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How Ubernomics can transform Canada’s legal diseconomy

Michael Motala is a political economist and student at Osgoode Hall Law School. Opinions expressed are his own.

Much ink is being spilled about Uber Technologies Inc.'s growing legal headaches. California's Labour Commissioner recently ruled that Uber drivers ought to be classified as employees, not contractual driver-partners. A similar class-action lawsuit, launched by a prominent Boston-based lawyer, could portend the destruction of Uber's current labour model. Company executives have been ordered to stand trial in Paris. And in Toronto, while parts of the downtown core were crippled by taxi-driver protests, city lawyers sought an injunction against the technology platform. How pointless. The court ruled that the Uber economy is here to stay, at least for now.

The legal fracas has only just begun. Toronto city council voted this week to move ahead to find a regulatory solution, but it can't come fast enough. The municipality and province should have revisited the city's extant regulatory framework much earlier to keep up with the pace of technological innovation.

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Uber's rapid growth, and the root of its legal woes, boils down to its success at facilitating labour arbitrage. The ride-sharing service has dissolved traditional barriers to entering the taxi market, serving unmet demand and driving down costs as it increases the labour supply.

Ubernomics should be a case study in Economics 101: When you fix a mismatch between demand and supply, you profit. Regulation is justified only when it corrects market failure.

Technologists from other industries hope Ubernomics is a generalizable business model. This month, the MaRS Discovery District launched LegalX, an industry cluster aimed at promoting local entrepreneurship, driving industry efficiency and pioneering new business models. One of its first startups is a service called LawScout. Like Uber, it offers a simple digital platform aimed at connecting small businesses with local lawyers on a fixed-rate basis. Beagle, another product launched at the event, performs rapid contract analysis using a sophisticated algorithm, while providing a platform for social media-inspired collaboration among decision-making teams.

Will Canada's legal profession be disrupted by emerging digital technologies? Let's look at the current picture.

On the supply side, there is a glut of freshly trained and deeply indebted law graduates. Yet the number of articling positions in big law and elsewhere continues to shrink. Ryerson's law practice program, with its shorter articling requirement, has attempted to bridge the gap. Yet participants lament a program that effectively requires them to pay to article and license, but provides no guarantee of employment and puts them in what is perceived as a second-tier system. Against this backdrop, law school tuition rates continue to rise. The average debt load after third year is $71,444, according to the Law Students' Society of Ontario. Some graduates never do find legal work.

On the demand side, the access-to-justice crisis is getting worse. Only the poorest, who fall below an income threshold of $20,225, qualify for legal aid services in Ontario. Middle-income litigants get squeezed out of the system due to artificially high fees. Remarkably, the 2008 review of legal aid in Ontario contains just one reference to tuition rates. University of Toronto law professor Michael Trebilcock notes "parenthetically" his concerns "over the impact of rising tuition" and "concomitant debt loads."

Selena Lucien, a fellow at MaRS's Studio [Y], founded the Ontario Small Claims Wizard hoping that her platform will become as popular as tax software. Her aim is to empower consumers to seek civil redress by lowering the cost of legal services and reducing the complexity of the justice system. Through a partnership with Legal Aid Ontario, she also hopes the startup will enhance access to justice for lower-income litigants and those who face linguistic and cultural barriers.

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We live in an absurd legal diseconomy. There is an ever-widening gap between supply and unmet demand. Following the Ontario government's tuition deregulation in 1998, University of Toronto law led the charge, raising tuition by 320 per cent under dean Ron Daniels. Other law schools followed suit and continue to do so. This year, U of T law is unashamed to charge incoming students more than $30,000 a year. Not to be left out, the Law Society of Upper Canada recently doubled its licensing fees. The legal academy is aggravating the access to justice crisis by imposing ever-higher rents on the most vulnerable entrants to the profession. A false and parasitic empiricism has evidently burrowed itself in the minds of our country's greatest legal thinkers.

Ubernomics is not a panacea for the legal sector. Rather than disrupt it, it will transform. Big firms are here to stay if they embrace innovation. Digital technologies promise more efficient work flows and higher productivity. The shortcomings of the consensus-driven decision-making structure, exemplified by the fall of Heenan Blaikie, suggests more strategic thinking, stronger leadership and a heavier investment in R&D is needed to make legal work more efficient and cost effective.

Businesses like fixed-cost projections. The billable-hour model introduces a lot of uncertainty into the equation. Software such as LawScout is unlikely to undermine the legal industry's biggest players, but it signals that an economic culture shift lies ahead. Perhaps, like Uber, it will help bridge the gap between supply and demand, employing recent graduates and serving small businesses. Even more exciting, products such as the Small Claims Wizard will empower consumers to engage the legal process when they have simple disputes, serving previously unmet demand.

Just look at the global professional services firms. Deloitte LLP's recent acquisition of ATD Legal Services Professional Corp. shows that the tide is turning toward low-cost electronic document review and discovery. Technologies such as Beagle will liberate lawyers from mindless contract analysis and enhance their productivity while increasing competition. Pangea3, a global legal-process outsourcing firm, has grown to serve 10 per cent of Fortune 1,000 firms with its global operations in India.

Unless Ontario atrophies the shameless rent-seeking of the province's law schools, graduates face the prospect of being priced out of a market they have worked so hard to enter, undermining Canada's global leadership in the knowledge economy. Law is central to our public and national interest, yet in its current institutional form, it merely serves to line the professoriate's pocket books.

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