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Licensing Boards Might Violate Federal Law: Regardless, They Are Terrible Policy


Competition is as American as baseball and apple pie. “May the best man win” is a sentiment so old it doesn’t care about your pronouns. The beneficial effects of competition on economic markets are well documented. So why do we let powerful business interests change the rules of the game when they tire of competing in the free market? Most of the time when an occupational license is enacted, it is the members of the regulated industry who push hardest in favor of the license. Honest competition may be fundamentally American, but thwarting that competition through licensing seems to be fundamentally Oklahoman. Oklahoma doesn’t have the most occupational licenses, but when they do license an occupation, the requirements tend to be more onerous than the same license in other states.

But what if, instead of merely breaking the rules of fair play to keep out would-be competition, Oklahoma licensing boards are also breaking the law? Normally a concerted effort to lock out competition would violate federal antitrust law; but there is an exception for anticompetitive state policies. As 1889’s latest paper argues, there is good reason to think Oklahoma's licensing boards do not qualify for that exception. But let's set that aside for just a moment. Even if they do qualify, are we really comfortable giving certain industries a huge leg up on their competition? Are we comfortable using an exception to antitrust law to do it?


Football fans hate winning on a questionable last-second penalty. The legitimacy of the win will always be in doubt. The only thing worse is losing on a questionable last-second penalty. And that's what Oklahoma is doing. Occupational licensing is terrible policy. It transfers wealth from lower-income consumers to higher-income licensed professionals, distorting the market for services and creating inefficiencies. That's the system we hope doesn’t get flagged for market interference? Don't swallow your whistle now, ref! 


Let's turn back to whether there should be a flag on the play. Courts used to assume that occupational licensing boards fit within the state action exception to antitrust law, where states get a pass because, well, they’re states. However, in 2015 the Supreme Court held that if a board is made up of active market participants (i.e., the people on the board are regulating themselves, and competing with everyone who would like to join them, as most Oklahoma boards are), then it must be actively supervised by the state to enjoy the immunity. Former Governor Fallin and the Attorney General’s office attempted to shield the licensing boards through an executive order. But even with the order, the oversight Oklahoma exercises over the boards still fall short of active supervision. 


The executive order demands that boards submit their non-rulemaking actions to the AG for review. If the AG recommends modifying or undoing the action, boards are ordered to do so, and failure to follow the recommendations is grounds for termination. 


There are several problems with this plan. The Attorney General has a number of important statutory and constitutional duties, but supervising licensing boards isn't one of them. An executive order from the Governor can’t add it to his to-do list. Even if it could, the AG regularly represents and advises the board on legal matters. If he is also tasked with supervising them, it creates a conflict of interest. 


On top of this, the executive order doesn't allow the AG to actually overturn or veto a board’s decision: it only threatens to remove board members who fail to follow the AG's advice. An entire board might be fired, but the underlying action would still be the law of the land until a court or a new board overturned it. Taken together, this paints a picture of boards that could do great and lasting damage if they went rogue.


Many free-market economists dislike antitrust law in general, but they like licensing even less. Antitrust law restricts too much legitimate economic activity. In the absence of a government-issued monopoly, it’s difficult to keep new entrants out of a lucrative field. Antitrust is a blunt instrument, hammering mergers that might otherwise make consumers better off. But government-created cartels like occupational licensing regimes have staying power. Unlike an unregulated monopoly, which signals to entrepreneurs that there is money to be made in finding ways to innovate and compete with the monopolists, a government licensing scheme creates powerful disincentives to new entrants. So, while antitrust law may be a blunt instrument, it can and should be safely aimed at occupational licensing. 


Even if courts don’t call out licensing boards for roughing the consumer, it is well within the power of Oklahoma’s legislature to stop the shenanigans before the ball is snapped. The legislature could enact private certification. This would allow private companies to certify that a given professional is competent. Those who were outstanding in their field could pursue additional credentials, signaling to consumers that these are the best of the best. Privately certified practitioners would be exempt from licensing laws. Consumers would still know who was trustworthy, while avoiding the negative side effects of the current licensing regime. 


Mike Davis is Research Fellow at 1889 Institute. He can be reached at mdavis@1889institute.org.

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