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State Regulatory Boards: Consumer Protection or Market Protectionism?

Today you need hours of training and a license to do a countless number of jobs throughout the United States. These requirements cover jobs that are not only highly-skilled, potentially dangerous professions like medical surgeons, but also pet groomers, interior designers, florists and hair braiding.

Too often those that sit on the regulatory boards that impose training and licensure requirements for entry are employed within the regulated industry. In other words, florists are determining who else can become florists and pet groomers are deciding who can become pet groomers. This blurs the line between consumer protection and market protectionism.

Today, close to a third of all United States workers are required to obtain a license. This is up from around 5% in the 1950s. Are jobs today that much more dangerous that a license is required to protect consumers as well as workers? Probably not. Instead what is happening is industries are lobbying local legislatures to create regulatory boards as a way to impose barriers to entry that limit unwanted competition. This is awfully similar to what Ludwig von Mises called “Guild Socialism” in his book Socialism.

One could argue that some state regulatory boards, such as medical boards and pharmacy boards, are necessary to protect consumer safety. But most regulatory boards are in industries where there is little risk of actual physical harm to the consumer. These boards do not protect people, they protect established businesses and harm individuals that want to start their own business. The growth in these state regulatory boards comes at a time when it is easier than ever to find reviews of businesses thanks to websites such as yelp.

Another problem with regulatory boards is that they often lead to cronyism, where the most politically powerful business is allowed great control over the entire industry. In Mike Lee’s Our Lost Constitution, he tells the story of the Navel Orange Administrative Committee. Sunkist, the giant of the orange industry, was given undue influence and was even allowed to nominate five of the eleven commissioners.

Likewise, in New Deal or Raw Deal?, Burton Folsom Jr. tells the story of cronyism created by the National Recovery Administration. The officers of a lumber company in Wisconsin complained of the NRA codes, “Our large competitors planned and drafted their particular codes and are now administering [them]; naturally they fitted the Code regulations according to their business.”

The Supreme Court recently issued an opinion in North Carolina Board of Dental Examiners v. FTC, which could potentially curb the use of regulatory boards, or at the least prevent industry participants from regulating their competitors. The Court held that regulatory boards where active industry participants hold a controlling number of seats cannot invoke state immunity unless they are under active supervision by the state.

This is not the clearest ruling by the Court and leaves many questions unanswered. What is a controlling number of seats? Who are active industry participants? What does it mean to be under active supervision by the state? However, the Court did acknowledge that there exists a problem and the onus is now on the states to determine how they fix their regulatory boards.

The Supreme Court’s decision gives the states a great opportunity to reform their regulatory boards. Any board’s sole purpose should be to protect consumers from injury, not protect industry participants from competition.