Occupational Licensure Under Attack; M. Barger

OCCUPATIONALLI ATTACK MELVIN D. BARGER OCCUPATIONAL licensure, often viewed as a panacea for a host of economic problems, has been tak ing some bad lumps lately from individuals who would ordinarily advocate more of it. Their crit icism is not likely to create pres sures 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 recent ly brought the licensing dilemma to the attention of its influential au dience 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 Com mission chairman was quoted as saying that occupation licensing Mr. Barger is a corporate public relations ex ecutive and writer in Toledo, Ohio.

hasn't prevented fraud, incompe tence, or price gouging, while a U.S. Labor Department study of state licensing boards concluded tha t in general they are "riddled with faults ... fraught with cha otic and inequitable rules, regula tions and requirements and prone to restrictive and exclusionary practices as a result of pres sures exerted by special-interest groups ..." The FTC study also showed that Louis{ana, which licenses television repairmen, has about the sam~ incidence of fraud as, and 20 per cent higher prices on TV repairs than, does the District of Columbia, where re pairmen are not licensed'! Reports of this kind must sure ly rock the faith of individuals who have believed, for seemingly plausible reasons, that licensing protects the consumer from fraud1 Article by Jim Montgomery, The Wall Street Journal, January 8, 1975. 1QI=;, 196 THE FREEMAN April ulent, 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 phy sician or the barber about his license, and you'll probably get pa tronizing reminders that "licens ing keeps the quacks out of medi cine and the deadbeats out of barbering."· The member of a li censed 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 licens ing, it should be noted, are a.dvo cates of other forms of state in tervention and propose to reform licensing by changing the compo sition of state boards or by re vising 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 li censure may also have the healthy effect of· discouraging the exten sion of licensing to occupations not currently covered. Capitalism and Freedom Milton Friedman, in his excel lent book Capitalism & Freedom, 2 offers an analysis of occupational licensure that virtually foretells all of the present criticisms of licensing. He reviews all the argu ments that are usually given in advocacy of licensure, and shows how pressures are created to pro duce licensing that effectively pro tects the producer groups from competition and makes entry to the field more difficult for persons who might otherwise challenge the practices and pricing arrange ments of the current practition ers. 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 pro ducer than of consumer interest. The people who are most concerned with any such arrangement, who will press 2 The University of Chicago Press, Chicago, 1962.

1975 OCCUPATIONAL LICENSURE UNDER ATTACK 197 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 under mining the regulations are kept from exerting their influence. They don't get a license, must therefore go into other occupations, and will lose in terest. The result is invariably con trol over entry by members of the occupation itself and hence the estab lishment of a monopoly position. 3 In demolishing the case for licensing, Friedman examined the licensing of medical doctors, de liberately choosing this field be cause 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 li censure 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 per3 Ibid., page 148. mitted 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 med ical doctors. (Friedman offered as an amusing example the :legal pro fession, which would like to elimi nate night law schools, but had so far been blocked because many state legislators themselves were grad uates of these schools!) Scare Tactics Whenever an individual ques tions the matter of medical li censing, he is likely to be immedi ately 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 at tempting to describe all the ways medical care might be provided in a completely free market place, bu·t he offered convincing proof that we would undoubtedly have avail able many forms and levels of service, some of it provided by skilled medical teams and others by individual private practition ers. 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 pres ent system of providing medical 198 THE FREEMAN April care has been so restricted by the intervention of occupational li censure that it is almost impossi ble to demonstrate what things would be like if the free market had been allowed to prevail. The arguments against occupa tional licensure become even more convincing (and less emotionally charged) when one turns to fields other than medicine. Any individ ual 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 elec tricians are licensed by the city, while unlicensed technicians are permitted to work in the adjoin ing 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 plumb ing and electrical services as a result of hiring unlicensed work men? This question can be an swered fairly only by the individ ual 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 some tiI!les even incompetent.

It should not be necessary, however, to evaluate individual prac titioners in order to question the entire practice of occupational li censure. The customer himself should be the supreme judge of who is competent to perform the services he requires. If. the mem bers of a trade or prof~ssion be lieve 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 be fore 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 occupa tion and upon all customers. There is, in every field, a great deal of personal opinion about what is nec essary for good service and what constitutes acceptable practice. fraud and Incompetence The arguments favoring licens ing invariably focus either on fraud or on incompetence. The champion of the free market is at a great disadvantage if he at tempts 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 busi ness. Rather, he should point out that general laws pertaining to fraud, if properly enforced by the 1975 OCCUPATIONALLICENSURE UNDER ATTACK 199 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 com munity quickly learn who the bunglers and deadbeats are. In any case, there is little evidence that licensing protects the con sumer from fraudulent or deceit ful practices.

One also receives scant assur ance of competence under a licens ing 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 knowl edge they are supposed to possess. Experience in the field can be a helpful guide, but it is not in fallible. The tendency of licensing to prevent people from entering a field also means that incompetent people who have somehow man aged to obtain a license will prob ably attract business that would have flowed to a worthier competi tor if the free market had been permitted to operate. If this is thought to be a farfetched argu ment, 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, be cause of the scarcity of doctors, these incompetents not only have large practices but may earn siz able incomes. Far from protecting people from incompetence, occupa tional licensure in this case has all but forced it on the unsuspecting public.

Building Trades Occupational licensure can also take oth~r forms. A building trades union card certainly has all the characteristics of a govern ment 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 bar gaining agents for all the work men in a certain field or industry. Armed with this Government granted power, the union is then free to decide who should be per mitted to acquire journeyman sta tus in various trades such as car pentry, bricklaying, and pipefit ting. 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 200 THE FREEMAN April a union card even when one has the proper training and experi ence. Not surprisingly, wages in the building trades are at very high levels, and unions can demand future increases with the confi dence 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, Le., their exclusive licenses. One of the most bitter complaints against the building trades in re cent years has focused on their longtime exclusion of blacks and other minorities from apprentice ship programs. But the civil rights activists who criticized this prac tice should have challenged the right of amy group to control en try to a field, rather than merely complaining because certain indi viduals were being excluded. A free competitive market place in the building trades would have found room for qualified individ uals 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 be come a teacher than to obtain a position as a union bricklayer!

We can also wonder if this union licensing power has not created a f6rm of occupational licensure in fields where it challenges basic First Amendment rights. At times, legislators have suggested that newspaper writers should be li censed as a means of "protecting the public." Newsmen are quick to reply that only a free and unli censed press can protect the public from Government corruption and the venality of legislators. Mean while, 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 pa per a story that presumably could have been written by guild mem bers. Pressures are also develop ing to bar newspapers from buy ing freelance articles. In other words, newspaper guilds are ac quiring 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, par ticularly now that it is used in harness with membership in the powerful teachers' unions. Any kind of certification program that 1975 OCCUPATIONALLICENSURE UNDER ATTACK 201 eventually calls upon the power of the state to control access to a field is occupational licensing and usu ally is an attempt to win a fa vored position for the people al ready in the field. There have also been many pro posals in the past few years to re quire licensing of automobile me chanics as a means of eliminating bad repair practices. Actually, we are fortunate that automobile re pair 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 institu tionalized 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 unscrupu lous charlatans posing as certified professionals." But should there be any such supervision? The pub lic 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 ob tain an occupational license in or der to be a corporation president, a chef, a salesman, or a writer . Under today's licensing require ments, Thomas Edison could not have been certified as an engineer, Abraham Lincoln would have bee,n 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 him self and exercises good judgment, can still function far better in choosing a professional person or skilled tradesman than can any li censing board. The state also has a general duty to protect against fraud, and this cannot be dele gated 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 in competent. But who will save us from the greater fraud of occupa tional licensure as it is now prac ticed? , Moder Soothsa BERNARD H. SIEGAN IT IS exceedingly hazardous to de cide current policy on speculations about the distant future. We al ready encounter enough difficulty simply trying to understand the here and now.