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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.
I don't think that's the case.
Good call! I hadn't made this connection, myself, though now I see that there are quite a few works making that comparison as well. I was curious about why we would have the transition from guilds->unions->boards, and it seems that the leading hypothesis for the two arrows are the Industrial Revolution and the transition to a service economy. That is, in the guild days, there was mostly a patchwork of small, independent producers, who banded together to rent-seek. As mass production took off, the economics were in favor of larger firms (now you could build cars and sell a bunch of them across the nation or internationally) where workers were mostly trained in one specific task on an assembly line, so guilds started to fall, while unions began to rise. Then, as we've transitioned toward services, they're again more of a patchwork of small, independent providers, who, unsurprisingly, band together to rent-seek.
Medicine is an especially egregious case, as we've seen significant consolidation in that sector. It's less about small independent providers, as the doctors here are apt to point out that larger conglomerates are taking over and many doctors are now employees of a hospital system rather than just running their own little business. So I'm not surprised that a brief search indicates that doctors' unions are significantly on the rise. Of course, they don't have the same sort of mass production scale, as they are still fundamentally a service product rather than a good, so I think it's less likely that the guild power of licensing is going to disappear to any meaningful degree, especially not in comparison to the historical decline in guild power in the good production arena. Instead, we're going to get the worst of both worlds - obscenely licensed and unionized. The academic papers I've found say that they have empirical evidence that these schemes do intersect and provide the most rent-seeking. It's like the anti-Reece's peanut butter cup - two awful tastes that taste awful together. I had sort of thought that the medical industry was reaching a breaking point and that changes would have to occur... but now, I'm sort of getting the feeling that it's going to get a whole lot worse before there's any hope that it'll get any better.
My prediction for failure mode of us healthcare;
Good doctors (most, not all) become too frustrated with the insurance regime and become cash only concierge providers for the wealthy.
The surging demand paired with vanishing supply for those who cannot afford out of pocket healthcare creates healthcare gridlock (look at the British NHS for an example of this). No one can get seen in a timely manner, the care that is provided is perfunctory, follow up visits are non-existent.
Amateur and grey market pharmacology takes off and we see a spike in accidental overdose deaths. These stats, however, are probably laundered by calling some of them suicides, some of them related to pre-existing conditions, or even more blatant cooking of the books.
Eventually, Federal laws do change for "low level" or "routine" medical care; You can do visit local clinics to get band-aids and aspirin and not have to get it from a doctor, but some sort of glorified EMT. This expands to cover most types of prescription drugs as well.
Medical insurers become financially insolvent gradually as the healthy and wealthy drop out of the system. Eventually, some tech company figures out how to create non-insurance-insurance wherein they can deny you based on risk factors (like insurance used to work). The work around is that they aren't technically insurance, but function as some sort of mutual liquidity market (you're, very technically speaking, exchange mutual contracts with other individuals to help defer costs of medical care at an undetermined date in the future, the tech company in the middle just provides a digital marketplace ... something along those lines).
All of the Americans who want health insurance have it (Obamacare: Hooray!) but all of the Americans who have health insurance cannot actually see a decent doctor in any timeperiod less than 1 - 2 years. Most simply rely on long term prescription drugs for pain management and placebo effect.
Americans without healthcare (and without independent wealth) create this wholly new side industry of non-insurance-insurance and, in so doing, create new demand for medical care provided by doctors, perhaps, not from this country originally - or ever (i.e. medical tourism partially or fully covered by the not-insurance-insurance).
People (not yet doctors) see that they can pursue medical careers without going to the traditional medical schools or passing boards. A whole new shadow-doctor industry staffs up. After 5 - 10 years of this group demonstrating not only equal, but superior health outcomes, the traditional Medical School cartel is finally broken up.
I think this takes about 20 years, starting roughly the time the Social Security Trust becomes insolvent.
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