Outsourcing the Law

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You fill in the oval marked: "The price goes down, the demand goes up."

Great! That's two points for you.

But now let's take a look at an example of this economic phenomenon out in the wide world. The New York Times describes how legal outsourcing firm Pangea3 has sliced the cost of legal services for its corporate clients. Because of the sizeable cost differential for trained Indian lawyers versus junior-level US-based lawyers, Pangea3 and other legal outsourcing firms are willing to provide more legal services at lower prices.

The cost-cutting angle is exactly what attracts companies like General Electric Co. (NYSE: GE) to the idea. G.E. is a global, diversified enterprise with operations around the world, and there's no reason to expect the fact that it's based in Connecticut to dictate where and how it spends its global legal budget. Going offshore for legal services allows the company to cut its legal costs significantly, which in turn benefits shareholders.

By now, the question of whether or not we should be outsourcing is an old and tired debate that has been more or less decided by events. We've all benefited from lower prices on manufactured goods, from cars to furniture to refrigerators. We've done even better with IT goods, because we get the increasing productivity gains on top of the lower prices.

But are we better off as an economy, or as a society, with lower prices for legal services? Think of the increase in demand that will inevitably ensue. If you think we live in a litigious, over-lawyered society now, just wait until your average business owner, citizen, neighbor, PTA member, homeowners' association, condo board, labor union, and civic group find out that you can sue the bastards at Wal-Mart prices.

What may happen: Lawsuits that ordinarily would never see a courtroom because of the prohibitive cost will end up on the docket. There won't be enough judges or courtrooms to go around, and over time the domestic staffing problem will get worse because declining economic prospects in the field will dry up the pipeline for legal talent. Worthwhile cases will be crowded out by spam lawsuits, denying swift justice for all.

The economy will suffer, as will civil society. The cost of doing business will go up due to the need for defensive lawyering, whether for slip-and-fall cases, patent defense, intellectual property protection, or the need to respond to incessant discovery requests. Inefficient or unfair aspects of the legal code will be amplified by runaway litigation, as will the economic consequences. Respect for the law will go down as civil disorder goes up, as will the incentives for corruption. It's simple economics, folks.

Nevertheless, this Pandora's box of legal outsourcing might reveal at least one benefit. In the same way that outsourced manufacturing has put high-quality, finished goods within the reach of consumers in developing nations, and outsourced IT has given companies in developing nations the ability to build world-class enterprises, offshore outsourcing of legal services may end up training an entire generation of offshore legal experts who will create in their own countries our nation's most successful export -- the rule of law.