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If Licensing Protects Consumers, Why Are Licensing Laws Blatantly Anti-Consumer?

Once upon a time, there was a small island whose economy revolved around scuba-diving tourism. Unfortunately, the island elected legislators who considered scuba dangerous. Inexperienced divers would surface too quickly and get the bends. The legislature, wanting to make diving feel safer, passed a law that banned sharks in designated scuba diving zones. There were no known cases of sharks attacking divers, nor were divers being frightened into surfacing too quickly by sharks. This is what most occupational licensing schemes look like. Legislators act, giving the public a sense of security, and giving powerful industries protection from competition. The laws do almost nothing to help consumers. Not only are they futile, they are also deceptive. 

Some licensing regimes, like the Oklahoma Real Estate Brokers Act, take the deceit one step farther. Instead of just telling the sharks not to eat people (which they weren’t doing anyway) the act does the equivalent of gathering a group of great whites to police the no-shark zone. The great whites chase away the sand sharks that might bite the occasional toe, and in return they get to feast on divers whenever their normal prey becomes too hard to catch. These licensing schemes puts practitioners in charge of policing other practitioners, and give them a range of protections from the consumers they are allegedly there to protect. 

Legislators may vote the way they do for a whole host of reasons, some legitimate, some less so. Frequently a legislator will not have read the actual text of a law, relying instead on a summary, a staffer, another legislator, or even worse, a lobbyist to shape their opinion. This makes it difficult to ascribe motive to a particular law or class of laws.

Occupational licensing laws are a notable exception. It’s all too obvious that lawmakers are complicit in helping certain industries lock out competition at the expense of consumers. Occupational licensing is often cloaked in “consumer protection,” as if consumers are helpless babes, unable to act in their own interest. But most often it is the regulated industry who requests the license. 

The least offensive motive for these requests is to protect an industry from another licensing board. Music therapists may fear that if they are not a licensed industry, the Oklahoma Board of Examiners of Psychologists will send cease and desist letters, eventually punishing them or running them out of business. Of course if that were the only true motive, music therapists would simply ask the legislature to say that music therapy does not fall under the scope of practice of psychology. Fear of persecution may be the initial motivation, but monopoly profits see it through to the finish line. Licensing allows licensees to charge higher prices for the same work by making it harder for a competitor to come along and challenge them. At their very best, they do vanishingly little to protect consumers. 

At their worst, licenses empower practitioners to abuse consumers. Every occupational licensing scheme in Oklahoma would violate federal antitrust laws, if anticompetitive state policies were not exempted by federal caselaw. This exemption has nothing to do with good market policy, and everything to do with state autonomy, even when it’s used to give special interests a leg up. While antitrust laws have been questionable in their application, since it is very difficult for most anticompetitive behavior to continue for long in the absence of government backing, they do represent a certain ideal in a free market: unrestrained competition. It’s in the consumer’s best interest if anyone can come along and offer the same service at a better price or better service at the same price.

Case in point: the Oklahoma Real Estate Broker’s Act. The subject of 1889’s latest paper is perhaps the most anti-consumer law we have examined. In addition to limiting entry to the field through an onerous licensing scheme, the Act carves out several protections for realtors. For instance, the traditional common law understanding of agency,” including its fiduciary duties like loyalty, good faith, candor, and obedience are displaced by a broker relationship, with more limited duties to clients described in the act. Even though Oklahoma Realtors are not bound by the traditional agent-principle relationship, they are specifically allowed to hold themselves out as agents” in advertising and client contact. 

Realtors are also allowed to take a percentage of the final sale price, even though this frequently puts their incentives at odds with their clientsinterests; a buyer wants the lowest price possible, but if their agent is on a commission, they are rewarded, at least in the short term, for talking their client into offering more. The same is occasionally true on the seller's side: a seller might need to move his property quickly - perhaps to take a job in another state. The realtor may be more interested in maximizing price than in selling quickly. The Act explicitly states that realtors are allowed to take their pay this way. The Act also says that realtors have no duty to verify the size of any building or lot; they can simply pass them on to their client, or to unsuspecting buyers. Far from protecting consumers, these provisions show a clear intent to protect licensees from consumers, even to the point of allowing consumers to be deceived about the nature of their relationship with their agent”.

If legislators can’t see that Oklahoma’s licensing laws are anti-consumer, they should be replaced. Most of these regimes predate even the most senior legislators, but their lack of movement in undoing these anticompetitive, anti-consumer, and anti-American laws is unacceptable. 

Mike Davis is a Research Fellow at 1889 Institute. He can be reached at 

The opinions expressed in this blog are those of the author, and do not necessarily reflect the official position of 1889 Institute.

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