Does Professional Licensing Protect Consumers or Big Business?

NOVEMBER 18, 2010 | Commentary by KATRINA ANDERSON

Licensing

After his friend was killed by a drunk driver, Illinois resident Jonathon Schoenakase began to offer bar patrons a free ride home. Although he never charged for this service, Schoenakase did accept the occasional tip. For this, he was busted in a sting orchestrated by the local taxi operators and the police for "operating without a transportation service license."

When Schoenakase decided to purchase the $10 license, he was denied. An absurd case, but just one example among many of government imposing occupational licensing to destructive ends, restricting good Samaritans and entrepreneurs. 

In Pennsylvania, the Public Utilities Commission (PUC) imposes strict regulations on all "public utility" providers, including transportation services. In the past, the PUC has even encouraged police sting operations to catch individuals giving rides to the Amish. It's not easy to get a transportation license from the PUC. In addition to fees and proof of insurance, one has to prove that there exists an unmet, "clear transportation need." Then current taxi, bus, and limousine services may also petition the PUC to deny the applicant, if they feel the need is being "sufficiently met."

This is not surprising, given that most professional regulations enacted in the name of "consumer safety" are not instigated by concerned consumers, but rather by established businesses that want to undermine potential competitors. According to the Institute for Justice, in the 1950s only about 1 in 20 Americans needed the government's "go-ahead" to do their job. In 2010, this number has jumped to 1 in 3. This new added layer of bureaucracy makes jobs more difficult to obtain by requiring fees, hours of training, and entrance exams to enter into professional fields.

Pennsylvania lawmakers this year considered legislation that would require interior designers obtain a license in order to decorate. The licensing requirements include a Bachelor's degree, two years of experience, and the successful passing of an interior designer's examination. But is it necessary for state government to protect us from ugly living rooms?

It would appear that politicians at least believe this to be their responsibility. Pennsylvania legislation already uses professional licensing to, ostensibly, protect its citizens from dangerous unauthorized massage therapists, hair braiders, and barbers. The extent of occupational licensing in the state continues to grow to new fields, and in ways that defy common sense.

For example, an employee in the private security sector needs only 40 hours of training in order to carry a lethal weapon, but an entrepreneur who wishes to practice hair braiding must first accrue 300 hours of training. State-licensed barbers must have 500 more hours training than is required of municipal police officer.

In 2008, the Commonwealth sued Mary Jo Pletz, a stay-at-home mom, for $10 million, for selling items on eBay without having the appropriate Pennsylvania auctioneers license (the case was dropped due to media attention).  Barry Fallon was forced to shut down his business, iSold It, as he was also utilizing eBay without a license. The law was changed in 2008. Now one needs not obtain an auctioneer license to sell items on behalf of others on eBay. Today, it is as simple as registering with the state, paying biennial fees of $100, retaining written records of all transactions, and having a $5,000 bond payable to the state set up.  Of course, this regulatory burden provides far less protection for online shoppers than eBay's own seller feedback ratings do.

Pennsylvania state licensure has entered into many professions in which it does not belong, but cities often have laws on top of these.  Bloggers in Philadelphia who sell ads on their sites must have a current business privilege license ($300), even if their blogs make little money. City tour guides are mandated to pay a fee and pass a history test to receive their certification, as though tourists would rather check the city license bureau than Fodor's to find a good tour guide. Regulating tour guides for accuracy is like monitoring comedians to make sure their material is funny.

Allowing taxi drivers to provoke the arrest of a man for keeping drunks off the streets is not only wrong, but contrary to the entrepreneurial spirit that embraces competition and produces economic prosperity. Consumers are best served not by state licensing, but by a free enterprise system that allows entrepreneurs to meet the demand for new or expanded services, and that punishes unscrupulous businesses through a competitive marketplace. 

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Katrina Currie is a Research Associate for the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy education and research institute located in Harrisburg.



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