Engine of recovery: let's not ignore the role of SME law firms

The lord chancellor recently announced a Global Legal Summit in London in 2015 to mark the 800th anniversary of Magna Carta. Its underlying purpose is to 'champion the UK as global leader in legal services and as a destination of choice for global business in the 21st century.'

For the summit to achieve its objectives, clear goals are needed for the legal economy in the intervening period. These goals need to go beyond the narrow focus on City firms and international arbitration which has tended to dominate government thinking on the legal economy.

These additional goals should be to show the UK as a global leader in a number of fields including the provision of affordable legal services accessible by all citizens and the provision of both legal education and public legal education (see box out).

Clearly the goals of showing why English law should be the law of choice for international transactions and why the UK should be the centre of choice for international dispute resolution should be retained, but the thinking should not begin and end there.

Beyond the City

The summit is an opportunity to show that these additional goals will translate into business opportunity and growth for the UK economy. It is also an opportunity to remedy three key failings which threaten our national economic recovery plans if they are not addressed but which will give competitive advantage if they are.

First: we are complacent about the rule of law and its social and economic significance. We assume that we can 'export' the rule of law to other jurisdictions as of right and we forget that we can only export something that exists and is of sound quality.

Second: we have no measured understanding of what the legal economy is or should be. This leads to a narrow focus on City law firms and international arbitration (both of which are important and easily measurable) while ignoring much of the broader legal economy.

Third: we have no measured understanding of why the rule of law is a national business issue.

These issues matter because our national economic health is heavily influenced by the state of the legal economy. The law is a financial and business issue as well as a social and political one.

Take the question of the legal economy. This can be defined as all those activities relating to the law which provide either employment or valuable outputs. This would include at least the following:

n the administration of justice through courts and tribunals;

n the practice of law by solicitors, legal executives and paralegals in private practice and in-house;

n the practice of law by barristers in chambers;

n the advice sector (a wide range of not-for-profit and hybrid entities);

n the provision of legal education in schools, colleges and universities;

n the provision of public legal education; and

n the provision of legal support activities by the emerging alternative business structure sector.

This definition of the legal economy (which excludes law enforcement and related activities) contains a diverse variety of organisations and also offers a diverse set of benefits and earnings for those it employs and serves.

Key aspects of the legal economy are well known. The law is a valuable source of export earnings as services are provided globally by UK barristers and by UK-based law firms and it is a valuable source of earnings from foreign businesses which choose the UK as a venue for resolution of their disputes. The rule of law is also an integral part of the intangible attraction of the City of London as a centre for international trade and finance.

Business lens

Less well observed is the fact that the legal economy contains a very large number of SMEs. Recent Law Society research shows that the legal economy contains more than 20,000 SMEs. It is clear that much of the focus of activity across government outside the Ministry of Justice has been on SMEs and their potential role as an engine of recovery for the economy. Many of these 20,000 SMEs lack investment in succession planning, technology, skills training, information and back-office services. In any other sector of economic activity there would be a concerted effort to assist them in obtaining investment, upgrading their skills and consolidating and becoming an engine for growth.

Much effort in the SME end of the legal economy has been expended on the legal aid battlefield. But there is a growing problem which is not directly attributable to legal aid cuts. Low-cost legal services are increasingly required for people or organisations that can no longer afford to access legal services through conventional higher-cost models. This requires new thinking and a new approach to discover the business solutions which must be incentivised and found. It requires the legal economy version of Tech City.

We now require a proper analysis of the legal economy through a business lens. This is partly an SME problem, partly a technology problem and partly a consolidation problem. In fact, the civil legal aid budget would sit more logically in BIS than in the MoJ and the focus should be more on outcomes and cross-government savings rather than the services rendered and the time taken to provide them. The focus should also be on the sustainability and efficiency of the businesses providing the service. Unless these problems are solved, we will not be able to deliver affordable legal services to a large part of society irrespective of the size and scope of the legal aid budget. The Global Law Summit should be a catalyst for finding the solutions.

Where crowds gather

What does this domestic analysis of the wider legal economy have to do with the City, the international attraction of English law and the export of legal services? The answer lies in the rule of law and it needs wider understanding.

Why do people, businesses and capital still come to London? Part of the answer is that it is a self-sustaining attraction '“ crowds gather where a crowd is forming. The attraction, however, has identifiable components. Two components high up the list are the rule of law and a justice system which draws no distinction between insiders and outsiders.

Elites tend to disappear when they believe they hold their position as of right. Our national approach to the rule of law requires constant attention to avoid falling into this trap. If the UK begins to restrict judicial review, it may tarnish the rule of law. If a significant part of the citizenry cannot afford access to the civil justice system, that system will become discredited. These are economic issues which could erode the position of the City. If we require an environmental impact assessment for all new legislative measures because the environment is dear to us, why do we not have a rule of law impact assessment for all new legislative measures because the rule of law underpins our economy and the City?

We are a society that depends on the rule of law commercially as well as socially, yet we take the rule of law for granted. That is like being a market leader that is losing touch with its customers. The summit provides an opportunity to test ourselves against global best practice and take a more strategic view of the legal economy. This does not necessarily mean significant amounts of government funding but we need at a minimum a government which:

n has measured the legal economy and understands its potential as a domestic business driver;

n has measured the significance of the rule of law to our broader economy; and

n has measured the significance of promoting English law and the UK as an attractive legal system and forum internationally.

Intangible matters

It may prove impossible to provide conventional measurements of intangible matters but it is important to try. This will then enable government to take strategic decisions about apparently unconnected matters which may otherwise have an impact on the rule of law (judicial review being an example).

It should then be possible for government to see where to provide its support. The promotion of Tech City is an interesting analogy. Many of its features could be applied to the need to develop a new approach to technology-based provision of legal services which will reintroduce many citizens to the civil justice system. The promotion of business angel groups and crowd funding could revolutionise provision of some legal aided services if coupled with payment by results measured by cross-government savings. The use of champions to promote change would provide an impetus for that change.

It should also be possible for government to identify nascent areas of excellence. These might include the following:

n There are areas of our legal education system which are world class and which can be encouraged to export;

n The Inns of Court are recognised as the home of world class advocacy excellence and should be encouraged to build on this global brand;

n The UK is already home to several rule of law and human rights organisations which are world class. The government should help them to find international platforms; and

n The Judicial College is a centre of excellence which underpins the international standing of our legal system.

The government has perhaps recognised only the first of these areas as having potential for promotion.

We should also encourage business schools to study how to provide affordable legal services. We should encourage proper global comparative studies to see where we are behind the competition. We need to look at other service industries to see where best practice lies.

Those in government may fairly ask: 'Why is this not aimed at the market?' The market is clearly responsible for doing many of these things itself as it should reap the benefits.

Guarding the brand

Ultimately, however, if we have any national brand at all, our legal system and the rule of law is a vital part of it. The maintenance of that brand is a matter of national interest. The summit gives us an opportunity to hold our own feet to the fire in determining whether we are guarding that brand closely enough.

We are fortunate that we possess a global currency: it is not a financial one but it is what the financial markets call a stapled product. It is the stapling of English law and the rule of law. We have been selling it for centuries. There is a gentle irony in the fact that Magna Carta requires that we sell to no man either justice or right but it is a little late to worry about that.

We need to use the summit as an opportunity to reinforce the stapling of English law and the rule of law. We need, however, to understand that this reaches down through the whole of our legal system and society and is an economic issue. We must, as the marketing people say, live the brand if we wish it to flourish. SJ