Let’s Stop Allowing Special Interests to Pull Up the Ladder of Opportunity

Jul 31, 2019 | Blog | 0 comments

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

-Adam Smith, The Wealth of Nations

A legislator I know once told me that he heard a lobbyist for a trade group describe his job as helping those already on top of the building pull up the ladder so that no one else would be able to climb to the top. What he meant was that he helped this trade association get the legislature to pass laws that made it ever more difficult to become licensed in the field, thus limiting competition for his paying clients. For the incumbents in the field, this seems like an easy trade: the fee to hire the lobbyist is relatively small compared to the windfall produced by using the law to eliminate future competition.

To the lobbyist’s credit, at least he was forthright about what he was being paid to do (rather than pretending that he was out to protect “public health and safety”). But pause for a moment and contemplate what this portends for society at large. The practical effect of this mentality is that many people are legally prohibited—or at least substantially hampered—from pursuing their chosen career. Moreover, the entire goal of such action is to keep prices to the consumer high by artificially manipulating the supply of practitioners.
Occupational licensing has exploded in the modern United States. The share of occupations covered by a license has grown from approximately 5% in 1950 to more than 29% today. Unfortunately, Oklahoma has been right there in the thick of it. According to a recent study, Oklahoma is the eleventh most burdensome licensing state in the country.

Occupational licensing as a policy is a throwback to the medieval guild system whose demise has been called an “indispensable early step in the rise of freedom in the Western world.” As pointed out by several 1889 Institute studies, there is little evidence that public health and service quality are enhanced by licensing, but there is a good deal of evidence that occupational licensing limits work opportunities, redistributes income from lower to higher income individuals, increases the cost of living, limits innovation, and leads to more licensing.

So, despite its negative consequences, why does this pernicious form of regulation persist? A clue can be found when one considers that rarely, if ever, is a licensing regime enacted into law after a great public outcry for the regulation of a rogue industry that is harming the public. On the contrary, it is usually the existing members of the occupation itself that organize a political effort to impose licensing on their own field. They are simply trying to pull up the ladder.

1889 Institute has proposed a framework for evaluating new and existing licensing laws in its publication “Policy Maker’s Guide to Evaluating Proposed and Existing Professional Licensing Laws.” We argue there are only two valid reasons to license an occupation: (1) an occupation’s practices present a real and probable risk of harm to the general public or patrons if practitioners fail to act properly; and (2) civil-law or market failure makes it difficult for patrons to obtain information, educate themselves, and judge whether an occupation’s practitioners are competent. Unless both of these circumstances are present, people should be left free to practice the occupation unimpeded by a government licensing requirement.

The Wealth of Nations excerpt quoted above is sometimes cited (perversely) by proponents of additional government intervention in markets. But what follows that excerpt is largely ignored. Smith continues:

“It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary. A regulation which obliges all those of the same trade in a particular town to enter their names and places of abode in a public register, facilitates such assemblies. . . . A regulation which enables those of the same trade to tax themselves in order to provide for their poor, their sick, their widows, and orphans, by giving them a common interest to manage, renders such assemblies necessary. An incorporation not only renders them necessary, but makes the act of the majority binding upon the whole.”

Modern occupational licensing has advanced far beyond a mere “public register” (in fact, those of us who would like to roll back licensing would be thrilled to see current licenses reduced to simple public registries!). It is time to free ourselves from the burdens and unnecessary costs of restrictive occupational licensing regimes. Doing so will enhance the freedom of individuals to pursue their calling in life, and will benefit the consumers of these new entrants’ services.

by Benjamin Lepak, 1889 Institute Legal Fellow