The Coronavirus Recession, Tech, and the Market for Legal Services

Post-2008, it quickly became conventional wisdom that technological innovation, including artificial intelligence, was going to transform both the practice of law and legal job market. The promised changes didn’t materialize. Will they now, amid twin imperatives to cut costs and avoid physical contact, and with tech more advanced?

The specific claim was that the 2008 recession strengthened the bargaining power of clients, who were long unhappy with footing the bill for training junior lawyers, at a time when innovation offered a plausible alternative: substitution of technology for human labor.

Tech tools have long assisted law practice. But tech was now said to be “transformational” because it would substitute for, not merely complement, law jobs. The government labor analysts dismissed this, but the nature of the claim made it just the kind of thing they’d miss.

It’s hard to overstate the extent of mutually reinforcing hype and fear-mongering that went into this. When demand is in free fall along with the economy, people search for explanations and solutions that are clean, satisfying, ambitious, and new. Basically a moment built for Silicon Valley.

A decade-plus on, what actually ended up happening was that initial reviews of some documents, which previously would have been done by contract attorneys, are sometimes done by software. Often they’re still then reviewed by contract lawyers (and then again by multiple firm lawyers).

This might be surprising outside law, but it surprised few lawyers I know. The key documents tend not to be uniform and it’s hard to imagine a robot getting the nuances right. In business, nuances can be swamped by fundamentals but in a lawsuit or deal nuances are everything.

It’s hard to know for sure, because the recession caused so much general upheaval. But the changes were probably employment-neutral in the narrow sense of not replacing jobs. In a larger sense, they were almost certainly employment-positive.

In a familiar story going back 200 years, the same technological innovations that were said to herald the destruction of the industry also powered other economic changes that helped it. Emblematic of this is that nearly all large law firms now have 1-2 offices in the Bay Area.

The rise of tech has generated jobs for lawyers (and bankers) just as the rise of previous industries did. The share of that rise that ate away at legal employment ended up being a small part of the larger story.

Sometimes a prediction is right but early. For example, the folks who long warned the US was unprepared for a pandemic—they were obviously right, but not in a publicly salient way till now. Will the same be true for predictions of inevitable tech impacts on legal employment?

Far more than 2008, now is the moment for legal tech to substitute for (rather than complement) traditional legal services. We are likely in a recession, and have far better tech—as well as a fresh imperative to minimize human contact.

Further, the vehicle for the change—software—can be deployed quickly. It’s not like we have to build factories or a pipeline of new talent. The conditions have never been riper for a tech takeover of law than they are today.

Nevertheless, I’m skeptical. Even in these optimal circumstances.

Sometimes, tech can be worse but cheaper and thus a good substitute. The sound quality of streamed music is inferior to mp3s (which are inferior to CDs) but they’re convenient and you get wider variety.

Law is the exact opposite of this. Precision and quality create a distribution of outcomes that triggers binary choices. A cheaper lawyer who loses your case or bungles your transaction is not worth it. That’s already true, among human lawyers.

Rather than choosing a cheaper lawyer for an important matter, clients segment. A company may use a dozen different law firms, of varying rates and reputation, to handle matters of varying complexity and value at risk. That’s innovation but it’s not tech and it happened decades ago.

In law as in other places, most of the innovation is not tech-related so it gets overlooked. But there is a promising future for tech in law, in my view: as a complement—a new product—at the lower end of the market cost-wise.

There’s massive unmet demand for legal services because lawyers are expensive (and/or scarce; see rural areas) and the promise of LegalZoom et al is to address that for routine matters. They’re just not there yet. (You’re often better off hiring a reasonably priced lawyer.)

The market is protected from the Walmarts and Amazons by professional conduct regulation. Corporate ownership of law practices is illegal and there does not appear to be a realistic path (for better or worse) for changing that.

If an Amazon Legal did come to pass, it would be disruptive to many practices. But it would also create a lot of new work, for many reasons. Just as prior innovations, like email and PowerPoint, created tons of legal work. A lot of tech innovation, at least when it comes to legal services, has been a squeezing of the balloon of demand.

In sum, I’m curious to see whether economic stress and the imperative of social distancing will, finally, be the moment for tech tools to substitute for traditional legal services. I will be watching closely and updating on evidence.

This post is adapted from a thread I wrote on Twitter on April 5, 2020.

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