Cartels by another name: should licensed occupations face antitrust scrutiny?

AuthorEdlin, Aaron
PositionAbstract through II. The Road to Professional Cartelization B. The Legal Landscape of Professional Licensing 1. Twin Immunities Shield State Licensing Boards from Antitrust Liability, p. 1093-1127

It has been over a hundred years since George Bernard Shaw wrote that "[a]ll professions are a conspiracy against the laity." Since then, the number of occupations and the percentage of workers subject to occupational licensing have exploded; nearly one-third of the U.S. workforce is now licensed, up from five percent in the 1950s. Through occupational licensing boards, states endow cosmetologists, veterinary doctors, medical doctors, and florists with the authority to decide who may practice their art. It cannot surprise when licensing boards comprised of competitors regulate in ways designed to raise their profits. The result for consumers is higher prices and less choice, as licensing raises wages by eighteen percent and bars competition from unlicensed workers. For African-style hair braiders, the result is either an illicit business or thousands of hours of irrelevant training imposed by a cosmetology board. For lawyers, the result is less competition from tax accountants, paralegals, and out-of-state lawyers.

The Sherman Act's great accomplishment has been to make cartels per se illegal and relatively scarce--unless the cartel is managed by a professional licensing board. Most jurisdictions consider such boards, as state creations, exempt from antitrust scrutiny by the state action doctrine, leaving would-be competitors and consumers no recourse against their cartel-like activity.

We contend that the state action doctrine should not prevent antitrust suits against state licensing hoards that are comprised of private competitors deputized to regulate and to outright exclude their own competition, often with the threat of criminal sanction. At most, state action should immunize licensing hoards from the per se rule and require plaintiffs to prove their cases under the rule of reason. We argue that the Fourth Circuit's recent decision, soon to be reviewed by the Supreme Court, to uphold a Federal Trade Commission (FTC) antitrust suit against a licensing hoard--denying state action immunity to a licensing hoard and thereby creating a circuit split--was a step in the right direction but did not go far enough. The Supreme Court should take the split as an opportunity to clarify that when competitors hold the reins to their own competition, they must answer to Senator Sherman.

Introduction I. Occupational Licensing Boards: The New Cartels A. The Scope of Professional Licensing: Big and Getting Bigger B. The Anticompetitive Potential of Occupational Licensing 1. The New "Professions" 2. Old Professions, New Restrictions II. The Road to Professional Cartelization A. The Economics of Licensing 1. The Costs of Licensing: Higher Prices, Lower Quantity 2. The Benefits of Licensing: Improved Quality? B. The Legal Landscape of Professional Licensing 1. Twin Immunities Shield State Licensing Boards from Antitrust Liability a. Parker and State Action Immunity b. Noerr and Petitioning Immunity c. Immunity for Professional Licensing Boards Under Parker and Noerr 2. The Common Route to Challenging State Licensing Restraints: Due Process and Equal Protection III. The Normative Case: Why Sherman Act Liability for State Licensing Boards Is a Good Idea A. Antitrust Liability for Professional Licensing: An Economic Standard for Economic Harm 1. Sherman Act Policy and the Competitive Harm of Licensing: A Close Fit 2. Constitutional Suits and Their Limited Ability to Protect Consumers B. Antitrust Federalism: Its Modern Justifications and Applicability to Sherman Act Liability for Licensing Boards 1. The Parker Debate: Accountability Is Key 2. State Licensing Boards: Self-Interested and Unaccountable Consortiums of Competitors IV. The Mechanics of Antitrust Liability for State Licensing Boards A. Imagining a New Regime 1. The Standard: Rule of Reason as Applied to Licensing 2. The Parties: Standing to Sue and Available Damages 3. The Defense: Boards as Single Entities? B. Possible State Responses and Their Likely Effects 1. Actively Supervising Board Activity 2. Changing Board Composition 3. Moving Licensing to the Interior of State Government Conclusion Appendix: Florida Appendix: Tennessee "All professions are conspiracies against the laity." George Bernard Shaw The Doctor's Dilemma (1906)

INTRODUCTION

The Sherman Act has had one principal success: cartels and their smoke-filled rooms, where competitors agree to waste economic resources for their own industry's benefit, are unambiguously and uncontroversially illegal in the United States (1)--unless that industry is a profession and that cartel is a state licensing board. Although often overlooked, licensing boards have become a massive exception to the Act's ban on cartels.

Licensing boards are largely dominated by active members of their respective industries who meet to agree on ways to limit the entry of new competitors. (2) Some boards use their power to limit price competition or restrict the quantity of services available. (3) But professional boards, unlike cartels in commodities or consumer products, are sanctioned by the state-even considered part of the state (4)--and so are often assumed to operate outside the reach of the Sherman Act under a line of Supreme Court cases starting with Parker v. Brown. (5)

When only about five percent of American workers were subject to licensing requirements during the 1950s, (6) the anticompetitive effect of these state-sanctioned cartels was relatively small. Now, however, nearly a third of American workers need a state license to perform their job legally, and this trend toward licensing is continuing. (7) The service sector--the most likely to be covered by licensing--has grown enormously, with its share of nonfarm employment growing from roughly 40% in 1950 to over 60% in 2007. (8) Some recent additions to the list of professions requiring licenses include locksmiths, (9) beekeepers, (10) auctioneers, (11) interior designers, (12) fortune tellers, (13) tour guides, (14) and shampooers. (15)

Many boards have abused their power to insulate incumbents from competition. Cosmetologists, for example, are required, on average, to have ten times as many days of training as Emergency Medical Technicians (EMT) must have. (16) In Alabama, unlicensed practice of interior design was a criminal offense until 2007. (17) In Oklahoma, one must take a year of coursework on funeral service (including embalming and grief counseling) just to sell a casket, while burial without a casket at all is perfectly legal. (18) Even traditionally licensed occupations, the so-called learned professions, use licensing restrictions to repress competition. For example, all states impose some restrictions on lawyer advertising, and some even prevent truthful claims about low prices. (19) In many states, dentists cannot legally employ more than two hygienists each, a restriction that raises demand for dentists. (20) And in some states, nurse practitioners must be supervised by a physician, (21) even though studies show that nurse practitioners and physicians provide equivalent quality of care where their practices overlap. (22)

Labor economists have shown that the net effect of licensing on quality is equivocal. (23) What is not equivocal, according to their empirical studies, is the effect of licensing on consumer prices. Morris Kleiner, the leading economist studying the effects of licensing on price and quality of service, estimates that licensing costs consumers $116 to $139 billon every year. (24) And consumers are not the only potential losers, since more licensing means fewer jobs. (25) All this said, we do not claim that all licensing rules are harmful. Some no doubt improve service quality and public safety enough to justify the costs. Our point is that many do not.

Thanks in part to a spate of stories in mainstream news outlets like The New York Times, (26) The Wall Street Journal, (27) NPR, (28) and even The Daily Show, (29) politicians are taking notice of the growing problem with licensing. In early 2013, Massachusetts Governor Deval Patrick announced a set of "common-sense changes in the Division of Professional Licensure" designed to improve the business climate in the state. (30) Governor Patrick only proposed modest changes, (31) perhaps because an attempt at more dramatic licensing reform by Florida Governor Rick Scott failed in 2011. (32) The White House has also taken a stand against excessive licensing. In 2011, President Obama named Alan Krueger, a labor economist whose empirical work highlights some of the anticompetitive effects of licensing, as Chair of the President's Council of Economic Advisers. (33) Krueger has written that licensing has gone too far and become a way to restrict labor supply. (34) First Lady Michelle Obama has successfully lobbied twenty-two states to approve legislation that recognizes out-of-state licenses held by military spouses as a part of her "Joining Forces" initiative. (35) Even Congress has started to pay attention. In 2010, Congress commissioned a report on the effect of healthcare worker licensing on the affordability of care; the report advised streamlining license requirements and allowing for interstate reciprocity. (36)

Despite wide recognition of the potential for economic harm associated with allowing professions to control their licensing rules and define the scope of their art, real reform is elusive. Part of the reason is that, in the professional licensing context, the most powerful legal tool against anticompetitive activity appears unavailable. Most jurisdictions interpret antitrust federalism to shield licensing boards from the Sherman Act despite the fact that the boards often look and act like [section] is principal target. Other avenues for reform, including constitutional suits asserting the rights of would-be professionals, have done little to slow or reverse the trend toward cartelized labor markets.

Last year, in North Carolina State Board of Dental Examiners v. FTC, (37)...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT