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What rising fast food costs can teach us about legal services

David Donovan//December 7, 2018

What rising fast food costs can teach us about legal services

David Donovan//December 7, 2018

That feeling I’ve been getting in my gut every time I go to McDonald’s wasn’t (just) indigestion—fast food really has been getting more expensive lately. Bloomberg recently reported that burger prices have been beefing up at a faster rate than inflation for several years now, putting providers in a bit of a pickle.

This nugget of knowledge may not seem to hold much relevance for the legal profession, but burger joints are dealing with a malady that has plagued the legal industry for decades now, one known to economists as Baumol’s cost disease.

William Baumol, an economist, helped explain why certain products get more expensive, relative to inflation, over time. In many industries, innovation leads workers to become more productive, and so it takes fewer workers to produce the same amount of output, which helps keep down costs. (I wrote about Baumol’s insights shortly after he passed away last year.)

But other industries have seen fewer efficiency gains. If you walk the floor of a car factory, you’ll see a lot fewer workers, and lot more robots, than you would have seen 25 years ago. But comparatively less change has taken place in fast food restaurants—or in law firms. As a result, prices in those sectors consistently outpace inflation as they keep up with rising labor costs. After a while, the price becomes affordable for some purchasers.

In a worst-case scenario, cost disease can kill off entire professions. For example, at the start of this century, there were more than 60,000 shops with shoeshine men nationwide, according to the National Shoe Service Institute of America (which is a real thing). Today, fewer than 7,000 remain. Cost disease isn’t the sole cause of this, but it has crimped from both ends: the shoes have been getting cheaper, while the cost of a shine has been getting more expensive, compared to inflation.

Fortunately, neither the fast food business nor the legal profession is in any danger of extinction, but both will have to evolve in order to avoid losing business. In the last year or so, you may have seen some fast food restaurants introduce touch-screen ordering kiosks in the place of cashiers, in the hopes of selling more fries with fewer guys.

No, I’m not here to suggest that law firms should be replacing people with touch-screens or drive-through windows. (“Would you like any counterclaims with that?”) But firms and attorneys do need to think critically about how to use their limited time more wisely to provide more actual value to the end user, which is the client.

Earlier this year, I started calling around to firms looking for sources for a story I wanted to write. The premise of the story was this: I hoped to get attorneys thinking about cases on which they had invested a substantial amount of their time, maybe more than they had expected to when the matter started. And, to the extent that attorney-client confidentiality permitted, to get the attorneys thinking about whether, in retrospect, there was anything that could have been done differently in terms of how the matter was pursued that might have enabled the client to get an equally satisfactory result with substantially fewer lawyer-hours expended.

I never got a single taker for that story. One attorney, after hearing the pitch, thought for a moment and said, “I think that your premise would require a certain amount of self-reflection on the part of lawyers that they’re not especially likely to engage in.”

Indeed, I suspect it’s quite uncommon for lawyers to look back over their timesheet for a matter and ask themselves whether there were any hours that could have been pared back without in any way negatively impacting the quality of the outcome the client received. In fact, the billable hour model itself actually provides a strong disincentive for lawyers to do this—the value of that time saved accrues to the client, not the attorney, for whom time is literally money.

But I think this would be a worthwhile thought experiment for attorneys to undertake occasionally, and one that ultimately will become necessary for attorneys who want to maintain a thriving practice. As legal costs spiral upwards, more and more potential clients will be forced to look for alternatives, whether it’s ultra-cheap, do-it-yourself legal kits, or just simply forgoing the benefit of legal counsel. Such an outcome would be detrimental to attorneys and clients alike.

This is just a hunch, but I would suspect that by thinking about the time expended on a matter in this way would illuminate some significant opportunities for productivity growth. We may often think of productivity as something that is squeezed out in small increments with great effort, like the ketchup from a restaurant packet. But often it comes in big bangs brought about by a totally new approach to a problem, whether that’s robots for restaurants, or asking whether a potentially time-consuming case could be handled more efficiently through collaboration or alternative dispute resolution.

As a little something extra on the side, I would bet that the hours that could be trimmed away without negatively affecting the value provided to the client are the ones that are the least pleasant for the attorneys themselves, anyway—the most acrimonious and litigious parts of cases.

The legal profession is a lot different from the fast food business in a whole host of ways, but ultimately both are beholden to the same laws of economics: they have to be able to provide their services at a price that customers, or clients, can swallow. For most lawyers, it goes against every instinct, and for very admirable reasons, to ask “How could we have handled this case more cheaply?” But it’s a question that needs to be asked. Otherwise, the next question will likely be, “Where did all our clients go?”

Follow David Donovan on Twitter @NCLWDonovan


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