Today is Milton Friedman’s 106th birthday. In celebration, let’s take a look at what he had to say about occupational licensing in Capitalism and Freedom. Though published in 1962, his thoughts on licensing are (unfortunately) still relevant.
Licensure therefore frequently establishes essentially the medieval guild kind of regulation in which the state assigns power to the members of the profession. In practice, the considerations taken into account in determining who shall get a license often involve matters that…have no relation whatsoever to professional competence. This is not surprising. If a few individuals are going to decide whether or not individuals may pursue an occupation, all sorts of irrelevant considerations are likely to enter.
Friedman uses the example of licensed professionals being required to vow they are not communists, but we see licensing requirements unrelated to practitioner quality today, from onerous training requirements to prohibitions on ex-cons entering into some licensed professions.
True to form, Friedman doesn’t stop his analysis with the political economy of licensing. He goes on to make a strong case for how licensing restricts innovation, particularly in the medical field. For professional associations, in this case the American Medical Association, licensing restrictions are,
the key to [the AMA’s] ability to restrict technological and organizational changes in the way medicine is conducted. The American Medical Association has been consistently against the practice of group medicine, and against prepaid medical plans. These methods of practice may have good features and bad, but they are technological innovations that people ought to be free to try out if they wish. There is no basis for saying conclusively that the optimum technical method of organizing medical practice is practice by an independent physician. Maybe it is group practice, maybe it is corporations. One ought to have a system under which all varieties can be tried.
The chapter (indeed, the entire book) is worth reading in full, but I would be remiss if I didn’t include his bold argument for why professionals insist that only the best service be offered by their profession.
[It would] be absurd if the automobile industry were to argue that no one should drive a low quality car and therefore that no automobile manufacturer should be permitted to produce a car that did not come up to the Cadillac standard. [A supporter of licensing lawyers] approved the analogy, saying that, of course, the country cannot afford anything but Cadillac lawyers! This tends to be the professional attitude. The members look solely at the technical standards of performance, and argue in effect that we must have only first-rate physicians, even if this means that some people get no medical service–though of course they would never put it that way. Nonetheless, the view that people should only get the “optimum” medical service always leads to a restrictive policy, a policy that keeps down the number of physicians…[T]his kind of consideration leads many well-meaning physicians to go along with policies that they would reject out-of-hand if they did not have this kind of comforting rationalization.
Both the scope and burden of occupational licensing have expanded in the half-century since Capitalism and Freedom was first published, making his arguments even more relevant today than they were 50 years ago.