Misperceptions of ‘deregulation’

Last month, Boston Consulting Group published a report that claimed to assess the effects of deregulating legal services in England & Wales, as driven by the Legal Services Act 2007. The analysis and conclusions are, to put it at its best, disappointing. I am grateful to have been spared the need to offer a detailed review, thanks to this informed critique of the report by Alison Hook.

In the interests of full disclosure, I should note that the report’s authors based some of their work on my independent review (Legal Services Reform: Regulation Beyond the Echo Chambers, published last year). However, having done so, their report could encourage others to take my principal conclusion – that further reform is needed – and, contrary to my intention, use it to amplify the echo within the chambers of my title.

These, therefore, are my summary observations:

First, I have always been puzzled by the assertion that the Legal Services Act 2007 was intended to be ‘deregulatory‘. It did not take anything out of regulatory scope; but it did allow new approaches to fall within it. On that basis, the Act should not be judged as an initiative in de-regulation but more properly as one of re-regulation. Not all regulatory liberalisation is deregulatory.

The BCG report identifies four initiatives behind the 2007 Act: simplify regulatory oversight; end self-regulation; simplify the complaints system; and end the restrictive nature of business structures. Apart from the fourth, there is nothing inherent in these initiatives that even remotely suggests a deregulatory intention – and even the fourth (as I have just observed) was about extending regulation rather than removing it.

Perhaps not surprisingly, the BCG report then instead attributes to the architects of the 2007 Act the more ‘usual’ reasons for deregulation (such as addressing excessive profitability, increasing the number of providers, raising quality and lowering prices). Consequently, the success criteria they use relate to broad market outcomes: their assessment of regulatory reform is based on outcomes that are determined by many factors other than regulation.

This is much like the ‘set-up-to-fail test’ that I talked about recently. It involves adopting your own, preferred test for success that wasn’t one of the goals or direct causal effects of reform (such as economies of scale), or was one of a number of objectives (such as access to justice), but is then forced to bear the weight of judgement for the entire project. Suddenly it’s a lot easier to claim that this reform hasn’t met the test; it never could. It is particularly inappropriate for enabling and permissive legislation like the Legal Services Act that encourages market actors instead of directing them to required actions and outcomes.

Second, the BCG report acknowledges that the legal services sector does not comprise a single market but a set of sub-markets. But it then seeks to evaluate the success of reform by reference either to data that relate to the entire sector or to only a sub-market (the largest 100 law firms). It is at least questionable to evaluate the success of important aspects of the 2007 Act (such as its effects on relative profitability, scale and alternative business structures in the consumer market) by using data from a sub-market to which the fundamental purpose of the 2007 reforms has always been of marginal interest or concern.

Third, my echo chamber point. In essence, BCG conclude that our reforms and ‘deregulation’ have not achieved their objectives, and that the arguments for regulatory reform are either not supported or the evidence is unclear. This will, of course, be music to the ears of those who wish to advocate for service monopoly and self-regulation.

But it is a big leap for anyone to jump from ‘further reform is needed’ to ‘therefore reform isn’t justified’. The former statement is not an acknowledgement or assertion that reform hasn’t worked, but that more – and definitely not less – is needed.

The BCG report’s essential conclusion is expressed in this way:

In summary, only a few of the benefits typically associated with deregulation, have materialized on the legal services market in England and Wales after implementation of the LSA. The most prevalent arguments, such as lower prices and better quality of legal services, cannot be proven to have materialized based on the data and evidence analyzed in this report.

It’s all a rather disheartening affirmation that if you set out to evaluate something based on inappropriate criteria, and then either have no relevant data or seek to draw conclusions from data that apply only to an inappropriate subset of the sector that you are evaluating, it surely cannot be a surprise if the conclusions reached are thought to lack credence or transferable insight.

As it happens, I agree with Alison Hook’s broader point that “if you want anything to change, never let the organised legal profession set the agenda on reform”. But perhaps the real lesson here is that if you want to understand the effects of reform – or even to resist it – be sure to choose valid criteria (rather than assumed or imputed intentions) and then use appropriate evidence.

2 thoughts on “Misperceptions of ‘deregulation’

  1. Another excellent comment. I also followed up the Alison Hook piece. Those who would like to see real innovation in the legal services market must be disappointed at the slowness to adopt new ideas and technologies. The trouble is that those profiting handsomely from the existing system have no real incentive to change. Exhortations from the LSB and the other regulatory bodies can be ignored with impunity. And those delivering legal services for the poor – the main group contributing to meeting unmet legal need – fear that if they change the way they work, the little legal aid that still remains will be under even more threat. My view is that policy work needs to be done on whether, instead of exhortation, effective economic incentives can be created to encourage lawyers to fundamentally rethink the ways in which they work. If nothing else, Covid 19 must have shown the potential for working in a much wider variety of contexts than the high street or city centre office.

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