Licensing Laws Protect Special Interests at the Expense of Opportunity

New Jersey's recent “war on Tesla” continues to stir passions and invoke outrage.

Fearing the competition that the electric car manufacturer'sbreakthrough distribution model posed to their comfortable profit margins, entrenched auto dealers in the Garden State lobbied andconspired with authorities to use the force of regulation to push Tesla Motors out of the market. This kind of blatant cronyism was too disgusting for even MSNBC talking heads to ignore or defend.

While I have been critical of Tesla's own special-interest shenanigans in the past, I am ecstatic that this episode is driving home the real costs that regulatory capture and rent-seeking inflict on competition and innovation. It is high time America wakes up to the fact that regulations imposed for “the public benefit” are too often weaponized to benefit special interests more than they realize.

Here's another reality shock: This Tesla brouhaha is only the tip of the iceberg as far as anti-competitive regulations go. My colleague at the Mercatus Center, Matthew Mitchell, assembled a taxonomy of the whole rotten menu of political privileges that private parties extract from public coffers. The "Pathology of Privilege" runs deep: special interests and corrupt politicians sneak subsidies, non-competitive bidding, loan guarantees, bailouts, tariffs and monopoly designations right under our noses all of the time.

Even as the naked power of special-interest politics gets more attention, popular discussion still overlooks the biggest victims of anti-competitive cronyism: low-income Americans. On that front, there is no bigger offender than occupational licensing laws -- the practice of requiring government approval before legally allowing individuals to earn an honest living in a particular profession.

Occupational licensing has grown significantly since the 1950's, when roughly one out of every 20 workers were required to obtain a government license. Alarmingly, one out of every three U.S. workers are currently saddled by ridiculous occupational licensing requirements. Many of these occupations -- like working as a hairdresser, transit driver or skilled technician -- traditionally provided low-income Americans with a ladder to self-sufficiency and upward mobility. By making it more expensive for low-income Americans to reach the first rung, we make their climb out of poverty that much more difficult.

Are you surprised to learn that this problem is so pervasive? Take a look for yourself. The Institute for Justice has done a wonderful study on this issue, “License to Work: A National Study of Burdens from Occupational Licensing,” which produced the chart above. “License to Work” is the first holistic look at the burdens and breadth of licensing laws targeting 102 low- to moderate-income occupations in all 50 states and the District of Columbia.

As you can see, there isn’t much coherence in which occupations require a license, how long it takes to get one and how much it costs. I’d love to meet the bureaucrat who decided that a year and a half of experience is necessary to be allowed to shave beards — and have him explain his ridiculous rationale.

Are these regulators just bored? Although I don’t expect the brightest ideas to come from the public service, it’s hard to believe that these nonsensical licensing requirements were a simple accident. When something stinks in policy, the first step is to follow the money.

The question is, then, who are the main beneficiaries of the ridiculous laws? Licensing requirements are usually justified on the grounds of consumer protection and public safety. Supporters point to the early history of licensing, when many of the first license requirements targeted high-risk -- and often high-income -- professions such as surgeons and doctors. Even this justification is suspect, but at least these early schemes were relatively less regressive. Today, the practice has spread to so many professions that the justification doesn't hold water. Even if we assume that customers are naive idiots, what is the horrible harm we are trying to prevent that requires a license to merely cut someone's hair or do someone's nails or even watch someone's kids?

As always, the true beneficiaries of the laws are the incumbent firms and workers in the licensed industry. These government-imposed barriers allow entrenched interests to fence off competition from new entrants, thus creating a de facto government-sustained monopoly. The end result: higher wages for licensed workers, higher prices for consumers and higher unemployment for low-income Americans.

Unlike Tesla, which benefits from its public relations office and deep pockets to fight for justice, poor Americans are overwhelmingly bearing the brunt of these burdens. Individuals often must pay high fees, undergo many days in training or experienceor earn arbitrary certifications before receiving the privilege from their local or state governments of being allowed to work.

These schemes are pervasive and costly. Worse, they enrich entrenched interests at the expense of low- and middle-income Americans.

It is high time to let Americans work and abolish all occupational licensing laws once and for all.