Exploring the Costs of Administrative Legalization: City Expenditures on Legal Services, 1960-1995

The institutional environment in both the private and public sector, according to a wide range of observers, is increasingly "legalized": decisionmaking processes and substantive policies are increasingly subject to legal rules and procedural requirements that are enforceable in court. Although there is little dispute that legal liability has expanded in this way, there is great dispute about the effect of these changes, particularly their costs, on public organizations in practice. Some observers argue that legalization has imposed heavy costs, especially financial costs, on organizations; others, for a variety of reasons, argue that these costs are likely to be exaggerated. In this article I suggest that organizational expenditures on legal services are likely to be a valid indicator of certain important elements of the costs of administrative legalization. I present the results of a study of the legal services expenditures of 13 major U.S. cities over a 35-year period. The results indicate that legal services expenditures indeed have increased in many cities, although not as much as some commentators have speculated. Furthermore, there are significant variations in expenditure patterns among the cities, and a number experienced no long-term growth trend in legal services expenditures. It is widely recognized that the organizational environment in the United States has become more and more legalized, in the sense that decisionmaking processes and substantive policies in public organizations are increasingly influenced by legal rules and procedural requirements that are enforceable in the judicial system. As Rosenbloom and O'Leary (1997:v) observe, "In the aggregate, judicial decisions have required broad changes in administrative values, decision making, organization, processes, and policy implementation." Marc Galanter (1992) similarly has observed that life in the United States and several other societies is increasingly subject to legal forms and procedures, influenced by lawyers, and governed by formal regulations. A diverse range of scholars concur (Abzug & Mezias 1993; Edelman 1990, 1992; Friedman 1985; Sutton et al. 1994; Tate & Vallinder 1995; Teubner 1987). Tate (1995:28), for instance, has observed that a key element of "the judicialization of politics" is "the process by which nonjudicial negotiating and decision-making forums come to be dominated by quasi judicial (legalistic) rules and procedures." Similarly, Kagan ( 1991 ) has characterized American administrative processes as dominated by a culture of "adversarial legalism." While there is general agreement that the organizational environment has become increasingly legalized, the effects of legalization on organizations, particularly its costs, are a matter of great debate. Perhaps the most common view is that legalization has imposed increasingly heavy costs on organizations (see, e.g., Howard 1994; Olson 1991, 1997). Although these costs are not limited to monetary expenditures, most proponents of this interpretation posit that the monetary expenses of legalization are great and are indicative of other underlying costs (to organizational efficiency and the like). This view, though widely accepted, is not universally held. A diverse array of scholarship supports an alternative expectation: that we should find no substantial increase in costs, for one (or both) of two very different but not incompatible reasons. One of these reasons, according to some scholars, is that the costs associated with litigation and judicial orders are commonly exaggerated (see Duncombe & Straussman 1994; Eisenberg & Schwab 1987). The other reason that we may find little or no increase in costs is that some public organizations may have succeeded in instituting substantial reforms that have lessened their exposure to large expenses associated with legal liability. Although the question of financial expenditures associated with legalization is highly significant, there has, unfortunately, been very little systematic research on the matter. …