How Capitalism Will Save Us (46 page)
Read How Capitalism Will Save Us Online
Authors: Steve Forbes
I
n January 2005, a local news Web site in Miami featured the story of ten-year-old Carolyn Lipsick, who wanted to raise money for the victims of Asia’s devastating tsunami—only to be shut down by city officials. Why? Because she lacked the appropriate license. The Web site recounts:
Miami Beach city officials reportedly told [the] 10-year-old …, who wanted to sell cookies and drinks in her front yard to raise money for tsunami victims, that she could not hold the fund raiser because they could not grant her an occupational license.
“I feel bad for them,” said Carolyn. … “Some children have no clothes, no food, no water and no shoes and most important, that I want to help them, they can’t find their parents….”
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After the story got local news coverage, Florida’s top officials were so embarrassed that they paid for Carolyn to set up her lemonade stand at the state capitol. She eventually succeeded in raising five hundred dollars—at the expense of taxpayers, who of course paid for her trip.
Carolyn’s story illustrates what’s wrong with most of the country’s countless occupational licensing regulations—they’re rigid, excessive, and often just plain dumb. And they end up costing the taxpayer and the economy.
According to a 2007 Reason Foundation report, more than one thousand occupations are currently regulated by the states (in addition to municipal and federal oversight). Certainly we want to license some of these professions—like doctors and maybe lawyers. Some may argue for licensing of real estate salespeople. But do we really need occupational licenses for interior designers, beekeepers, florists, and turtle farmers? The state of Maryland licenses fortune-tellers. Does that mean they’re better equipped to predict the future?
Occupational licensing laws are billed as a means of protecting the public from negligent, unqualified, or otherwise substandard practitioners. But in many cases they were instituted to protect the interests of existing businesses. The Mackinac Center’s Jack McHugh noted:
The dirty little secret about state licensure is that the people who lobby for it are usually the stronger competitors of those who
would be licensed. Their goal is not to protect the public, but instead to raise barriers to new competitors who might cut prices and lower profits.
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By limiting competition, licensing laws restrict job growth—by an average of 20 percent, according to the Reason Foundation report. The total cost of licensing regulations is estimated at between $34.8 billion and $41.7 billion per year.
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The laws also hurt consumers by reducing choice and enabling government-protected licensees to charge higher prices. Take the field of optometry. The Reason Foundation found that the average eye exam and eyeglass prescription is 35 percent more expensive in cities with more restrictive optometry regulations.
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Licensing regulations have also helped hike the price of funerals. Why are caskets so expensive? The industry’s occupational licensing regulations have helped drive up prices by creating a “casket cartel.”
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In some states, it is illegal to sell caskets without a funeral director’s license. This has led to enormous markups—as much as 600 percent above wholesale in states like Oklahoma and Tennessee.
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But don’t we need occupational licensing laws to assure that practitioners of a profession deliver quality service? The answer is yes in the case of doctors and nurses. But as we’ve mentioned, the free market to a substantial degree is self-regulating. The average florist is not likely to keep your business or get recommendations if he or she constantly delivers wilted merchandise.
Most of us know from experience that occupational licensing is no protection against a bad plumber or even, in some cases, a bad physician. That’s why we still want to get referrals and recommendations before employing, say, a licensed electrician.
Licensing exams test knowledge that often has little or nothing to do with the real-world skills required by the profession. For example, it once took longer in Illinois to become a master plumber than for a newly graduated physician to become a Fellow of the American College of Surgeons—until the state court finally stepped in and changed the rules. And then there’s the famous case of hair-braiding laws in Minnesota. We’re not saying African hair braiding doesn’t require specialized knowledge. Cosmetology in general requires training. But in parts of
the state it takes more time to become a licensed hair braider than it does to become a certified emergency medical technician.
Getting a hair-braiding license can mean $15,000 in tuition and at least ten months of schooling.
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Any braider who refuses to secure a government license can face up to one thousand dollars in fines and up to ninety days in jail. Defenders of these exams always say they’re to ensure health and safety. But they’re really intended to make it harder to enter a profession.
Little wonder that in some professions people, desperate for employment, ignore state licensing laws and operate illegally. In this way, overly burdensome licensing laws create black markets, turning law-abiding people into criminals in the eyes of our legal system. But even worse, some never enter a profession at all. They are denied their rightful opportunity to advance in a free-enterprise system that’s not free enough.
REAL WORLD LESSON
Occupational licensing, while necessary in some professions, raises prices and constricts employment
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“Aren’t Free Trade and ‘Globalization’ Destroying American Jobs and the Economies of Other Nations?”
THE RAP
American jobs have been destroyed and the economic welfare of people in poor countries has been harmed by the increasing globalization of business—through trade, industrialization, and the growth of multinational corporations. This global corporate juggernaut is bulldozing the cultures of other nations as well as the environment. The spread of the economic crisis from the United States to the rest of the world demonstrates the dangers of a global economy.
THE REALITYSince World War II, a historic era of free trade has brought unprecedented prosperity and opportunity to millions of people around the world, bringing greater freedom to many nations that were once dictatorships. The best way to expand the global middle class and increase prosperity is to continue reducing trade barriers—and establishing stable monetary policies. Bottom line: trade is a job creator, not destroyer.
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hat if the state of New York suddenly decided to boost employment during the recession by prohibiting residents from buying out-of-state products? You could buy only food, clothing, computers, furniture, and other products if they were made in New York. Most people would consider such a move unrealistic and unfeasible. For all its economic diversity, New York simply does not have the manpower and expertise to make everything residents need.
If New Yorkers could buy only state-produced products and services, their choices would be sharply reduced. Not many microchips are made in New York. There’s no way the state could grow all the agricultural products that residents now take for granted. Sugar, for example, is a tropical crop. Tomatoes in the winter are imported from Florida and Mexico. And what about automobiles? Could a New York auto industry—if one managed to get started—possibly offer as many alternatives as three domestic and fifteen foreign carmakers? In this tightly confined market, many products would become expensive or unavailable. Companies would be unable to achieve economies of scale that make so many things affordable.
Facing higher costs, companies would generate less profit. Less wealth would be created for businesses and people. New York’s standard of living would plummet. The Empire State would devolve into Honduras on the Hudson.
Let’s hammer this point home: What if you
personally
had to produce at home everything you consumed? No longer could you pay outsiders to provide products and services. You’d have to make your own clothing, grow your own food, do your own home repairs, and everything else. This totally do-it-yourself lifestyle was how subsistence farmers lived at the time of our independence. Most people today would consider doing so grossly impractical and inefficient.
Think of all the people who never would have developed their skills had they been forced to devote their energies to meeting basic needs. What if Michael Jordan had had to spend time farming and sewing his own clothes? He never would have become the greatest basketball player in history.
Most of us can easily see the absurdity of prohibiting trade between states or individuals. Yet restricting trade between nations is equally foolhardy. Adam Smith realized this back in 1776 when he wrote
An Inquiry into the Nature and Causes of the Wealth of Nations:
It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.
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British economist David Ricardo described the benefits of international trade in his classic nineteenth-century work
On the Principles of Political Economy and Taxation.
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He explained that free trade enables countries with differing resources and capabilities to each produce more goods for lower cost than would be possible if each nation separately manufactured the same products. This is known as the theory of comparative advantage. It is the reason why trade between nations, when allowed to flourish, has been a powerful driver of economic growth throughout history.
Free-trade bashers forget that today’s era of global trade was a response to the searing lessons taught by the Smoot-Hawley Tariff. Imposed in 1930, the levy raised import duties on a mind-numbing array of goods to record levels, igniting the worldwide trade war that plunged the world into the Great Depression.
