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Is Legal Licensing Necessary?

August, 2013

It is accepted by almost everyone that the licensing of doctors and other professionals by governments is necessary. How quickly we forget that this is a new phenomenon. Licenses for doctors became common only in the last couple hundred years, and as recently as 1910 medical schools were mostly what we call diploma mills, much like the training organizations used to make real estate agents and general contractors legal today. In many states the latter do not even need to have ever held a hammer to be licensed.

Let's lay out a few background notes and facts before we look more deeply into legal licensing...

1. A license given by a government only requires a minimum standard that is primarily measured in terms of education, training, or paper testing, not performance.

2. While the stated purpose is public safety, the practice of licensing leads the public to be complacent. In fact, people are complacent to the point where most will spend much more time researching which computer to buy than researching which doctors or lawyers or financial planners to use.

3. Licensing encourages the idea that all who have a license are roughly equal in ability. This is clearly not true, and nobody would even claim it to be, but people do act as though this is the case. In addition to the complacency that results from licensing, it also discourages pay based on performance. It would make sense that among surgeons in the same hospital, those who kill twice as many patients as others should offer a discount, but once licensing becomes the norm, measuring and making public such performance statistics is less common (although the internet may be changing this).

4. It is assumed that if licensing did not exist that we would all be at more risk, but this has not been proven in any systematic way. We do see a more safety in an industry as licenses become the norm, but usually if you look at the history of a given industry the standards were usually rising well before licensing began.

5. Customers have always had the ability to ask for credentials. Before there was licensing people certainly considered whether a doctor went to a medical school and whether he had experience.

6. Without licensing, hiring professionals with just as much training would still be possible. Customers would simply choose to hire the person who has the credentials they consider important, which certainly could include medical school diplomas and other certifications.

7. Certifications and other credentials of all sorts are available even in industries which are currently unregulated. These sometimes do -- and certainly could -- indicate competency as much as legal licenses.

8. It has been, and presumably always will be, criminal fraud to misrepresent ones experience, education, and other credentials to customers, so a lack of licensing does not mean anyone can claim to have qualifications he or she doesn't have.

If we put these facts together we might notice that licensing is just a legal form of the certifications and paper qualifications that have and always will exist. The difference once legal licensing begins is that a consumer's options are limited to those who are approved by a government agency. Without licensing requirements in an industry it would be possible to hire a skilled (and cheaper) professional who happens to have fewer degrees but does a good job anyhow. If it is really true that the overall risk is reduced by licensing, it seems there would be more studies and evidence to supports this (and in industries that are already improving in safety or according to other criteria, the trend line should get steeper after the law passes, not just continue in the same direction).

The cost goes up when we have licensing. This is not just about the cost of getting and maintaining a license, which is passed on in higher prices for services, but it is also the result of limiting access to an industry. The harder it is to become a tree trimmer, the fewer there will be, and then they can charge more due to increased relative demand. It is basic economics. We do not prevent any great dangers from poorly-arranged flowers when we license florists, but we do ensure that they can charge their customers more money.
Now, here are some questions to get you thinking about the necessity, and even the morality of licensing laws, as well as the real intent.

1. If my friend wants me to sell his house for him, knowing I have no real estate license, and I am willing to do it, is it actually right to send me to jail for such a "crime?" What is the specific thing I did that is wrong that warrants putting me in a metal cage?

2. What real purpose does the licensing of "low risk" professions serve, such as licenses for hair cutters and interior designers? What constituency do you think originally pushed for such laws? (Hint: it wasn't a public outcry that brought about laws in these areas).

3. If licenses were available but not mandatory you could still choose to go to a licensed builder, mechanic, painter, or dental hygienist, so why is it a problem if others want to knowingly choose an unlicensed person or business?

4. Since we now license over a thousand different occupations, and now 23% of the people in the country need a government license just to make a living in their chose profession without going to jail, can we really still claim to be the "land of the free?"

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Legal Licensing?