Exploring Society As Peacefully As Possible

Archive for March, 2011

Licensing Professionals, Hurting Consumers

Governor Charlie Crist of Florida recently vetoed a proposed new licensing law for nail salon workers and cosmetologists.  This has increased the costs to consumers, and has limited their options of providers.  The poorest communities will no longer have access to these services in reputable brick-and-mortar business, and will turn to people that “can only do it for a few friends,” or others who risk being caught practicing their trade without a license.  Lastly the new licenses required in business is simply an excuse for the regulating agency to take total observational control of a business.  If, as was the case in Alabama, a store is suspected of dealing flowers without a florist’s license, the SWAT team may show up to confiscate all the business’s documents, to use against you in any type of charges they can piece together after looking at the records.

So why not simply, as contract law does, differentiate between mundane service providers and those service providers who pose a reasonably imminent threat to their customers health or safety.  There are at least two problems with this approach.  First, where does the line get drawn?  Could dentists be excluded because most of their work is cosmetic, or at least not life-threatening?  Doctors couldn’t even be included without considering the types of work they actually do.  Podiatrists aren’t that dangerous, and  neither are general practitioners who would typically refer you to a specialist for anything beyond common illness. And of peculiar distinction is the lawyer, who of course will be endlessly arguing amongst its own profession as to whether the profession should be under state regulation, inevitably including lawyers in the state protection racket.

Second who says that state licensing actually helps protect the patrons of doctors, dentists, lawyers, plumbers, or whatever other profession that may actually do harm to its customers if done incorrectly?

The last objectionable feature of state licensing is its lack of natural authority.  The state does not own the property these people practice upon.  Nor does it own the wills of the provider and customer.  If a provider wished to become a doctor, set up a practice, and advertise that he was well trained, but unlicensed, where does the state gain authority to punish the doctor for doing so?  This further punishes potential customers who may not have been able to afford licensed care or did not agree with the licensing requirements (such as holistic medicine seekers may disagree with the focus on pharmaceuticals that state licensed doctors exhibit).

Certainly a state may wish to see the development of a “well regulated” market, but they offer no proof as to how their licensing scheme will work well currently or improve either its own requirements or the industry standards through time.  The only way to know is to allow all service providers to offer their services with whatever regulation they themselves find to be sufficient to avoid negative consequences, to let each individual allocate their resources to those regulatory services that economically protect their interests.  All people would value having perfect services provided to them, but no one is willing or able to pay for such a guarantee.  For some industries like the floral arrangement business there will likely result a first-order regulation scheme where simple producer-consumer relationships will drive bad arrangers out of the market.

Other industries do call for some requirements on their providers to prove competency prior to engaging in business, but these license granters must be neutral to the providers, and must have their own competition to keep them honest.  They should not be giving “favor” licenses to those who should not qualify for them, and they should not restrict the grant of a license to someone who exhibits his qualification; to do otherwise would give individuals the incentive to   This suggests that those industries where harm is a real possibility would develop a second order regulatory scheme, where providers will compete for customers not only through providing a better service at lower cost, but also by presenting the customer with the best third party certifications of quality.

These arrangements may become more complex, but they will always work to drive practices out of the marketplace while reducing the costs of provision of the service, benefiting all participants in the chain of production.  This is in direct contrast to state licensing that rids the system of particular known imperfections while reducing competition and raising prices and stagnating the industry.  New challenges are not met by different agencies trying to maximize their returns on physical efforts, but by the licensing board that very consciously is more worried about keeping wages high for those who have already been admitted than about serving the consumer.

So in the end, the best way for a state to develop industry and ensure that providers of dangerous services are acting in the interests of their patients is to allow free competition among providers, and among certification agencies.  State license schemes for any activity merely set the bar at an arbitrary level that is then insulated from any real market test.  The only reason the bar may be adjusted up or down is to serve the interests of those who are setting the height of the bar.  And in the state licensing scheme this is invariably a group of well-connected professionals who themselves had to be licensed, and thus have only the interests of a monopolist on their mind.  These interests are a minimum of quality and quantity at a maximum of price to the consumer.  The market mechanism seeks to expose the decision makers to the interest of all parties, licensed and unlicensed producers, the consumers, and even those who oppose consumption, and to do so at a minimum physical price to all parties.