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A little over a week ago, I talked about Alex Tabbarok's review of a new book, "The Licensing Racket", which does a deep dive on occupational licensing, specifically when the boards that control the licensing process are, themselves, controlled by licensed professionals within that industry.
I just listened to the author, Rebecca Haw Allensworth, get interviewed on the Short Circuit Podcast. It's worth a listen, above and beyond the snippets that Alex pulled from her book. She very intuitively conveys exactly how these things function and why. She literally just started going to their meetings (often the only non-industry-insider present), watching what they did, listening to what they talked about, and getting a sense for how they actually functioned in the real world. I want to point out a couple things that I didn't really bring out in my prior comment.
First, just another anecdote. Some handyman installed a Ring camera. He just bought the camera at Sam's Club. They're designed to be super easy to use; meant to be pretty much just plug-and-play by consumers. His great sin was that he put on a business card that he could install Ring cameras. For this, he was dragged in front of a licensing board for installing security systems. "This could be competition." When some people on the staff suggested that they could be lenient, because after all, he only did it once, the response from the board was, "...that we know of." Maximum fine. You have to scare anyone else who could even think about competing with you.
Anyway, everyone is aware that, right in everyone's face, there is a huge conflict of interest with these boards. The author says that industry folks talk about how they can totally manage it. "Hats", they call it. When you sit on the board, "you take your industry professional hat off and put on your board member hat". Of course, it's easy to say that; it's much harder to actually do it. They find themselves constantly coming down extremely hard on anything that smells like competition, but when it comes to one of their own, when their people are actually harming consumers, they suddenly find mercy and leniency. As mentioned before, they play the two-step of, on the one hand, playing up the super scary dangers of unlicensed people (i.e., people who haven't paid their dues to the cartel) doing anything, while on the other hand, saying that it's soooo critical that people have access to their services (like medical care, where there is a 'shortage'), that they just have to keep bad professionals out there harming consumers. "Better to have a butcher for a doctor than no doctor," but god forbid a foreign doctor or anyone who hasn't paid their dues to their particular cartel. Their own will get second, third, and fourth chances. When they actually need to dive in to a complaint, they only meet once every month or two, so they'll spend one day every month or two working on it, and if it's a case that needs five days of work, eh, they'll get around to figuring it out within a year, maybe. Even when they know it's a bad professional causing harm to consumers; even saying things like, "We know he'll be back again." The author says that often times, these folks don't get stopped by the board; only the most egregious cases get stopped - and those often get stopped by criminal proceedings in actual courts of law! In the meantime, they're out there taking patients and prescribing...
In the interview, they draw comparisons to labor unions. Obviously, both have the tangible impact of raising wages for their profession. She cites one of Morris Kleiner's books, saying that union membership has gone from super high in the 1950s all the way down to where it is today... but licensing goes in the exact opposite direction - super low in the 50s, way up to being quite significant today. That said, everyone knows and acknowledges that unions are self-interested; the overt point is to vindicate the interests of its members. They get a seat at the table with management to hash out a relationship. It's expected to be somewhat adversarial, and there are a bunch of rules governing how that interaction is supposed to work. But licensing boards aren't like that. Instead, we basically just declare that the 'union' is actually the government. They're in charge of the whole shebang. They essentially 'make law' in the area. It's an entirely new way of organizing labor in society, and it just sort of happened, quietly, while everyone smiled and trusted that a "Board of experts" was looking out for them.
Which is why there is only one guiding light holding them back via anti-trust action - North Carolina State Board of Dental Examiners v. FTC. The board was sending cease and desist letters to folks offering teeth whitening in malls. You know those things that you can just buy at Costco and do at home? Yeah, they were basically just selling it and maybe helping folks put it on. They were "practicing unlicensed dentistry". The Supreme Court acknowledged that when a state licensing board is primarily composed of active market actors, they are not immune from anti-trust regulation unless they're being actively supervised by the State. Of course, we haven't made most of these boards become actively supervised by the state; the union/cartel still controls most of them. They just make sure they have a
cartelunionBoard lawyer present when they're making decisions, who sometimes tells them that they shouldn't do certain things that could attract too much anti-trust attention (apparently, they do really often want to do stuff that would be egregiously anti-competitive, so these lawyers still have to tell them no reasonably often). Of course, how one thinks about the strength of these constraints depends significantly on how one views the anti-trust mechanisms in government. In my estimation, you have to be pretty overtly egregious, and do so by policy, for them to rouse into action.It's all pretty crazy to hear. Whatever role you thought licensing boards were doing, they're not doing that. They're doing the absolute bare minimum to protect consumers and the absolute maximum to protect their own interests. Why wouldn't they? Incentives do what incentives are. The system is what the system does. It doesn't do what you thought it might do, no matter how much you might hope that it did.
How do occupational licensing boards have any authority? Do I just declare myself and my fellow… rodent groomers… an authority and start handing out paid licenses, and the state will back me if I fine someone $10,000 for combing a hamster without my approval?
In the US their authority is generally established by state governments. Now you can in a lot of cases easily get the license on offer from the board, you’re just unemployable without additional training(barbers licenses are often like this- and if you want an apprentice license for HVAC or Electrical it costs $25 and 10 minutes. This will usually enable you to pull permits for work on your own house but not others).
To some extent, this is necessary- after all, making barbers take a basic test on not spreading lice is probably a good thing- but the problem is the state allowing conflicts of interest in the regulatory body.
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Locally, the provincial government passes a regulation, lists your organization in the relevant laws (along with your scope of practice), and gives you have power over those jobs.
Here is one list of licensing boards.
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Nah, you have to make friends in the government first. Generally, the way this works is that you and your fellow rodent groomers get together and decide that you want to form a cartel. You can't call it that, and you can't act too overtly anti-competitively at this stage. Instead, you're just a 'trade association' that wants to promote rodent grooming. Alone, it's hard for you to have much of a marketing budget, but if you get together and each kick in a little bit, you can market occasional fade cuts for little Mickey to a much wider audience. Yes, you're not personally capturing all of the benefit of the advertising, but maybe there aren't that many of you, so you can capture enough to make it worth kicking in to the club.
At some point, everyone's kicked in enough money that you start thinking about what the most effective use of that money is. You look at the market trends, the providers involved, etc., and perhaps that money isn't best used for broad industry advertising of services. Instead, you might think that it's best to use that money to hire some professional lobbyists who waltz into the state capital, shake hands, pass around goodies, make buddies, and impress upon them that you have a group of individuals who just might happen to be thinking about where they'd like to allocate their campaign contributions. Conveniently, they also point out that there seems to be some minor problems with some shady, low-cost rodent groomers lurking in the underworld. Since your trade association really cares about the quality of the industry, you'd be more than happy to help root out the problems. All the politicians need to do is let you. It costs them nothing; you're going to do all the work of taking care of the situation. And oh by the way, you'd be very grateful, wink wink, something something, campaign contributions. It definitely doesn't hurt if you can get a couple prominent trade association members elected into office.
Then, they pass a law, promoting how they're going to rid the scourge of seedy rodent groomers, so the public can have full faith and trust that they're getting a good one. The law sets up a Board, and the qualifications for this Board are obviously that they need to be decorated and awarded by your trade association, since you're the experts in determining who is fantastically qualified. They may even directly appoint a bunch of your leadership to the Board right off. Then, you can fly, ye formerly caged bird! You can invent all sorts of
barriers to entrysuitable training qualifications, most of which require payment to members of your trade association. Then, you can haul randos into your kangaroo court for brushing Mickey's hair this way instead of that way, for that may look too much like a fade and constitute unlicensed rodent grooming. You now have all the power you could have wanted, directly handed to you with the authority of the policy powers of the State. Just try not to look too outlandishly anti-competitive, and make sure to heavily heavily emphasize any possible examples of an unlicensed individual doing anything that could have hurt Mickey in any way.1 You've gotta market fear now. The more scared people are of anything going wrong, the more leeway they'll give you to put in place any silly rule thatwill drive out any competitionyou might think could be useful in some way.1 - As seen in the linked comment, it's not even really necessary that it was actually unlicensed people who caused the harm. The vast vast majority of people who were hurt by the drug that kicked off one of the whole shebangs in the medical industry had taken it under the direction of a government-licensed doctor.
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