Monday, August 21, 2006

Do Singaporeans Believe in Free Markets (for Lawyers)?

According to a recent government study, there is a shortage of lawyers in Singapore. The study estimates that Singapore will need approximately 140 to 150 additional legal professionals each year from 2010 to 2015. To address this shortage, the Ministry of Education has granted permission to the Singapore Management University to open the country’s second law school (the other law school belongs to the National University of Singapore). Additionally, restrictions on foreign-trained lawyers will be eased.

Blogger Mr. Wang, a practising lawyer, argues the government has tightened restrictions on the supply of new lawyers while at the same time there was an unforeseen increase in the demand for legal services. Much of the debate on this issue focuses on the government’s inability to accurately predict how the market for lawyers will change in the future and the resulting consequences.

I agree with the view that the government’s micromanagement of the market for lawyers is doomed to fail. There will always be unforeseeable events that will make any government prediction inaccurate, particularly since it takes several years to train a new lawyer. However, I think that this line of argument is misplaced. The problem is not poor forecasting skill, it is the interference in the market in the first place. Under the current scheme, even with perfect foresight, even if there are 150 more lawyers trained annually, there will still be too few lawyers due to artificial restrictions. The supply of lawyers is restricted in several ways:

  • Restricting the founding of new law schools

  • Restricting the number of students accepted into the law schools

  • Limiting the number of accredited foreign law schools

  • Mandating the minimum honours necessary to practise

  • Requiring the passage of qualifying exams in some cases


These restrictions suppress the number of lawyers and drive up the wages of lawyers. As a result legal services are more expensive than necessary. And it is likely that the people that suffer most are those in need of the simplest legal work, such as drafting of wills, mortgages, or other simple contracts. You see, lawyers are drawn to highly profitable areas of practice such as in the financial sector which leaves fewer lawyers for mundane legal tasks. Consequently, the price of these simple services is too high. It does not need to be this way. There are Singaporeans who would choose to become lawyers and would earn a viable income offering these services if only the market for lawyers were free of interference. Not every lawyer has to be top of the class or from an elite university because, clearly, not all legal tasks require a top scholar.

Under a free market, in addition to lower prices, there is no need for government studies and predictions. The market will adjust itself naturally by signalling when there are too many or too few lawyers. When there are too few lawyers, high wages will attract students to law school. When there are too many lawyers, low wages will tell students that law school is not a good choice financially.

Even though removing restrictions will benefit society as a whole, it is hard to imagine there will be any changes to the current system. The reason: practising lawyers have strong financial incentives to lobby against the removal or weakening of any restrictions.


12 Comments:

Blogger BL said...

Hi A Singapore Economist,

I agree with your analysis that it is better to let the market corrects itself than micromanaging the demand and supply for the lawyers. The problem is that the government want to prevent an oversupply of lawyers.

Actually, I have another reasoning that perhaps you may help me to finetune it.

Suppose we increase the supply of lawyers and let the schools decide their intake per year, by the basis of free competition, only the best will end up working in the big law firms. The question is what happens to the rest of those who did not make the mark. Market forces will drive those who did not make the mark to find jobs that taps on their legal expertise. So, by the invisible hand, all the lawyers will find jobs regardless whether they go to law school or not. So, does that mean that it is better to have more lawyers than to have less?

Micromanaging professionals supply can be a problem for Singapore. Already in the scientific profession, we are going to see a big supply of scientists in the next 10 years, and I wonder how we can deal with it if the government move out of the biomedical arena by that time.

1:09 PM  
Blogger a singapore economist said...

bl,

Some of those that can't find jobs with a big law firm will do other legal work. Some will decide that the pay isn't high enough and find work outside the legal profession.

It is really not a question of whether it is better to have more than to have less. If you want to hire a lwayer, it is better to have more. If you are a lawyer, it is better to have less. The more important issue is this. There are people who are willing to supply legal services; there are people willing to pay them. But this mutually beneficial transaction can't take place due to these restrictions.

2:23 PM  
Blogger a singapore economist said...

Unfortunately, there may be a rough transitional period for science professionals if the government leaves the biomedical arena. In the longer run, though, things will be better. Once the goverment pulls out, private firms will see an opportunity to tap into a skilled labor force and will set up shop.

Typically, skilled workers do better than unskilled workers when there are structural changes in the economy because the skilled workers have more flexible skills and thus more job opportunities.

2:36 PM  
Blogger John Riemann Soong said...

Of course lawyers are already overworked and they may want more colleagues ...

I am upset over the education in itself. It isn't so much of "believing in a free market", than of civil liberties (since education is part of such liberties).

For example, schools have to be approved by the MOE before they adopt any new programmes, Integrated Programme, International Baccaleaurate, or else. The MOE has already closed the gate to the IP to other schools.

So even if another school wanted to offer an IP or an IB diploma, they are restricted by government regulation.

In this sense the government affords tyranny by repressing the masses by denying them superior education, and rather allocating to a certain percentile.

I have a sentiment that streaming is not because of limited educational resources, but because of conscious suppression. After all, we can afford to give all the students of Singapore GEP-standard education .... in fact, much of the GEP programme is rather pertinent for mainstream students (such as spotting logical fallacies). Yet with the government ranting on about limited resources, it seems that they are still stuck in the regulation era of the 1970s.

It isn't just a lawyer issue, but something extending to the entire Singapore academic arena. Why do we have an economic freedom score of 2 under these circumstances?

5:31 PM  
Anonymous Anonymous said...

Yawning Bread has commented about the failures of Central Planning when it comes to the issue of demand and supply of taxis during the "cinderella hours" of 11pm to midnight and after office hours in CBD on weekday nights.

For all our talk of free market, we are still in central planning (soviet style command economy) for education as riemann has pointed out as well as the transport sector (effective duopoly for bus and mrt or monopolies for respective bus sectors/mrt lines).

There is too much govt in the economy. That's a problem. How does the govt extricate itself from the economy, that's an even bigger problem.

lunatic_fringe

5:57 PM  
Anonymous Gerald Tan said...

Deja vu.... reminds me of the flip-flop-flip-flop over doctors that has been happening for the last 20 years... every 5 years, the Health Minister changes and decides to do a U-turn.

9:17 PM  
Blogger Colin said...

Unfortunately, due to the government's persistent belief that "people are our only natural resource", they will continue to try and manage the labour force, with the lamentable results we've already seen.

10:53 AM  
Anonymous Anonymous said...

Check this out on the Malaysian Bar Council website at:
http://www.malaysianbar.org.my/content/view/3849/27/

It is an article entitled "Lawyers - From professsionals to salesmen"

8:42 AM  
Anonymous Kelvin Tan said...

I will be most interested in your analysis on National Service and market for soldiers, using the same principles hehe.

10:19 AM  
Blogger a singapore economist said...

market for soldiers...hmmm, maybe this is one market in which we'd like some restrictions, heh.

10:51 AM  
Anonymous Joan said...

It cannot really have success, I suppose so.

8:47 PM  
Blogger Ayesha Shah said...

I read a blog on legal industry declining in Singapore and I now see the light of hope. I commented there saying Singapore is growing with Law industry as several students are selecting law as their specialization, which means people know the importance of law and having a legal adviser Singapore.

9:30 PM  

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