Proving that great minds think alike, both Nobel Prize-winning economist Milton Friedman and the Bard himself, William Shakespeare, memorably described the human tendency towards hypocrisy. “With some notable exceptions,” Friedman once observed, “businessmen favor free enterprise in general but are opposed to it when it comes to themselves.” In a different context, in Measure for Measure, Shakespeare’s character Duke Vincentio remarks: “O what may man within him hide, though angel on the outward side!”
Although business leaders and trade associations generally complain about the burden of government, you may be surprised at how often they actively lobby for state or federal regulation in their own sectors. The practice extends beyond just franchise monopolies such as utilities to include many apparently competitive industries or professions.
Aye, there’s the rub, one might say. They see competition as the problem. Special-interest groups are quite willing to use government to exclude, or gain an artificial advantage over, their competition, thus allowing them to raise prices without fear of losing their customers to somebody else.
Occupational licensing is a prime example — and a particularly costly one in North Carolina. Government regulation of a profession doesn’t usually come about in response to consumer complaints and against the wishes of the profession. Instead, current providers lobby lawmakers to license their industry, and to set a high bar that would-be providers must leap over to enter it.
Such policies boost the incomes of existing providers in at least three ways. First, as I said, less competition means higher prices and less risk. Second, existing firms are usually larger than new entrants. Because regulatory costs don’t normally rise in proportion to the size of the enterprise, it’s often cheaper for big firms to comply, so small firms have to charge consumers more to recoup the cost of licensure.
Finally, existing providers are frequently the main providers of the training necessary for professionals to get licensed. In other words, existing firms enlist the aid of government in acquiring new paying customers for their classes and training programs. Nice work if you can get it.
None of these rationales is spelled out by the regulated parties, naturally. They argue that occupational licensing is necessary to protect the consuming public from fly-by-night operators and shoddy service. The argument may be somewhat persuasive in highly technical fields in which consumers tend to make one-time, high-stakes decisions — such as brain surgery — but looks pretty flimsy when used to justify North Carolina’s licensure of such occupations as barbers, boxing promoters, cemetery sales contractors, cosmetologists, estheticians, pastoral counselors, fur dealers, landscape architects, librarians, locksmiths, manicurists, massage therapists, milk haulers, opticians, pet-shop operators, real-estate appraisers, and taxidermists.
It is certainly understandable if consumers of these and other regulated services want some kind of “seal of approval” to use as they choose, but that can be supplied by a process of voluntary certification. Mandatory licensure is unneeded to protect consumers. Its real purpose is to benefit producers.
Don’t take my word for it. The empirical evidence for this effect is overwhelming. A new a study in the Eastern Economic Journal, for example, showed that state licensing boosts the incomes of opticians by 17 percent “without enhancing the quality of services delivered to consumers.” Another new study, in the journal Public Choice, explored the implications for income inequality. It found that for every standard deviation of increase in entry requirements to start a new business, including occupational licensing, there was a 7 percent increase in the share of income received by the most-affluent 10 percent of households.
During recent legislative sessions, North Carolina Sen. Andy Wells (R-Catawba) and other lawmakers have pushed for reform of the state’s licensing laws. Their opponents are almost always the regulated professions themselves. These opponents well understand that even partial deregulation would increase the number of North Carolinians entering the occupations in question — and that would benefit consumers, though not necessarily the current providers.
When the regulated claim otherwise, you should conclude that they doth protest too much.
John Hood (@JohnHoodNC) is chairman of the John Locke Foundation and appears on “NC SPIN,” broadcast statewide Fridays at 7:30p and Sundays at 12:30p on UNC-TV.