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Thursday, March 15, 2012

9. Licensing

The Concise Guide To Economics

by Jim Cox

9. Licensing

Licensing is a sub-category of regulation and so all of the same basic points regarding regulation apply to licensing.  Licensing is sold to the public on the basis that it protects consumers from low quality.  What licensing in fact does is protect the licensed from lower prices for their services!  Licensing is a means by which a special interest group--those licensed--restrict the supply of a service in order to generate higher prices for themselves. 
Licensing overrides the preferences of consumers by setting the government as the decision maker in quality standards for various services.  In effect, a particular level of quality is established by law thereby forbidding any lower quality services and depriving the consumer of his sovereignty.  Many would claim that it is necessary to have such quality standards, but often the quality standards actually have very little to do with the service being rendered.  The requirement of passing a "History of Barbering" course in order to get a license to barber is one such example.
But further, consumers often prefer and need--due to income limitations--cheaper, lower quality services.  High licensing standards often require the equivalent of a Cadillac when many are better served by a Volkswagen.  Also, the resulting higher prices which consumers face result in more do-it-yourself efforts and deferred work, often endangering the consumer more than licensing protects him.  Besides, there are alternatives to coercive licensing.  Quality standards voluntarily certified allow the consumer to shop for his preferred level of service (Underwriters Laboratories, Good Housekeeping seals, and insurance requirements are examples).  Government licensing has preempted a vast array of certifications which would otherwise exist.  These certifications would be driven by consumer demand rather than political pull--undeniably a more satisfactory arrangement for the consumer.
Concise Guide to Economics, The

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