Brookings: Experts - Clifford Winston

How to Avoid Another FAA Fiasco

Clifford Winston — Wed, 08 May 2013 00:00:00 -0400

In the aftermath of last month’s air traffic control fiasco, many people are probably wondering how there could be a budget pinch since travelers pay for air traffic control every time they buy an airline ticket. Current fees amount to a 7.5% ticket tax per flight and $3.90 per flight segment, which generates some $10 billion in annual revenues. Assuming that user fees fund the service, it made no sense that the sequester would affect air traffic control. But that assumption is wrong.

What Americans experienced in April was a classic example of how federal transportation deficits can reduce the nation’s productivity. Millions of man-hours were wasted on planes that were delayed, and hundreds of thousands of travelers postponed or canceled trips that generate work for people at their destinations. Unfortunately, the United States will experience more costly disruptions to its transportation system unless its deficits are curbed by efficient policy reforms or by privatization.

Travelers’ user fees do not bear a close relationship to an aircraft’s contribution to the cost of air traffic control. Why? Because there is no variation in price for airspace congestion that increases traffic control’s workload. The gap between passengers’ user fees and the cost of air traffic control is even greater for unscheduled general aviation (corporate jets and other private flights). General aviation causes unpredictable peaks in demand for airspace, and their preferred altitude approaches create additional complexity and cost for controllers. Overall, revenues from user fees do not cover costs, and the difference is covered by a subsidy from the general federal fund.

The Federal Aviation Administration has been unable to figure out the real costs of air traffic control services and thus has underpriced it since its founding in 1958 as the Federal Aviation Agency. The inadequacy of the ticket tax to cover costs over time has been compounded by the intensity of airline competition that has driven down real airline fares. The costs of air traffic control also have undoubtedly been inflated by the delays and cost overruns attributable to the FAA’s inability to adopt new technology to upgrade and modernize the system. The long-anticipated next generation satellite-based air traffic control system, known as NextGen, is billions over budget and years behind schedule. It may need to be renamed PastGen at the rate of its deployment.

FAA’s involvement with public airports is also characterized by pricing and cost inefficiencies. The charge that an aircraft pays public airports to land—they are not charged to take off—is based on weight and generally does not vary by time of day. But the time at which an airplane lands clearly affects airport congestion and an airport’s capacity to reduce delays. Building new runways has turned into multiyear projects with a price tag in the billions of dollars due to various regulations that can take decades to meet, especially Environmental Protection Agency environmental impact standards.

As part of a federal agency that depends on taxpayer funds to cover a deficit caused by its inefficiencies, air traffic control is at the mercy of Congress. So when the sequester hit, the FAA’s already troubled budget was cut—including funding for air traffic control.

To be sure, the 10% cut in air traffic control was politically efficient from the White House’s perspective, because it delayed more than one-third of all flights and drew the immediate attention of the public and Congress. But FAA’s pricing and operating inefficiencies led to the deficits that rendered air traffic control operations subject to manipulation.

Air traffic control is not an isolated case. Evidence in my forthcoming Journal of Economic Literature paper indicates that the nation’s highways, ports, urban bus and rail transit systems are also characterized by prices that are below costs and by inefficiencies that inflate operating costs, which have resulted in large and growing budget deficits that make those services vulnerable to politics. Cuts in their funding could adversely affect the nation’s productivity by, among other things, increasing commuting and shipping delays.

One way to insulate the nation’s transportation system from the threat of costly political shocks is to efficiently reform its pricing policies so services are financially supported by real, cost-based user charges. Alternatively, the U.S. could follow the lead of countries such as Canada, England, Australia and New Zealand and explore privatizing its transportation services.

All of America’s transportation modes and infrastructure services were initially developed and operated by the private sector. Over the past centuries, they were brought into the public sector by financial crises—some that the government arguably helped create by interfering in the market. Now that the government’s political crises are becoming ever more disruptive, it may be time to return the transportation system back to where it started.

Authors

Clifford Winston

Image Source: © Larry Downing / Reuters

To Reduce Lawyers' Drag on Growth, How about a Law PhD?

Clifford Winston and Robert W. Crandall — Thu, 14 Mar 2013 00:00:00 -0400

A crisis is a terrible thing to waste, so the saying goes. So is a mind – a keen scholarly legal mind. Fewer students seem to be interested in entering law school as can be seen by the 50% decline in applications. But the crisis in legal education may have a silver lining: as most law schools are cutting their student enrollments, Chicago, Vanderbilt, and Yale law schools are attracting students to new legal doctoral programs. Despite what one might think, PhD lawyers could be a good thing for the economy: they will be trained to produce research that could help eliminate costly inefficiencies caused by public policies—ironically, especially those that increase the demand for lawyers. Indeed, if economics research is correct that an economy’s growth slows as more lawyers comprise its workforce, then the payoff from such research could be substantial.

Last year, the University of Chicago established the Coase-Sandor Institute for Law and Economics and is currently developing a joint J.D./Ph.D. in law and economics. Vanderbilt Law School will welcome students to its new Ph.D. program in law and economics in 2014. And this fall, Yale Law School will welcome students to its new Ph.D. program in law. Other major law schools are likely to follow, offering similar doctoral programs in the coming years.

Law is at the core of public policy and indeed is the bedrock of democratic government; thus, doctoral programs in law will require graduates to apply analytical tools that produce original contributions to knowledge about the causes and effects of a vast array of public policies. As a result, these newly minted PhDs will develop powerful, empirically testable findings that could significantly benefit society by maximizing the benefits and reducing the costs of government intervention in our economics lives.

Since the late 1950s and early 1960s, when faculty at Chicago and Harvard first used quantitative methods to analyze whether economic regulations of various industries were having their intended effects of controlling monopoly pricing, scholars have assessed countless public policies. However, we have little knowledge of the quantitative—and even qualitative—effects of many important policies, especially those where lawyers may benefit at the expense of society at large. Those laws and regulations would therefore be ripe for analysis by law doctoral students due to their in-depth knowledge of the legal system and the various roles that lawyers play in it.

For example, lawyers are central to the resolution of intellectual property disputes. Indeed, lawyers are routinely called upon to write patent applications because applicant companies know that the validity of most patents will eventually be determined in a federal court. While lawyers benefit from a patent system that generates demand for their services, there is little evidence on whether the lawyer-rich patent system provides benefits that outweigh its costs.

There’s also America’s expensive liability system. Lawyers are generally paid on a contingency-fee basis, and because the cost of defending a suit is high, defendants often pay the plaintiffs (and their lawyers) to settle before trial. The cost of the U.S. tort system has been estimated by Towers Perrin to be at least two percent of GDP, but there is little evidence on whether the benefits of this system exceed its cost. Thus policymakers have little guidance on how the system should be reformed to reduce its costs without compromising any incentives it may provide for individuals and firms to behave in a socially desirable manner.

Another example: financial regulation reform in the wake of the Great Recession. Highly-paid lawyers representing various interests have engaged intensely with federal regulatory agencies to shape the implementation of the Dodd-Frank Act. Unfortunately, little scholarly knowledge is available to guide how, if at all, financial regulation should be reformed and how best to prevent a repeat of the events that led to the financial crisis. As a result, the merits of the Act are being strongly questioned and certain policymakers and industry executives are calling for its repeal even before it is fully implemented.

Finally, reform of health care has emerged as one of the most important policy issues of our time. And while research has yet to find a “magic bullet” to lower the costs of the health-care delivery system without significantly reducing the quality of care, lawyers are fully engaged in opposing any measures that would limit their fees or impose caps on damages in medical malpractice cases.

Graduates and faculty of the new doctoral programs in law have an opportunity to fill many gaps in our understanding of the effects of policies that are at the center of their expertise and to explain how the symbiotic relationship between private-sector lawyers and policymakers, who often come from legal backgrounds, have adversely affected policy outcomes.

If lawyers are truly a drag on the nation’s growth in the course of influencing and benefiting from inefficient public policies, then doctoral programs in law have come at just the right time.

Authors

Publication: Forbes

Image Source: Darren Greenwood

The American Airlines-US Airways Merger in an Evolving Airline Industry

Clifford Winston — Tue, 26 Feb 2013 00:00:00 -0500

Introduction

In a 1995 book, The Evolution of the Airline Industry, Steven A. Morrison and I assessed the effects of various hypothetical changes in airline competition on air travelers’ fares. An extreme scenario that we considered was that Alaska, Continental, America West, Northwest, TWA, and USAir exited the industry, leaving Southwest, United, American, and Delta as the only major carriers in the U.S. domestic market. At the time, we thought this large scale exit would be a tremendous shock to industry competition—note, we did not assume that the carriers exited by merging with other carriers. We found, however, that fares increased modestly, about 8 percent, which preserved most of the decline in fares due to deregulation. We attributed our finding to the ability of Southwest to enter additional markets and discipline fares.

Today, this extreme scenario no longer seems so extreme because if American’s proposed merger with US Airways is approved, then, with the exception of Alaska, all the carriers that we assumed would exit the industry would have done so. My testimony provides some perspective on this scenario, indicates why its effects on fares would differ from the prediction that we reported in our book, and assesses U.S. airlines’ merger activity in the broader context of the industry’s eventual evolution to a highly competitive, global airline industry.

The Scenario and Reality

The scenario we posited in our book differs from an actual post American-US Airways merger environment because we assumed that carriers would simply exit the industry and would not merge and because we accounted for competition among only four remaining carriers.

In our scenario, when a carrier was assumed to exit a market, all of its assets exited with it. This assumption ignored the potential benefits of a merger and overstated the exiting carrier’s effect in raising fares because its assets could have been put to more effective use if that carrier merged with another carrier, thereby creating a more efficient competitor. Indeed, retrospective empirical assessments of airline mergers have generally found that the presence of a merged air carrier in a market does not lead to higher fares. At the same time, travelers benefit from the merged carrier’s more extensive network and from more opportunities to use frequent flier miles.

Our scenario also did not account for the fact that in addition to American, Delta, United, and Southwest, the carriers that would still compete in the industry include Alaska, JetBlue, Spirit, Frontier, Virgin America, Allegiant, and Hawaiian Air among others.

Accordingly, even though for the last decade or so the U.S. airline industry has been evolving in a way that is consistent with the extreme scenario in our book, as shown in Borenstein and Rose’s recent paper reporting U.S. airline industry operating characteristics through 2011, real yields have continued to decline since deregulation in 1978; real yields have been consistently below the Standard Industry Fare Level (SIFL) that was used by the Civil Aeronautics Board to determine regulated fares; low-cost carriers’ market share has steadily increased; route level concentration on hub and non-hub routes has stabilized during the past ten years; and the industry average load factor (the percentage of seats filled by paying passengers) has steadily increased. And, as reported in Tomer, Puentes, and Neal’s Brookings study, travel in U.S. international markets has more than doubled between 1990 and 2011 as U.S. carriers have taken advantage of open skies agreements to expand their international networks and increase flight frequency.

Similar to the mergers that preceded it, the merger of American Airlines and US Airways would preserve those positive long run trends. Carrier competition would continue to be intense and low-cost carriers would continue to put downward pressure on fares. Entry and exit would continue to be fluid in airline markets as a merged American and US Airways would optimize its network by exiting some routes and entering others, while other carriers would adjust their networks by entering some of the routes that American exited and exiting some of the routes that they entered. The merged American and US Airways would also strengthen its international network and benefit travelers by serving more foreign destinations.

In retrospect, the extreme scenario depicted in our book previewed a natural evolution of the industry in response to deregulation with the critical caveat that instead of completely exiting the industry, certain carriers have merged with others, which has enabled the industry’s capital stock to become more productive as, for example, merged carriers have been able to retire their least efficient aircraft more quickly and has enabled the merged carriers to strengthen their international networks.

Toward a Global Airline Industry

A proposed merger between large firms is often accompanied by concerns that the consolidation would reduce competition and raise prices. If policymakers are concerned that the proposed American-US Airways merger may have anti-competitive effects, notwithstanding any gains in operating efficiency, then an effective way to address those concerns, obtain the efficiency gains, and significantly benefit travelers would be to take steps to stimulate additional competition by creating a deregulated global airline industry.

In fact, U.S. and foreign policymakers have already begun that process by negotiating open skies agreements, which give U.S. and foreign carriers the freedom to enter and set fares in U.S. international markets. As expected, air travelers have benefited. In a recent paper, Jia Yan and I estimated that the reduction in fares and increase in flight frequencies in markets that are governed by open skies agreements has raised travelers’ welfare $5 billion annually. If the United States negotiated agreements with foreign countries so that all U.S. international routes were governed by open skies, we estimate that travelers would gain an additional $5 billion annually.

The final step to create a highly competitive global airline industry would be for the United States to allow foreign airlines to serve U.S. domestic markets. (Other countries should also allow foreign carriers, including U.S. carriers, to serve their domestic markets.) Clearly, competition would be even more intense in U.S. markets and travelers would benefit from lower fares and service improvements if their choice of carriers were expanded to include discount carriers like Ryanair and global players like Qantas and British Airways. Such airlines have never posed a threat to national security or to the safety of air travelers.

Whether it was part of their grand design, U.S. carriers have been preparing for decades for a truly competitive global airline industry. As part of this process, they decided that mergers would help them develop more efficient operations and networks. No evidence exists to question the effectiveness of that strategy; hence, policymakers have been wise to allow consolidation to move forward and they should allow American Airlines and US Airways to continue the process. Policymakers should also accelerate the airline industry’s contribution to globalization by creating a truly competitive deregulated environment that would benefit travelers in the United States and throughout the world.

Authors

Clifford Winston

Publication: Subcommittee on Regulatory Reform, Commercial and Antitrust Law, Committee on the Judiciary, United States House of Representatives

A Remedy for Air Travel Woes

Clifford Winston — Wed, 21 Nov 2012 10:22:00 -0500

As the holiday season approaches, the major airlines are signaling to some passengers to take a hike. At least that’s what travelers might infer from the smaller number of flights being scheduled at many of the nation’s airports.

Between 2007 and 2012, airlines cut the number of domestic passenger flights by 14 percent, according to the Department of Transportation—with the biggest drops occurring at midsize and smaller regional airports. The five heartland hubs of Cincinnati, Cleveland, Memphis, Pittsburgh and St. Louis have lost a stunning 40 percent of their scheduled flights.

The reason is simple: airlines have decided that the best way to earn a healthy return on their investment is to maintain tight discipline on capacity. That’s a fancy way of saying they want their planes to fly as full as sardine cans. And the way they’ve been accomplishing this is by concentrating service on the big domestic and international markets and by cutting flights in smaller, less traveled ones.

That’s smart business, of course. Why expend the same dollars on jet fuel, pilots and Sun Chips on a flight that’s likely to leave half-empty from Memphis when you can trim the number of scheduled departures from the same airport and really pack them in on each flight?

But this, of course, leaves Aunt Sally in Sarasota, Fla., with fewer options to visit family during the holidays; it leaves millions of us with longer boarding and exiting delays on our planes — and, yes, it helps drive up fare prices, too. It’s that old rule of supply and demand. Travelocity, an online booking site, has found airline ticket prices for this pre-Thanksgiving period to be 10 percent higher on average than last year.

Unfortunately for travelers, this situation is unlikely to change anytime soon. With five airlines now serving 85 percent of the domestic market—four, if American Airlines and US Airways merge, as industry analysts expect—the major carriers are worrying less about the one factor that could disrupt their cozy, cram-’em-in strategy: competition.

That is, unless policy makers do what they should have done a long time ago and allow foreign airlines, including discount carriers like Ryanair and global players like Qantas and British Airways, to serve domestic routes in the United States. Why, after all, should an industry that has ingeniously used free-market principles to squeeze the most revenue out of each middle seat be protected from competing in a real free market?

As things stand now, the United States allows foreign airlines to serve its major cities as part of international agreements — conventions that have been around for decades. Foreign airlines have never posed a threat to national security or to the safety of air travelers; there’s no indication that such carriers have resisted American security measures in the past or any reason to think they’d violate any protocols required for domestic routes either.

Competition from foreign airlines would put downward pressure on wages, something that union workers may object to. But by reducing fares and expanding service, it would also increase the demand for air travel and related services — thus, presumably, creating additional jobs during a time of persistently high unemployment.

Airline travelers, in fact, have already benefited significantly from increased competition among international carriers. Beginning with a successful agreement with the Netherlands in 1992, the United States has pressed for liberal free-trade pacts, called “open skies” agreements, with several nations.

In collaboration with Jia Yan of Washington State University, I have estimated that travelers have gained at least $5 billion annually as a result of lower international fares and additional flights generated by open skies agreements.

By allowing foreign airlines to serve American domestic markets, the process of creating a truly free market in airline services here would be complete and, as in the case of international markets, would provide travelers the benefit of more flight choices and lower fares.

Naturally, domestic airlines are likely to oppose such a policy. But they should realize that their current strategy to maximize profits — reducing flights and raising fares — runs the danger of alienating the American flying public and spawning new regulation.

One possible solution is to take a half-step toward opening up domestic markets and allow foreign carriers to serve any midsize and regional airport in the United States that has lost service in the past few years. New entrants would be able to integrate those markets with their international routes, something that could put many smaller American cities on the global business map.

Soon, Aunt Sally might enjoy the service on Singapore Airlines en route to Cincinnati. It’s a short flight from Sarasota — but the hot face towels are a dream.

Authors

Clifford Winston

Publication: The New York Times

Image Source: © Bob Strong / Reuters

Paving the Way for Driverless Cars

Clifford Winston — Wed, 18 Jul 2012 10:07:00 -0400

California's proposed bullet train between Los Angeles and San Francisco—which Gov. Jerry Brown is likely to sign off on soon—has been characterized by the Obama administration and its other supporters as an effective way to reduce highway congestion. These costs amount to more than $100 billion annually in wasted time and higher fuel expenses.

In fact, a much better technological solution is on the horizon, if we pave the way by getting rid of obsolete highway design. It is already possible to imagine a world in which you could predict exactly how long it would take to drive in your car from one point to another. No worries about rush hour, vacation congestion, bad drivers, speed traps and accidents. You could also text while you drive with no safety implications.

All this may be possible thanks to a "driverless" car that does a human driver's normal job and much more. The car is operated by a computer that obtains information 10 times per second from short-range transmitters on surrounding road conditions, including where other cars are and what they are doing.

That's exponentially faster than the human mind can process the same information. By gathering and reacting immediately to real-time information, the technology can drastically reduce highway fatalities by preventing collisions. It also can significantly reduce delays by creating a smoother traffic flow and rerouting drivers who have programmed their destinations.

Google's version is being piloted in Nevada, and it could prove that faster, reliable and safer road travel is within reach. But one stumbling block would remain: the government-run roads this innovation must use. Auto makers have made one technological improvement after another since the car was introduced to consumers more than a century ago. Unfortunately, the paved road systems on which cars travel have not advanced much in comparison. Without reimagining the way we design and maintain highways, the driverless car will achieve little of its potential.

Despite the frustratingly frequent lane closures for repairs, about one-third of the nation's highways are still in poor or mediocre condition. Driving on damaged roads is hard on vehicles and is estimated to cost motorists billions of dollars annually. Those potholes could also defeat the purpose of the driverless car because it would be unable to avoid them, or succeed in doing so only by significantly disturbing the traffic flow.

Most highways in major metropolitan areas operate under congested conditions during much of the day. Yet highways are designed around standards based on higher free-flow travel speeds that call for wider but fewer lanes. Driverless cars don't need the same wide lanes, which would allow highway authorities to reconfigure roads to allow travel speeds to be raised during peak travel periods. All that is needed would be illuminated lane dividers that can increase the number of lanes available. Driverless cars could take advantage of the extra lane capacity to reduce congestion and delays.

Another design flaw is that highways have been built in terms of width and thickness to accommodate both cars and trucks. The smaller volume of trucks should be handled with one or two wide lanes with a road surface about a foot thick, to withstand trucks' weight and axle pressure. But the much larger volume of cars—which apply much less axle pressure that damages pavement—need more and narrower lanes that are only a few inches thick.

Building highways that separate cars and trucks by directing them to lanes with the appropriate thickness would save taxpayers a bundle. It would also favor the technology of driverless cars because they would not have to distinguish between cars and trucks and to adjust speeds and positions accordingly.

Traffic management also suffers from obsolete technology that could hinder implementing the driverless car. On local streets, signal timing contributes to hundreds of millions of vehicle hours of annual delay because it is based on out-of-date historical data that inaccurately measure relative traffic volumes at intersections. Without signals based on real-time traffic flows, driverless vehicles may not be able to accurately align their speeds with them.

The future also holds the promise of new communications technologies that could let road authorities use electronic tolls to charge motorists for their contribution to congestion, based on actual traffic conditions, and thus encourage them to travel during off-peak periods, use alternate routes, or switch to public transit. Driverless cars would significantly help motorists respond to congestion tolls because their technology can balance the cost of a toll with its travel time savings to optimize motorists' route choices.

The driverless car represents one of the most amazing breakthroughs in safety and quality of life in recent history. Instead of focusing on enormously expensive high-speed rail as our transportation future, the government would do well to stop hindering driverless cars by its obsolete thinking about our nation's roads.

One promising approach that would not require taxpayer funds would be to turn to innovative private highway companies, which have leased the Indiana toll road, Chicago Skyway and Dulles Greenway. By working closely with auto makers, they could significantly shorten the time that motorists must wait before they fully realize the benefits of driverless technology.

Authors

Clifford Winston

Publication: The Wall Street Journal

Image Source: Kevin Bartram / Reuters

The Law Firm Business Model Is Dying: How Regulations Are Stifling the Legal Profession

Clifford Winston and Robert W. Crandall — Mon, 28 May 2012 00:00:00 -0400

On Monday night the century-old law firm of Dewey & LeBoeuf filed for bankruptcy—following in the footsteps of other venerable firms such as Howrey & Simon, Heller Ehrman, Coudert Brothers, and Brobeck, Phelger and Harrison. It is easy to think that greedy lawyers are getting their just desserts. But this should not blind us from seeing that there is a better way for America's law firms to do business.

The problems these firms face today are twofold: Large clients are increasingly using in-house counsel to reduce costs, and the public is increasingly taking the do-it-yourself route given the growing access to a variety of legal services and documents on the Internet. The rational response would be for new, low-cost legal firms to start up, and for incumbents to reduce costs and attract new clients by providing innovative services.

But that is happening only to a limited extent because of state licensing requirements and American Bar Association (ABA) rules. Deregulation could open the market and transform the legal industry for the better.

Regulatory barriers have hamstrung other sectors of the economy in the past until the arrival of deregulation. For example, Interstate Commerce Commission (ICC) regulations raised railroad rates for decades after its inception in 1887. But with the proliferation of motor vehicles, trucks began to capture a large share of rail freight traffic.

Then trucks were included under the ICC's regulatory umbrella in 1935, to prevent railroads' freight market share from continuing to erode. But by raising trucking rates, the ICC induced some shippers to buy and operate their own trucks, exacerbating rail's woes. Similarly, Civil Aeronautics Board regulations elevated airline fares, and by the late 1950s—when interstate highway travel was possible—the high fares limited the percentage of seats filled with paying passengers.

The deregulation of transportation that began during the late 1970s enabled motor, air and rail carriers to reduce costs and, particularly in the case of railroads and airlines, to regain market share by offering consumers lower prices and better service.

How have regulations caused the demise of long-established "white-shoe" law firms? Much legal work is performed by associates, who in most states must graduate from a law school accredited by the ABA and pass a state bar examination. This form of licensing significantly limits the flow of new legal practitioners. It also means would-be lawyers must make a substantial upfront educational investment in money and time that must be recouped in high salaries later.

Such salaries can be and are paid because licensing limits competition in the legal profession, and because partners derive much of their own inflated earnings from associates' work.

But when law firms are under pressure to reduce costs, it is difficult for the partners to significantly reduce their reliance on associates without severely affecting their ability to serve clients. Efforts to outsource some tasks have met with only limited success.

While law firms can and do get bank loans, ABA regulations prohibit banks, private-equity firms or other corporations from owning or having an ownership stake in a law firm. This limits a law firm's financing options and raises its capital costs. Dewey's collapse has been attributed to the firm being highly leveraged and unable to attract investment from businesses outside the legal profession.

Law firms are aware of the value that professional business managers can add to their operations. But regulations that prohibit the ownership of law firms by nonlawyers prevent those firms from fully realizing the value of managerial skills and oversight that professional management could bring.

Finally, because regulations prevent corporations from providing legal services other than their own legal counsel, a law firm today cannot realize efficiencies or make more money by merging with a firm outside the legal profession to provide financial and accounting services, for example, along with legal services.

Eliminating regulations on who may provide legal services and who may own and operate a law firm could result in substantial efficiencies. Deregulated firms and new legal entities could reduce costs by hiring a variety of people to provide legal services—some who have completed three years of law school and some who have not.

Such firms would be better positioned to explore the substitution of capital for labor—for example, by accelerating the use of sophisticated Web searches as a substitute for manual document searches, and by using other information technology to ensure that corporate clients comply with government regulations.

New firms not necessarily owned by lawyers would bring new ideas, new technologies, new talents, and new operating procedures into the practice of law. This process has certainly happened elsewhere, the way Freddie Laker and Southwest Airlines brought new operating efficiencies to the airline industry, or the way satellite and cable brought a multitude of new programming to a once-stagnant television industry controlled by three broadcast networks.

As legal fees fell and services improved and expanded, many corporate clients would begin to downsize their internal legal departments. They would go back to relying principally on outside legal help, much as shippers have returned to deregulated for-hire trucking companies and less-regulated railroads. American businesses would reap the economies of specialization and technical progress that a rejuvenated legal-services industry could provide.

Authors

Publication: Wall Street Journal

Image Source: © Eduardo Munoz / Reuters

Deregulate the Lawyers

Clifford Winston — Mon, 30 Apr 2012 00:00:00 -0400

Is it time to discard the requirement that a lawyer obtain a license to practice the profession? A dumb question, you say? Read on, preferably with an open mind.

The widely accepted justification for licensing lawyers is that consumers don’t have the knowledge to distinguish the competent from the incompetent until it is too late. But it has not always been thus. In the 19th century, the standards for admission to the bar in the United States were minimal — the norm was an oral exam, administered under the jurisdiction of a local court without any guidelines. Though he never went to law school, Abe Lincoln served as a bar examiner — and, you may remember, went on to dazzle in the courtroom.

The licensing of lawyers became more restrictive only when the American Bar Association, which was formed in 1878, began to participate in the process. The ABA’s first inroad was its initiative to accredit law schools. In 1921, it adopted a statement of minimum standards of legal education and began publishing a list of schools that complied with those standards. The organization met considerable resistance from state legislators, though. As late as the mid-1950s, only about half of the states had enacted education requirements based on ABA standards.

In his signature tome, Capitalism and Freedom, Milton Friedman suggested that the other states had not gone along because many legislators were graduates of unaccredited law schools. Friedman predicted that as more were trained at accredited schools, the ABA standards would be more broadly accepted. His forecast has proved correct: today, all but a handful of states — the notable exception being California — require bar applicants to be graduates of ABA-accredited law schools. And every state except Wisconsin (which grants free passes to graduates of the state’s two major law schools) then requires them to pass a bar exam.

State governments (and state appellate courts) have also gone along with the ABA’s wish to prohibit businesses from selling legal services unless they are owned and managed by lawyers. And not surprisingly, the group’s definition of the practice of law is expansive, including nearly every conceivable legal service, including the sale of simple standardform wills.

All this deserves a fresh look. In what follows, I draw on my 2011 book with Robert W. Crandall and Vikram Maheshri, First Thing We Do, Let’s Deregulate All the Lawyers, which argues that licensing restrictions for the legal profession cannot be justified on cost-benefit grounds. We would be better off deregulating entry into the legal profession, thereby forcing lawyers to compete more intensely both with other lawyers and other providers of legal services.

In the marketplace we envision, lawyers would still be welcome to attend traditional three-year law schools and to acquire other credentials that signal their competence and quality. At the same time, though, individuals ought to be able to learn what they need to practice law from less expensive and less time-consuming sources. Allowing the lawyers’ trade association to enjoy a monopoly on law school accreditation and forcing lawyers to pass licensing exams generates huge costs, direct and indirect, yet adds little protection against unscrupulous and incompetent providers of legal services.

The market for lawyers

Approximately one million lawyers are currently working in U.S. law firms, government offices and the legal departments of private corporations. This figure may confirm the conventional view that the nation has too many lawyers. But licensing requirements have, in fact, constrained the supply.

As noted, a would-be lawyer must run the gantlet of completing a degree at an accredited law school and passing a state bar examination. (The ABA has yet to consider online law schools and foreign law schools for accreditation.) Since law school applicants are generally required to take the Law School Admissions Test, the numbers who take the test represent a lower bound on the number of people in the United States interested in entering the legal profession.

According to data from the Law School Admission Council (the nonprofit group that administers the LSAT), roughly half of the 800,000 applicants to law school during 1997- 2004 were not admitted anywhere. And since 95 percent of people who enroll in an ABAaccredited law school do eventually pass a state bar examination, the primary factor that limits the supply of lawyers in the United States is plainly the number of available spaces in these law schools. Note here, too, the supply distortion created by the reality that some of the most worthy applicants never attend because they are unwilling or unable to spend three years and as much as $150,000 on tuition and fees.

Yet, even as the supply of lawyers has been artificially constrained, the demand for legal services has experienced continual growth — thanks largely to government policies that compel businesses to retain legal counsel or that encourage them to engage in litigation.

Part of that growth in demand is linked to the promulgation and enforcement of government regulations encouraged by legal lobbies. For instance, attorneys from some 20 law firms met with commissioners from the Commodity Futures Trading Commission to shape the new financial regulations in the Dodd-Frank Wall Street Reform and Consumer Protection Act. And the CFTC is just one of many agencies involved in fleshing out the rules for Dodd-Frank.

Legal lobbies, moreover, are ever vigilant in the pursuit of new regulatory territories to conquer: they managed to block measures in the health care reform law that would limit attorneys’ fees or would impose caps on damages in medical malpractice cases. All told, the nation is spending some $200 billion annually on lawyers — a significant share of which reflects windfall profits or sheer waste.

Desperately seeking surplus

In our book, we offer estimates of the “earnings premiums” for lawyers — the portion of their income exceeding the opportunity cost of their services. The figures fluctuated a bit from year to year for the sample period (1975- 2004). But the premium has clearly increased with time; it hovered around 25 percent during the latter part of the 1970s but has risen to about 50 percent in more recent years.

In 2004, the total premium amounted to $64 billion — or an eye-popping $71,000 per practicing lawyer. We found lawyers at all income levels — not just the highest earners and not just those at the largest firms — were receiving substantial and growing premiums.

Now, this is an unusual market. On the one hand, increasing the supply of legal service providers ought to create competition that eliminates some of the surplus. On the other, adding lawyers to the rolls gives them more collective clout to influence public policy in ways that increase premiums. Indeed, our analysis suggests that, for the moment, the marginal lawyer has a positive effect on these earnings premiums.

The impact of licensing on lawyers’ earnings is magnified by government policies that generate ever-growing demand for legal services by private firms and government agencies even as the supply of lawyers remains constrained. We found that (a) economic and social regulations, as measured by federal non-defense government agency employment, (b) the real costs of the tort system, and (c) the number of patent awards were all associated with increased lawyers’ earnings premiums. In fact, all told, those factors accounted for most of the increase.

Of course, greater demand for lawyers, and higher expenditures on them, could be justified if regulatory, intellectual property and liability policies were actually raising social welfare. But the available evidence indicates that those policies do not have that effect.

Let them be free

The straightforward way to reduce the cost of restrictions on the market for legal services would be to deregulate entry, removing barriers that prevent individuals and/or firms from providing legal services without satisfying occupational licensing or other ABA regulatory requirements. State bar associations would still be free to certify that lawyers had passed competency exams, and the ABA (or any other association) would still be able to award seals of approval to law schools, leaving it to the free market to determine the value of such certification.

Along with driving down the price of legal services toward the cost of providing them, deregulation could be expected to accelerate the adoption of cost-cutting technologies as well as the introduction of new services. The potential benefits of new technologies can already be seen as clients have started to perform many tasks offered by lawyers. For example, large businesses now use sophisticated Web search technology as a substitute for manual document search and selection formerly performed by entry-level lawyers and paralegals in large law firms. Note, too, that new software is enabling many consumers to manage legal tasks with little or no input from legal professionals — and no harm to themselves or others.

Deregulation that reduced the range of tasks requiring the imprimatur of a certified professional would presumably stimulate the introduction of information technology that substituted for legal services altogether. For example, corporations could use IT to ensure that they complied with regulations and to help manage litigation decisions.

It is difficult to predict the change in structure induced by deregulation in any particular industry. But the historical record offers insights: new entrants challenge incumbent firms with both innovative ideas and efficient operating strategies, forcing the incumbents to adapt or perish.

In the case of the legal industry, solo practitioners and traditional law firms could expect new forms of competition from nonlawyers and untraditional service providers along the lines of LegalZoom, which sells do-it-yourself wills, leases and other standard documents online. And different corporate models could emerge to exploit economies of scale and scope — say, large “legal retail” suppliers, Wal- Marts for legal services. Moving up-market, more streamlined low-cost law firms, like Axiom, would compete for corporate clients. Such firms employ lawyers, but charge lower fees (especially for the services of novices) and operate with very low overhead.

Finally, new businesses could compete with incumbents by investing in lawyersaving technology and by packaging legal services with other business services. The potential for such competition is suggested by innovative firms like Novus Law and Clearspire, and by big companies that are increasingly supporting their in-house lawyers’ use of sophisticated information technology.

The abundance of legal service suppliers would also generate demand for information about service quality. Because of resistance from lawyers themselves, strong competition has not yet developed in the market for this information. But that would certainly change in a deregulated market. In addition, legal clinics would help clients find legal practitioners who provide useful, low-cost services.

We estimate that the annual gain in “economic welfare,” the difference between consumers’ benefits and lawyers’ losses from eliminating inflated prices for legal services, would be at least $10 billion. This would also help to address the “justice gap” — the reality that some litigants cannot afford lawyers, yet do not qualify for legal aid or don’t have lawyers assigned to them because of dwindling public budgets. Free entry would enhance the proposal by Stephen Schulhofer of NYU and David Friedman of Santa Clara University for a free market in criminal defense services, which would enable indigent defendants to choose their own legal representation. Surely, many of the currently unrepresented litigants would be better off even if they gained access only to uncredentialed legal advocates.

Deregulation would also spur innovations that reduced costs and resulted in new products. Because the pace and nature of innovation are unpredictable, it is difficult to quantify their prospective benefits. But I believe they could easily amount to billions of dollars.

Consider, too, another source of inefficiency in the regulated system that could be pared by deregulation. There is little doubt that some people who become attorneys would have chosen to work in other occupations — and possibly made greater contributions to society — if they were not attracted to law by the prospect of inflated salaries.

In all likelihood, lawyers’ earnings premiums are shared with law school administrators and faculty members because the premiums enable law schools to raise tuition. Entry deregulation would be likely to reduce law school tuition at some institutions because the demand for traditional three-year law schools would fall as some students shifted to untraditional training.

The arrival of new forms of legal education would also be a constructive response to recent concerns that law schools are not adequately preparing students for actual practice, and would encourage traditional law schools to be more responsive to the interests of prospective students and employers. One would expect legal education to be streamlined, with some colleges offering undergraduate law degrees and some law schools offering one- or two-year courses for students seeking careers in less demanding specialties. At the other end of the spectrum, elite law schools would probably continue three-year programs that produced the highly trained lawyers required for complex litigation in areas ranging from corporate finance to intellectual property protection.

Après deregulation, a déluge of regret?

Most potential objections to deregulation are based on what economists somewhat euphemistically call “distributional” grounds — who wins and who loses. And even those objections probably overstate the downside because they overlook the reality that deregulation would create opportunities for profit as well as cutting salary premiums. Some lawyers could be more productive and innovative if they worked more closely with nonlawyers and corporations, and some law firms could be more profitable if they were managed by nonlawyers and were allowed to raise outside capital.

Recent law school graduates and current law students would presumably object that deregulation would allow new legal service providers to enter the profession at a time that many newly credentialed lawyers are unemployed. Surely, though, legal regulation can’t be justified as a make-work program. As Roger Noll of Stanford quipped in a Washington Post article, the government might just as well outlaw tractors to create more jobs for people working in the fields.

In any case, deregulation would cause demand for legal practitioners to increase and lead to more jobs because the price of legal services would fall. In the short run, established law schools would still try to fill their seats. So the shift in demand for alternative sources of legal training would lower tuition at traditional law schools, and the number of students attending those schools and gaining employment would remain relatively constant. In the long run, established law schools would contract or possibly develop strategies to expand into new programs that made their graduates more employable.

But there are other efficiencyoriented issues here. One reasonable fear is that, without the licensing of lawyers, incidents of incompetence and/or dishonesty would rise.

That fear is based on the assumption that current regulations raise the quality of practitioners. But the American Bar Association’s own Survey on Lawyer Discipline Systems reported that, in 2009, some 125,000 complaints were logged by state disciplinary agencies — one complaint for every eight lawyers practicing in the United States. Note that this figure is a lower bound on client dissatisfaction because it includes only those individuals who took the time to file a complaint.

Although many of those complaints were dismissed, their volume suggests that clients are far from satisfied with the quality of service they are now receiving from the legal profession. Indeed, Deborah Rhode, director of the Stanford Center on the Legal Profession, concluded in her book, Access to Justice, that, on balance, the ABA and state bar associations have done little to discipline lawyers’ conduct or improve the quality of legal service.

Client dissatisfaction may increase or decrease in a deregulated environment; there’s no way to know with certainty. But it is worth remembering that deregulation would increase access to information about lawyers’ quality. Today, lawyers are judged by reputation and licensing requirements — customers do not enjoy the benefits of warranties, industry-sponsored voluntary disclosure, third-party disclosure or even government-mandated disclosure. The American Bar Association has vigorously opposed third-party ratings of law schools, lawyers and law firms. In addition, several states have resisted the initiatives of a leading legalinformation provider, Avvo, threatening lawsuits and not cooperating with Avvo’s requests for information about attorneys’ licensing and disciplinary records.

With deregulation, occupational licensing would no longer create a false sense of security about a lawyer’s quality, and buyers of legal services would be much more inclined to shop around. Legal service providers, especially non-lawyers and firms that employ them, would respond to customers’ wishes by providing extensive and credible information about their capabilities and performance — and perhaps by offering warranties. Thirdparty evaluations of legal practitioners by private firms like Avvo and by law clinics would also drive information disclosure. Finally, all legal practitioners would be subject to general business laws against dishonest practices.

Doubts about whether markets are up to the challenge have been raised in previous debates about regulatory reform. Critics of proposals to deregulate the airline and trucking industries argued that carriers would skimp on maintenance to increase profits, thereby compromising safety. In fact, safety has improved in both industries since deregulation, in part because carriers are no longer protected from competition and can ill afford to have their reputations damaged by accidents.

From here to there

The reality that deregulation of the market for legal services is socially desirable does not, of course, make it more palatable to the potential losers. And any fundamental change in regulatory policy would have to go through state legislatures or courts, whose sentiments are likely to be aligned with incumbents. But the deregulation of other industries suggests that experimentation offers a possible end run around the opposition.

Airline deregulation was spurred by its success in California and Texas — two states large enough to support regional carriers and intrastate routes. One state — perhaps Arizona, whose legislature has declined to re-enact its unauthorized practice statute, or California, whose bar indicated it would not initiate actions under its statute — may realize benefits that build support elsewhere. And perhaps England’s and Australia’s recent efforts to liberalize regulation of their legal services will attract attention here.

No matter how much it is justified, deregulating legal services in a nation whose politics and policy are largely dominated by lawyers seems unlikely on its face. But there were similar grounds for pessimism before the economic regulation of airlines, trucking, railroads and natural gas eroded and finally crumbled in the 1970s and 1980s. It really could happen here, too.

Authors

Clifford Winston

Publication: The Milken Institute Review

Image Source: © Chip East / Reuters

Are Law Schools and Bar Exams Necessary?

Clifford Winston — Tue, 25 Oct 2011 10:10:00 -0400

For decades the legal industry has operated as a monopoly, which has been made possible by its self-imposed rules and state licensing restrictions — namely, the requirements that lawyers must graduate from an American Bar Association-accredited law school and pass a state bar examination. The industry claims these requirements are essential quality-control measures because consumers do not have sufficient information to judge in advance whether a lawyer is competent and honest. In reality, though, occupational licensure has been costly and ineffective; it misleads consumers about the quality of licensed lawyers and the potential for non-lawyers to provide able assistance.

Rather than improving quality, the barriers to entry exist simply to protect lawyers from competition with non-lawyers and firms that are not lawyer-owned — competition that could reduce legal costs and give the public greater access to legal assistance.

In fact, the existing legal licensing system doesn’t even do a great job at protecting clients from exploitation. In 2009, the state disciplinary agencies that cover the roughly one million lawyers practicing in the United States received more than 125,000 complaints, according to an A.B.A. survey. But only 800 of those complaints — a mere 0.6 percent — resulted in disbarment.

What if the barriers to entry were simply done away with?

Legal costs would be reduced because non-lawyers, who have not had to make a costly investment in a three-year legal education, would compete with lawyers, who in many states are the only options for basic services like drafting wills. Because they will have incurred much lower costs to enter the field — like taking an online course or attending a vocational school — and can operate as solo practitioners with minimal overhead, these non-lawyers would force prices to fall. The poor would benefit from the lower prices for non-criminal matters, and poor litigants, who might be unrepresented in criminal matters like hearings because they could not afford a lawyer and because of dwindling state legal aid, would be better off.

At the same time, if corporations — and not just law firms, now structured as partnerships — could provide legal representation, their technological sophistication and economies of scale could offer much more affordable services than established law firms do. These firms, in turn, would have to reduce prices to compete.

Of course, lower legal prices would cause new law school graduates to be paid less, but more jobs would be available for such graduates because the demand for lawyers would increase. And new graduates would begin their careers with less law-school debt, because alternative providers of legal education would force law schools to reduce tuition.

Leaving aside the matter of letting non-lawyers and non-lawyer-owned firms do legal work, more could be done to enhance consumer choice and attorney accountability. One practical measure for more effectively regulating the field and lowering costs would be for third parties to compete to provide accurate and useful information about the quality of lawyers. Third-party providers of legal services information could do a service similar to that provided by Consumer Reports and Zagat Survey and effectively regulate the legal profession by monitoring the law firms’ performance and effectiveness.

Consumers would be in a position to demand credible and complete information about a practitioner. Incompetent and dishonest lawyers would face immediate exposure over social and legal networks, thereby alerting other consumers of potential problems with their services. By sharing their experiences, consumers would understand more fully which credentials and evaluations are the most accurate and useful signals of competence and value.

Thanks to resistance from lawyers themselves, strong competition has not developed in the market for information. The efforts of a leading legal-information provider, Avvo, have been the target of a class-action suit filed by lawyers who disapprove of the firm’s ratings system. By threatening lawsuits and not cooperating with Avvo’s requests for information about attorneys’ licensing and disciplinary records, several states have impeded Avvo’s ability to provide information. But in the absence of an open, competitive approach to information about the quality of legal services, the existing licensing and discipline system creates a false sense of security.

To protect clients from bad lawyers, current barriers to entry try to separate the wheat from the chaff among potential legal practitioners. A market for information, though, would let consumers identify the chaff more precisely, saving more of the wheat. It is worth recalling that two of the finest lawyers and civil rights advocates our country has ever produced, Abraham Lincoln and Clarence Darrow, would not be allowed to practice law today under current rules. (Lincoln was self-taught; Darrow attended the University of Michigan Law School but did not graduate.) Eliminating entry barriers and allowing non-lawyers to perform legal services would, among many other gains, ensure that such talents have a place within our legal system.

Authors

Clifford Winston

Publication: New York Times

Image Source: Â© POOL New / Reuters

Does America Need More Lawyers?

Clifford Winston — Wed, 28 Sep 2011 15:57:00 -0400

Does America need more lawyers? We might, argues Clifford Winston, co-author of First Thing We Do, Let’s Deregulate All the Lawyers (Brookings, 2011). Winston says restrictions on the number of lawyers are killing innovation in the industry. By eliminating barriers to entry, the price of a lawyer can indeed be reduced without sacrificing the quality and that a private sector solution, like an Angie’s List, would ensure real information is shared about lawyers to allow legal customers to determine their competence. Instead, today’s licensure requirements may create only the perception of quality.

Why not examine lawyers as a monopoly?
“I got into this topic as an extension of a book I wrote a number of years ago on government failure versus market failure. That book looked at the efficacy of government policies in trying to correct market failures, and generally had negative findings on things that tended not to work out. I wanted to get a deeper look at the sources of where we had problems, particularly with interest groups. Lawyers were an obvious interest group to me, although they actually have not received as much attention. I thought it would be interesting to take a look at policies that benefit them, and types of ways that they influence policies.”

(0:46 )
Having more lawyers would be good for consumers, lower prices.
“The standard characterization of the legal profession is that there are too many lawyers already, and the last thing we need is a policy like deregulation that is going to lead to more lawyers. Well, the real problem is that you have got to correlate the supply with the prices. At this point, there are probably too many lawyers getting very high wages. When you starting lowering prices (which you will get with competition and deregulation) you will wind up getting an increase in demand for lawyers. Now couple that with additional services, or new services, then you will even get more employment in legal services. Contrary to beliefs that there is an excess supply of lawyers, what we actually could really have in a more competitive and innovative legal industry is a lot more employment in such an industry. This is exactly the same kind of thing that happened under deregulation of other industries – lower prices and new services lead to more demand and more employment.”

(1:51)
We already have quality problems; we need private market solutions.
The argument for occupational licensing in the legal profession is based on informational equality. That is people don’t know, or really cannot judge, the quality of lawyers and so we need to attack this policy by insuring that those who practice in the profession have met a particular standard. That is passing a Bar exam.

Our recommendation that we liberalize entry and allow people to practice is met with a response ‘if you do that, you will get all sorts of unscrupulous and incompetent people that will ruin this profession.’ First – you have got these [types] of people now. You don’t have to look too far to hear stories about this lawyer being indicted for participating in some financial scam or this lawyer being indicted for unethical behavior, and so on and so forth. There is a lot of that now. It is not necessarily keeping out bad people. I might add that it is not so much incompetence, it is people just don’t understand what they are doing.

What people overlook is that when there are information problems, there is a private sector solution to them. Instead of erecting an entry barrier there are market mechanisms that could easily come in to place – a Zagat, if you will, or an Angie’s List for lawyers. Certainly there will be rating agencies. If there really are problems with quality, you will find people who actually say ‘look, we are going to keep track of lawyer’s performance.’ These are the kinds of things that can be used. Also, there are general business laws! We don’t establish deregulation and then say ‘oh by the way, you are allowed to practice here, and you can swindle people and we will not prosecute you!’ There are also things of that nature. I think a combination of market responses and existing laws would certainly be enough to hold down the kind of incompetence and fraud that would be excessive. We are going to get that as we do in all sorts of industries.

(3:58)
There is a policy solution: state experiments.
It is one thing to recommend a policy that you think would be socially beneficial. It is another to then face the political realities of this. I think the interesting thing about deregulation of lawyers is it is not something that we need to have an act of Congress or something that we need enact immediately at the national or federal level. This is something that the states can do in terms of experimenting, and that is probably the way to do it. First, it would be nice if a few states explored the possibility of people who are not lawyers but legal practitioners (paralegals, etc.) providing simple legal services without the assistance of a lawyer (the same way we have physician’s assistants now providing these kinds of services). That would, at least, open people’s eyes to the fact that there are a number of things you don’t need three years of law school for. Once we start moving in that direction then I think that kind of policy can be expanded, even training for people who want to do those things (again, opening up occupational and online law schools,etc.), and we can start slowly building momentum for the benefits of deregulations through these small experiments, [eventually] building these things up until we have a few states that moved to full deregulation which will show the benefits for other states. That is how we are going to get this policy enacted. I think [we should] take it slow and do it incrementally, but I think that will open people’s eyes, and eventually that is what is going to carry the day.”

Video

Open Legal Services to Competition

Time to Deregulate the Practice of Law

Robert W. Crandall and Clifford Winston — Sun, 21 Aug 2011 00:00:00 -0400

The job market is not looking bright for Americans of all walks of life, even Ivy League college graduates and those with advanced degrees. For example, a new wave of law school graduates has just taken state bar examinations, which they must pass to obtain a license to practice law. But after accumulating as much as $150,000 in law school debt (likely on top of undergraduate debt), many of those test-takers are concerned that jobs in their field are vanishing.

Is there really an excess supply of lawyers? The Senate Judiciary Committee is investigating the subject while the New York Law School and the Thomas Cooley Law School in Michigan are being hit with class action suits claiming that they fraudulently inflated employment statistics to lure prospective students. But the solution proffered by many in the legal community—to put new limits on entry into the legal profession—is not the answer and will make the problem worse over the long term.

The reality is that many more people could offer various forms of legal services today at far lower prices if the American Bar Association (ABA) did not artificially restrict the number of lawyers through its accreditation of law schools—most states require individuals to graduate from such a school to take their bar exam—and by inducing states to bar legal services by non-lawyer-owned entities. It would be better to deregulate the provision of legal services. This would lower prices for clients and lead to more jobs.

Occupational licensing limits competition and raises the cost of legal services. But those higher costs are not justified when the services provided by lawyers do not require three years of law school and passing a particular test. One example is LegalZoom.com, an online company which sells simple legal documents—documents that should not require pricey lawyers to prepare—like do-it-yourself wills, uncontested divorce documents, patent applications and the like.

The competition supplied by new legal-service providers, who may or may not have some type of law degree and may even work for a non-lawyer-owned firm, will not only lead to aggressive price competition but also a search for more efficient methods to serve clients.

Every other U.S. industry that has been deregulated, from trucking to telephones, has lowered prices for consumers without sacrificing quality. For example, most regulated large airlines used to operate with large numbers of empty seats, particularly on longer routes. Once deregulation allowed Southwest Airlines, a smaller regional carrier, and other new carriers to offer service on any route, airline fares declined dramatically and the industry operated with far fewer empty seats and more employees. Deregulation of wireless, cellular telephone services and the entry of new carriers has led to the lowest wireless rates in the developed world and stimulated huge expenditures and associated employment in constructing new networks.

Entry by new firms—sometimes from other industries—spurs innovation. The legal industry will be no different. Ford, Honda and Toyota moved into motor vehicle production from bicycle, motorcycle and farm-equipment production, respectively. More recently, Apple moved from computers into mobile telephones (the iPhone), putting enormous competitive pressure on industry giants such as Nokia, Motorola and Research in Motion (Blackberry). The resulting innovations improved quality and lowered prices while also expanding employment.

Allowing accounting firms, management consulting firms, insurance agencies, investment banks and other entities to offer legal services would undoubtedly generate innovations in such services and would force existing law firms to change their way of doing business and to lower prices.

Entry deregulation would also expand individuals' options for preparing for a career in legal services, including attending vocational and online schools and taking apprenticeships without acquiring formal legal education. Established law schools would face pressure to reduce tuition and shorten the time to obtain a degree, which would substantially reduce the debt incurred by those who choose to go to those schools.

Supporters of occupational licensing to restrict the number of lawyers in the U.S. are wrong to assert that deregulation would unleash a wave of unscrupulous or incompetent new entrants into the profession. Large companies seeking advice in complex financial deals would still look to established lawyers, most of whom would probably be trained at traditional law schools but may work for a corporation instead of a law firm.

Others, seeking simpler legal services such as a simple divorce or will, would have an expanded choice of legal-service providers, which they would choose only after consulting the Internet or some other modern channel of information about a provider's track record. Just as the medical field has created physician assistants to deal with less serious cases, the legal profession can delegate simple tasks.

The track record of deregulation naysayers is hardly impressive—after all, some predicted in 1977 that airline deregulation would lead to a United Airlines monopoly. And while we cannot predict all the effects of legal services deregulation, we are confident that those services would be more responsive to consumers and that there would be more jobs in the legal profession.

Authors

Publication: The Wall Street Journal

Image Source: Â© POOL New / Reuters

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

Robert W. Crandall, Vikram Maheshri and Clifford Winston — Mon, 01 Aug 2011 16:27:00 -0400

Brookings Institution Press 2011 110pp.

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.

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

Winston and Crandall: The Law Firm Business Model Is Dying, Wall Street Journal, May 29, 2012 By

Read a review of First Thing We Do, Let's Deregulate All the Lawyers in Regulation magazine »

Praise for the book:

"This is a sobering, intelligent, controversial examination of the role lawyers play in the national economy. Although I disagree with some of the authors’ assumptions and conclusions, the brilliance of their analyses cannot be disputed."—Thomas A. Mesereau, Jr., Partner, Mesereau & Yu, LLP, Los Angeles; the lawyer who won the Michael Jackson criminal case

ABOUT THE AUTHORS

Robert W. Crandall

Vikram Maheshri

Vikram Maheshri is an assistant professor at the University of Houston.

Clifford Winston

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{9ABF977A-E4A6-41C8-B030-0FD655E07DBF}, 978-0-8157-2190-1, $19.95 Order
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The U.S. May Need More Lawyers!

Robert W. Crandall and Clifford Winston — Fri, 29 Jul 2011 10:29:00 -0400

Clifford Winston and Robert W. Crandall are co-authors, along with Vikram Maheshri, of the new book First Thing We Do, Let's Deregulate All the Lawyers (2011, Brookings Press).

"The trouble with law is lawyers," famous civil rights lawyer Clarence Darrow once said of his profession.

Lawyers have been derided since the dawn of time, for many reasons. What most people don't realize is that lawyers have cleverly created many restrictions on their industry's size and services through their governing organization, the American Bar Association (ABA).

Thus, the solution to the "trouble with lawyers" is counter-intuitive: we may need more of them -- or, at least, we must spur more competition among them by busting the lawyer monopoly!

ABA occupational licensing requirements have allowed lawyers to create a club with a limited membership that is able to raise prices to consumers, which is how top lawyers can get away with charging upwards of $1000 per hour for their time.

In addition to licensing rules, the ABA accredits law schools, keeping the number of slots available artificially low. In turn, all but a few states today require would-be lawyers to graduate from those ABA-accredited law schools, and all but one state require would-be lawyers to pass the bar exam. In its natural lawyer-like way, the ABA also uses a very loose interpretation of terms to prevent non-lawyers from selling such services as simple, standard-form wills.

It hasn't always been this way. Abraham Lincoln, who neither attended college or law school, practiced law for nearly 25 years, and he turned out to be a good lawyer and a great president. Clarence Darrow also did not graduate from either college or law school, and he is regarded as one of the greatest criminal defense lawyers in American history. But neither Lincoln nor Darrow, nor countless other great legal minds of the past, would likely be allowed to practice today.

While the supply of lawyers has been constrained, the demand for lawyers in the public and private sector has experienced continual growth, thanks in part to government policies that require private firms to retain legal counsel or encourage them to engage in litigation. Many of those policies are drafted and administered by lawyers themselves in Congress and the Executive Branch.

For example, environmental standards governing pollution are determined by teams of lawyers in various administrative agencies and by additional private-sector lawyers. The demand for lawyers to write patent applications and to adjudicate the resulting patent conflicts increased dramatically following the establishment in 1982 of a new U.S. Court of Appeals for intellectual property disputes. State laws, such as consumer protection acts, which in practice have greatly expanded the scope of consumer litigation beyond well-established avenues of consumer protection, have also increased the demand for lawyers. And government policy has done little to stem the excessive growth in the past few decades of liability suits, particularly class-action suits that largely benefit lawyers.

Clearly this supply and demand mismatch has caused wage distortions. With $200 billion spent on lawyers every year in America, the cost to consumers from those inflated prices is in the tens of billions of dollars. Regulations that impede competition and restrict operations have also curtailed potential innovations in legal products and services, such as publications of legal analyses, contracts, and software codes, which could assist middle-income consumers. One firm, LegalZoom.com, which sells simple legal documents like do-it-yourself wills, uncontested divorce documents, patent applications and the like -- documents that should not require pricey lawyers to prepare -- has just been accused of illegally practicing law in the state of Missouri in a class-action lawsuit. Do LegalZoom and firms like it represent more of a threat to consumers or lawyers?

Let's open up the legal field. Non-lawyers and LegalZoom-type companies should be allowed to provide simple services, just as physician's assistants are capable of stitching up a wound so that doctors can focus on more complicated cases. And private corporations that have been prevented from competing with law firms should be allowed to establish their own legal services divisions to offer advice along with, for example, financial and accounting services.

The price of a lawyer can indeed be reduced without sacrificing the quality of legal services. The argument that occupational licensing protects consumers from being harmed by unlicensed practitioners is weak during an era where information is so readily disseminated. A lawyer-specific Angie's List or other places on the internet could easily give consumers information about a practitioner's track record, level of experience, education, and certification, allowing potential customers to quickly and efficiently determine that individual's competence. Instead, today's licensure requirements may create only the perception of quality, thus increasing the demand for credentialed lawyers even in situations where the credential does not add value.

The states could lead the way in a lawyer revolution. A few have already had the audacity to rebuff the ABA and have started to make it easier to enter into the legal services industry. If some states formally eliminate the licensure requirement, and if they express their support for all types of businesses to offer legal services, then the potential benefits to consumers of deregulating lawyers would become transparent and eventually spread nationally. Lawyers themselves, the subject of jabs over millennia -- from the Bible to Shakespeare to Will Rogers -- may even gain from an improved reputation with the public.

Authors

Publication: The Huffington Post

Image Source: Â© POOL New / Reuters

The Private Sector Can Improve Infrastructure with Privatization not a Bank

Clifford Winston — Wed, 29 Sep 2010 09:56:00 -0400

The notion of an “infrastructure bank” seems to be gathering steam among the cognoscenti as an effective way to put our long-term economic recovery back on track. Creating an infrastructure bank would be a nice coup for the Obama administration because it would reinforce its strategy of massive spending to solve the nation’s economic ills while simultaneously enlisting the participation of Wall Street and the business community. Unfortunately, an infrastructure bank would be compromised by the same political pressures that our current transportation system faces, and it would also fail to address the most glaring problems with the nation’s infrastructure.

The Administration could improve the nation’s infrastructure—and also improve its standing with Wall Street and the business community—by selling some roads and airports outright to the private sector. Privatizing infrastructure would also help cut the federal deficit by raising revenues and reducing expenditures.

The bank’s funds would consist of private capital and general funds, which would allegedly be allocated by an appointed Board to projects that meet national economic objectives instead of local political objectives. Really? Why would state and local sponsors bring candidate projects to the bank unless they thought they could apply political pressure to get their projects approved? Would Florida stand by while California got funding for a large project and it got nothing? And is it plausible to believe that states and cities would support allocating public funds primarily on the basis of maximizing private investors’ returns? Do governments often think that way?

Moreover, even if an infrastructure bank existed, it would not address the public sector’s inefficient pricing, investment, and production policies.

Consider highways, airports, and urban transit. Motorists and truckers pay a gasoline tax but they are not charged for delaying other vehicles on the road; truckers are not charged for damaging pavement and stressing bridges; aircrafts pay a weight-based landing fee but they are not charged for delaying other planes that want to takeoff or land; and bus and rail transit users pay fares that only cover a modest fraction of operating costs and no capital costs—in fact, some, like federal employees, obtain subsidies to ride completely free. Prices that are set below costs send the wrong signals for investment by justifying expenditures to expand a crowded road when the problem would be fixed by simply charging peak-period tolls. The bank may try to force states and cities to consider pricing options but politicians have made it clear that they prefer to spend money on their constituents, not to charge them a user fee.

The way we waste money on our transportation infrastructure is appalling. Road pavement is not built thickly enough to minimize the sum of maintenance and up-front capital costs. The cost of highway projects is inflated by Davis-Bacon regulations that require labor to be paid at the prevailing union wage rate in a metropolitan area, and by cost overruns that occur because the bidding process selects the firm that is the lowest-cost bidder even though those costs do not tend to end at the bid thanks to renegotiable (mutable-cost) clauses in the contract for underestimated project expenses. Boston’s Big Dig, which came in at a large multiple of the bid price, comes to mind.

Airports are a nightmare because they take several years to add runways thanks to opposition from local residents, environmental groups, and regulatory hurdles such as EPA environmental impact standards. And building a new large airport from scratch is basically impossible for the same reasons. Only one has been built over the last 35 years.

Mass transit—busses, subways and trains—run too many schedules that make little sense, which is why on average, most buses and subways fill roughly 20% of their seats—and routes don’t change even if population centers shift. At the same time, the cost of providing transit service is inflated by regulations such as “buy American” provisions that mandate that transit agencies first offer contracts to domestic producers instead of seeking the most efficient suppliers of capital equipment. Other perverse incentives include giving extra federal dollars to transit agencies to replace their capital stock prematurely rather than maintaining it efficiently. And it is basically impossible to lay- off or fire a transit employee because to do so could result in severance packages that approach $400,000 per worker.

An infrastructure bank would do nothing to address those inefficiencies. And if an infrastructure bank is going to be funded by outside institutional investors, why not allow the private sector to have a greater stake in infrastructure performance by selling them ownership?

Privatization of the system would have at least three positive effects. First, private operators would have the incentive to minimize the costs of providing transportation service and can begin the long process of ridding the system of the inefficiencies that have developed from decades of misguided policies. Second, private operators would introduce services and make investments that are responsive to travelers’ preferences. Third, private operators would develop new innovations and expedite implementation of current advances in technology, including on-board computers that can improve highway travel by giving drivers real-time road conditions, satellite-provided information to better inform transit riders and drivers of traffic conditions, and a satellite-based air traffic control system to reduce air travel time and carrier operating costs and improve safety. The technology is there. But it hasn’t been deployed in a timely fashion because government operators have no incentive to do so. The private sector does.

The major and legitimate concern with privatization is that private firms would be able to set excessive prices and drastically cut service because they face little competition or that they might experience serious financial difficulties. Thus, experiments are needed to provide evidence on the intensity of various potential sources of competition, firms’ financial performance, and the evolution of capital markets to fund a privatized system. Congressional legislation for airports and highways has included funding and tax breaks to explore privatization, so the idea of experiments is not new (nor is the idea of private infrastructure in most parts of the world).

Supporters of an infrastructure bank claim it would treat infrastructure like a long-term investment, not an expense. Yet, unlike privatization, a bank would do little to curb wasteful expenses. The case is not difficult to make: the country would clearly benefit from a policy that has great potential to spur innovation and growth and has the added bonus of budgetary relief. Privatization, instead of a bank, is the real long-term solution to the nation’s transportation infrastructure problems.

Authors

Clifford Winston

Publication: e21

Reforming America’s Transportation Infrastructure

Wed, 22 Sep 2010 10:26:00 -0400

Policymakers have focused a lot of attention on infrastructure recently with the stimulus, with a new proposal by President Obama for additional spending, and the idea of an infrastructure bank being discussed on Capitol Hill. But Clifford Winston, senior fellow in Economic Studies and author of the new Brookings book Last Exit: Privatization and Deregulation of the U.S. Transportation System, says the current transportation system is broken and any spending through the political process will not be effective.

Infrastructure Bank Not Workable
"The idea for an infrastructure bank is to increase national spending on infrastructure. So the idea would be that there is money that is provided by the public sector, but it would be leveraged by contributions from the private sector. The bank would be managed by a board whose objectives (presumably) would be to increase the returns from those investments. In principle, the idea is that the money is going to go to areas where you can get the biggest bang for the buck because you now have the pressure of the private sector in there. However, the problem is it is still going to be working through a political process in which the actual wish list for projects is going to be coming from the states."

Infrastructure Stimulus a Failure
"Stimulus spending as well as an infrastructure bank still are working within the existing political process in which we allocate funds for infrastructure. So states are, basically, competing for projects. Probably more importantly, within a state there is competition for projects. So California will get money, but then all of the various (what they call) metropolitan planning offices are going to come in and say 'we want some of it.' And generally there is a lot of pressure to sort of have equity as a key consideration so everybody gets a bit of it. Places that have historically gotten a lot more usually are the most congested areas that actually need the money but will not get money according to the actual problems in transportation that they have. This is where you start hearing about "roads to nowhere," and "bridges to nowhere," and these kinds of things because everybody has got to get in on it.

The stimulus package really had the same kinds of problems in that there were many projects that people wanted. Whether these things made any sense; whether they were in the most congested areas; whether they were in the areas suffering the greatest physical deterioration - that really wasn't part of the problem (or part of the equation if you will) as to where the money was going to go as 'we have a project, we can put it in and we would like some of the money just as other places want the money.' So that is the fundamental problem to begin with - just actually allocating the money to worthy projects."

Transportation Not Stimulative
"In principal, infrastructure investments can be stimulative but you have to do them correctly. As is clear, there are so many political and economic obstacles to deal with them correctly, it is very hard to find very persuasive evidence that they really have been stimulative. And I might add that that is not the point of them. What is overlooked is that these are investments. Like any public investment their objective is to maximize what we call net benefits to society. Part of that may be stimulative, but the most important thing about them is that they provide benefits to users. The idea is to reduce delay, improve safety, and so on and so forth. That really should be the focus and when you start getting away and having other objectives (even if they are worthy objectives), generally they are going to cause more problems because then you start justifying things on those grounds, and you overlook the fact that the most primary thing that you want to accomplish is not being accomplished."

Last Exit : Privatization and Deregulation of the U.S. Transportation System

Clifford Winston — Tue, 14 Sep 2010 00:00:00 -0400

Brookings Institution Press 2010 188pp.

Video

Infrastructure Bank Not Workable

In Last Exit Clifford Winston reminds us that transportation services and infrastructure in the United States were originally introduced by private firms. The case for subsequent public ownership and management of the system was weak, in his view, and here he assesses the case for privatization and deregulation to greatly improve Americans’ satisfaction with their transportation systems.

Last Exit was prominently featured in an article by Edward L. Glaeser in the Business section of The New York Times on September 28, 2010.

Advance praise for Last Exit:

"A half-century of economics research, much of it from Brookings, convincingly shows that deregulation of transportation services delivered enormous benefits. Last Exit argues persuasively that these benefits are limited by continuing public provision of infrastructure and regulation or public provision of some services. Clifford Winston proposes experiments in private provision of airports, highways, and urban passenger transportation, and more efficient usage pricing for infrastructure, to test the strong theoretical case for increasing the scope of privatization and deregulation. These provocative but measured proposals provide the agenda for a serious national debate on the next steps in reforming transportation policy."
—Roger Noll, Stanford University

"Clifford Winston offers a blueprint for increasing the role of the private sector in providing U.S. transportation infrastructure. He makes the case that public sector exit can improve economic efficiency, speed technological advance, and help solve current fiscal pressures."
—Betsy Bailey, University of Pennsylvania

"Winston pulls together the first comprehensive accounting of the many inefficiencies that arise from current public policies in transportation. The bill—amounting to $100 billion per year plus reduced innovation—will hopefully stimulate some of the experiments he advocates with increased private provision of transportation."
—Tony Gomez-Ibanez, Harvard University

ABOUT THE AUTHOR

Clifford Winston

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How Important is Infrastructure? A Look at its Economic Impact in a Globalized World

Thu, 10 Jun 2010 10:00:00 -0400

Event Information

June 10, 2010
10:00 AM - 12:30 PM EDT

Saul/Zilkha Rooms
The Brookings Institution
1775 Massachusetts Avenue, NW
Washington, DC 20036

Although the conventional wisdom on infrastructure is that it is a key ingredient in a country’s economic success, the relationship between infrastructure and growth is unclear and often misunderstood. Exactly how important is infrastructure to a country’s economy and how is it measured? Should a larger role for financing these investments be given to the private sector, particularly in developing nations?

On Thursday, June 10, the Economic Studies and Global Economy and Development programs at Brookings hosted an event to discuss the nature and role of infrastructure, including rigorous economic analysis to discern to what extent infrastructure can boost overall productivity and raise living standards. Speakers reviewed the most efficient ways to finance infrastructure spending as well as the strengths and weaknesses of the public and private sectors in infrastructure provision and management. Karen Dynan, Brookings vice president and co-director of Economic Studies, welcomed participants. Presentations by national and international experts were followed by a panel discussion led by Nonresident Senior Fellow Warwick McKibbin.

After the program, panelists took audience questions.

Audio

How Important is Infrastructure? A Look at its Economic Impact in a Globalized World

Transcript

Uncorrected Transcript (.pdf)

Event Materials

Participants

Panelists

Moderator: Warwick J. McKibbin

Nonresident Senior Fellow, Economic Studies, Global Economy and Development

Timo Henckel

Research Fellow, Centre for Applied Macroeconomic Analysis
Australian National University

Sonja Lyneham

WorleyParsons

Luis Servén

Research Manager, Macroeconomics and Growth in the Development Research Group
The World Bank

Douglas Brooks

Principal Economist, Macroeconomics and Finance
Research Division, Economics and Research Department
Asian Development Bank

Today's Washington: Headless and Heedless

Clifford Winston — Mon, 14 Dec 2009 08:49:00 -0500

Before taking office, President Barack Obama and his team said they would take a rigorous, "evidence-based" approach to public policy. But the president and Congress are whitewashing scholarly policy research or simply ignoring it across the economic spectrum - in public expenditures, industrial policy, health-care reform and regulation of the auto and financial industries.

Recently, the administration claimed that the stimulus had been responsible for an increase of three to four percentage points in third-quarter GDP. The proper question is whether the projects that the stimulus funded can be justified. Do their benefits exceed their costs? My research suggests that they don't, so it is hard to believe that they are spurring much growth.

Public-highway and airport expenditures are extremely wasteful because funds are broadly distributed across the country, often to locales with little traffic, instead of being targeted to metropolitan areas with the greatest highway and airport congestion.

Two tiny villages in Alaska are getting $28 million in airport funding, more than New York and other large metro areas. Nearly $1 million is going to design a project at a Delaware air park. Some $700,000 is going to a small, poorly managed airport in Kentucky.

On highway projects: Washington state is allocating little federal money to Seattle, although it's one of the most congested cities in the country, because the state legislature decided most of the money should be given to other regions. West Virginia is using some of its funds for the infamous "Corridor H," supposedly to better connect itself to the Eastern seaboard - even though Virginia has no plans to link up with the eastern end of the highway.

The administration credited the cash-for-clunkers program with having boosted gross domestic product by $3.6 billion, ignoring empirical evidence to the contrary: New cars are driven more than older vehicles, and the new cars that were purchased don't get much greater mileage than the clunkers. One academic study has found that the program's costs outweighed the benefits by nearly $1.5 billion.

The administration claimed that General Motors and Chrysler had to be bailed out lest the American manufacturing base disappear overnight. But where was the evidence? Instead of carefully weighing benefits to individual workers and customers, the White House hit all taxpayers with a cost of $90 billion.

The evidence indicates that consumers have been able to purchase better and cheaper cars from foreign auto makers building vehicles in the U.S. with American labor. Why not let this trend continue, instead of claiming without evidence that a liquidated GM and Chrysler would take down the entire industry?

The administration also has taken a tough stand on fuel economy. It plans to require that new cars and light trucks average 35.5 miles per gallon by 2016, four years sooner than current law requires. But it has failed to acknowledge the research showing that the indirect costs of fuel-economy standards include higher vehicle prices, additional driving because operating costs are lower, greater emissions as people retain used vehicles longer, and reduced safety for drivers and passengers. These outweigh the direct benefits of greater fuel economy.

Looking at the financial sector, the Obama administration has acknowledged that current regulations have gaps and weaknesses. It has called for greater oversight and transparency of financial markets and greater protection of consumers and investors. But its proposed regulatory overhaul sidesteps the evidence that numerous efforts, from the Securities Act of 1933 to the Sarbanes-Oxley Act of 2002, failed to reveal the existence of serious information imperfections in financial markets. To be sure, the current crisis revealed the existence of serious information problems, but the administration hasn't offered any evidence that its reforms can address those problems or prevent future ones.

Health-care reform legislation continues to move forward without any persuasive evidence that it will slow spiraling health-care costs. Experts warn, for example, that expanding preventive services won't stop medical spending from escalating, but the administration hasn't listened.

Inattention to academic research even pervades the Department of Justice. Christine Varney, the new head of the antitrust division, wasted little time in announcing that the department planned to restore an aggressive enforcement policy against corporations that abuse their market dominance to keep competitors from gaining share. There is little scholarly evidence indicating that antitrust policy has improved consumer welfare, but Varney hasn't explained why vigorous prosecution is preferable to relying on the market to promote competition.

Overall, Congress and the Obama administration are focusing on alleged problems, ignoring academic scholarship that identifies weaknesses in spending and regulatory solutions. If history is any guide, the result will be ideology-based public policies that lack sound empirical justification and that turn out to be ineffective, if not counterproductive. In other words, President Obama hasn't shown that he believes constructive policy reform should be based on the assessment of professional expertise.

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Authors

Clifford Winston

Publication: Barron's

On the Road Again? A Look at the U.S. Auto Industry with Steven Rattner

Wed, 21 Oct 2009 13:00:00 -0400

Event Information

October 21, 2009
1:00 PM - 2:30 PM EDT

Ballroom
The National Press Club
529 14th Street, NW
Washington, DC

The economic crisis that started in the U.S. housing markets and spread to worldwide financial markets eventually boomeranged back to the American retail and manufacturing sector, hitting the U.S. auto industry particularly hard. High oil prices, gas-guzzling models and mismanagement also contributed to the industry’s downturn. As a result, once-iconic American brands struggled to survive, with both GM and Chrysler needing taxpayer infusions to continue to operate. Controversies arose over whether the car companies, like the banks, deserved to be bailed out, what the government’s role should be in their operations and whether bondholders got a fair deal compared to union workers.

On October 21, the Initiative on Business and Public Policy explored the government’s role in the auto industry and their future relationship. Steven Rattner, former head of the Obama administration’s Task Force on the Auto Industry, delivered the keynote address. He then joined in a panel discussion that included Brookings Senior Fellow Clifford Winston; Communications Workers of America-United Auto Workers Union Legislative Alliance Director Alan Reuther; and Martin Zimmerman, clinical professor of business administration at the University of Michigan and former chief economist and group vice president at the Ford Motor Company. Martin Baily, director of the Initiative on Business and Public Policy and Bernard L. Schwartz Chair in Economic Policy Development, served as moderator.