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Distinguishing the Different Types of Occupational Licensing and Regulation

Posted by Chance on August 26, 2006

A pure, completely laissez-faire libertarian will probably say there is no type of occupational licensing needed; that the free market will regulate quality of product in every sense.

I don’t know how I feel about that statement, but I think at the very least, we can sort occupational licensing into, say, three different categories: environmental, health and safety, and economic reasons (or the public good).

Environmental: I think regulations that protect the environment are reasonable. For instance, one wants to make sure that a business does not do unreasonable harm to the environment, or, if it does, that they pay some type of tax to remedy harm caused.

Health and Safety: Things in this category involve for instance, regulation of construction materials to ensure that they are safe, fire inspections, health inspections, to name a few.

Economic reasons: An example situation in one in which a person must demonstrate to the city council that their business will be profitable, or “needed.” It also involves limiting the numbers of competitors in a certain area.

There are also moral reasons, I should add, such as outlawing prostitution and the drug trade.

An article at the Institute of Justice gives an example that highlights the differences between “health and safety” regulation vs. “the public good” regulations.

Erroll Tyler, an African-American entrepreneur from Melrose, Mass., who is battling for economic liberty, seeks to show that you can fight City Hall.

After two years and two applications, Tyler still does not have the license he needs to start his amphibious vehicle tour service because City officials from Cambridge, Mass., decided that the City does not “need” him. In a sharp break from the American tradition of fair play, Cambridge is using the power of government simply to protect other tour operators from honest competition, hardly a proper use of government power.
Even though the only legitimate purpose of government licensing is to protect public health and safety in carefully tailored ways—such as requiring buses, for example, to be insured, well-maintained and operated by a qualified driver, in the transportation industry, an entrepreneur has to do more than satisfy objective criteria like these. To receive a “jitney” license, which is required to pick up and drop off passengers along a fixed route, State law and City ordinances require an entrepreneur to prove that his or her new venture also serves “public convenience and necessity.” Unfortunately for entrepreneurs, a proposed transportation business is only “convenient and necessary” if the entrepreneur can prove to bureaucrats that there is a market for the new business that existing companies cannot satisfy. It is not enough, in other words, for an entrepreneur to show that he or she will provide consumers better service at a better price. He or she has to further show that existing companies cannot meet the demand. Typically, existing companies oppose the issuance of any new jitney license.

“This approach turns the ordinary principles of entrepreneurship upside down,” Rowes said. “Instead of consumers and businesspeople deciding whether a new service is needed in a free market, bureaucrats, in close consultation with a start-up business’s would-be competitors, make that decision. In practice, the public convenience and necessity standard is so arbitrary and so hostile to honest entrepreneurship that enterprising citizens are routinely prevented from pursuing their dreams.”

In another quote from the same article,

Consumers, not city bureaucrats, should decide whether a business is “needed”, said Jeff Rowes, an Institute for Justice staff attorney. Governments, like Cambridge, need to recognize that economic liberty is as much a part of our Constitution as the right to free speech. The constitutional right to earn an honest living is the basis of our independence as free and responsible members of society. This right is more important than protecting other tour operators from competition.”

I completely agree. I don’t think it is unreasonable to have the government make some steps in the interest of public safety, at least, that is an issue I am dealing with right now. Regardless, if government regulation was limited to safety and health issues, that would be a vast improvement to our current situation.

I never support economic regulations in the third category, or at least, I cannot think of an example right now. The idea that a city council can limit a business simply because it is not “needed” is not only anathema to free market ideals, but also the ideal of America being a land of opportunity, and the ideal of the poor and middle classes being able to make a name for themselves. It is also contrary to the right to “the pursuit of happiness”. There are many words that describe the actions this city council, but my favorite one is tyrannical.


2 Responses to “Distinguishing the Different Types of Occupational Licensing and Regulation”

  1. Michael Westmoreland-White said

    These are helpful distinctions. Some regulations are unnecessary.When I have time, I will return to economic discussions on my blog. (Can’t do everything. Must work. Have life.)

    In the meantime, let me say to the pure libertarians among your readers:
    Markets could not exist beyond the barter level without governments. Governments create the necessary conditions for a market:
    1) Money. A standardized medium of exchange that is guaranteed by a non-market force. Private money making, called forgery, undermines market distribution.
    2)Standardized weights and measures.
    3)Someone to enforce contracts and set contract law.

    These are basic requirements for ANY market. For a sound market, one needs more help by governments on some of the things Chance has outlined above.

    So, let’s have no more of the myth of a market free of government “interference.” There is no such thing and never has been. Now, discussing what kind of regulations, how much, etc. are worthwhile conversations–and libertarian-leaning conservatives have much to add to such conversations with democratic socialists like myself. But the fantasies of “free markets” only serve to mask the real questions.

  2. The Prophet said

    Interesting Post. I think that medicine regulation should be added under Health & Safety.

    BTW… Skillet has a new song from Comatose on their myspace page. It sound really good.

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