Almost one-third of the American workforce is required to have a government issued license to gain employment in their chosen occupation. In comparison, only 5% of the workforce was licensed in the 1950s. These occupations are regulated by approximately 1,700 regulatory boards created by the 50 states. The aggregate cost of such regulation exceeds an estimated $116 billion and over 800 occupations face licensing in at least one state.
Occupational regulation is often designed to address two types of challenges that exist in some markets. The first challenge occurs where consumers are unable to have comfort in the quality of a product or service without safety and responsibility regulations. Absent regulation, a patient would not be able to have confidence in an acceptable standard of quality of medicine offered by a physician. Absent regulation, a consumer would not be able to trust the solvency of an insurance company. Absent regulation, a consumer would not be able to discern the integrity of a stockbroker.
The second challenge is where unregulated transactions have costs that are imposed on society at large. Agricultural regulations are an example where food might be less expensive if contamination is ignored, but to the detriment of public health. Bank products might be cheaper without regulation, but consumers would need to worry about solvency and the safety of their money.
On the one hand, occupational regulation may increase costs by limiting market entry and efficient competition. But on the other hand, it also may save costs through consumer and societal protection. Occupational regulation is efficient only if it improves quality, and only if it does so without too high a price tag for consumers.
Too often, there is “mission creep” by government agencies, reflecting “regulatory capture” by marketplace participants seeking to exclude competition. An example is cosmetology boards. At one point, a hairdresser in some locales was required to have more academic training than a lawyer. Not by coincidence, cosmetology boards often have abundant representation from professionals affiliated with cosmetology schools. These boards also sometimes expand their regulatory reach to purposes that have little to do with consumer or societal protection. At one point in Minnesota, regulators aggressively regulated hair braiders. A combination of litigation and legislation has eliminated some of these barriers to competition in Minnesota.
A seminal case involving regulatory boards is the 2015 U.S. Supreme Court decision in North Carolina Board of Dental Examiners v. Federal Trade Commission. Prior to 2015, it was widely accepted that an individual state government acting in its sovereign capacity was immune from the federal antitrust laws, largely because of perceived interest the state may have in a particular area of competitive conduct. The “state action” immunity defense to the antitrust laws was originally articulated in Parker v. Brown, a 1943 case in which the California Agricultural Board was allowed to allocate and price out the raison crop in “Zone Three.” Over one-half the raisons in the world came from Zone Three. Absent the regulation, it was widely believed that the price of raisons would drop and bankrupt raison growers. Thus, a little price fixing was accepted as long as a governmental authority regulated the conduct.
The North Carolina case carved out a major exception. In North Carolina, the Board of Dentistry was upset that non-dentists were providing teeth whitening service to customers. The Dental Board issued cease and desist orders to the nondental companies, having determined that the application of whitening to teeth constituted dental work. The FTC intervened and pointed out that six of the eight members of the Board were dentists who competed with the teeth whitening companies. The case ended up in the Supreme Court, which determined that, because the Board was not subject to active supervision from the state, and because competitors controlled the regulations, there was no state instrumentality and thus the Board could not claim immunity from “state action” under the antitrust laws.
Sometimes legislators get confused about their role when it comes to economic regulation. In a few states, dental hygienists are permitted to clean teeth of patients without supervision from a dentist. In other states (like Minnesota), dental hygienists must be supervised by dentists. In Illinois, a proposal was made one year to allow dental hygienists to clean the teeth of underprivileged patients. The legislator who killed the bill argued that It was “just getting the camel’s nose under the tent” and that it would lead to a slippery slope in which dental hygienists would soon be cleaning everyone’s teeth without supervision. The legislator subsequently wrote to the dental society’s past president (his cousin) that he “missed the reception and the dinners that you guys host.”
Occupational licensing and regulation can result in a hodge-podge of regulation causing a “goldilocks” dilemma: Are the regulations too strong, and unnecessarily stifling competition, or too weak, stifling consumer protection? Examples of the “goldilocks” syndrome include states adopting occupational regulations for interior designers and floral designers.
Sometimes regulators know the balance. For decades, Jimmy O’Hara was the top dog of the Minnesota Boxing Commission. O’Hara expertly maintained the two goals of boxing regulation: First, try and ensure safety for the boxers and second, eliminate the corruption of “fixed” contests. When I was Minnesota Commissioner of Commerce, which regulated banks, credit unions, insurance agencies and insurers, securities and real estate, I had an office adjacent to O’Hara. Jim loved boxing and would regale me with stories about the promoters, the managers, the boxers, the reporters, and particular matches.
On more than one occasion, we met with a boxer who had clear signs of what is now called chronic traumatic encephalopathy. In those days it was cruelly described as being “punch drunk.” I had no authority on the matter, but Jimmy wanted the meeting mostly for me to support him as he explained to the boxer that another match was out of the question.
Jimmy was also vigilant when it came to certain promoters who were believed to be setting up dangerous bouts or encourage a contestant to take a dive. He was a great regulator who understood the Goldilocks syndrome.
But no good deed goes unpunished. In 1999 the Governor, a former wrestler, didn’t think boxing needed to be regulated, and the commission, with a mere $80,000 budget, was abolished. After all, so went the reasoning, we don’t have a state wrestling board. For the next four years, boxing and extreme fighting went unregulated, with it grew stories of severe injuries being inflicted in certain forums. In 2oo6 Governor Pawlenty to resurrected the Board.
Regulatory capture, mission creep, and the “goldilocks” syndrome. In our private legal practice, we run into regulations and regulatory positions that simply don’t make sense or serve the public interest. We have seen clients take issue with them, helping both their own situations and the public at large.
The law firm of Swanson Hatch, P.A. represents clients in the areas of health care, insurance, real estate, and finance. During their 20 years of combined service as Attorneys General of the State of Minnesota, former Minnesota Attorneys General Lori Swanson and Mike Hatch provided legal representation to the Minnesota Department of Commerce, the Minnesota health licensing boards, and enforced state consumer protection, nonprofit, and insurance laws. Prior to her twelve years as Minnesota Attorney General, Lori Swanson previously served as Solicitor General and Deputy Attorney General of the State of Minnesota and was the Chair of the Federal Reserve Board’s Consumer Advisory Council. Before he became Attorney General, Mike Hatch previously served as Commissioner of the Minnesota Department of Commerce for eight years. Lori Swanson can be reached at lswanson@swansonhatch.com, or at 612-315-3037. Mike Hatch can be reached at mhatch@swansonhatch.com, or at 612-315-3037. The firm’s website is www.swansonhatch.com .
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www.swansonhatch.com
431 S Seventh Street, Suite 2545
Minneapolis, MN 55415 612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
Almost one-third of the American workforce is required to have a government issued license to gain employment in their chosen occupation. In comparison, only 5% of the workforce was licensed in the 1950s. These occupations are regulated by approximately 1,700 regulatory boards created by the 50 states. The aggregate cost of such regulation exceeds an estimated $116 billion and over 800 occupations face licensing in at least one state.
Occupational regulation is often designed to address two types of challenges that exist in some markets. The first challenge occurs where consumers are unable to have comfort in the quality of a product or service without safety and responsibility regulations. Absent regulation, a patient would not be able to have confidence in an acceptable standard of quality of medicine offered by a physician. Absent regulation, a consumer would not be able to trust the solvency of an insurance company. Absent regulation, a consumer would not be able to discern the integrity of a stockbroker.
The second challenge is where unregulated transactions have costs that are imposed on society at large. Agricultural regulations are an example where food might be less expensive if contamination is ignored, but to the detriment of public health. Bank products might be cheaper without regulation, but consumers would need to worry about solvency and the safety of their money.
On the one hand, occupational regulation may increase costs by limiting market entry and efficient competition. But on the other hand, it also may save costs through consumer and societal protection. Occupational regulation is efficient only if it improves quality, and only if it does so without too high a price tag for consumers.
Too often, there is “mission creep” by government agencies, reflecting “regulatory capture” by marketplace participants seeking to exclude competition. An example is cosmetology boards. At one point, a hairdresser in some locales was required to have more academic training than a lawyer. Not by coincidence, cosmetology boards often have abundant representation from professionals affiliated with cosmetology schools. These boards also sometimes expand their regulatory reach to purposes that have little to do with consumer or societal protection. At one point in Minnesota, regulators aggressively regulated hair braiders. A combination of litigation and legislation has eliminated some of these barriers to competition in Minnesota.
A seminal case involving regulatory boards is the 2015 U.S. Supreme Court decision in North Carolina Board of Dental Examiners v. Federal Trade Commission. Prior to 2015, it was widely accepted that an individual state government acting in its sovereign capacity was immune from the federal antitrust laws, largely because of perceived interest the state may have in a particular area of competitive conduct. The “state action” immunity defense to the antitrust laws was originally articulated in Parker v. Brown, a 1943 case in which the California Agricultural Board was allowed to allocate and price out the raison crop in “Zone Three.” Over one-half the raisons in the world came from Zone Three. Absent the regulation, it was widely believed that the price of raisons would drop and bankrupt raison growers. Thus, a little price fixing was accepted as long as a governmental authority regulated the conduct.
The North Carolina case carved out a major exception. In North Carolina, the Board of Dentistry was upset that non-dentists were providing teeth whitening service to customers. The Dental Board issued cease and desist orders to the nondental companies, having determined that the application of whitening to teeth constituted dental work. The FTC intervened and pointed out that six of the eight members of the Board were dentists who competed with the teeth whitening companies. The case ended up in the Supreme Court, which determined that, because the Board was not subject to active supervision from the state, and because competitors controlled the regulations, there was no state instrumentality and thus the Board could not claim immunity from “state action” under the antitrust laws.
Sometimes legislators get confused about their role when it comes to economic regulation. In a few states, dental hygienists are permitted to clean teeth of patients without supervision from a dentist. In other states (like Minnesota), dental hygienists must be supervised by dentists. In Illinois, a proposal was made one year to allow dental hygienists to clean the teeth of underprivileged patients. The legislator who killed the bill argued that It was “just getting the camel’s nose under the tent” and that it would lead to a slippery slope in which dental hygienists would soon be cleaning everyone’s teeth without supervision. The legislator subsequently wrote to the dental society’s past president (his cousin) that he “missed the reception and the dinners that you guys host.”
Occupational licensing and regulation can result in a hodge-podge of regulation causing a “goldilocks” dilemma: Are the regulations too strong, and unnecessarily stifling competition, or too weak, stifling consumer protection? Examples of the “goldilocks” syndrome include states adopting occupational regulations for interior designers and floral designers.
Sometimes regulators know the balance. For decades, Jimmy O’Hara was the top dog of the Minnesota Boxing Commission. O’Hara expertly maintained the two goals of boxing regulation: First, try and ensure safety for the boxers and second, eliminate the corruption of “fixed” contests. When I was Minnesota Commissioner of Commerce, which regulated banks, credit unions, insurance agencies and insurers, securities and real estate, I had an office adjacent to O’Hara. Jim loved boxing and would regale me with stories about the promoters, the managers, the boxers, the reporters, and particular matches.
On more than one occasion, we met with a boxer who had clear signs of what is now called chronic traumatic encephalopathy. In those days it was cruelly described as being “punch drunk.” I had no authority on the matter, but Jimmy wanted the meeting mostly for me to support him as he explained to the boxer that another match was out of the question.
Jimmy was also vigilant when it came to certain promoters who were believed to be setting up dangerous bouts or encourage a contestant to take a dive. He was a great regulator who understood the Goldilocks syndrome.
But no good deed goes unpunished. In 1999 the Governor, a former wrestler, didn’t think boxing needed to be regulated, and the commission, with a mere $80,000 budget, was abolished. After all, so went the reasoning, we don’t have a state wrestling board. For the next four years, boxing and extreme fighting went unregulated, with it grew stories of severe injuries being inflicted in certain forums. In 2oo6 Governor Pawlenty to resurrected the Board.
Regulatory capture, mission creep, and the “goldilocks” syndrome. In our private legal practice, we run into regulations and regulatory positions that simply don’t make sense or serve the public interest. We have seen clients take issue with them, helping both their own situations and the public at large.
www.swansonhatch.com
431 S Seventh Street, Suite 2545
Minneapolis, MN 55415
612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
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Swanson | Hatch, P.A.
431 S. 7th Street, Suite #2545
Minneapolis, MN 55415
612-315-3037
www.swansonhatch.com