Milton Friedman - Who Benefits From Licensing?

Professor Milton Friedman identifies the beneficiaries of licensing requirements. “Of course, you might say that the plumbers know better than anybody else why the customers need protection, but I doubt very much that that's why they are down at the state house. They are down there because they want to be protected against “unfair” competition. You know what unfair competition is. It's anybody who charges less than you do.”

Source: LibertyPen YouTube channel.

Transcript:

Nobody can become a physician unless he is licensed to be a physician by a government licensing board. Now I ask you, who do you suppose is competent to decide who should be a physician? Only other physicians, so the membership of licensing boards of medical groups is always composed of physicians. That has in fact been a key element in restricting of entry into medicine and keeping the number of physicians to a lower level than it otherwise would have been.

This happens to be a subject in which I once did an enormous amount of work. I wrote a book some 30-odd years ago on “Income from Independent Professional Practice” in which I examined in great detail the practices of AMA, the American Dental Association, and other organizations, and I decided at that time that the effect of limitation of entry into medicine had been to keep down the number of physicians and to increase and to increase the average income of physicians, at that time by something between 17 to 30 percent. The recent figures would probably be in the same direction.

Of course, if you talk to the physicians they will say, “Why the reason we are in favor of licensing is in order to have a very high quality of medical practice.” But then if you look at the rules they have followed, some of them have no relationship whatsoever to quality of medical practice. After you had the Nazi regime take over in Germany and there was an attempt by Jewish physicians and other persecuted groups from Germany to come into the United States, all of a sudden the AMA started to require that people be citizens of the United States in order to practice medicine, in order to be licensed. It is a very nice thing to have people citizens of the United States, but will you tell me the relationship between that and the ability to practice medicine? I could go on at great length.

Again, I am not criticizing people, I don't mean to say that the physicians aren't sincere when they say this, of course they are sincere. That doesn't mean they aren't wrong. That doesn't mean that they aren't rationalizing in the name of improving quality a great desire to improve their economic status. During the Great Depression they were open and above board about that. The AMA said we have to keep down the number of physicians in order to keep up their incomes because otherwise if they have low incomes they will be tempted to engage in unethical practice. If anybody has ever been able to establish any correlation between the level of income and the state of personal ethics, I would like to see that evidence and so would you.

Of course, licensure is used much more broadly. I mention the medical example because it seems among the best justified, and it is harder to argue against than almost anything else. But you go down the line. Have you ever looked at the number of licensing arrangements? In almost every state – I don't know out of Pennsylvania – I am sure you have to get a state license to be a barber. And in most states in order to get that license you have to supposedly have taken courses of the biology of hair, on care of skin, and all sorts of things. And of course, again, who is it who licenses barbers? It is not the customers. Plumbers license plumbers.

If you really want to know the real function of licensing all these occupations, all you have to do is go and see who goes down to the state legislature to lobby in favor of licensing. If the real true function of licensing is to protect the consumers, you would expect the consumers to be lobbying for licensure. But you will discover that it is always the plumbers or the beauticians or the morticians of anything you can name. There isn't any occupation you can name which hasn't been down at the state house trying to get licensure.

Of course, you might say that the plumbers know better than anybody else why the customers need protection, but I doubt very much that that's why they are down at the state house. They are down there because they want to be protected against “unfair” competition. You know what unfair competition is. It's anybody who charges less than you do.
 

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