On Feb. 16, 2018, Gov. Asa Hutchinson appointed the Red Tape Reduction Working Group. This Nov. 30, the working group will finally give their recommendations. I hope they keep the concerns about "barriers to entry" and "safety of consumers" in mind. But these ideas alone are not enough to improve licensing. We also need to develop precise and shared definitions of what these phrases mean.
High barriers to entry decrease employment. With less competition, whoever the government allows to work can charge higher prices. This leaves both would-be practitioners and consumers worse off. If we want to improve Arkansans' lives, we can start by enacting serious licensing reform. The best targets for reform are licenses that have high barriers to entry and aren't protecting consumer safety.
Unfortunately, it is not enough to have basic definitions of barriers to entry and consumer safety. We also need to have standards to judge these definitions.
Without a clear definition of "consumer safety," it's impossible to judge a license. Every licensing advocate has a scary story to explain the need for a license. That's what put these licenses into law to begin with! Careful research helps us discover which stories are about protection and which are scare tactics.
To know if there is a reasonable threat to consumers, we need to get a better understanding of the dangers. What's the most harm that an unlicensed professional can inflict on the public? We also need to know the probability that these harms will occur. Finally, if the licensing process actually mitigates harm.
For example, how much harm could occur from the unlicensed sale of glasses frames?
We only need to look at recent research from Ed Timmons and Anna Mills, "Bringing the Effects of Occupational Licensing into Focus." The research shows that licensing a dispensing optician correlates with a 17 percent increase in costs. This means on average it will cost you 17 percent more to get new frames from a licensed optician. The research finds no evidence of better quality of service or goods.
Making judgment calls in different occupations will be easier if we decide on consumer safety standards in advance. This will also help working group members avoid criticism that their recommendations are unfair.
After agreeing on the meaning of "consumer safety," we've still got to define "barriers to entry." These can be unnecessary fees, exams, training, or education requirements. What is the difference between "unnecessary" and "appropriate?" Reasonable people might disagree over where to draw the line. But a good place to start would be other states' reforms.
A 2017 executive order by Arizona Gov. Doug Ducey required licensing boards to supply the requirements for their licenses. These requirements were then compared against the national averages. If Arizona's were higher, then the governor asked the licensing board to justify the rule. The same is true if fewer than 24 states licensed the occupation. This is not a radical suggestion. If half of the U.S. is doing fine without a rule, why would we burden Arkansans with it?
The working group needs a transparent and impartial process if they are to have fair and practical recommendations. The process should give no favored industry a pass, nor should it single out weaker industries for extra scrutiny.
Burdensome licenses keep honest, hardworking, capable Arkansans out of work. The working group can help Arkansans by deciding on clear standards of barriers to entry and consumer safety. They have the tools available, such as other states' reform. They don't even need a license to use them.
Alex Kanode is a policy analyst with the Arkansas Center for Research in Economics (ACRE) at the University of Central Arkansas. The views expressed are the author's and do not necessarily reflect those of UCA.
Editorial on 09/07/2018