Reexamining Licensing Regimes

This is my second dispatch from New Orleans focusing on municipal licensing. Last time, I discussed why I thought progressives should care about seemingly silly regulations. This time, I ask whether the licensing regime we have, one that is hardly limited to New Orleans, is a good idea for progressive policy, and what a potential alternative might look like.

Beyond licensing for the number of loaves that can be put in paper, New Orleans has an occupational license tax, which raises a little bit of money (p. 43) for the city but also serves to create barriers to entry into a variety of professions.  The licenses often carry specific conditions about how the business can be conducted (like the bakery example), under the mantle of protecting consumers and welfare.  Some of these regulations are important: any slaughterhouses left in the city limits should probably be cleaned daily.*  Others contain a fairly useful purpose, but are expressed in an onerous and technical fashion. To protect pedestrian traffic, street vendors had better bring their measuring tape to ensure that the sidewalk they are on is wide enough and that they are sufficiently far from the curb.  New Orleans, to its credit, does not have an aggressive fining regime, but violations like that have been known to incur some fairly heavy fines in other cities.

Are these occupational licensing regimes and regulations really useful for progressive governance?  Many of them undoubtedly arose from the Progressive Era reaction to the worst excesses of the laissez-faire Industrial Revolution.  However, as the Urban Justice Center’s Street Vendor Project linked above shows highly technical regulations can be used as a way for cities to make money, even when the vendor is not actually harming public welfare.  These regulations hurt small-time businessmen, often immigrants, who cannot afford the fines or a lawyer to fight them. Such fines can trap vendors in a vicious cycle as their livelihood is destroyed by their loss of a license or fines they cannot afford to pay.

Furthermore, rigid occupational licensing fees and technical requirements are often a method of preventing entry by competitors: several New Orleans licensing provisions will only grant licenses to purveyors who were in the business before a certain date.  The occupational licensing regimes that are supposed to protect consumers and public welfare actually protect incumbents, while leaving others who would like to make a living this way out in the cold.  Even high licensing fees alone can keep the poor from entering into an occupation where they could make a living.

The solution is not to abolish licensing requirements or regulations. Food handlers should still be held to legal standards of cleanliness and architects need to prove that they have a basic standard of competence. The free market isn’t very helpful for regulation when the information its using includes number of collapsed buildings or salmonella outbreaks.  However, the requirements should be things like successful completion of a reasonable exam and the regulations should have a standards component about what the goal of the regulation is, to ensure that arbitrary and capricious enforcement of the law does not disproportionately harm those without the resources to afford an attorney.  Caps on issuance should rarely be necessary: the zoning laws cover most of the reasons that people may be concerned about too many licenses being issued.

Modifications can’t save licensing fees.  They may seem necessary to defray inspection costs, but it’s not food handlers or architects alone who benefit from these legal standards; they are good for the general welfare and consequently should come out of general revenues, like a sales tax.  Although sales taxes are regressive, economic theory suggests that any occupational licensing fees that can be passed onto the consumer are; the sales tax will have the same basic outcome.  An advantage is that with a sales tax, those companies that benefit the most from the license pay the most, while new entrants don’t have to pay anything until they begin to sell.

*Regulation of New Orleans slaughterhouses has a long and rich tradition of creating interesting legal questions.