March 25, 2018

Licensing, Justice Reform Will Aid Virginia’s Poorest

James Broughel

Senior Research Fellow

In the coming days, Virginia Gov. Ralph Northam is expected to sign into law House Bill 883, informally known as the Regulatory Reduction Pilot Program. The new law, which both legislative chambers already approved, will take aim at rules issued by state licensing and criminal justice regulators.

HB 883 is notable as a rare example of bipartisanship in the current toxic political environment, and as a powerful way to provide aid to Virginia’s poorest citizens.

The pilot program has two core elements.

First, it tasks Virginia’s Office of Planning and Budget with counting up and tracking the regulations and requirements issued by the state’s agencies.

Second, for two agencies — the Department of Professional and Occupational Regulation and the Department of Criminal Justice Services — the law sets an ambitious goal to reduce those mandates by 25 percent over three years.

The first part, counting and tracking regulations, may sound mundane. In fact, it is critical that policymakers understand exactly how much law exists and how much they are adding over time, because this has important implications for our quality of life.

State laws, rules and regulations naturally increase with time. This occurs for the simple reason that legislators and regulators generally add more laws than they take away each year. For the average member of the public, complying with every requirement gets harder and harder as the accumulation of laws becomes ever more complex.

Everyone knows that it’s a crime to kill, steal, or commit fraud. But how many people know that unauthorized use of the Smokey Bear image or the phrase "Give a Hoot, Don't Pollute" can also land someone a criminal record, as well as prison time? Some people violate the law not out of maliciousness, but out of sheer ignorance of the law.

According to the Mercatus Center’s RegData project, Virginia had more than 133,000 regulatory restrictions on its books in 2016 — suggesting many Virginians could easily be committing minor violations without knowing it. That means those who enforce the law must decide, more or less on their own, which crimes to prosecute and which to ignore — which makes it more likely that public officials will abuse their authority.

When enforcement becomes so discretionary, it is more likely to be politically motivated or even racially biased. Groups with the least political clout — including the poor and often including minorities — are likely to be the first ones targeted.

HB 883 also addresses one specific type of regulation — occupational licensing — that also produces deep injustices.

By some estimates, almost 30 percent of U.S. workers require an occupational license to pursue a specific career. That’s up from about 5 percent in 1950. State licensure can make sense in some cases: We want to know that the people who operate on us or build our bridges are qualified. But what is the compelling need to license hair cutters or cosmetologists?

Furthermore, studies of the effects of occupational licensing often find mixed, unclear, and even harmful effects on the quality of services, meaning these laws aren’t always achieving their intended goals.

How can this be? For one thing, the boards and commissions that set licensing standards tend to be composed of people from within that particular industry, and they don’t necessarily want more competition. So they set rules requiring hours or even years of burdensome coursework, training, and experience, not to mention hundreds of dollars in fees, to obtain a license to work.

And when there’s less competition, quality is likely to suffer. Anyone who has ridden in an Uber knows that the service is often far superior and easier to use than traditional cabs, which have been the object of extensive licensing for decades. Competition leads to innovation and improves the experience for customers.

Similarly, a report from former President Obama’s Council of Economic Advisors found that licensing laws raise prices for consumers without necessarily improving what we buy. These higher prices hit a poor person’s pocketbook the hardest.

Worst of all, many licensed professions include precisely the kinds of jobs that allow people at the bottom of the economic ladder to move up a rung or two. It takes two years of experience in Virginia to obtain a commercial contractor’s license for painting or drywall installation services. This an excellent field for someone without much schooling to earn a decent wage or even start a business of her own.

Will Virginia’s new law be successful? Special interests, exerting their influence through the licensing boards, will no doubt fight to keep their advantages intact. But there are reasons to be optimistic. Virginia’s reform closely resembles a similar effort that overcame the many challenges facing reformers. And it was implemented by our progressive neighbor to the north, Canada.

Seventeen years ago the Canadian province of British Columbia began tracking its regulatory requirements, and — like Virginia — set an ambitious goal to reduce them. They met their goal within a few years’ time and then chose to maintain and even expand the reduction.

Since the reform was implemented, British Columbia has experienced an economic turnaround, all while maintaining top health and environmental standards. The effort was deemed so successful it inspired a national law in Canada in 2015, and a similar law passed just last year in Manitoba.

Now it appears that the United States is learning from Canada, and Virginia is leading the way. Let’s hope other states take notice. Licensing and criminal justice reform make good economic sense but also lead to a more equitable and just society. That sounds like a win-win.