Freeman

ARTICLE

Occupational Licensure Under Attack

APRIL 01, 1975 by MELVIN D. BARGER

Mr. Barger is a corporate public relations executive and writer in Toledo, Ohio .

Occupational licensure, often viewed as a panacea for a host of economic problems, has been taking some bad lumps lately from individuals who would ordinarily advocate more of it. Their criticism is not likely to create pressures for the immediate abolition of licensing, but it does tend to prove that licensing’s longtime critics, such as the economist Milton Friedman, know what they are talking about.

The Wall Street Journal recently brought the licensing dilemma to the attention of its influential audience with a front page story about state licensing boards, which many believe are closed societies that exist to limit competition and to serve the interests of producer groups. The Federal Trade Commission chairman was quoted as saying that occupation licensing hasn’t prevented fraud, incompetence, or price gouging, while a U.S. Labor Department study of state licensing boards concluded that in general they are "riddled with faults . . . fraught with cha otic and inequitable rules, regulations and requirements and prone to restrictive and exclusionary practices as a result of pressures exerted by special-interest groups . . ." The FTC study also showed that Louisiana, which licenses television repairmen, has about the same incidence of fraud as, and 20 per cent higher prices on TV repairs than, does the District of Columbia, where repairmen are not licensed.’

Reports of this kind must surely rock the faith of individuals who have believed, for seemingly plausible reasons, that licensing protects the consumer from fraudulent, unethical, or incompetent practitioners of professions and trades. There has always been something reassuring about the medical license that one sees while getting an examination, or the state license that hangs behind every barber’s chair. Ask the physician or the barber about his license, and you’ll probably get patronizing reminders that "licensing keeps the quacks out of medicine and the deadbeats out of barbering." The member of a licensed group is likely to treat the licensing of his own occupation as a closed subject — as something that is so obviously beneficial that the licensing practice itself is above question or review.

Evidently, however, licensing is not a closed subject to individuals who are beginning to examine the trade practices of certain groups and to notice a correlation — as in the Louisiana TV repair case —between licensing and high rates. Many of the new critics of licensing, it should be noted, are advocates of other forms of state intervention and propose to reform licensing by changing the composition of state boards or by revising licensing regulations. Hence their criticism is not, at this stage, a true victory for the free market place, but it does show that the licensing issue is far from a closed subject. The disenchantment with present forms of occupational licensure may also have the healthy effect of discouraging the extension of licensing to occupations not currently covered.

Capitalism and Freedom

Milton Friedman, in his excellent book Capitalism & Freedom1-offers an analysis of occupational licensure that virtually foretells all of the present criticisms of licensing. He reviews all the arguments that are usually given in advocacy of licensure, and shows how pressures are created to produce licensing that effectively protects the producer groups from competition and makes entry to the field more difficult for persons who might otherwise challenge the practices and pricing arrangements of the current practitioners. Friedman says that licensure almost inevitably becomes a tool in the hands of a special producer group to obtain a monopoly position at the expense of the rest of the public. There is no way to avoid this result. One can devise one or another set of procedural controls designed to avert this outcome, but none is likely to overcome the problem that arises out of the greater concentration of producer than of consumer interest. The people who are most concerned with any such arrangement, who will press most for its enforcement and be most concerned with its administration, will be the people in the particular occupation or trade involved … Once licensure is attained, the people who might develop an interest in undermining the regulations are kept from exerting their influence. They don’t get a license, must therefore go into other occupations, and will lose interest. The result is invariably control over entry by members of the occupation itself and hence the establishment of a monopoly position.3

In demolishing the case for licensing, Friedman examined the licensing of medical doctors, deliberately choosing this field because it is in medicine where the strongest arguments would seem to exist for licensing. He showed that the practice of medicine is by no means a sacred institution that ought to be above the market place. There are many economical ways that medical services could be delivered if occupational licensure hadn’t been used to give the producer group control over the field and control of hospitals. The method of controlling entry to the practice of medicine has been simple but almost foolproof: Every applicant for a medical license must be a graduate of an approved medical school; hence it is easy to control entry to the field by deciding who should be permitted to attend medical schools. Other licensed professions have been moving in the same direction, but few have been able to restrict entry as successfully as have medical doctors. (Friedman offered as an amusing example the legal profession, which would like to eliminate night law schools, but had so far been blocked because many state legislators themselves were graduates of these schools!)

Scare Tactics

Whenever an individual questions the matter of medical licensing, he is likely to be immediately asked if he wants to have incompetent bunglers or outright charlatans dispensing medical care to his loved ones. But this is nothing more than a scare tactic. Friedman stopped short of attempting to describe all the ways medical care might be provided in a completely free market place, but he offered convincing proof that we would undoubtedly have available many forms and levels of service, some of it provided by skilled medical teams and others by individual private practitioners. Compared with the current system, we would have superior medical care and at lower cost, with more individuals involved in providing the various services needed by the patients. The present system of providing medical care has been so restricted by the intervention of occupational licensure that it is almost impossible to demonstrate what things would be like if the free market had been allowed to prevail.

The arguments against occupational licensure become even more convincing (and less emotionally charged) when one turns to fields other than medicine. Any individual can easily prove to his own satisfaction that licensure results in higher rates by checking the costs of plumbing and electrical services in his own area. In many communities, plumbers and electricians are licensed by the city, while unlicensed technicians are permitted to work in the adjoining townships and rural areas. It is not unusual to have extremely high rates in the licensed areas existing alongside moderate rates in the unlicensed areas. Do the customers in the unlicensed areas receive a lower quality of plumbing and electrical services as a result of hiring unlicensed workmen? This question can be answered fairly only by the individual customers, but it is possible to find unlicensed plumbers and electricians who have a high level of skill and, at the same time, licensed members of the same crafts who are mediocre and sometimes even incompetent.

It should not be necessary, however, to evaluate individual practitioners in order to question the entire practice of occupational licensure. The customer himself should be the supreme judge of who is competent to perform the services he requires. If the members of a trade or profession believe that certain standards or practices are considered desirable in their field, they ought to have a right to publicize this fact and even to urge customers to accept such standards and practices before making service commitments. But it is wrong to use the police power of the state to make the views of a producer group binding upon all people within the occupation and upon all customers. There is, in every field, a great deal of personal opinion about what is necessary for good service and what constitutes acceptable practice.

Fraud and Incompetence

The arguments favoring licensing invariably focus either on fraud or on incompetence. The champion of the free market is at a great disadvantage if he attempts to argue that a free market place will be completely free of fraud and that all incompetent practitioners will fail to attract customers and will go out of business. Rather, he should point out that general laws pertaining to fraud, if properly enforced by the state, will protect the consumer; however, the consumer also has a personal responsibility to exercise prudence in the market place. For that matter, most people in a community quickly learn who the bunglers and deadbeats are. In any case, there is little evidence that licensing protects the consumer from fraudulent or deceitful practices.

One also receives scant assurance of competence under a licensing system. For one thing, we are never sure that a test has been devised to determine the abilities of individuals to perform certain tasks. It is notorious that some people are good test-takers, for example, but fail dismally in the practical application of the knowledge they are supposed to possess. Experience in the field can be a helpful guide, but it is not infallible.

The tendency of licensing to prevent people from entering a field also means that incompetent people who have somehow managed to obtain a license will probably attract business that would have flowed to a worthier competitor if the free market had been permitted to operate. If this is thought to be a far-fetched argument, one should get to know about medical doctors in a typical city. He will learn that a medical society with 75 to 100 members probably has several doctors who are considered extremely marginal by their fellow doctors. Yet, because of the scarcity of doctors, these incompetents not only have large practices but may earn sizable incomes. Far from protecting people from incompetence, occupational licensure in this case has all but forced it on the unsuspecting public.

Building Trades

Occupational licensure can also take other forms. A building trades union card certainly has all the characteristics of a government license, despite the fact that a private trade union rather than the state or Federal government issues the card. In this case, the Federal government, through its labor legislation, virtually licenses individual unions to act as bargaining agents for all the workmen in a certain field or industry. Armed with this Government-granted power, the union is then free to decide who should be permitted to acquire journeyman status in various trades such as carpentry, bricklaying, and pipefitting. It is not difficult for a young person with the proper attitudes and motivation to learn any of these trades, but it often seems easier to swim the Atlantic than to be accepted for apprenticeship in some building trades or to obtain a union card even when one has the proper training and experience. Not surprisingly, wages in the building trades are at very high levels, and unions can demand future increases with the confidence of monopolists who know that they will not be challenged in the market place.

Like most monopolists, the building trades unions have been accused of abusing their power, i.e., their exclusive licenses. One of the most bitter complaints against the building trades in recent years has focused on their longtime exclusion of blacks and other minorities from apprenticeship programs. But the civil rights activists who criticized this practice should have challenged the right of any group to control entry to a field, rather than merely complaining because certain individuals were being excluded. A free competitive market place in the building trades would have found room for qualified individuals from every group. It is indeed one of the ironies of history that Booker T. Washington urged blacks to learn bricklaying rather than Greek philosophy in order to get ahead, but in our own time it has been easier for a black to become a teacher than to obtain a position as a union bricklayer!

We can also wonder if this union licensing power has not created a form of occupational licensure in fields where it challenges basic First Amendment rights. At times, legislators have suggested that newspaper writers should be licensed as a means of "protecting the public." Newsmen are quick to reply that only a free and unlicensed press can protect the public from Government corruption and the venality of legislators. Meanwhile, however, the newspaper guilds continue to strengthen their controls over many news staffs and have now been able to decide who should be permitted to write certain types of news stories. An editor, as an executive, may find himself in trouble with the guild if he writes and publishes in his paper a story that presumably could have been written by guild members. Pressures are also developing to bar newspapers from buying freelance articles. In other words, newspaper guilds are acquiring the power of licensing boards and can quietly use this power to eliminate competition while appearing to stand for a free and uncontrolled press.

There are undoubtedly other forms of licensure that bear watching. Teacher certification is obviously a type of licensing, particularly now that it is used in harness with membership in the powerful teachers’ unions. Any kind of certification program that eventually calls upon the power of the state to control access to a field is occupational licensing and usually is an attempt to win a favored position for the people already in the field.

There have also been many proposals in the past few years to require licensing of automobile mechanics as a means of eliminating bad repair practices. Actually, we are fortunate that automobile repair has been a field that anyone can enter. If an auto mechanics’ licensing program ever is adopted, we can expect ruinously high repair charges from "certified" technicians while most of the bad repair and pricing practices now under attack will become institutionalized as part of the system.

Alternative?

What should we have in place of occupational licensure? The Wall Street Journal article said that "few would quarrel with the need for (some) . . . supervision to guard the public against unscrupulous charlatans posing as certified professionals." But should there be any such supervision? The public has actually fared very well without certification in hundreds of occupations that are vital to the welfare and happiness of many people. It is not necessary to obtain an occupational license in order to be a corporation president, a chef, a salesman, or a writer. Under today’s licensing requirements, Thomas Edison could not have been certified as an engineer, Abraham Lincoln would have been barred from the practice of law, and Albert Einstein could not have been even a high school science teacher; yet each served us well in his own field.

Any of us, if he thinks for himself and exercises good judgment, can still function far better in choosing a professional person or skilled tradesman than can any licensing board. The state also has a general duty to protect against fraud, and this cannot be delegated to a licensing board. Our own good judgment, coupled with reasonable enforcement of the proper laws, will help protect us from the fraudulent and the incompetent. But who will save us from the greater fraud of occupational licensure as it is now practiced?

1Article by Jim Montgomery, The Wall Street Journal, January 8, 1975.

2The University of Chicago Press, Chicago , 1962.

3Ibid., page 148
 

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April 1975

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