“Capitalism and Freedom” Summary, Chapter 9: Occupational Licensure

by Danny Fenster

This chapter is a free excerpt from Quicklet on Capitalism and Freedom.

The overthrow of the medieval guild system was a breakthrough in the rise of the West and freedom in general. There's recently been a retrogression by way of mandatory professional licensure.

Friedman discusses the problem generally, then talks specifically about the case of medicine, as he feels it provides the strongest case against him.

Professional licensure is supposed to protect the public interest. But licensure is controlled by professionals, not victims. "Of course, they are more aware than others of how much they exploit the customer and so perhaps they can lay claim to expert knowledge."


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The overthrow of the medieval guild system was a breakthrough in the rise of the West and freedom in general. There's recently been a retrogression by way of mandatory professional licensure.

Friedman discusses the problem generally, then talks specifically about the case of medicine, as he feels it provides the strongest case against him.

Professional licensure is supposed to protect the public interest. But licensure is controlled by professionals, not victims. "Of course, they are more aware than others of how much they exploit the customer and so perhaps they can lay claim to expert knowledge."

Licensure often establishes medieval guild-like regulations with the state assigning power to the professional class.

Producers are politically more concentrated than consumers; barbers will spend time and effort advocating barber licensure but their clients will not.

A general, case-bundled rule is needed to fight neo-guilding, as with monetary and fiscal policy and free speech previously discussed.

There are three levels of control: registration, certification and licensing.

Registration asks practitioners to list their names, but does not outlaw unlisted individuals from practicing.

Certifications award practitioners with a legal title such as "architect" or "CPA," but does not ban the untitled from practicing architecture or accounting.

The third is licensure, which requires a measure of competence in the field and outlaws the unlicensed from practicing.

Registration might be justified for firearms dealers, for instance, to aid law enforcement. This is possibly but not necessarily a justification; a balance sheet of pros and cons must be applied. Another justification may be as a taxation; if cigarettes are taxed separately, it may be necessary to register sellers of cigarettes to keep track.

More importantly is registration as a means to prevent fraud, which falls under the governmental responsibility to protect contracts. This may be the case with taxicabs, where at night it may be easy for them to rob passengers. Registered cab numbers are a deterrent.

Certification is harder to justify, as it can be done privately, such as professional honors groups like the Better Business Bureau.

Licensure is even harder to justify. It may be done so via neighborhood effects. If there is a danger that a physician may unleash an epidemic by providing poor service to one, it may be in everybody's interest to restrict medicine to only the "competent." But this must be balanced against licensure's tendency to go "farther in the direction of trenching upon the rights of individuals to enter into voluntary contracts."

Most people justify licensure not on this, but on the grounds that people "are incapable of choosing their own servants adequately." How is the layman able to know the credentials of a physician without being a physician, they ask.  

Any one of these three levels of licensure "almost inevitably becomes a tool in the hands of a special producer group to obtain a monopoly position at the expense of the rest of the public." There is no way to avoid this.

Certification is the least risky. If too restrictive, the lower cost of non-certified practitioners will win in the market while still satisfying paternalistic arguments for licensure and limiting the risk of monopolization. "I personally find it difficult to see any case for which licensure rather than certification can be justified."

Trade unions control the number of workers in a given field either by outright declaration or by raising wages, as previously discussed, and the former creates less problematic and disgruntled non-entrants.

The American Medical Association acts in this way. They approve medical schools which give licenses; by limiting the number of accredited schools they limit the number of licenses and the number of physicians at two points: rejecting medical school applicants and making it difficult for them to obtain licensure after graduation.

This is not done outright and deliberately. A number of excuses are used, such as raising the standards of the profession, ensuring a high enough income to resist unethical behavior for money, and so on. These are rationalizations, not reasons.

It's not clear that licensure has raised medical standards. Blocks to professional entrance inspire ways of getting around such blocks, and the rise of osteopathy and chiropractic are the results of this, which may be lowering the quality of medical care. Further, less licensed professionals means less available care, the alternative being untrained caregivers. It has also served to limit the variety of business models for medical care.

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