Friday, January 13, 2006

How lawyers are like crack cocaine dealers

It’s Friday afternoon so let’s take a little break from environmental issues. I’ve been reading the entertaining Freakonomics: A rogue economist explores the hidden side of everything which included a chapter explaining why most cocaine dealers in the US live at home with their ‘Moms’.

The authors of the book stumbled on a treasure chest of data on crack cocaine gangs’ business operations in the ‘projects’ in Chicago. A young academic economist befriended (sort of) a gang and followed their activities. The gang leader, unusually, had gone to business school and was a business manager before deciding he could make more money heading up a gang. And he had kept meticulous books on the gang’s revenue and expenditure, something that is unusual for gang leaders to do. One of the gang members gave the books to the economist just before he was murdered by the gang and the books provide a unique insight – it’s not often that you can run your ruler over the accounts of a drug dealing business.

He found that the business model was a fairly typical pyramid structure. At the top was a group of men who were called, appropriately, the Board of Directors. They oversaw all operations in an area. They took about 20% of the revenue of each gang. At the top of each gang (which was like a franchise) was a leader, who earned about $100,000 (tax free of course). Under him were 3 deputies who earned vastly less – about $700 a month. The authors reckon this is about $7 an hour – or roughly minimum wage. Under them were about 25 – 75 actual dealers - called ‘footsoldiers’ - and they made about $3 an hour (which is why they live at home). Much less than minimum wage for an unpleasant and dangerous job.

Call me weird, but as I read through the chapter the thing that struck me was the parallels in the structure and business model and players to a large law firm.

Maybe that’s not much of an insight – after all, many large businesses have a similar pyramidal structure. But I wondered how many of the specific observations about the incentives and behaviour of the different players in a gang might shed light on the incentives and behaviour of different players in a law firm.

I’ll explore that in the next post and look at what the parallels between drug gangs and law firms might tell us about:

  • whether partners really want their workplace to promote a ‘work-life balance’,
  • why the biggest threat to a partner is young lawyers who don’t want to be partners,
  • why graduates spend vast amounts of time doing tasks like discovery and due diligence that don’t require legal skills and could be done more efficiently by someone else, and
  • why the pressure to work huge hours might be driven as much from below as from above.

3 comments:

Lyn said...

yes yes yes yes! exactly!

I've also read Freakonomics. Genius isn't it? but this analysis didn't occur to me at all.

Doug said...

Brilliant! But was the economist or the MBA gang leader killed by the gang?

And of your first four questions, the answer is clearly "no" - but I look forward to your explanation of all four phenomena.

Beth said...

Already these are great questions to be asking, and I'm really looking forward to your spin on possible answers. How come your brain is working this well in January?