If you’re interested in the business of law, your life is incomplete unless you’ve read Bruce MacEwen’s “Growth Is Dead Series” on the Adam Smith, Esq. blog. Here’s a link to the first post, Growth Is Dead: Part 1-Setting the Stage, in which MacEwen discusses the performance of the legal services industry from the beginning of the economic downturn until now, as well as the pressures currently faced by law firms.
The Growth Is Dead series takes what many of us vaguely think and feel about the current state of things and explains it brilliantly and with clarity.
In a post mid-way through the series, Growth Is Dead: Part 4-Economies I & II, MacEwen takes David Brook’s concept of two co-existing economies — one in which companies face intense global competition and the other in which companies do not — to describe what the legal services industry (and BigLaw in particular) has been experiencing since the latter part of 2008.
Here’s an extended quote from a David Brooks column in the New York Times, which MacEwen excerpts in his post, that explains the concept:
Modern nations have two economies, which exist side by side. Economy I is the tradable sector. This includes companies that make goods like planes, steel and pharmaceuticals. These companies face intense global competition and are compelled to constantly innovate and streamline. They’ve spent the last few decades figuring out ways to make more products with fewer workers.
Economy II is made up of organizations that do not face such intense global competition. They often fall into government-dominated sectors like health care, education, prisons and homeland security. People in this economy believe in innovation, but they don’t have the sword of Damocles hanging over them so they don’t pursue unpleasant streamlining as rigorously. As a result, Economy II institutions tend to get bloated and inefficient as time goes by.
Although the legal services industry doesn’t occupy a space in Economy II due to protection from global competition by government domination of the sector, we haven’t faced a “compulsion to constantly innovate and streamline.” According to MacEwen, “[T]here is scarcely a scintilla of evidence that anyone is making the smallest move in that direction.”
Yet, we’re quickly being pulled into Economy I — complete with the intense competition and the need to innovate. According to MacEwen,
My thesis is that until now, the BigLaw stool has rested one leg in Economy I and two legs in Economy II, but that irresistible forces—the same forces that have proven their mettle by forcing revolutions in agriculture a century ago, followed by manufacturing (apparel, automobiles, machinery, furniture and appliances, consumer goods, electronics, etc.), followed by non-face-to-face services (call centers, finance and accounting, tax preparation, software coding, etc.)—are finally assaulting BigLaw.
Yet, we’ve still resisted innovating. MacEwen finishes his piece:
While other industries have relentlessly upended, reinvented, re-engineered, six-sigma’ed, and kaizen’d themselves, while being under the constant unforgiving glare of creative destruction, we are using fundamentally the same business model Paul Cravath invented over a century ago. Change? We prefer not to.
Because we’re lawyers. We know better. We know better than all of them.