Bill Henderson is posting about global cities over on ELS Blog. (Here and here.) Global cities are "centers of international commerce that are defined by concentrations of advanced producer services--i.e., bankers, accountants, consultants, advertising executives, and, of course, lawyers." Fascinating stuff, especially for lawyers. Bill argues:
Because of the complexity, scale, and stakes of most global ventures, hiring outside counsel is increasingly a matter of expertise (and value) rather than per-hour billing cost. This expertise can only be acquired through exposure to a large volume of high-end matters. Hence, a disproportionate amount of the most sophisticated U.S. legal work is performed in a handful of global cities. And to access this human capital, firms (and ultimately clients) are willing to absorb labor and real estate costs that rapidly outpace inflation. Although many Fortune 500 have exited these same high cost markets, agglomeration provides significant synergies for advanced producer services. (emphasis added)
Two big questions for agglomeration studies: (1) Why agglomeration? (2) Why there?
Bill has a theory about the value of agglomeration, though I would be interested to hear more than his assertion that "agglomeration provides significant synergies for advanced producer services." What is the source of those synergies? Why can't a law firm in Boulder or Madison obtain enough business to develop sufficiently sophisticated lawyers? Is geographic proximity to other law firms important? Or is it the geographic proximity to other service providers ("bankers, accountants, consultants, advertising executives," etc.) that matters? Obviously, it is not geographic proximity to corporate headquarters.
Even if agglomeration were valuable to lawyers, why have they agglomerated in New York, DC, San Francisco, Los Angeles, and Chicago? Why not so much in Boston, Atlanta, Dallas, Houston, or Philadelphia? Is it a legacy effect from reputational capital or non-legal infrastructure, such as capital markets, that draw other service providers? I would be interested to hear Bill's thoughts.
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1. Posted by William Henderson on August 21, 2006 @ 21:18 | Permalink
You ask a very good question, and definitely one that I hope to take on in the completed version of my "Economic Geography of Large U.S. Law Firms" paper: why these cities and not somewhere else?
First, the legacy / non-legal infrastructure factors are clearly important; New York, Chicago, LA, San Francisco and DC have always been important cities. Arguably, globalization has renewed a luster that might otherwise have faded.
Second, (and this a point that Marc Galanter called me on at Law & Society), the growth patterns of the large law firms are moving in two simultaneous directions: (1) more branch offices, with a growth pattern the mirrors the Fortune 500, moving to the Southeast, Southwest, and West/Rocky Mountain regions (proximity to the client matters, but certain coveted work will flow back to a Global City); and (2) continued large-scale growth (more lawyers and offices) in the biggest markets. Overall, the Am Law 200 is just getting plain bigger, nearly doubling since 1993. And half of this growth is in the five Global cities.
Third, I think the agglomeration synergies flow in several directions: proximity to other lawyers, proximity to other advanced producer services, exposure to high-end matters that enhance a lawyer's human capital, superior outplacement opportunities, and social networks. Face-to-face interaction is an immensely rich form of communication that facilitates perceptions of trust, integrity, strength, loyalty, empathy, etc. In general, the benefits of geographic proximity warrant a premium that many are willing to pay--e.g., clients pay more money, and lawyers live in smaller dwellings and/or have longer commute times. Think how many NYC associates have gone into investment banking, hedge funds, and private equity; these opportunities are much less likely in a non-global city because the opportunities for personal and professional connections are much smaller.
Fourth, spin-off practices outside global cities are definitely possible. But I suspect the core lawyers in such a practice have prior connections to businesses and/or firms in large cities. Further, they will be travelling to such places on a regular basis. Some litigation boutiques fit this model.
I suppose the bottomline is high-end legal work is not very fungible. There is very little evidence that price arbitrage is occurring in the Am Law 200, at least for higher-end work. Though I think Philadelphia's proximity to DC and NYC may explain some of its surprising growth.
I would welcome your impressions from your Skadden Days. bh.
2. Posted by Gordon Smith on August 21, 2006 @ 22:45 | Permalink
Thanks, Bill. This is an interesting project. I look forward to seeing more on it.
3. Posted by Dr Richard G. Smith on September 28, 2006 @ 2:22 | Permalink
Two papers on global cities and law firms that may be of interest to you are:
Beaverstock JV, Smith RG & Taylor PJ (2000) "Geographies of globalization: US law firms in world cities", Urban Geography, 21 (2), 95-120
Beaverstock JV, Smith RG & Taylor PJ (1999) "The long arm of the law: London's law firms in a globalizing world-economy", Environment & Planning A, 31 (10), October, 1857-1876