Ronnie O'Toole: Time to slash the cost of brief encounters

The cost of most professional services not governed by the kind anti-competitive structures found in the legal field has fallen in the past six years

The Sunday Times Published: 10 July 2011

Imagine the scene. You are an Irish company with a problem. A competitor infringed your copyright, but says it didn't. The argument is going to end up in court for what may be an ugly row, and you need to instruct a barrister. You visit a reputable firm of barristers that has developed a niche in copyright law.

The first partner you meet thinks that you definitely have a case. Luck has it that just a month ago a colleague of his won a huge settlement in very similar circumstances, so he'll pass your case on to him. As it turns out, his colleague is not around today, so a trainee doing a night course in Trinity to become a barrister begins to review your file, and promises to respond within a couple of days. 

What's wrong with that scene? Well, it couldn't have happened in Ireland. In many other common law jurisdictions perhaps, but not Ireland. 

First, the Bar Council generally does not allow individual consumers and enterprises to access the services of a barrister directly. You need to instruct external solicitors, who in turn instruct counsel. This means you pay the solicitor to summarise the case, photocopy the paperwork and put it all in a nice ring binder. 

The English legal system, on which ours is based, overturned this rule as far back as 2004, and the benefits there are already evident. According to a poll by Hardwicke, a barristers' chambers, one in three companies had instructed a barrister directly in the past two years, a quadrupling of the numbers in 2006 when the reform was introduced. The pent-up demand in Ireland is unlikely to be any different. 

Second, your prospective barrister doesn't have a colleague - because he's not allowed any. All barristers have to act as sole traders, and may not form companies. Simply put, companies exist to exploit the benefits of being big. 

The bigger a company gets, the more experience it accumulates, and the more its performance improves. While the logic of scalable efficiency arose in response to the spanking new transportation and communications infrastructures that emerged in the 19th century, two centuries later it has still to find its way to the Irish law library. 

Third, the trainee certainly isn't studying to be a barrister in Trinity. The Honourable Society of King's Inns enjoys a monopoly in the market for training and producing Irish barristers. Quite apart from limiting numbers, this allows it to perpetuate bizarre practices such as devilling, whereby a trainee barrister must work more or less for free for a year. 

The Competition Authority issued a detailed study of the various restrictions in the provision of legal services six years ago. When the legal profession went on the defensive, the government backed down on reform. 

This year's Costs of Doing Business survey by the National Competitiveness Council (NCC) has shown the price of that decision. The costs of legal services are now 12% higher than in 2006. Ireland has become the fourth-most expensive location, among those benchmarked by the NCC, for the legal costs of enforcing a contract. 

Cost competitiveness in Ireland has improved considerably over the past few years, and is now at levels last witnessed in pre-boom 2003. However, this is largely because of cyclical factors, rather than structural reforms. As the NCC points out, if structural barriers such those as in the legal industry are not removed, there would be a danger that recent competitiveness gains would be eroded rapidly once an economic recovery kicked in. 

The hard reform work doesn't end with the legal sector. 

Take payments, for example. Ireland's use of old-fashioned cheques is not only expensive and carbon-heavy, it is at the heart of the late-payment culture causing huge difficulties for Irish small-and medium-sized enterprises. No European country has high cheque usage while also having a fast-payment culture. Irish SMEs have to wait an average of 50 days for payment of invoices - twice as long as in Finland, where cheques are all but extinct. 

We must consign the "cheque is in the post" culture to the dustbin. Cheques survive only because of what economists call "lock-in". For some goods, such as cheques, bad technologies that get a head start in life can survive even when a better technology, such as debit cards, comes along. Sony, for example, learnt the power of lock-in in 1992 when it launched the MiniDisc. 

The MiniDisc could do everything a CD could, but was smaller and could record as well as play. However, Sony found it impossible to convince users to throw away their CD collections and rebuy every Dire Straits album on MiniDisc. Two decades later, CDs still thrive while the MiniDisc has been relegated to a footnote in music history. 

The Irish government needs to step in and remove the bad, uncompetitive technology in one big-bang action. It has the opportunity to do that with cheques when the National Payments Implementation Programme kicks off after the summer. What level of ambition it will show is yet to be seen. 

Another area that requires reform is public transport. Many inter-city routes already have significant competition, though in Dublin the market remains a closed shop. Not only is Dublin Bus cutting services, but it now appears that there will have to be fare increases to combat falling passenger numbers. The number of journeys made on Dublin Bus over the past decade has fallen by more than a fifth - at a time when the population of Dublin has increased by 150,000. 

As Richard Tol, the economist, has argued, this represents a huge opportunity. Dublin Bus definitely needs to cut costs. Instead of reducing frequency at selected routes, it should give up some routes altogether. The regulator should then sell the concession on those routes to the highest bidder. Service levels would be maintained where commercially viable and transport costs would fall, as would unemployment as private companies recruited drivers. 

Picking through these industries one by one is certainly boring and laborious, whether it is law, payment methods or buses. But micro-economic reforms such as these are the source of long-run, sustainable competitiveness. None of these examples individually will change our competitiveness overnight, and it is important not to make a mountain out of a molehill. 

But, as John FitzGerald, the Economic and Social Research Institute economist, likes to say, many a molehill does make a mountain. In the six years since the study of the legal profession, the cost of most professional services not governed by such anti-competitive structures has fallen to competitive levels. 

The prices of architecture, advertising, employment, consultancy and accountancy services started to fall from the start of 2008, and are now significantly lower than their 2006 levels. 

I rest my case. 

Copyright © The Sunday Times 2011