The Business Licensing Lie



Why do we have licensing? The idea is that those involved in an industry are held to certain standards by requiring a license, and so this protects the consumer. It may even work in some cases - but that is not the motivation.

Look at something like hair-cutting. Is licensing necessary? Is it really that dangerous a profession? Is it a great crime if your unlicensed neighbor cuts your hair? Does getting a license make someone a good beautician? Would it actually matter if the hair-cutters out there were without a license? Or could we just ask about their experience and training before we sat down in that chair?

Why is this profession licensed then? It all starts with the businesses themselves. You may believe the lie that businesses don't want regulation, but the truth is that they are always the first to call for it - because it helps their bottom line. It excludes competition or makes it harder for others to compete. Once access has been limited, prices - and profits - can be maintained at a higher level. It isn't about any concern for the consumer, although that is where the politicians come in.

Politicians help perpetuate the lie that licensing is necessary, in order to look good when they introduce legislation. Some of them may believe they are doing good as well, of course. The public, meanwhile, which never thought about the issue previously (have you ever lobbied for licensing of your dog-walker or local fast food workers?), buys into the idea.

It seems to make sense to license people. Never mind that a man can have 1% of the experience of an unlicensed builder and get a contractor's license by studying for few days. We think licensing is really about standards and safety, so it is easy to agree. In addition, many people are inherently (even unconsciously) suspicious and resentful of business people, and want them to be "controlled" or punished by government.

The Beneficiaries Of The Lies

Let's look at another example, where licensing isn't yet common. My friend the carpet cleaner complains about the "cutthroats" who clean carpet too cheap. He is correct in pointing out that they don't have the same expensive equipment and training, and they don't do as good a job. His solution? "We need licensing in our industry."

Why? This would force the discount cleaners to spend more money on training, licensing, and perhaps more expensive equipment. Then they couldn't undercut my friend and other "quality" carpet cleaners so much on price. Licensing would bring up the profit margins for the whole industry. This is the real motivation for such regulation, and why businesses want it.

Of course the claim is that this would be better for the consumer. Personally, I used discount carpet cleaners years ago, because they were half the price of others. I understand that they didn't do quite as good a job, and I wouldn't use them now, but I want the option. Never mind what I or other consumers want, though. If the carpet cleaning industry is regulated, you can bet that it will be "for the public good," and all the big cleaning companies will be pushing for the law.

The result? Well, the rich can already pay for what they want, including better hair-cuts and better carpet cleaning. So they don't need any regulations that are supposed to raise standards. But what you are on a tighter budget? Such regulations just take away the cheaper options you had. Is this a "public good?"

Warren Buffet once said: "If after twenty minutes at the poker table you can't tell who the patsy is, it's you." If licensing doesn't help us common consumers much, who are the real beneficiaries? The businesses - they get higher profits. The politicians - they get praise and votes for their "public concern." The bureaucrats - they get power as regulators. Us consumers? Only if we want lies that make us feel good.