The Nationl Law Journal reports that the Iowa Supreme Court is considering whether to extend the “diploma privilege” to graduates of the University of Iowa College of Law and Drake University Law School, allowing them to enter the profession without passing the state’s bar examination.
Why would the Iowa Supreme Court want to do this? Why would the Iowa Bar Association, the guild in question, support the idea?
The court on Wednesday held a daylong hearing on the idea, which is being promoted by the Iowa State Bar Association. More than 20 people spoke out, including judges, law deans, attorneys and state leaders. Additionally, the court received more than 150 written comments, many from practicing attorneys who said the exam ensures the state’s lawyers are competent.
Sloan does not report the position of the "judges, law deans, attorneys and state leaders" who testified, but it appears tht most practicing attorneys opposed the change:
“It only takes a few bad apples to spoil the entire barrel,” Des Moines attorney Chuck Crook wrote. “The numbers provided showed that there are some who never passed the bar exam, and presumably did not have the required knowledge to be a lawyer.”
There is also a disagreemrnt between the bar association leadership and the Supreme Court's own staff:
A state bar committee in late 2013 recommended the change, noting that both law schools have first-time pass rates above 90 percent. The requirement presents a financial burden for graduates who must wait months for their test results before they can practice, but eliminating some of that expense could help bring attorneys to the state’s underserved rural areas, the panel said.
“The committee finds that the cost of the present system is simply not justified,” the committee said in its report, which the bar’s leadership endorsed. The deans of both Drake and Iowa law schools served on that committee.
The court’s staff reached a different conclusion, noting that diploma-privilege programs, popular in the early 20th century, have been abolished by most states—only Wisconsin waives its bar exam for graduates of in-state law schools, although New Hampshire does so for a small number of University of New Hampshire School of Law students who complete a special curriculum.
The staff report noted that not all Drake and Iowa law graduates pass the exam. Moreover, Iowa residents who go to law school outside the state would still have to take the bar to practice locally, and 15 jurisdictions would deny reciprocity privileges to lawyers who entered the practice through the diploma privilege, it said.
“As courts that have abolished the privilege have noted, many people believe bar exams have a desired effect of requiring even passing applicants to synthesize their years of cumulative knowledge and prove their mettle on a comprehensive examination,” the staff said.
Normally, guilds restrict membership and thereby raise the market price of their services. Restrictive membership standards may raise average quality, but that depends on whether the criteria for membership are correlated with quality. It is not surprising that current members of the guild believe that passing the bar exam makes one a higher quality attorney; all of them have passed. Similarly, it is unsurprising that the deans of the two law schools that would gain a competitive advantage support the change. (Given their obvious conflict of interest, what's more peculiar is that they were allowed to serve on the bar association committee that proposed the change.)
If the Iowa bar exam is poorly correlated with the specific knowledge that Iowa attorneys need to know, then the exam serves no purpose except restricting access to the profession. In that case, there are no social costs to waiving the requirement to pass the exam and benefits in the form of avoided deadweight losses. Of course, if this is so then there is no justification for exempting only graduates of the two Iowa law schools from taking the exam. (If the argument is that the Iowa-based law schools do better at training future Iowa attorneys, then there should be ample empirical evidence.)
Alternatively, the Iowa bar exam does correlate with the specific knowledge that Iowa attorneys need to know, and allowing Iowa law school graduates to practice without taking the exam will lower average quality. (It will not lower it much if, as Sloan reports, the current pass rate is "above 90%.")
Even so, markets are quite capable of sorting out these differences. Lawyers who have passed the Iowa bar exam could easily distinguish themselves as presumptively more qualified, so they would be able to command a price premium. If the market produced no price premium, however, it would be prima facie evidence that passing the bar exam provides no quality signal.
UPDATE SEPTEMBER 8, 2014
The Iowa Supreme Court decided to "take no further action" on the Iowa Bar proposal.