Capital flow and the professions

In my previous post I looked at how David Harvey (in his book The Enigma of Capital) argues that capital needs to find new areas in which to expand in order to:

  • absorb accumulated capital surpluses; and
  • maintain compound growth in capital accumulation.

One means by which this can occur is through deregulation. This opens up previously-restricted areas for increased capital expansion in several ways: through increasing competition, through removing restrictions on external capital investment, and so on.

This process can currently be seen at work in the legal profession in the UK. Until now, solicitors have been prohibited from sharing their profits with non-lawyers. This has prevented solicitors from entering into partnership with other professionals (such as accountants) or accepting external capital investment. Non-lawyers have been unable to employ solicitors to provide legal services.

All this is now changing with the (gradual) implementation of the Legal Services Act 2007. This will allow solicitors to enter into partnership with other professionals and to accept external investment, and will allow non-lawyers to employ solicitors to provide legal services, albeit still subject to extensive regulation.

While the effects of this remain to be seen, there is broad consensus over certain likely effects. In particular, two predictions frequently made (though not to unanimous support) are as follows:

  • Small high-street law firms are seen as being under severe threat. Many will end up being driven out of business by new commercial providers (“Tesco Law”). Many of those that survive may end up in “Specsavers”-style franchise operations, of which an outfit like Quality Solicitors may be a nascent form.
  • Many larger firms are expected to seek external investment, or even to float on AIM or the Stock Exchange.

In each case, this is likely to lead to a major cultural change for lawyers. In particular, many senior lawyers will cease to be “capitalists” – partners owning a significant share of the business and having a say in how it is run – and become employees.

Many who today would be sole practitioners or in small partnerships will end up employed by “Tesco Law” or the Co-op instead, just as high-street butchers have ended up working behind supermarket meat counters. In the large firms, most of those who today would be partners will remain employees, albeit very well-remunerated ones in many cases. Even if they own shares in the plc that has replaced their LLP, that will be more in the nature of an employee benefit than a genuine stake in owning and running the business.

In short, a higher proportion of lawyers will be “labour” and a lower proportion will be “capital” (and those who remain capitalists will have diminished power next to their external investors). It’s no exaggeration to describe this as a proletarianisation of the legal profession – provided we expunge from our minds all associations of the term “proletariat” with manual labour, flat caps and horny-handed sons of toil, and focus instead on the technical meaning of “those who sell their labour to capitalists” (which therefore includes many whom we would regard as “middle class”).

Perhaps the result won’t be quite as extreme as I’ve described it here – though the stockbroking partnerships of “the old City” were no doubt as confident of their continuing existence in 1986 as most law firms are today. But the basic point will remain the same: external capital will have new avenues (however closely-regulated) in which to absorb surpluses and pursue compound growth. And the law will complete its transition from being a profession (with a slightly sniffy approach at times towards the whole grubby business of “trade”) to being a business. (Not in all respects a bad thing: it’s not as if the legal profession of old was a by-word for great customer service. But still a significant change.)

As Marx and Engels put it back in 1848:

The bourgeoisie has stripped of its halo every occupation hitherto honoured and looked up to with reverent awe. It has converted the physician, the lawyer, the priest, the poet, the man of science, into its paid wage labourers.

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3 thoughts on “Capital flow and the professions”

  1. Well, they were employees before–of the customer. However, this prediction is questionable. Particular professions do *not* always tend toward employment in large firms. It depends entirely on whether or not that profession’s output benefits from economies of scale; i.e., the economies of scale outweigh the diseconomies of scale. In fact, in this country, large firms have frequently been upended by much smaller companies. The phenomena is so fascinating that Clayton Christensen has made himself a nice sum writing books about it. A major “profession” in the USA is consulting; large companies find that for certain tasks, it is more cost-effective to pay an outsider to do them independently rather than to hire him on as an employee. (“Consulting” is really a catch-all for people who do things that employees used to do, but are working for themselves and take on primarily corporate clients.)

    Now, whether or not the legal profession will benefit from economies of scale is an open question. But one can’t simply assume it will. And the reason the large firm is *not* a stable form of organization on its own–nearly all examples of long-standing, large corporations enjoy government protection against competition (though perhaps not as overt as the East India Company’s protection by the Crown)–is that it *doesn’t* control all the capital. This is why, incidentally, defining capital appropriately is important.

    A worker’s skills are capital, and they cannot be taken away from him. Recall that Apple was founded by ex-Atari employees, and that Henry Ford began working for Edison. However, there has been a recent move in this country to legally forbid workers from using skills or knowledge they obtained on the job if they leave the company. Of course, that will go nowhere without the government choosing to enforce the corporations’ goals and protect them from competition…which it probably will.

    1. “Well, they were employees before–of the customer.”

      Now who’s using terminology in a sloppy manner? 😉

      The employer/employee relationship is completely different from a client/contractor relationship: I ought to know, since my daily life revolves around both (on the second half of each dichotomy).

      There already are plenty of large firms in the UK legal profession. The vast majority of smaller firms and sole practitioners are providing general “high-street” services – conveyancing, will-writing, family law etc. – and they are the ones most vulnerable to new entrants into the marketplace.

      Smaller niche firms have emerged in recent years, often providing services as consultants to other firms rather than directly to clients, and this sector will no doubt continue to grow for the reasons you describe. However, a lot of the work done by larger firms does require scale, because you need teams of people covering different disciplines.

      And yes, there is scepticism over whether the Legal Services Act will be as far-reaching in its effects as some predict. Personally, though, I’m in the camp that suspects the effects will be very considerable – just not easy to predict in detail.

  2. I used to work in recruitment, for accountants and accountancy staff, and back then there were two routes really, for people had a certain kind of accountancy qualification. They could either join a firm of accountants, who did accountancy for other businesses, or they could join a business itself, and work for them. The latter route held a little less prestige, but usually, unless it was a very big and well known firm of accountants, a lot more money. So I suppose it’s a kind of similar thing?

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