Is economics useless?
Is economics any use? That sounds like the start of a rant/ a joke/ or a quip in an after-dinner speech (all the easier to make as many economies, presumably advised by fine economic minds, struggle to recover and grow).
So let me be more specific. Can a law firm’s principle, or even a practice manager, use economics to make a decent business plan? After all, the economy is water we all swim in - its tide and temperature should matter.
At last week’s conference for the Law Society’s Law Management Section investment adviser Justin Urquhart Stewart gave a hugely well-received ‘world economic context’ presentation. There were of course interesting nuggets of information brought together - a reminder of what’s fueling American growth, that the UK has a deficit, not a debt, problem, and some thoughts on the Eurozone and China’s ability to engineer a ‘soft landing’.
All interesting and good - even when the news is dire or difficult, having a narrative to make sense of it is somehow reassuring, and I happen to believe it is important to try to grasp these things when casting a vote in an election.
But macro-economics doesn’t drive the legal market in obvious ways. Instead, it is often professional regulation, statute, sector regulation and financial product development that create or destroy markets for legal services.
Let’s take China and India as examples. Leaving aside questions about China’s ‘soft landing’, economic growth rates and the size of their economies have attracted understandably huge attention from investors and legal advisers.
But with rules on business and land ownership, problems with the repatriation of profits, and restrictions on legal practice in place, returns for businesses and lawyers lag behind commercial confidence that prevails in the potential of both countries.
The liberalisation of the UK legal market is another case in point. If prices fall as a result (I make no judgement as to whether this is ‘good’ for clients), it will be because the old rules maintained a sort of regulatory arbitrage that lasted an age.
The jobs of securitisation lawyers (remember them?) were dependent on the whim of financial regulators as much as of the financial markets, while environmental law practices have experienced a boom based on changes in public policy at a UK and European Union level.
The Rolls Building is busy because clients find Russia and Eastern Europe’s commitment to the rule of law to be, shall we say, uncongenial. And a law firm’s turnover is not going to be much affected if the UK’s national debt cycle went from a 13-year affair to 12 or 14.
I can think of quite a few law firms of all sizes whose turnover is up 20-40% in the last two years, and who are planning for further growth - and it certainly isn’t because the markets their clients are in are doing equally well.
Economics is interesting and it’s an important discipline. But it happens to be next to useless for the purposes of running a law firm.
Eduardo Reyes is Gazette features editor
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