Make the pie bigger
Constitutional Court ruling illustrates the role of platforms and the follies of rent-seeking groups
One of the first – and biggest – hurdles facing online platform startups is an almost impenetrable fortress of exotic rules and sanctions put in place by an existing cartel of companies or professionals. These groups engage in what economists call “rent-seeking” behavior, referring to anti-competitive practices to secure outsized profits at the expense of customers and competitors.
It is understandable that existing players instinctively try to maintain their profit pattern against new entrants. But it’s a slippery slope, as innovative new technologies break decades-old protective blankets — and price gouging — for rent-seeking groups.
This, in a nutshell, is the subject of heated disputes over the constitutional decision regarding a local bar association’s attempt to protect its territory against the introduction of an online platform.
Last Thursday, the Constitutional Court ruled unanimously against the Korean Bar Association’s regulations banning lawyers from joining online legal platforms and punishing those who act as paid intermediaries between lawyers and clients.
The decision came after Law&Company, which runs the legal advice mobile app LawTalk, and 60 lawyers filed a joint petition against the bar association’s internal regulations with the Constitutional Court, claiming that the rule infringes the freedom of expression and profession of lawyers.
The Korean Bar Association revised its internal code of ethics in May last year in an apparent attempt to prevent online legal platforms like LawTalk from entering its long-protected legal services market, valued at some $6 trillion. won ($4.7 billion) in 2019. .
LawTalk, launched in 2014, quickly grew in popularity and became a major online service connecting lawyers with clients, with up to 4,000 lawyers, more than a tenth of all registered lawyers in Korea. South.
The Constitutional Court has ruled that the Law Society’s rules, based largely on its “authoritative interpretation” of the Lawyers Act, are too vague in their wording and are therefore subject to arbitrary application of a way that hampers lawyers’ freedom of expression.
The decision is supposed to strengthen the business operations of online legal platforms, but things have taken a strange turn. The Korean Bar Association insists that the Constitutional Court’s decision recognizes its right to punish the lawyers in question because LawTalk is engaged in illegal paid online brokerage.
The Law Society’s distorted interpretation of the decision is regrettable, as it clearly misses the key point that lawyers should be allowed to join online platforms that can provide better and more affordable legal services for clients. Blocking these innovative services is typical rent-seeking behavior to keep prices higher than in an open and competitive market.
In many advanced countries such as the United States, Britain and Germany, online legal platforms that connect clients with lawyers are – unsurprisingly – legal. South Korea already has a strong online infrastructure in place, teeming with tech startups offering innovative solutions. When it comes to market conditions, there is no reason to allow rent-seeking groups to get away with a bigger share of the market rather than expanding the market with online services.
In fact, similar conflicts are taking place in a host of industries where offline and online entities are battling for the same customers and greater profits. Several associations of accounting firms compete on an online platform; Korean Medical Association feuds with cosmetics and hospital information platform over medical advertising rights; and the Korean Pharmaceutical Association is engaged in a legal battle with a remote medical treatment platform.
Given the rapid evolution of business and platform technologies, it seems inevitable that more digital startups will emerge to tap into established markets dominated by cartels and rent-seeking interest groups.
To minimize friction and spur innovation-driven progress, the government and the National Assembly should work together to revise related standards and foster competition. Enlarging the pie is far better than allowing rent-seeking groups to retain their outsized shares and impose large costs on an economy.