Legislative excess has driven the legal profession's growth, but the bounty wasn't asked for, argues Alex Novarese

Over coffee last week, I was asked a question I've been asked a lot since 2008: how does the legal industry keep making so much money given the state of the global economy? My answer is always pretty much the same: "Why wouldn't it?"

After all, it's been clear for years that there are fundamental forces supporting the growth of the legal profession, not all of them saying flattering things about Western democracies.

This topic is taken up with vastly more contextual sweep in the much-publicised Reith lectures recently given by economic historian Niall Ferguson (pictured). His four lectures – held under the title 'The Rule of Law and its Enemies' – include a number of pointed criticisms of the development and role of law in Western democracies.

The most relevant to a legal audience are the second and third lectures – 'The Darwinian Economy' and 'The Landscape of Law'. In essence, Ferguson argues that an excess of regulation has badly backfired in developed economies in general and in financial services in particular.

The second line of attack is the related observation that excessive regulation creates an environment in which complexity flourishes to the benefit of the regulated, who game the system, and vested interests in the legal profession. Ferguson goes on to assert that this is fundamentally damaging cherished Western notions of the rule of law as an economic and social good, replacing it with a "rule of lawyers".

There is a related point explored regarding the extent to which the rule of law in a common law context as typified by the UK is economically necessary in developing countries, a topic much debated thanks to the dramatic rise of China without such traditions or supporting institutions.

How compelling is all of this? In many respects, it is highly persuasive (at least to this long-time admirer of Ferguson's work). He is identifying some forces frequently missed by commentators who are often confounded by the gravity-defying growth of the legal profession since the 1970s. Ferguson is also right to contend that the urge to legislate for every aspect of life rather than focus on better administration has had many negative consequences, among them escalating compliance costs and burdens for business. Certainly, many lawyers would agree that the failure of the political classes to observe either the law of unintended consequences or employ the legislative equivalent of the Hippocratic Oath to 'first, do no harm' has often led to needless complexity, bad law and unnecessary costs for business.

Such excess and legal complexity has inarguably also been a major force underpinning the growth of the legal industry for the last 30 years. Precise figures are sketchy but we know that in England and Wales the number of qualified lawyers has risen by about 4% annually since the 1970s, with the profession roughly tripling in size over that period (and that's just qualified lawyers, not the expanding ranks of para-professionals).

A long-term view of the US illustrates a similar picture. Recently published figures from The American Lawyer showed that the revenues of the top 100 largest law firms had expanded ten-fold since 1986, rising from $7bn (£4.54bn) to $71bn (£46.1bn) in 2011, while average partner profits had more than quadrupled from $324,500 (£210,000) to $1.4m (£909,000).

The excess of policy-making also explains why those expecting law to become commoditised are so often disappointed. On one level they are right, but governments keep bringing out new stuff.

Ferguson puts forward the gargantuan US financial reform law Dodd-Frank as a "near-perfect example of excessive complexity in legislation", and later remarks: "Let's face it, the principal beneficiaries of something like Dodd-Frank are lawyers…[the Act] is going to keep Wall Street law firms in clover for decades to come."

Such trends are worrying given that good regulation is less about its legal framework than the quality, resources and vigour with which it is enforced. Look at the US Foreign Corrupt Practices Act, which was introduced in the 1970s to little notice until US authorities started applying it aggressively 10 years ago. Yet in the wake of the banking crisis one UK agency that could have potentially pursued wrong-doing in financial institutions – the perennially embattled Serious Fraud Office – has been left laughably short of resources while the Government presses on with a yet another shake-up of financial services regulation. (Unsurprisingly, financial regulation has become one of the most lucrative and in-demand areas of City legal practice over the last decade.)

But if Ferguson is on solid ground with regulation, the broader questions he raises on the rule of law are less convincing; actually, it's debatable if the overall content of the lectures lives up to its unifying title at all. Partly that's because many of the excesses he identifies in dysfunctional policy-making and rampant litigation cultures have a peculiarly American character. It is one thing to claim there is now rule of lawyers in the US; in the context of most other developed countries – which generally have much smaller legal markets in relation to their economies – it just doesn't fly.

Invoking Bleak House, Ferguson is also right to say that a major (though hardly new) challenge to the rule of law in Western economies is the expense of legal representation. And in the context of the rise of China and global competitiveness, many would agree that the West has been far too complacent over its model, but that's not enough to support some of the stronger elements of his argument.

The final point to observe about the huge benefits the global legal industry has drawn from excessive law-making is that the profession shows surprisingly little awareness of it. The banking industry has become keenly attuned to the dividend it derives from state guarantees, ultra-loose monetary policy and strong-arm lobbying. In comparison, lawyers have only an instinctive sense that they gain from new law. Indeed, thanks to the conservatism of the profession, they often resist it.

But more to the point; beyond technical input in legislation, in general, the legal profession in the UK – by far the largest and most profitable legal market in Europe – couldn't lobby its way out of a paper bag. Greed and avarice when seen in the legal profession are usually linked to a billing culture that incentivises inefficiency, padding and ethical creativity regarding conflicting client interests – it has little to do with manipulating the legislative process.

Ultimately, as a long-time observer of the legal profession, I would argue that Ferguson accurately identifies short-comings and severe complacency in Western democracies about how to manage modern societies. But the failure remains one of policy-makers, not over-mighty lawyers. The profession certainly made hay while the legislative sun shone, but lawyers had little ability to make the clouds part and probably even lacked the cultural mind-set to long for the balmy weather. Some excesses of the US profession aside, Rule of Lawyers is a nice soundbite, but it's not a reality I've seen much evidence of on the ground.