This is one in our occasional series of excerpts from my yet-to-be-published new book, treating, among other things, the historic roots of our profession tracing back to medieval guilds.

I hope you enjoy, and, more importantly, that you provide any feedback, thoughts,  reflections, or violent disagreements you might have with this.  Your faithful author,

Bruce

Are the structural and legal organizing principles and frameworks governing the American legal profession fundamentally anticompetitive?   Is the American legal profession tantamount to a guild?

It’s rude to pose the question bluntly or at all, and in polite company you rarely hear it.  But when it’s raised indirectly or teasingly in lawyerly circles, the reaction is a too-quick dismissive hand wave or at most a nervous laugh, with a usually unspoken subtext that “our world is far too sophisticated for that today.”

Yet I think it’s worth taking the question seriously. The legal services market in the US is worth about $450-billion, or 2% of GDP.  Much is at stake.

And the more you look into the “Anticompetitive?” question, the more observers you find who believe the best explanation for why the rules we’ve erected surrounding our profession look the way they do—the “best” reason being the one with the most explanatory power.  What’s the common theme underlying all those rules?  To achieve supra-normal profits.

Serious, reflective, and disinterested experts have drawn this conclusion, with theory and evidence to support them.   We’re about to embark on a tour of some of this literature.

And make no mistake—the rules governing our profession are our rules.  Lawyers have them,  interpret them, and adjudicate them; if there’s anything to the “guild/cartel” argument, we have only ourselves to blame.

But first, a word about what I will focus on exploring here.

I will try to apply the lens of economic analysis to the structure of the US legal industry in pursuit of the opening question:  Is it a freely competitive industry or does it show signs of being able to exercise monopolistic or anticompetitive power?

As articulated in US jurisprudence today, the test is whether there’s a pattern of  “the power to control prices or exclude competition, [and/or] the power to profitably raise prices substantially above the competitive level.”

My goal is to provide historic perspective on anticompetitive market practices—guilds, in this case—so that we can determine whether there are parallels to their behavior and practices and those of the American legal profession.

Guilds have provided the primary organizing principle for a tremendous variety of trades and professions throughout economic history.  To blithely assume they’re extinct curiosities, drained of any vitality or grip on commerce in our worldly-wise days, is ahistorical and incurious.  So let’s develop at least a superficial understanding of why they arose and their central role in the marketplace for centuries.  To that end, we’ll look at why they were as widespread and enduring as they were, what economic functions they served, and whether the advantages of guild membership are completely obsolete.

In much of what follows about guilds, I draw from on the work of Professor Sheilagh Ogilvie, a Canadian historian.  Prof. Ogilvie is the Guru of Guilds and authored the standard article in the economic literature on the topic drawn from her exhaustive research.

Occupational guilds have been around for thousands of years, and although the richest literature and history centers on their prevalence in Europe from about 1000 to 1800, they also arose in ancient Egypt, Greece and Rome, and in medieval and early modern India, Japan, Persia, and Byzantium, and slightly later in Latin America and the Ottoman Empire.  Most frequently found in manufacturing and among urban craftsmen (where the guild model was almost universal), they also arose in the service sector, including among merchants and retailers, and even among painters, musicians, physicians, and—displaying their high degree of adaptability across social classes and permissive approach towards the respectability of the services being offered—among prostitutes and chimneysweeps.
Why did guilds come into existence and what purposes did they serve? Ogilvie’s answer is succinct:

Guilds in medieval and early modern Europe offered an effective institutional mechanism whereby two powerful groups, guild members and political elites, could collaborate in capturing a larger slice of the economic pie and redistributing it to themselves at the expense of the rest of the economy. Guilds provided an organizational mechanism for groups of businessmen to negotiate with political elites for exclusive legal privileges that allowed them to reap monopoly rents. Guild members then used their guilds to redirect a share of these rents to political elites in return for support and enforcement. In short, guilds enabled their members and political elites to negotiate a way of extracting rents in the manufacturing and commercial sectors, rents that neither party could have extracted on its own.

And they worked.  We know that if for no other reason than their popularity; had they been dysfunctional, or detrimental to or uneconomic for their members, they would have died off.

To the contrary, “by the thirteenth century, guilds of local traders, long-distance merchants, and craftsmen were to be found across much of Europe. For the next 300–600 years, to practice industry or commerce in most European towns, it was necessary to obtain a license from the relevant guild.”

Their ubiquity spurred some opposition, primarily in England and the Low Countries. Amsterdam, already one of the world’s greatest trading meccas, barred merchant guilds outright in the 1500s, as did Leiden (the textile capital). Whatever the two cities’ motivations (presumably to open their markets to the maximum number of potential merchants), the effect was the same.  Meanwhile, in England during the Reformation of the 1530’s and 1540’s, the crown dissolved all primarily religious guilds and effectively withdrew or cancelled state charters outside London, leaving provincial guilds scrambling for local “borough” charters of no force beyond any single town’s walls.

But England and the Netherlands region were the exception.

Before we delve into whether the general prevalence or “density” of guilds in a country’s economy seemed to support or impede economic growth, it could be instructive to look at a specific, “micro” examples.  Are there instructive examples of “before and after?”  Yes, and the removal of the guilds  produced almost immediate benefits, ranging across centuries in the Middle Ages.   Here are a few:

• Protectionist:
  • After the German Hansa guild obtained control of Sweden’s Skane fairs in 1370, English and Dutch merchants dropped out, and the fairs shrank in size and variety;
  • When the Wurttemberg state authorized a textile guild in 1650, the industry shrank.
• And liberating:
  • The Spanish consulados lost their monopoly power in 1778 and trade expanded tremendously in Central America, Chile, Cuba, Venezuela, and the Rio de la Plata
  • In the wake of the French Revolution (1791) abolishing guilds, “tens of thousands of women and men applied for permission to practice previously guilded occupations.”

However, the tide was not running in favor of dissolving or repealing the privileges of guilds.

New guilds continued to form during the eighteenth century in Germany, Austria, Spain, France, and even the Netherlands, whose sixteenth century loosening of guild constraints gradually gave way to institutional and economic petrifaction after about 1670. Spain and Portugal even exported their guilds overseas, establishing powerful “consulados” which survived in Latin America into the nineteenth century.

This “parting of the ways between countries’ welcoming to and hostile to guilds provides every academic economist’s dream, a natural experiment.

Here’s a rather dramatic chart showing the per capita GDP (in constant 1990 $$) among European countries with “strong” and “weak” guilds over nearly a millennium:

Graphically:

To recap:  Let’s compare the structure of today’s American legal profession, as regulated in large part by the ABA’s “Model Rules of Professional Responsibility,” to the classic elements of medieval guilds.

• Entry qualifications expressly limited, complex, time-consuming and expensive to achieve, often requiring specific legal/regulatory credentials, and thus constituting a high barrier to entry; Check.
• Wannabe competitors not meeting those requirements for membership in the guild/profession legally prohibited from providing such services; Check.
• Supranormal profits customarily enjoyed by individuals and enterprises inside the guild, essentially across the board with little to no correlation with business acumen, level of service provided, competitiveness of prices, etc.; Check.
• Foreign competitors prohibited from freely entering the market; Check.
  • And as a corollary, goods/services provided by the guild difficult or impossible to replicate through foreign imports; Check.

I could go on, but you get the picture.

Any questions?

Guildhall Street, London:  Photo by K. Mitch Hodge on Unsplash