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[Editorial] Make the pie bigger

Constitutional court ruling illustrates role of platforms, follies of rent-seeking groups

May 31, 2022 - 05:30 By Korea Herald
One of the first -- and the biggest -- obstacles online platform startups face is an almost impenetrable fortress of exotic rules and penalties set up by an existing cartel of firms or professionals. These groups indulge in what economists call “rent-seeking” behaviors, referring to anticompetitive practices to ensure outsize profits at the expense of customers and competitors.

It is understandable that existing players instinctively try to keep their profiteering scheme against new entrants. But it is a slippery slope, since new innovative technologies are shattering decades-old protective covers -- as well as price-gouging -- for rent-seeking groups.

That, in a nutshell, is the focus of the heated disputes over the constitutional ruling over a local bar association’s attempt to safeguard its turf against the introduction of an online platform.

Last Thursday, the Constitutional Court ruled in a unanimous decision against the Korean Bar Association’s regulation banning lawyers from joining online legal platforms and punishing those who act as a paid broker between lawyers and clients.

The ruling came after Law&Company, which runs mobile legal counseling app LawTalk, and 60 lawyers filed a joint petition against the bar association’s internal regulation with the Constitutional Court, claiming that the rule infringes on lawyers’ freedom of expression and occupation.

The Korean Bar Association revised the internal code of ethics in May last year in an apparent bid to block online legal platforms like LawTalk from making inroads into its long-protected legal services market, valued at some 6 trillion won ($4.7 billion) as of 2019.

LawTalk, launched in 2014, had gained rapid popularity and emerged as a major online service matching lawyers with clients, boasting as many as 4,000 lawyers, or more than a tenth of all registered lawyers in South Korea.

The Constitutional Court ruled that the bar association’s regulation, based largely on its “authoritative interpretation” of the Attorney-at-Law Act, is too vague in its wording, and thus can be subject to arbitrary application in a way that hinders lawyers’ freedom of expression.

The ruling is supposed to shore up 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 lawyers in question as LawTalk is engaged in illegal paid online brokering.

The bar association’s distorted interpretation of the ruling 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 such innovative services is a typical rent-seeking behavior to keep prices higher than in an open, competitive market.

In many advanced countries such as the United States, Britain and Germany, online legal platforms that match clients with lawyers are – unsurprisingly -- legal. South Korea has already established a solid online infrastructure, boasting of plenty of technology startups with innovative solutions. As far as market conditions are concerned, there is no reason to allow rent-seeking groups to get away with a bigger slice of the market rather than making the market bigger with online services.

In fact, similar conflicts are unfolding in a host of sectors where offline and online entities fight for the same customers and bigger profits. Several associations of accounting firms are clashing with an online platform; the Korean Medical Association is squabbling with a cosmetics and hospital information platform over medical advertisement rights; and the Korean Pharmaceutical Association is locked in a legal battle with a remote medical treatment platform.

Given the fast-paced platform businesses and technologies, it seems inevitable that more digital startups will spring up to tap into the established markets dominated by rent-seeking cartels and interest groups.

To minimize friction and boost innovation-led progress, the government and the National Assembly should work together to overhaul related standards and foster competition. Making the pie bigger is far better than allowing rent-seeking groups to keep their outsize slices and impose large costs on an economy.