If the rules don't make sense, often it helps to look at who is writing them.
Take occupational licensing, for example. It's no longer a secret that licensing laws restrict access to certain professions by setting arbitrary barriers that limit who can practice certain professions within certain states. This, in turn, drives up the prices that licensed professionals can charge for their services, drags down overall economic growth, and harms individuals' right to pursue careers of their own choosing. But those negative consequences aren't sufficient to prevent states from enacting licensing laws—even in situations where there is obviously no public health or safety rationale for limiting who can practice a certain profession.
That doesn't make much sense until you look at who is writing the rules. According to a study by Rebecca Allensworth, a professor at Vanderbilt University, 85 percent of America's 1,790 occupational licensing boards are required by state statute to be comprised of a majority of currently licensed professionals in the same field. No wonder they often pass rules to restrict competition.
That's why an idea floated Monday by Arizona Gov. Doug Ducey could be a real game-changer. During his annual "state of the state" address, Ducey called on the legislature to pass a bill putting more members of the general public on licensing boards.
"We've sought to chip away at the deep-rooted cronyism. But there's still too many insiders and industry good ol' boys," he said.
The bill Ducey is promoting is sponsored by state Sen. Michelle Ugenti-Rita (R–Scottsdale), who also led the effort to abolish Arizona's insane licensing law requiring 1,000 hours of training before a salon worker could use a blow-dryer. That rule was promulgated by the state's Board of Cosmetology, which is currently comprised of seven members—five of whom are actively practicing cosmetologists or representatives of cosmetology schools.
Under Ugenti-Rita's proposal, many of Arizona's licensing boards would have to have a majority of public members, rather than professionals working in the same field they are regulating.
Ducey says that change would put "real people—unbiased people—on these boards."
"Making boards more accountable to the public can help reduce the likelihood of regulatory capture," says Shoshana Weissmann, a fellow with the R Street Institute, which advocates for licensing reform. "Arizona has been leading the way on occupational licensing reform, and these are more steps in the right direction."
This isn't just common sense; it's also legally prudent.
In a key 2015 case that could change the course of occupational licensing for good, the U.S. Supreme Court overturned a North Carolina Board of Dental Examiners licensing law that effectively banned unlicensed technicians from offering teeth-whitening services. In doing so, the Court made clear that licensing boards controlled by a majority of "active market participants" could not make deliberately anti-competitive rules, unless those boards were "actively supervised" by some other element of state government.
Some states have responded to that ruling by tightening legislative oversight of licensing boards' rule-making authority. That's good. What Ducey and Ugenti-Rita are proposing is a different way of achieving that same result—a result that makes the boards less likely to impose anti-competitive rules in the first place, and one that will save states from potential costly antitrust lawsuits.
Of course, licensing boards will only as good as the people serving on them.
"We have seen that having the right public members—those who are educated about and dedicated to fighting the kinds of regulatory overreach that we have seen—can make the regulatory climate better," says Paul Avelar, an Arizona-based attorney with the Institute for Justice, a libertarian law firm. "But that requires a constant supply of good public members and future governors willing to take the time to find and appoint them."
The better course of action, Avelar says, is for states to limit the authority of licensing boards from the outset. "The only licensing regulations that can't be abused are the ones that do not exist," he tells Reason.
Indeed, the Federal Trade Commission—which launched the antitrust lawsuit that led to that key 2015 Supreme Court ruling—has said that the only surefire way for a state to avoid running into legal trouble over anti-competitive licensing laws is to have boards serve "an advisory capacity" only, or to be fully staffed by individuals with no financial stake in the rules they make.
State legislatures have increasingly outsourced professional regulation to licensing boards under the theory that professionals working in a given field are likely to have more expertise about what rules might be needed. In exchange for expertise, states have created the potential for self-dealing.
Including more members of the public in the process makes licensing more transparent and might prevent obviously anti-competitive rules from being written. Abolishing licensing boards is always going to be a better solution, but Ducey and Ugenti-Rita are pushing in the right direction.