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Wednesday, February 11, 2015

Do We Need the State to License Professionals?

Voluntary mechanisms tell the public which professionals are qualified

Economics columnist Eduardo Porter gave fans of economic freedom a pleasant surprise when he recently praised Uber in the New York Times. He even wondered whether other occupations besides taxis suffered from artificial state restrictions. As welcome as this analysis was, Porter still conceded the basic premise of occupational licensing and made a smart-aleck remark about the bad old days of medical quackery under pure laissez-faire.

I will push his analysis to its logical limits and show that there is no justification for the state to declare certain professionals off-limits to willing customers.

To reiterate, the gist of Porter’s article was very encouraging, especially considering its location in the NYT. Even so, he pulled his punches and gave the state too much credit by writing:

Sometimes professional licenses make sense, ensuring decent standards of health and safety. I’m reassured that if I ever need brain surgery, the doctor performing it will have been recognized by the profession to be up to the task. We don’t want to return to the 19th century, when barbers pulled teeth and freelance doctors with no certification peddled miraculous cures.

It’s true that few Americans today would go to a barber to get a tooth pulled. But this is precisely why unlicensed tooth extraction wouldn’t be a problem nowadays, even if the state allowed it. You don’t need to pass laws to protect the public against doing things that the overwhelming majority recognize as stupid. Furthermore, even if you do pass laws against stupid things, a few people are still going to do them.

There is a fundamental problem with state-issued standards, whether we’re discussing occupational licensing, product safety, or academic accreditation. If some particular criterion of quality or safety is deemed so obvious that no one could possibly object, then by the same token, the state doesn’t serve a function by mandating the standard.

The problem that Porter’s glib quotation ignores is that some people might think “miraculous cures” really exist. For example, suppose someone is peddling a little white pill that rapidly alleviates headaches and other pains, and also reduces the chance of a heart attack for those with heart disease. Sounds like a quack product, doesn’t it? I sure hope that Porter’s zeal to ban “miraculous cures” wouldn’t have taken aspirin off the table when it was sold, unregulated, in the late 1800s. Similarly, in our haste to regulate professions, we exclude people who have the aptitude and skills to make our lives better at far lower cost. It’s not that people don’t want safety and efficacy. They do. The point is that there are far better and lower-cost ways of getting these outcomes than the procedures most state licensing regimes set up. (In this context, Uber has become a paradigmatic case.)

When it comes to licensing professionals, there are two distinct considerations. First, even if the public and experts all generally agreed on standards of quality, there would be the issue of price. Milton Friedman popularized the analogy of automobiles in this context, asking readers to imagine the government mandating a “Cadillac standard” for motorists. By driving up the cost of vehicles, such a measure would obviously hurt those former motorists who couldn’t afford a Cadillac and so had to take the bus, ride a bike, or walk. Yet, even considering the Americans who could afford a Cadillac, the measure would still be harmful. Forcing such people to spend their scarce dollars on a nicer car, rather than on housing, clothes, or their children’s education, doesn’t make them better off — it just imposes the officials’ value scale.

What is obvious with our hypothetical “Cadillac standard” for cars carries over to medical licensing. Even if everybody could agree that a doctor with an MD from Harvard and 20 years experience in a major hospital was better than someone fresh out of high school, to insist that all doctors in the United States meet the former requirements would be absurd. It would force people to spend more on medical care than they would have voluntarily chosen in a freer system.

Things are even worse when we recognize that people can’t agree on standards of quality. There is genuine debate over the efficacy of certain treatments and the value of certain types of medical education (such as homeopathy). By declaring certain professionals off-limits to consumers because of a genuine disagreement — even among experts — about qualifications, occupational licensing from the state prevents services that would benefit some consumers. A society doesn’t solve the problem of different opinions by telling its political officials to designate the experts; that is merely one mechanism of anointing some professionals as suitable.

We can imagine alternative, voluntary mechanisms of telling the public which professionals are qualified, such as fraternal organizations, guilds, unions, and other private certification associations. With medical care in particular, surely hospitals and insurance companies would exercise a large degree of quality control. For example, a major hospital wouldn’t allow someone to work in the operating room without good credentials, and an insurance company wouldn’t issue malpractice coverage to a surgeon who merely had an undergrad degree in biology.

It is a paradox of our age that the interventionists think the public is too stupid to consult Angie’s List before hiring a lawyer, and so they need politicians to weed out the really bad ones by requiring law licenses. Yet, who determines whether a person (often a lawyer!) is qualified to become a politician? Why, the same group of citizens who were too stupid to pick their own lawyers.

In conclusion, it is a mistake to confuse the public’s need for expert guidance on professionals with the public’s need for political intervention in various occupational markets. Telling political officials to weed out the unqualified members of a profession merely pushes the problem back one step. Whatever story we can tell that would make a democratic “solution” work would show how a voluntary system of ratings and peer review would be even better.

  • Robert P. Murphy is senior economist at the Independent Energy Institute, a research assistant professor with the Free Market Institute at Texas Tech University, and a Research Fellow at the Independent Institute.