioned above, the decrease in lawyers will drive up lawyers’ fees. But instead of lawyers simply reaping the benefits of increased fees and a similar number of customers, higher fees will simply drive more and more people to use alternative services like Livnat Poran.
Like it or not, the laws of economics and the preferences of customers do not care for guilds and monopolies. It is past time that the legal establishment understood this as well.
English translation by Avi Woolf.
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