Pied piper of law school reform crowd is lost once again

imagesIn a response to my remarks about the relatively thoughtful though narrow comments of Justice Scalia on the future of the legal academy, the leader of the dwindling law school reform crowd  throws up his hands. He just cannot explain the difference between “hyper elite” School A (let’s call it Stanford) and “strong regional” School B (let’s call it Colorado). Nor can he find any reason to justify the increased expenditures at both schools.

And this despite the fact that he actually admits the key variable: the salaries of Stanford graduates have increased.

He does not say how much but since I graduated from a similar school to Stanford I recall starting salaries on Wall Street in the mid-90s to be $85,000. Today they are $160,000. With no disrespect intended towards Colorado I think we can safely assume that their median is substantially lower than that, perhaps 100-120K. In other words, Stanford salaries, at least, have kept pace with the increase of expenditure – both of which have roughly doubled in the same time frame.

Perhaps more importantly what does that salary differential tell us about the per capita expenditure differential between the schools?

Simply that over a career it is more likely that Stanford grads will earn substantially more than Colorado grads. And that makes it far more likely that Stanford will earn back substantially more from those grads than Colorado. That means from the standpoint of the Stanford board of trustees – who have a fiduciary obligation to the institution – it is perfectly rational to spend twice per capita at their law school than they do at Colorado. Anecdotal information suggests their calculation makes perfect sense – it’s why they have one brand new building named after alum William Neukom, former Microsoft general counsel, and another named after Charlie Munger, business partner of Warren Buffet and father of a Stanford Law School alum, while Colorado struggled for years – to the brink of putting their accreditation at risk – to come up with the funds for a new building. (Granted, when they got it built it was pretty spectacular.)

It strikes me as odd that someone once feted at the Cato Institute as the “bad cop” of law school reform (do his colleagues at the allegedly left wing site Lawyers Guns and Money care where he spends his spare time?) seems to have a very weak grasp on the nature of capitalism but there you have it. Stanford makes money from its law school. It does not lose money. It invests in its physical plant and in its human resources calculated against the potential of making money off of that investment. Of course Stanford is an educational institution, a non-profit entity, so it does not and should not look for ways to merely maximize its earnings. But it certainly is not going to engage in activities that throw away the tuition dollars and donations it receives.

In a world of Stanfords, Harvards and Yales, is it any wonder that places like Texas, Virginia and Colorado look for ways to keep up?

And yes even at lower ranked schools like mine this has become essential. We maintained a view that resisted that kind of competition for many years, proudly proclaiming that we were the anti-Stanford (a hang over from the days when Kingsfield ruled the roost). No matter one’s views of the values inherent in this approach (and many felt and still feel they were more appropriate to the practice of law than those at major law schools) it was no longer tenable, particularly when we were located in a setting like Silicon Valley. We may all delight in railing against the rankings but at some level they do reflect market reality and pretending we could live in a world where they do not count only further hurt our reputation.

The school started to change. Not to toot our own horn, as we have a ways to go and we are a Jesuit-affiliated institution after all, but we now have one of the nation’s leading intellectual property programs, recently put in place a startup law clinic that is in great demand from students, and at the university level there are plans afoot for a new STEM center as well as new programs that will link up the law school and business school more closely.

I think one problem the law school critics seem to have is an expectation that all who enter here shall succeed. That has never been the case in professional schools and certainly is not the case in today’s hyper-competitive and highly stratified society.

This new reality is reflected in the battle that occurred at the University of Virginia a couple of years ago. Their board of trustees panicked when they saw the kind of innovation underway at Harvard, MIT and Stanford. They tried, unceremoniously, to fire a very popular (some would say too popular) campus president. The campus erupted and the president was reinstated.

But I have little doubt that concerns remain there and elsewhere that the emerging “Stanford model” (which I wrote a bit more about here) is causing a new division within higher education – and that is a challenge across the board to either keep up or come up with a viable alternative.

I am not happy, for example, about the administrative bloat the model seems to entail. One is reminded of the prescient work of Cornelius Castoriadis on the inevitable and apparently unstoppable bureaucratization of capitalism. But normative considerations should not get in the way of recognizing reality.

It has been said that at Stanford when you are hired as a junior professor in the sciences they don’t care whether you stay to get tenured or leave to found a new biotech firm. The school is happy with either path – every entering professor gets a base salary, a lab and shared ownership of their future IP. It’s an incubator model. In fact, their current President, John Hennessy, sits on the board of Google and Cisco and himself founded a highly successful and path breaking technology company while on sabbatical.

(There are, of course, alternatives to the Stanford approach – at least in California. Prospective lawyers need not attend law school and need not attend an ABA accredited school. Many choose not to do so, taking advantage of the lower cost teaching-dominant model that many law school critics espouse yet seem not to believe really exists. They need to get out more.)

This culture has spread widely. A friend who was a graduate student in computer science at an east coast Ivy had trouble finding a dissertation advisor because each faculty member told him his dissertation topic had to be the basis of a new startup (upon whose board the professor would sit) or else they were not interested. He left but many others stayed and are no doubt building new companies as we speak.

How shocked can we profess to be that Stanford is happy to continue subsidizing its law students to the tune of 100K per capita (when sticker tuition is 50K) in the happy prospect that every few years a Peter Thiel (a founder of PayPal and early lead investor in Facebook) will emerge from their graduating class? It is analogous to the model they use in the hard sciences – in fact they likely hope that their law students will become counsel to the graduates of their hard science programs. Or even more compelling – find ways for their students to start their own alternative legal firms incorporating technology from across the campus.

Personally I think this approach is both exciting and has serious longer term potential pitfalls. It is, in many ways, a symptom of what I call an emerging new era of “insider capitalism.” But there is little doubt about its impact and importance.

Perhaps it is time for young JDs to consider alternatives to their whistling muse.