Licensing Laws

by Tom Rose
May 1st, 2003

Modern Americans had become so acclimated to accepting licensing laws without question that they fail to realize the extent to which such laws have been used to extort additional money from the public under the guise of "protecting consumers from quacks." How did this come about?

To answer this question we turn to the first decade of the 1900s when there were 192 medical schools in these United States. In 1910 the Carnegie Foundation commissioned Abraham Flexner to inspect the existing medical educational facilities in our country. At that time the leaders of the American Medical Association(AMA) felt that there was an over-supply of medical practitioners. The result of the Flexner Report was a drastic decrease in the number of medical schools, which, of course, served as the source for supplying new physicians. By 1944 the number of medical schools had dropped from 192 to 69. The number of physicians per 100,000 population, as a result of the drastic reduction in the number of medical schools, dropped from 157 in 1900 to 132 in 1957 (Douglas C. North and Roger LeRoy Miller, The Economics of Public Issues [New York: Harper and Row, 1983], p.62).

The reason for this great drop in the number of physicians can be explained by the tight control the American Medical Association exerted, and continues to exert, on the accreditation of medical schools, and this the potential supply of new medical practitioners allowed into the lucrative medical field. As older doctors retired or died, they were not replaced by a sufficient number of new entrants. That this is exactly what the AMA hoped for was reported in 1928 be the former head of the AMA's Council on Medical Education:
 

. . . [T]he reduction of the number of medical schools from 160 to 80 (resulted in) a marked reduction in the number of medical students and medical graduates. We had anticipated this and felt that this was a desirable thing. We had . . . a great oversupply of poor and mediocre practitioners (ibid).
 

Be careful to note that his statement about having "a great supply of mediocre practitioners" was nothing more than a partisan value judgment. Note also that the market-interference action of the AMA was designed only to limit the future supply of new practitioners. It did absolutely nothing to evaluate the qualifications of the then-existing practitioners, nor the qualifications of new graduates who emanated from the resulting lower number of accredited medical schools.

The net economic effect of licensing practitioners in any field is to restrict the number of new entrants, thus limiting supply and boosting average incomes. This assured economic effect of licensing explains why practitioners in so many professions and occupations go to the civil authorities and lobby for licensing laws. Recently, in the state of New York, licensed hair dressers requested the licensing authority to take action against a 14-year old [African American] girl who had worked up a good business for herself by braiding the hair of other young [African American] girls. The licensing board claimed its action was to "protect" members of the public who might be "harmed" by the unlicensed young lady. (The reader can determine in his or her own mind whose interest the licensed practitioners were really seeking.)

This same plea of "protect the public" is used by all licensed professions that the author is aware of. Another attack was recently made by a dental association on dental technicians who had set up their own practices of providing teeth cleaning services. Again, the claim of the licensed practitioners was that the health of the public might be endangered if dental assistants were allowed to practice without being under the direct supervision of a licensed dentist. Note that such actions by licensed professionals to allegedly "protect the public welfare" uniformly end up at one predetermined goal: they deny the public freedom to choose between lower-cost providers and higher-cost providers.

Licensing laws use the police power of civil government to prevent consumers from employing the professional services of those they prefer, usually lower-cost providers. Instead, the only options left open to consumers is to either do without, or to pay the higher price demanded by the licensed practitioner. The supporting assumption behind licensing laws is that members of the public are not generally intelligent enough to decide what is in their own best interest, therefore they must be "protected" by a coalition of the licensed practitioners and the civil power. That is true whether those who claim they are protecting public interest are plumbers, electricians, hair dressers, auto mechanics, attorneys, dentists, medical doctors, or any other licensed group.

Some years ago the Chinese practice of acupuncture, a profession that has existed for almost 2,000 years in China without any type of legal supervision, became popular in our country. It grew in popularity because members of the public could see and experience positive benefits from acupuncture, American physicians responded to this alternative health-inducing therapy by seeking a free-market response: they sought training from the real experts in that field, the Chinese acupuncturists themselves. But, once a number of U.S. physicians were trained, it was not long until the American Medical Association sought legislation that would require non-licensed acupuncturists to work under the supervision of licensed medical doctors, who had themselves just recently learned the skill! And so the story goes!…

In short, the fundamental issue behind the licensing of professions turns out to be, not the protection of the difficult-to-grasp concept of "public welfare," but simply a turf battle to protect the narrow economic interest of one group of practitioners from would-be competitors.

In summary, the supply of medical practitioners has been drastically curtailed both because of the accreditation of medical schools and the licensing of practitioners. The demand for medical services, on the other hand, has increased greatly because of such things as Medicare and Medicaid, third-party payment systems like health insurance, and laws that make it very difficult, if not impossible, for the consuming public to legally order simple laboratory tests or widely used drugs and medicines without first having to go to a licensed medical practitioner to obtain needed prescriptions. And recently the FDA has been threatening to drastically limit consumers' access to herbal remedies (which cannot be patented because they are natural substances)…

The free-market solution to such a perceived "problem" is simply allow consumers to decide for themselves who provides the best service at an agreeable price. In a free society should not any person who wishes to provide a good or service be allowed to do so, as long as no deception is involved? Damages resulting from services based on deceptive practices are recoverable in courts of law; historically, the potential threat of malpractitioners being sued has been a sufficient deterrent to protect the public. The public would receive additional protection for incompetent practitioners if each profession advertised its products and services to "enlighten" consumers as to why their interest would be best served by choosing one provider over another. In this way, consumers would themselves be empowered to make a more intelligent choice. Such an approach would provide a level playing field for all contestants, and it would leave would-be practitioners a wide choice of how to seek adequate training to enter a profession (attending school, serving as an understudy to a successful practitioner, etc.), and all this without a narrower selection of choices being forced on the public by governmental edict.

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