Abstract:Critics have long complained that lawyers dissipate value. Some do, of course. Some legal work dissipates more value than others, and the lawyers who focus on the most notorious rent-seeking sectors extract a heavy toll in the U.S. Whether lawyers choose to focus on value-dissipating or value-enhancing work depends on the institutional structure in place, and the American legal system apparently generates high returns to value-dissipating work. The Japanese legal system traditionally holds down such returns, and Japanese attorneys have invested much less in those sectors.In 2006, the Japanese Supreme Court unilaterally invented an entirely new field of rentseeking: it construed usury law to let borrowers sue for refunds of "excessive" interest they had explicitly and knowingly --and with statutory authorization --agreed to pay. Although borrowers swamped the courts with refund claims, the field did not attract either experienced or talented attorneys. Instead, it attracted two groups: new lawyers who had entered the bar under the relaxed licensing standards, and the least talented lawyers. At least in this sector of the rentseeking field, the returns to experience and talent in Japan apparently remain lower than in valueenhancing sectors of the bar.* Mitsubishi Professor of Japanese Legal Studies, Harvard University. I gratefully acknowledge the generous financial assistance of the Harvard Law School.
Ramseyer: Page 2Bottom-feeding at the Bar Usury Law and Value-Dissipating Attorneys in Japan © 2013. J. Mark Ramseyer. All rights reserved.We have a problem in the U.S., and it involves lawyers. We have many, and all too many of them focus on value-dissipating work. Japan has few, and until recently most of them focused on work that added net value. Since 1990, however, the Japanese government has quadrupled the number of new lawyers it licenses each year. Has the increase changed the character of the work lawyers do? Have lawyers begun to turn to rentseeking work? And if some of them have, are they the more or less able of the new lawyers?Consider two facts: First, the Japanese government recently slashed its licensing requirements. In 1990, it licensed 500 new lawyers (less judges and prosecutors) every year, but by 2012 licensed 2000. Second, in 2006 the Supreme Court unilaterally created an entirely new field of rent-seeking: it construed usury law to let borrowers sue for refunds of any "excessive" interest they had knowingly and explicitly --and with statutory authorization --agreed to pay.The two facts are tied, for the new Japanese lawyers have migrated in two very different directions. The most talented have entered the large Tokyo law firms where they serve as Ronald Gilson's "transaction cost engineers," helping firms negotiate transactions and bring products to the market.
1The partners at the large Tokyo firms had urged the government to increase the size of the bar, and they seem to have calculated correctly: the increased pool of talented young lawyers has let them build efficient and profit...