Tuesday, September 19, 2006

Milton Friedman on licensure

I have posted a couple of items concerning the societal cost of supply restrictions, namely that restricting entry raises wages and prices. In response, several readers left comments “explaining” how restrictions are needed to protect consumers. This passage from Milton and Rose Friedman’s Free to Choose nicely illustrates how common and how dubious this justification is:

Licensure is widely used to restrict entry, particularly for occupations like medicine that have many individual practitioners dealing with a large number of individual customers. As in medicine, the boards that administer the licensure provisions are composed primarily of members of the occupation licensed – whether they be dentists, lawyers, cosmetologists, airline pilots, plumbers, or morticians. There is no occupation so remote that an attempt has not been made to restrict its practice by licensure. According to the chairman of the federal Trade Commission: “At a recent session of one state legislature, occupational groups advanced bills to license themselves as auctioneers, well-diggers, home improvement contractors, pet groomers, electrologists, sex therapists, data processors, appraisers, and TV repairers. Hawaii licenses tattoo artists. New Hampshire licenses lightning-rod salesman.” The justification offered is always the same: to protect the consumer. However, the reason is demonstrated by observing who lobbies at the state legislature for the imposition or strengthening of licensure. The lobbyists are invariably representatives of the occupation in question rather than of the customers. True enough, plumbers presumably know better than anyone else what their customers need to be protected against. However, it is hard to regard altruistic concern for their customers as the primary motive behind their determined efforts to get legal power to decide who may be a plumber.


Blogger Mr Wang Says So said...

Mmmm ... maybe you would like to pause for a moment to compare occupational licenses with other kinds of licenses - eg a driving licence; licence to own a dog; licence to give a speech in a public place; licence to call yourself a charity; licence to enter an archaelogical site and dig.

Then you may see that it isn't all about making money or protecting one's own interest.

6:22 PM  
Blogger a singapore economist said...

I agree that the types of licences you mentioned are different: they are administered by the state and there is no particular group that benefits financially if the state rejects a request for a new licence. For example, I don't see who would benefit from restricting new drivers licences. The types of licences that the passage addresses are those administered by an occupational group that stands to benefit financially from preventing new members.

12:09 AM  
Anonymous ted said...

SO by default, do you also reject the quotas imposed on the medical and law sector?

9:52 PM  
Blogger a singapore economist said...

Yes, I agree with that but let's be clear: quotas for lawyers and doctors are self-imposed, whether directly or indirectly. Quotas are inefficient because they raise wages and prices by creating artificial scarcity. See my post on lawyers here.

11:16 PM  

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