First Thing We Do, Let's Deregulate All the Lawyers

Brookings Institution Press
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Not many Americans think of the legal profession as a monopoly, but it is. Abraham Lincoln, who practiced law for nearly twenty-five years, would likely not have been allowed to practice today. Without a law degree from an American Bar Association–sanctioned institution, a would-be lawyer is allowed to practice law in only a few states. ABA regulations also prevent even licensed lawyers who work for firms that are not owned and managed by lawyers from providing legal services. At the same time, a slate of government policies has increased the demand for lawyers' services. Basic economics suggests that those entry barriers and restrictions combined with government-induced demand for lawyers will continue to drive the price of legal services even higher.

Clifford Winston, Robert Crandall, and Vikram Maheshri argue that these increased costs cannot be economically justified. They create significant social costs, hamper innovation, misallocate the nation's labor resources, and create socially perverse incentives. In the end, attorneys support inefficient policies that preserve and enhance their own wealth, to the detriment of the general population.

To fix this situation, the authors propose a novel solution: deregulation of the legal profession. Lowering the barriers to entry will force lawyers to compete more intensely with each other and to face competition from nonlawyers and firms that are not owned and managed by lawyers. The book provides a much-needed analysis of why legal costs are so high and how they can be reduced without sacrificing the quality of legal services.

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About the author

Clifford Winston is a senior fellow in the Brookings Institution Economic Studies program. Robert W. Crandall is a nonresident senior fellow in Economic Studies at Brookings. Vikram Maheshri is an assistant professor at the University of Houston.

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Additional Information

Publisher
Brookings Institution Press
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Published on
Aug 1, 2011
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Pages
110
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ISBN
9780815721918
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Language
English
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Genres
Business & Economics / Industries / Service
Law / Legal Profession
Law / Legal Services
Political Science / General
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Content Protection
This content is DRM protected.
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Robert W. Crandall
The 1996 Telecommunications Act was an attempt to increase competition among telecommunications providers in the United States by reducing regulatory barriers to market entry. This competition was expected to drive innovation in the telecommunications sector and reap economic benefits for both American consumers and telecommunications providers. The legislation, however, had a markedly different impact. While many of the more aggressive providers enjoyed sharp short-term rises in stock market values, they soon faced sudden collapse, leaving consumers with little or no long-term benefit.

In Competition and Chaos, Robert W. Crandall analyzes the impact of the 1996 act on economic welfare in the United States and how the act and its antecedents affected the major telecommunications providers. He argues that the act was far too stringent, inviting the Federal Communications Commission and state regulators to micromanage competitive entry into local telecommunications markets. Combined with the bursting of the dot.com and telecom stock market bubbles, this aggressive policy invited new and existing firms to invest billions of dollars unwisely, leading to the 2001–02 collapse of equity values throughout the sector. New entrants into the market invested more than $50 billion in unproductive assets that were quickly wiped out through massive failures. The 1996 act allowed the independent long-distance companies, such as MCI and AT&T, to live a few years longer. But today they are a threatened species, caught in a downward spiral of declining prices and substantial losses. The industry is preparing for an intense battle for market share among three sets of carriers: the wireless companies, the local telephone carriers, and the cable television businesses. Each has its own particular advantage in one of the three major segments of the market—voice, data, and video—but none is assured a clear path to dominance. Although the telecom stock market collapse is now history and the survivors are investing once again, Crandall concludes that the regulators have failed to adapt to the chaos to which they contributed.

Robert W. Crandall
The U.S. telecommunications industry has undergone dramatic changes in recent years that have touched almost every American home and business. The average American can dial almost anywhere in the world directly, store and forward a message, or transmit a fax in less than a minute; often for less than the real cost of a 500-mile telephone call tweny-five years ago. The combination of telecommunications breakthroughs, competition among new and old carriers, and the AT&T breakup has transformed the telephone industry and provided customers with a new array of equipment and services.

Robert W. Crandall examines the effects of the AT&T breakup and weighs the costs and benefits to the residential and business consumer. On balance, he finds that the efficiency gains from opening up the telephone industry have more than offset the possible efficiency losses, which may be caused by the sacrifice of economies of scale and scope or the absence of fully compatible equipment and services. The replacement of regulation with competition has led to greater productivity in the telephone industry, a more efficient rate structure, and lower equipment prices.

Crandall traces the telecommunications evolution from its early beginnings as pairs of copper wires up through the historic 1982 decision to divest. He investigates the impact of technological changes, competition, and the advent of divestiture on the quality of service, local and interexchange service rates, productive efficiency, and income distribution. He also focuses on problems that linger after the breakup in the increasingly competitive but highly regulated sector.

Clayton M. Christensen
The foremost authority on innovation and growth presents a path-breaking book every company needs to transform innovation from a game of chance to one in which they develop products and services customers not only want to buy, but are willing to pay premium prices for.

How do companies know how to grow? How can they create products that they are sure customers want to buy? Can innovation be more than a game of hit and miss? Harvard Business School professor Clayton Christensen has the answer. A generation ago, Christensen revolutionized business with his groundbreaking theory of disruptive innovation. Now, he goes further, offering powerful new insights.

After years of research, Christensen has come to one critical conclusion: our long held maxim—that understanding the customer is the crux of innovation—is wrong. Customers don’t buy products or services; they "hire" them to do a job. Understanding customers does not drive innovation success, he argues. Understanding customer jobs does. The "Jobs to Be Done" approach can be seen in some of the world’s most respected companies and fast-growing startups, including Amazon, Intuit, Uber, Airbnb, and Chobani yogurt, to name just a few. But this book is not about celebrating these successes—it’s about predicting new ones.

Christensen contends that by understanding what causes customers to "hire" a product or service, any business can improve its innovation track record, creating products that customers not only want to hire, but that they’ll pay premium prices to bring into their lives. Jobs theory offers new hope for growth to companies frustrated by their hit and miss efforts.

This book carefully lays down Christensen’s provocative framework, providing a comprehensive explanation of the theory and why it is predictive, how to use it in the real world—and, most importantly, how not to squander the insights it provides.

Clifford Winston
Urban transportation problems abound across America, including jammed highways during rush-hours, deteriorating bus service, and strong pressures to build new rail systems. Most solutions attempt either to increase transportation capacity (by building more roads and expanding mass transit) or to manage existing capacity (through HOV restrictions, exclusive bus lanes, and employer-based policies such as flexible work hours). This book develops an alternative solution to urban transportation problems based on economic analysis, but well aware of the political constraints on policymakers. The authors estimate that efficient pricing and service policies could save more than $10 billion in annual net benefits over current practices, but argue that powerful, entrenched political and institutional forces will continue to thwart efficient economic solutions to improve urban transportation. They believe, however, that some form of privatization would likely improve social welfare more than an efficient public sector system. Facing fewer operating restrictions, greater economic incentives, and stronger competitive pressures, private suppliers could substantially improve the efficiency of urban operations and offer services that are more responsive to the needs of all types of travelers. The authors conclude that policymakers have bestowed huge benefits on the public by allowing the private sector to play a leading and unencumbered role in the provision of intercity transportation. Public officials should take the next step and allow the private sector to play a leading role in the provision of urban transportation.
Robert W. Crandall
The rapid pace of technological change is placing the world's telephone companies in a very difficult position. Fiber optics cables, wireless telephones, digital signal compression, and sophisticated new switching equipment are lowering the cost of providing service and opening the gates to new competition. At the same time, these new technologies are providing the telephone companies with a wide array of new market opportunities. Unfortunately, their status as regulated carriers makes it difficult to exploit these new opportunities and to fend off competitive assaults on their traditional telephone business. As long as they are regulated, they can be accused of using their monopoly services to cross-subsidize new competitive ventures. But partial deregulation and open entry would be a catastrophe for them unless they were allowed to revise their rate structure.

There is a widespread misconception that the U.S. telecommunications industry has been "deregulated" and that Canadian authorities are following the U.S. lead. In fact, most services remain regulated, even though some markets, such as long-distance services, equipment sales and rentals, and local services, have been opened up. This book reviews the recent changes in the structure of U.S. and Canadian telecommunications industries and the changes in regulatory policy on both sides of the border. The authors analyze the effects of these changes in regulation on telephone rates in both the local and long-distance markets with particular emphasis on the impacts of regulatory reforms and competition on long-distance rates. They use their results to suggest how regulation should be structured to allow competition to replace monopoly on the road to the information superhighway.

The authors contend that for decades misguided regulation of the telephone sector in both Canada and the U.S. denied consumers the benefits of competition, distorted local and long-distance telephone rates, and blocked entry of new carriers and new technologies. They warn that the continued regulation of the telecommunications industry could be responsible for slowing the transition from "plain old telephone service" to a telecommunications marketplace that offers a wide variety of services. They conclude by outlining the choices open to policymakers and calling for liberalized competition all along the information superhighway.

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