[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]






BARRIERS TO OPPORTUNITY: DO OCCUPATIONAL LICENSING LAWS UNFAIRLY LIMIT 
                       ENTREPRENEURSHIP AND JOBS

=======================================================================

                                HEARING

                               before the

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             MARCH 26, 2014

                               __________



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


            Small Business Committee Document Number 113-063
              Available via the GPO Website: www.fdsys.gov

                                  _______

                   U.S. GOVERNMENT PRINTING OFFICE

87-281                    WASHINGTON : 2014
______________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, 
Washington, DC 20402-0001




























                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director























                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Richard Hanna...............................................     1
Hon. Grace Meng..................................................     2

                               WITNESSES

Ms. Melony Armstrong, Owner, Naturally Speaking, Tupelo, MS......     4
Mr. Timothy Sandefur, Principal Attorney, Pacific Legal 
  Foundation, Sacramento, CA.....................................     6
Ms. Patti Morrow, President, Interior Design Protection 
  Consulting, Greer, SC..........................................     7
Ms. Rebecca Haw, Assistant Professor of Law, Vanderbilt Law 
  School, Nashville, TN..........................................     9

                                APPENDIX

Prepared Statements:
    Ms. Melony Armstrong, Owner, Naturally Speaking, Tupelo, MS..    24
    Mr. Timothy Sandefur, Principal Attorney, Pacific Legal 
      Foundation, Sacramento, CA.................................    28
    Ms. Patti Morrow, President, Interior Design Protection 
      Consulting, Greer, SC......................................   159
    Ms. Rebecca Haw, Assistant Professor of Law, Vamderbilt Law 
      School, Nashville, TN......................................   164
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.

 
BARRIERS TO OPPORTUNITY: DO OCCUPATIONAL LICENSING LAWS UNFAIRLY LIMIT 
                       ENTREPRENEURSHIP AND JOBS?

                              ----------                              


                       WEDNESDAY, MARCH 26, 2014

                  House of Representatives,
               Committee on Small Business,
         Subcommittee on Contracting and Workforce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Richard Hanna 
[chairman of the subcommittee] presiding.
    Present: Representatives Hanna, Meng, and Nunnelee.
    Chairman HANNA. The hearing is called to order.
    First, I want to thank the witnesses for being with us 
today as we discuss an issue that relates to economic 
opportunity for our citizens: the proliferation of state 
occupational licensing laws and the effects these have on 
entrepreneurship and job creation.
    As the private economy continues to struggle to create a 
sufficient number of jobs to replace those lost in the 
recession, many unemployed and underemployed Americans are 
taking it up on themselves to use whatever skills or talents 
they have to start their own business and earn income.
    Unfortunately, for many of these would-be entrepreneurs, 
they may need some sort of government approval in order to do 
so. One of the most difficult forms of that approval is an 
occupational license. While the intent of occupational licenses 
are to protect public health and safety or to protect consumers 
from bad actors, the scope and complexity of occupational 
licensing has grown considerably in recent years.
    Yet, as these trends develop, there is mounting evidence 
that many of the public benefits arguments used to justify 
occupational licenses are tenuous at best. Instead, some 
licensing laws appear to be designed not to protect life, 
safety, or property, but to protect existing businesses from 
competition. For example, while many Americans would not be 
surprised to know that doctors and lawyers need a state-issued 
license to practice their trade, they may be surprised to learn 
that it is illegal for a person to braid hair, work as an 
interior decorator or operate an obedience school for dogs 
without a state-issued license, and they may be more shocked to 
learn what obtaining such a license entails.
    In a recent report, the Institute for Justice found that 
the education and training requirements for many of these 
professions to obtain a license exceed those needed to become 
an emergency medical technician, an occupation where lives are 
at risk. The cost of such excessive licensing requirements can 
be measured in reduction in new business startups, job loss, 
higher prices for consumers or increased income inequality.
    According to another study, job creation in certain 
professions is 20 percent lower in a licensed state versus 
unlicensed state. Many of the entrepreneurial opportunities 
lost to excessive occupational licensing are in jobs most 
likely to be pursued by the economically disadvantaged. The 
issue of state and local occupational licensing raises several 
questions for Congress. While the federal policymakers have an 
interest in promoting the principles of economic liberty and 
preventing discriminatory practices that limit opportunity, 
especially for the disadvantaged, we must also respect the 
principle of federalism, which gives states the right to 
regulate activities that take place within their borders.
    Our purpose today is not to answer the question of whether 
states should or should not regulate; it is to examine how 
certain occupational licensing laws have become excessive and 
discuss options for reform to enhance economic opportunity and 
help our economy and its people grow jobs and prosper.
    I now yield to the ranking member for her comments.
    Ms. MENG. Thank you, Mr. Chairman.
    Licensing is a process by which the state makes it illegal 
to do a certain job unless one completes a series of mandatory 
requirements. The requirements are usually set by a licensing 
board made up of members of the profession or by legislatures 
with significant input from current professionals. The origin 
of these limits have promising goals and was intended to 
protect the safety and well-being of residents, but since the 
1950s, the number of licensed workers has jumped from just 5 
percent of the workforce to nearly 30 percent today. In total, 
roughly 1,100 occupations now require some sort of license by 
at least one state. Much of the time these licenses require 
fees to be paid, training of some sort, and written 
examinations. While the requirements serve a functional 
purpose, they are also a barrier for entrepreneurs to enter an 
occupation.
    Today's hearing will give us the opportunity to learn more 
about the genesis of professional licensing and its evolution. 
Though this issue is one for the states to take up, it is 
nevertheless important for us to bring it to the forefront. 
Licensing requirements have exploded to new fields, some that 
merit regulations and others that raise the question of whether 
there is too much licensing. States have broad powers to 
regulate their workers and have a duty to protect their 
residents. Requiring certain professions to meet strict 
licensing rules only makes sense in that regard.
    However, we must look at the implications licensing has on 
entrepreneurs. They are the backbone of our economy and we rely 
on them for innovation and growth. Requirements for training 
fees and examinations can keep qualified individuals from 
starting a busy profession, and a lack of uniformity among the 
states and their licensing rules impact many entrepreneurs 
attempting to move to another market where they see an 
opportunity for business growth. States should not be hindering 
growth in these viable markets for business expansion or 
creation. They should be fostering these self-starters.
    Encouraging competition for small firms is critical to job 
creation and economic growth. The Sherman Antitrust Act was 
created to do just that--protect consumers and business owners 
from anti-competitive behavior. We will hear from witnesses 
about how antitrust law applies to cases involving licensing 
boards and what approach is best for ensuring qualified 
individuals can enter an occupation without fear of excessive 
costs.
    Despite the fact that this topic belongs on the state 
level, the well-being of American entrepreneurs is a concern to 
the nation as a whole. That is why I am glad we are holding 
this hearing. It will give us a chance to hear some personal 
experiences of those who have successfully navigated state 
regulations and what insights they can provide to reform the 
system. As more Americans begin to take risks and start their 
own businesses, it is vital to bring licensing requirements to 
their attention. Balancing the need for market competition with 
the need for consumer protections will give small firms the 
certainty they require.
    We are here today to learn more about licensing rules and 
how to address the possibility of over-licensing. In order to 
ensure the success of our self-employed, we must understand the 
challenges and benefits these laws hold for entrepreneurs.
    I thank all the witnesses for being here today, and I look 
forward to your comments.
    Thank you, and I yield back.
    Chairman HANNA. Thank you.
    If Committee members have an opening statement, I ask that 
they submit them for the record.
    I will just take a minute to explain to you the lights. It 
is a little bit like your stewardess explaining the seatbelt. 
You have five minutes. We will be lenient. You will see the 
yellow light go on. That is a minute left.
    And with that I will yield to Mr. Nunnelee from Mississippi 
who will introduce our first witness. Go ahead. You may begin.
    Mr. NUNNELEE. Thank you, Mr. Chairman.
    It is my privilege to be before this Committee, even though 
I am not on the Committee. I thank you for allowing me to be 
here with my constituent and friend, Melony Armstrong.
    I met Melony five years ago when she was a small business 
operator, and I was serving in the state Senate. I was her 
senator. And Melony was attempting to grow a business helping 
to teach other people how to be small business operators, and 
she was restrained by the process of state regulation. And she 
came to me as her legislator. Before she came to see me, she 
had attempted to get relief through the administration, the 
regulatory process, and had not been successful. She then went 
into the courts and that process was dragging on too long. And 
I think if I would ask this Committee to take anything away 
from my part of this hearing, it is when Melony Armstrong came 
to the state legislature, she found a willing ear to listen and 
we responded, and within 90 days we fixed the problem, we put 
legislation on Governor Haley Barbour's desk that he signed 
into law. And I would ask the Committee to reflect if she had 
come to the Congress asking for similar relief, how long would 
it have taken and would we still be debating the issue that we 
solved in 90 days at the state level. I think there is a real 
reason the states are known as the great laboratories of 
democracy.
    So with that, Melony Armstrong from Tupelo, Mississippi, we 
are glad to have you here today to testify before this 
Committee.
    Chairman HANNA. Ms. Armstrong, you may begin.

  STATEMENTS OF MELONY ARMSTRONG, OWNER, NATURALLY SPEAKING; 
TIMOTHY SANDEFUR, PRINCIPAL ATTORNEY, PACIFIC LEGAL FOUNDATION; 
PATTI MORROW, PRESIDENT, INTERIOR DESIGN PROTECTION CONSULTING; 
 REBECCA HAW, ASSISTANT PROFESSOR OF LAW, VANDERBILT LAW SCHOOL

                 STATEMENT OF MELONY ARMSTRONG

    Ms. ARMSTRONG. Thank you, Mr. Chairman, and members of this 
Committee. My name is Melony Armstrong.
    Every day, hundreds of low-income families are housed 
because of my work, but I do not run a shelter. They are 
clothed through what I have done but I do not run a second-hand 
clothing store. They are fed because of what I achieve, but I 
do not run a soup kitchen. I have transformed the lives of 
hundreds of poor women in my state of Mississippi, not because 
I sought out government assistance; rather, because I asked the 
government to get out of my way.
    I demanded that the government get out of my way so that I 
could provide for myself and for my family and so other women 
around me could do likewise in peace, dignity, and prosperity. 
And if a lone braider in Tupelo, Mississippi could have such a 
transformative impact helping to change the law to free so many 
around to earn an honest living, imagine what could happen 
across our nation if state and local governments followed that 
example.
    Not every entrepreneur is a Bill Gates or Henry Ford. Some 
are and will remain more humble in the scope of their impact, 
but each day we all demonstrate the power of one entrepreneur.
    African hair braiding is a skill that has been passed from 
one generation of women to another for the past 3,000 years of 
recorded history. For the vast majority of human history, women 
like me have practiced this craft with no government oversight, 
with no government-issued license, and with no government-
imposed demands. We learned from the previous generations by 
doing, and in so doing we were free to earn a living for our 
families.
    But even with that history to open my hair-braiding salon, 
Naturally Speaking in Tupelo, Mississippi in 1999, I had to 
file a lawsuit and lobby the state to change the hair-braiding 
law in my state so I could get to work. To get paid to braid 
hair, many states demand braiders to obtain a cosmetology 
license or other similar license, typically requiring up to 
2,100 hours of coursework. That is more than a year's worth of 
work study, 40 hours a week taking classes that do not teach 
braiding. Let me say that again. The government in many states 
requires would-be braiders to take thousands of hours of 
classes that have literally nothing to do with the trade they 
want to practice. To teach others to braid hair in Mississippi 
required me to take more than 3,000 hours of classes and apply 
for a school license, hours I could use more productively 
running my own business. And the 3,200 classroom hours it would 
have taken for me to earn a license to teach hair braiding, I 
could have instead become licensed in all of the following 
occupations in Mississippi--emergency medical technician, 
emergency medical technician as a paramedic, ambulance driver, 
law enforcement officer, firefighter, real estate appraiser, a 
hunting education instructor, and that would have all taken 
more than 600 hours less than obtaining a license to teach hair 
braiding.
    The cosmetology establishment benefitted most from 
Mississippi's regulations. Practicing cosmetologists made up 
the State Board of Cosmetology and they did their best to keep 
competition to a minimum and to ensure cosmetology schools 
enjoy captive customers in the form of students.
    It was in August 2004 I joined two aspiring hair braiders 
and the Institute for Justice, a public interest law firm that 
represented us for free. We filed a lawsuit to break down the 
regulatory walls barring potential entrepreneurs from entering 
the field. In the months that followed, I took weekly trips to 
the state capital of Jackson. It was a seven-hour roundtrip 
trip from Tupelo, working to convince legislators to change the 
law. We did not go to the government seeking a handout; 
instead, we asked the government to get out of our way.
    In 2005, our efforts paid off. Mississippi's governor 
signed legislation enabling hair braiders to practice without 
the burdensome government-mandated classes. The only 
requirements now are that hair braiders must pay a $25 fee to 
register with the state and abide by all relevant health and 
hygiene codes. Since the restrictions were lifted, more than 
800 women provide for themselves as hair braiders taking once 
underground businesses legit and opening new enterprises in a 
place where customer demand was once unmet. And because of the 
change in Mississippi's laws, aspiring hair braiders are moving 
here from nearby states, including Tennessee, Alabama, and 
Arkansas.
    Free from the needless government-created barriers, I have 
gone on to teach more than 125 individuals how to braid hair. 
No longer blocked from putting industrious individuals to work, 
I have employed 25 women, enabling them to provide for 
themselves and their families. For many of these women, the 
money they earn from braiding represents the first steady 
paycheck they have earned in their entire lives.
    Thank you for holding this hearing to alert the public to 
this problem. I hope lawmakers in every state across this 
country are paying attention and will heed our calls to remove 
the laws that do nothing to prevent honest competition in 
trades from coast to coast.
    Thank you.
    Chairman HANNA. Thank you, Ms. Armstrong. Eloquently said.
    Our next witness is Tim Sandefur, principal attorney at the 
Pacific Legal Foundation. Mr. Sandefur has successfully 
challenged various state laws that unfairly inhibit 
entrepreneurship in California, Oregon, and Missouri. In 
addition to his work with the Pacific Legal Foundation, he is 
author of three books that examine how government regulation 
inhibit economic liberty.
    Mr. Sandefur, thank you for being here. You may begin.

                 STATEMENT OF TIMOTHY SANDEFUR

    Mr. SANDEFUR. Thank you very much.
    You know, we are here discussing the right to earn a living 
without unreasonable government interference which is the most 
neglected civil right in America. The right to earn a living 
without unreasonable interference from the government was 
protected by English and American courts as far back as William 
Shakespeare's day, but unfortunately, today, lawmakers and 
judges typically turn a blind eye to this right and it gets 
sacrificed by agencies that are acting often in the best 
interest of established firms. Today, one-third of all 
occupations requires government permission in order to go into 
a business. Even a business like being a florist in Louisiana, 
you have to get government approval before you can do this. 
Now, licensing laws were originally invented to protect 
consumers against shoddy or incompetent or dishonest practices, 
and research shows that they are not really that effective at 
doing that, but even so, that is at least legitimate. 
Unfortunately, these laws are frequently abused by established 
insiders to prevent competition by raising educational 
requirements, raising the costs of examinations, increasing 
continuing education requirements, forcing people to get 
college degrees before they are allowed to take the application 
examination, and other kinds of requirements that lower access 
to services to consumers, raise prices to consumers, and what 
is most important to me, restrict economic opportunity 
typically to those who need it the most.
    For example, you have to have a college degree to be an 
interior designer in Florida. Well, 47 percent of blacks and 
Hispanics have college degrees in Florida, and 66 percent of 
whites do. So not surprisingly, a restriction like that tends 
to have a racially disproportionate impact and a class 
disproportionate impact, restricting economic opportunity for 
precisely those people who most need entry-level employment and 
what we used to call the American dream.
    Even more absurdly, people do not really rely on 
occupational licenses that much to protect themselves as 
consumers. More often they rely on reviewing websites, like 
Yelp or Angie's List or word of mouth from friends who have 
gone to a business and been treated well or badly there. So 
they are not really very effective in the first place at 
protecting the public. But these restrictions limit people from 
entering into trades unless they receive high education 
requirements. Or I mentioned testing costs. A lot of the times 
these examinations to get a license are held in inconvenient or 
distant places. The examination to get a license as a florist 
in Louisiana, for example, is offered only once quarterly in 
Baton Rouge. So if you live somewhere else in Louisiana and you 
want to be a florist, you have to pay for travel and lodging 
expenses in addition to the cost of taking the examination just 
because you want to arrange flowers.
    Another kind of licensing restriction that does not get 
enough attention is the Certificate of Public Convenience and 
Necessity law. This is a licensing law that on its own terms is 
not intended to protect consumers against dangerous or 
dishonest business practices but exists explicitly for the 
purpose of protecting established firms against legitimate 
competition.
    Just last month, I won a lawsuit challenging the 
constitutionality of Kentucky's licensing law for moving 
companies. That state, like 22 other states, says if you want 
to go into the business of being a mover you first have to get 
permission from all of the existing moving companies in the 
state. You file your application to run a moving company. All 
the existing movers are notified and allowed to file objections 
against you getting a license. And guess what? They typically 
do. The government then, once an objection is filed, decides 
whether there is a ``public need'' for a new moving company. 
How do you determine this? Nobody really knows. The statute 
does not explain. No regulation or case law defines the terms. 
It turned out that between 2007 and 2012, 39 people had applied 
for licenses to run companies; 19 of those had received 
objections and every single objected application had been 
denied by the state, including license applications from fully 
qualified movers. One guy who had worked as a mover for 35 
years before seeking his own license to start his own company 
was denied in a written opinion that said you are fully 
qualified but you would compete against existing movers; 
therefore, denied.
    And we were very fortunate that Pacific Legal Foundation 
was able to secure a court decision declaring that 
unconstitutional, but that is certainly not the final word. 
Other courts have upheld these kinds of restrictions and there 
is no Supreme Court precedent on it since the 1930s.
    These restrictions are costly. In fact, to prove that there 
needs to be a new moving company you were required to hire an 
attorney to attend this hearing. You are not allowed to 
represent your own company. There are restrictions on economic 
freedom that do not protect the public, often on their own 
terms and are unnecessary.
    In my written testimony, I explain some routes of what the 
Federal government could do to protect economic liberty more 
than a new federal civil rights legislation which is badly 
needed to protect the right to earn a living; using Congress's 
spending power to require states to respect the constitutional 
right to earn a living, a right Supreme Court Justice Douglas 
once called ``the most precious liberty that man possesses.''
    Thank you very much for this opportunity.
    Chairman HANNA. Thank you.
    Our next witness is Patti Morrow. She is president of 
Interior Design Protection Consulting, a public affairs firm 
that assists small businesses in fighting state occupational 
licensing laws for interior designers. Prior to starting her 
firm, she owned and operated her own interior design business 
in New Hampshire before moving with her family to Greer, South 
Carolina.
    Thank you for being here, Ms. Morrow. You may begin.

                   STATEMENT OF PATTI MORROW

    Ms. MORROW. Good morning, Mr. Chairman, and members of the 
Committee. Thank you so much for allowing me to speak here 
today.
    Like many other interior designers, I entered the field as 
a second career. In 2004, when my children were 10 and 13, I 
enrolled in a two-year program at the New Hampshire Institute 
of Art. It was an interior design program. There were about 25 
women in the class and we were all second career changers.
    As I was nearing the end of the interior design program, a 
licensure bill was introduced in the New Hampshire legislature. 
If enacted, this bill would have destroyed my dream of having 
my own interior design business. In order to legally practice, 
I would have had to go back to school, earn another four-year 
bachelor's degree in interior design from an expensive, 
privately accredited college. Well, number one, there were no 
such schools in New Hampshire. And then not only that, but 
since I was going part-time it would have taken me about eight 
years before I could have completed that program. Also, I would 
have had to pass the burdensome NCIDQ (National Council for 
Interior Design Qualification) exam. This exam has historically 
had a less than 40 percent passage rate for all three sections 
taken at the same time, and it can cost over $2,000 to take 
once you consider the cost of the exam, the cost to travel to 
take the exam, and the cost of study materials. I would have 
also had to complete a lengthy internship under one of these 
NCIDQ-certified designers. Well, there were only 25 in the 
whole state and there was really no guarantee that even these 
25 wanted to or were financially able to hire an intern. This 
bill would have put not only me but most of all of the other 
interior designers out of business in that state.
    And why? Well, the bill claimed it was to protect the 
public, but I was not buying that. So I did my own research. 
And do you know what I found? There is not a shred of evidence 
to warrant a conclusion that the unregulated practice of 
interior design places the public in any form of jeopardy. In 
fact, 13 state agencies have already looked at this issue, they 
issued reports, and without exception, every single one 
concluded that interior design regulation would not add 
anything to protect the public beyond measures that were 
already in place.
    Since 1907, only 52 lawsuits have been filed against 
interior designers in the entire country. That is over 100 
years, and nearly every single one of those involved contract 
disputes, not safety issues. That New Hampshire bill had 
nothing to do with the public good but had come about solely 
through the efforts of industry insiders who were asking the 
legislature to eliminate their competition and grant them a 
monopoly.
    I was not going to just sit back and let this small 
interest group dictate who could and who could not practice 
interior design. So I organized a grassroots group of interior 
designers. We attended the hearing. We testified against the 
bill and we soundly defeated it in March of 2007.
    Then two years ago I moved to South Carolina, and it was 
dejavu all over again. In the last two years, I have had to 
travel to the state capital multiple times to meet with 
legislators, to testify at hearings, all this time taking time 
away from my business. As of right now that bill has been 
tabled, but for how long?
    Licensing interior designers is a job killer. For the last 
eight years, because I am passionate about this, I have been 
helping interior designers all over the country protect their 
right to practice. Eighty percent of interior designers are 
small business owners. Forty percent are sole practitioners. 
Eighty-four percent of interior designers who are practicing do 
not have a degree in interior design, and licensing 
disproportionately excludes minorities and second career 
switchers.
    If there is a happy ending to this story it is this--since 
2007, over 150 state bills which would have expanded or enacted 
new interior design regulations have been defeated. But like 
zombies they just will not stay dead.
    In conclusion, Mr. Chairman, members of the Committee, let 
me just say that when Barack Obama was elected president, he 
did what many other presidents did before him--he redesigned 
the living quarters of the White House. Now, the District of 
Columbia does have full-blown licensing laws for interior 
designers. But who did he hire? He hired Michael Smith, an 
unlicensed designer from California to do this work.
    Now, I submit to you if the most protected person in the 
entire world can hire an unlicensed interior designer, should 
not everybody else be able to?
    Thank you very much.
    Chairman HANNA. Thank you. You are welcome to move to New 
York anytime you like.
    For the next witness I yield to Ranking Member Meng.
    Ms. MENG. Thank you. Actually, New York, the state laws for 
interior designing are more lax, so I welcome you, too.
    It is my pleasure to introduce Professor Rebecca Haw, a law 
professor at Vanderbilt Law School. She is a specialist in 
antitrust law and is focused on changes in professional 
licensing. She has recently released an article focused on 
licensing and the Sherman Antitrust Act. She was previously a 
fellow at Harvard Law School and also clerked for Judge Richard 
Posner on the U.S. Court of Appeals for the Seventh Circuit. 
She has degrees from Yale, Cambridge University, and Harvard 
Law School. Welcome, Professor Haw.

                    STATEMENT OF REBECCA HAW

    Ms. HAW. Thank you, Chairman Hanna, Ranking Member Meng, 
and members of the Subcommittee. Thank you for inviting me here 
today.
    To someone who studies antitrust, the state of professional 
licensing in this country is shocking. Licensing requirements 
are created mostly by boards that are dominated with 
competitors. They get together and agree on how many 
competitors they will face; they agree on who those competitors 
will be. Essentially, these boards are cartels with one 
important and dangerous exception--they are much more powerful. 
They do not have to worry, as most cartels do, about entry from 
competitors; they control that entry. They do not have to worry 
about cheating on the cartel since their rules are backed by 
the police power of the states.
    Since states have basically given professionals the reigns 
to their own competition, one should not be surprised that 
self-dealing results. Yet, some of the licensing restrictions 
are shocking as my fellow panelists have illustrated.
    I want to speak a little bit about what the economists have 
said about licensing because that is just as shocking as some 
of the restrictions we have heard about today so far. 
Economists say that licensing is huge and it is getting bigger. 
It used to be in the '50s that one in 20 people needed a 
license to legally perform their profession; now that number is 
more like one in three. And licensing tends to raise prices to 
consumers. So, for example, in some states, dentists must hire 
a maximum of two hygienists. This is at the peril of losing 
their license. In states where the number of hygienists that 
may work with a dentist are restricted, dental exams are 7 
percent more expensive. Economists have estimated that this 
results in hundreds of millions of dollars that every year 
could be in consumers' pockets.
    Consumers, of course, are not the only ones who lose out. 
Licensing makes it impossible for many would-be practitioners 
to enter the market, effectively reducing their wages and 
deterring entrepreneurship.
    But is licensing a bad thing? Certainly, not all licensing 
rules are harmful. Some improve service quality and public 
safety enough to justify the costs. These are the licensing 
restrictions that tend to solve the information issues and 
other problems that make a totally free market for professional 
services dysfunctional.
    But there is a lot of economic evidence that many licensing 
restrictions have no effect on service quality. And the way 
that professional licensing is currently done through 
practitioner-dominated boards with the fox guarding the 
henhouse, no one has the tools or incentives to balance 
licensing's economic costs against its benefits.
    Here is where I see a role for federal law. Federal 
antitrust law as it exists now is designed to balance these 
economic considerations, and there are many antitrust 
precedents striking down similar restrictions when they are 
passed not by a board in a licensing context but by purely 
private cartels. Antitrust law could be a powerful tool against 
the excessive of state-level licensing. But most jurisdictions 
have interpreted the antitrust statutes to shield licensing 
boards from antitrust liability. The law here is complex, and I 
would be happy to go into it in the questions, but suffice it 
to say that most courts have allowed licensing boards to 
operate immune from antitrust liability and that has meant 
carte blanche to regulate to their own benefit at the expense 
of the consumer and the excluded professionals.
    But last year, the Fourth Circuit became the first 
appellate court to deny a licensing board immunity and to 
declare that one of its licensing restrictions violated the 
Sherman Antitrust Act. That created a circuit split, and the 
Supreme Court will review the case next term. It has granted 
cert in that case. I feel strongly that the court should affirm 
the Fourth Circuit's opinion and make it clear that because of 
the self-dealing that inevitably happens when you give 
competitors the reigns to their own competition, practitioner-
dominated licensing boards should have to answer to the Sherman 
Antitrust Act, and that is because I think antitrust is not 
only an appropriate but the best way to balance the economic 
costs and benefits of licensing restrictions.
    Thank you.
    Chairman HANNA. Thank you.
    Mr. Sandefur, part of what has not been talked about today 
is the effect this has on the growth of government. I am 
assuming that for every license there is someone behind a desk 
someplace that is managing the testing, the whole process 
through that. Can you, anyone, give me an idea of how you feel 
that affects the overall growth and scope and cost of 
government?
    Mr. SANDEFUR. Yes. Thank you very much, Mr. Chairman.
    The public choice economics predicts that when existing 
firms have the opportunity to inflict burdens on entry and 
impose costs on their potential competitors, they are going to 
exploit that opportunity whenever it is worth it financially 
for them to do so. And so what you find is not only do 
licensing agencies employ a lot of people--inspectors and so 
forth to make sure that people are complying with these laws 
and running sting operations and things like this, but you find 
that existing firms will also waste their money in policing 
their rivals. They will watch what the other firms are doing or 
potential competitors are doing with money that could be spent 
on helping consumers and producing a better product.
    As I mentioned sting operations, we see police departments 
setting up sting operations for unlicensed movers in order to 
arrest people for running a moving company without a license 
when these police officers could be out there actually solving 
real crimes. And these kinds of costs, if you put them together 
and consider what they are nationwide, they must be tremendous. 
But I do not know of any actual numbers that have ever been 
done on that.
    Chairman HANNA. Ms. Haw?
    Ms. HAW. Yeah, I have something to add to that. I 
absolutely agree with everything that Mr. Sandefur has said, 
but also I think the real question is how does this affect the 
scope of regulation, not so much the scope of government, 
because to me these boards are not government; what they are is 
a bunch of private competitors getting together to agree on 
entry and agree on rules. So what I am worried more about than 
the expansion of government is the expansion of regulation in 
this area.
    Chairman HANNA. Thank you very much.
    Let me ask you a bit--or anyone who wants to answer this--
but implicit in all of this is that somehow there is some 
public good attained. And we have something called ``free 
enterprise'' that clears cut its own market. Bad actors get in, 
people find out about their reputations, good or bad, they grow 
or leave the market. So the assumption under all this to me is 
that somehow government intervention improves that process, 
keeps people out who otherwise should not be in and helps 
people enter the system who are somehow better or likely better 
at whatever it is they want to do. I do not buy that 
personally, but I am interested in how you feel about it, Ms. 
Haw. How you feel about letting the market be the market 
versus--things like Angie's List, et cetera--versus government 
trying to figure out that market in advance of free enterprise 
doing it on its own.
    Ms. HAW. So economists tell us that there are two possible 
reasons why a free market for professional services will not 
work, and that is information asymmetries, which means that I 
as a consumer have less information than I really ought to have 
in purchasing a service. And then something called 
externalities, which means that when I purchase this service 
and it turns out badly for me, I am not the only one who 
suffers. So this is why we license engineers. So if I purchase 
engineering services to build a bridge and that bridge 
collapses, well, maybe I got a cheap engineer, maybe I got low 
quality service, but the real problem is that I do not 
internalize the cost when it collapses.
    So what this suggests is that a licensing restriction needs 
to address only serious problems of externalities and 
information asymmetries. When we think about professions like 
interior design or hair braiding, we have a lot of information 
about these services with the advent of things like Angie's 
List and other services on the Internet, and it is hard to 
imagine a really terrible externality story where if you did 
not like the decorating that you had done to your house or you 
were not happy with that particular hair service, it somehow 
proves to be a disaster for society. So certainly, I think 
there are some professions that ought not to be licensed, and 
even within the professions that ought to be licensed for the 
reasons that I said, sometimes they go too far.
    Chairman HANNA. Mr. Sandefur, that is an interesting 
outline of where the limits begin I guess for you. And what 
would you say to that?
    Mr. SANDEFUR. First, the problem with the information 
asymmetry argument in favor of government regulation is that it 
presumes that the government has more information, which it 
generally does not. Government officials do not know how to run 
a moving business, for example. So what the government agencies 
then do is they then recruit existing firms to give them that 
information in theory, and that is just what leads to the 
antitrust problems that Professor Haw was talking about, is 
that then these entities get taken over by the industry in the 
name of getting the kind of information to protect the 
consumer. And, in fact, information asymmetry problems can be 
solved better by private certification routes and private 
review alternatives, like Yelp or Angie's List and so forth.
    As for externalities, externalities are taken care of by 
health and safety regulations that are routine already that say 
anybody doing this business, whether you have a license or not, 
if you hurt somebody you are liable for that. Plus, the 
information asymmetry and externalities, those are not the only 
two considerations. The more important and usually ignored 
consideration is rent seeking, that is the exploitation of 
government power by established firms to exclude their 
competition. And this all sounds all very technical and 
economic and modern but it is actually very old, and it goes 
back to one of my favorite cases in the law, a case called 
``The Case of the Upholsterers.'' Now, Ms. Morrow was talking 
about licensing of interior decorators. There was a case about 
licensing of interior decorators, in I think it was 1615, 
called ``The Case of the Upholsterers'' where there was a law 
that said you could not practice upholstery without permission 
of the Upholstery Guild. And it was challenged in court, and 
one of my great heroes, the Judge Sir Edward Coke, declared it 
unconstitutional under the British Constitution. He said, ``No 
skill there is in this for a man might learn it in six hours.'' 
And people said, ``Well, but it protects the consumers.'' And 
he said, ``Unskillfulness is sufficient punishment.'' That is 
perhaps my favorite line from any court opinion. 
``Unskillfulness is sufficient punishment.'' If you are bad at 
your job, people will not hire you. They will not shop from 
you. That is a far better protection of the consumer than 
creating a government apparatus that gets taken over by 
established firms who use it to exclude competition, hurt 
consumers, and bar entrepreneurs who need economic opportunity.
    Chairman HANNA. Although government may be the one place 
where you are protected when you are not good at your job.
    Mr. SANDEFUR. Or with government power. That is right.
    Chairman HANNA. Thank you.
    Ms. Armstrong, you mentioned that there are hundreds of 
people who become independent, become entrepreneurs, have that 
sense of pride. Maybe give us a couple cases, because at the 
end of the day, that is what this is all about, unleashing the 
energy, the enthusiasm, the entrepreneurial nature of human 
beings to become self-reliant, to be able to engage their own 
juices and their own success. And government is holding that 
back. Your own story is remarkable. I give you a lot of credit, 
but other people who you know, maybe one or two examples for 
the Committee.
    Ms. ARMSTRONG. Sure there is Nina Lyons. And Nina Lyons, 
when she graduated from high school wanted to be a professional 
hair braider but learned quickly that without the cosmetology 
license she was going to not be able to do that. And so she 
chose instead to go work in a factory. I happened to meet Nina 
Lyons around about the time this was all taking place, and 
after the law was passed, she then came out of the factory, not 
wanting to be there anyway, and came and worked in my salon. 
And she is a very talented, gifted hair braider. And so she was 
able to pursue what she had wanted to pursue 20 years prior.
    There is also Loveeta Warren. She is down on the coast of 
Mississippi, and she owns a braiding salon called Braid Baby. 
As a matter of fact, she had opened a second location and this 
is something that as a result of the law being passed enabled 
her to be able to do this.
    Chairman HANNA. These are taxpayers. I mean, these are the 
people we need.
    Ms. Morrow, do you want to add anything to that? I wonder, 
implicit in all this regulation is somehow somebody is being 
protected. Maybe you would like to push back on that, if you 
want to. Because the suggestion is somehow there is bad 
interior designers out there creating ugly homes or something; 
I do not even know. But is there any reality in any of that?
    Ms. MORROW. Well, to paraphrase Oscar Wilde, ``No one ever 
died over the wallpaper.'' And there is no evidence whatsoever 
that unregulated interior designers are harming the public. 
There are three states that actually have full-blown licensing 
laws, and this is after more than 30 years of the proponents 
trying to get licensing laws. And after all that time there is 
only three states. There was a fourth one. Alabama's was struck 
down, declared unconstitutional. If interior designers were 
being harmed or killed, certainly, we would have laws in far 
more than three states. The 47 states that do not have 
licensing would at least have some. And the licensing laws, the 
bills that are introduced, you would not believe how far-
reaching they are.
    I will just read you a couple of things that if you do not 
have the right credentials, you cannot do designs, drawings, 
diagrams, studies. You cannot consult with clients. You cannot 
offer space planning. You cannot recommend furnishings. You 
cannot draft contract documents. You cannot research or analyze 
a client's requirements. How do you do interior design without 
those things? You could not even give customers a 
recommendation as an employee of Home Depot if some of these 
laws were to pass.
    Chairman HANNA. Ms. Haw?
    Mr. SANDEFUR. And for me, add to that, Mr. Chairman, that a 
lot of these laws are backed up by criminal penalties. Is that 
the case in your situation?
    Chairman HANNA. You can be jailed for bad floor design or 
something like that?
    Ms. Haw, so to get this straight, more harm is done with 
these laws than without them. Can we say that in certain cases? 
And I am interested. You seem to have a pretty clear idea of 
where you would draw the line in terms of who should be 
licensed and who should not. I think all of you probably do to 
some degree. Could you generalize that? I mean, at what point 
would you would say, or maybe there are a couple of industries 
that are examples, but--go ahead. What do you think?
    Ms. HAW. So this is why I think antitrust is such a great 
tool for this particular question because to me it really is an 
economic argument that the markets fail. And if the markets 
fail, then maybe we need regulation and maybe we need 
licensing. So if we back it up and we ask the question to begin 
with, is a free market in this area filing, I think you will 
find that for a lot of the currently regulated professions that 
is not true. I think you will find for the professions in which 
a truly free market may fail, a lot of the restrictions go too 
far and they address market failures that are not there.
    So the question that I would ask is, is this the kind of 
industry in which we are likely to see a lot of information 
asymmetries? Is this the kind of industry in which we have a 
big problem with externalities? Then the second question would 
be, does the restriction that we are considering, not just 
licensing generally but this particular licensing restriction. 
So let us say you want to license dentists. Well, how many 
hours of schooling are you going to require? What level of 
education are you going to require? What is the exam going to 
look like? Every one of these questions should be answered with 
the market failure in mind, and it should be allowed only if 
that particular regulation addresses that market failure.
    Ms. MORROW. Mr. Chairman, the free market works very, very 
well in the interior design industry. Consumer are very savvy 
these days. They have many means to investigate the 
qualifications of interior designers, and not only that but 
there are many private organizations that do different 
credentialing. And if an interior designer wants to be 
distinguished from his or her peers, they can certainly take 
one of the exams and after it is passed they can market those 
credentials, and if they get the job based on that, then they 
have put that work into their own career.
    Chairman HANNA. People build a body of work, they build a 
reputation in the community they live in, and people can decide 
to hire them or not.
    Ms. MORROW. Exactly.
    Chairman HANNA. So the fundamental piece of this is, is 
government better at deciding who you want to have as an 
interior designer or are you in your own market? And clearly, 
failure clears out the market that the government is assuming 
it is doing by not licensing certain people but may in fact be 
limiting competition in a way that could actually encourage 
less qualified people who are able to get over those hurdles to 
have access where people that are equal might not. Is that 
fair, Mr. Sandefur?
    Mr. SANDEFUR. Yes, Mr. Hanna. I almost called you, Your 
Honor.
    Yes, Mr. Chairman, that is exactly right. And the Supreme 
Court has made clear in every decision on this issue that 
restrictions on entry into a trade must be related to a 
person's fitness and capacity to practice the trade of 
profession. The first Supreme Court decision on the 
constitutionality of occupational licensing laws was Dent v. 
West Virginia in 1883. I think it was about medical doctors. 
And that was written by Justice Steven Field, who declared that 
licensing laws on the entry into a profession are 
constitutional if they are related to the trade and they are 
attainable by reasonable study and practice. But otherwise, 
they would violate a person's constitutional right to earn a 
living.
    The most recent decision on the question, Schware v. Board 
of Examiners in 1957, struck down the effort of New Mexico to 
bar members of the Communist Party from practicing law. And the 
Supreme Court again said licensing laws can be used to protect 
consumers but they must rationally relate to a person's fitness 
and capacity to practice the profession. Unfortunately, I 
mentioned the Certificate of Public Convenience and Necessity 
laws for the moving laws have no relationship whatsoever, even 
on their own terms, to a person's capacity to practice the 
business of moving. They are written in such a way as to deny 
qualified movers the opportunity to enter simply because there 
are already enough movers in the minds of bureaucrats. Now, how 
do bureaucrats determine how many movers there ought to be in a 
market? They do not even do consumer assessments or research or 
surveys or anything. The entrepreneurs often do but that is not 
enough to persuade the bureaucracy. And a lot of these laws are 
written in very vague terms.
    Nevada, their licensing law for movers is the most 
anticompetitive licensing law in the country. It says you can 
only practice the trade of moving if it would ``foster sound 
economic conditions.'' What does that mean? Well, last year I 
was at a hearing in front of the Nevada State Senate 
Transportation Committee. The head of the Department of 
Transportation was asked, ``What does that mean?'' And he said, 
and I quote, ``You know it when you see it.''
    Now, that kind of discretion in the hands of bureaucrats 
means it is going to restrict opportunities, it is going to 
raise prices, it is going to availability of services, all 
solely for private interest of those politically powerful 
movers who do not want competition. It is unconstitutional and 
it is unfair.
    Chairman HANNA. Thank you. I appreciate your indulgence in 
me, Ranking Member Meng. Thank you.
    Ms. MENG. No problem.
    Piggybacking off that question, and anyone is free to 
answer, much of the application of antitrust law and licensing 
cases falls on whether the licensing board is an entity of a 
state. Can you please explain how the makeup and structure of 
various licensing boards could be changed so that antitrust law 
would apply to them? And how could simply reforming the 
structure of a board help entrepreneurs gain access to more 
occupations?
    Ms. HAW. Well, I actually think that the way that boards 
are currently comprised as they are right now, in most cases 
they are subject to antitrust law. So this is where we get into 
the controversy that is at play in the Supreme Court case, the 
North Carolina State Board of Dental Examiners.
    So most boards--we did some research into boards in 
Tennessee and Florida--are dominated, which means there is a 
majority of members holding seats on the board, are of the 
profession, licensed people of the profession. I think it is 93 
percent in Tennessee and in Florida it is 90 percent of boards 
are this way. Under a correct interpretation of the state 
action immunity that I referred to, those boards should be 
subject to antitrust law. This is what I believe from my 
research. It is what the FTC believes, and now a circuit court 
has decided that. What we need is a Supreme Court case to come 
in and say these boards, as they are currently comprised, are 
subject to antitrust liability. So you would not need to change 
the way the boards are organized in order to get that antitrust 
liability.
    Now, likely, if the boards as they are comprised now start 
seeing more antitrust suits when these floodgates open, as they 
would in the case of we got a favorable decision from the 
Supreme Court, it may be true that the states will alter how 
they do their regulation. They may actually change the 
composition of those boards, and to my mind that is a good 
thing because what they would have to do is they would have to 
remove--at the very least they would have to remove that 
majority on each board of the practitioners.
    Ms. MENG. Besides the legal and health fields, what are 
some of the most common licensed professions that you have seen 
around the country that are overregulated? Where can states 
ease regulations in some of these fields?
    Mr. SANDEFUR. It is hard to answer what trades are the most 
commonly regulated because you find that typically all the 
states impose regulations and then there are some that are 
contentious, like florist is only in Louisiana, and then there 
are varieties of licensing requirements, like with interior 
designers. It is only a violation of your First Amendment 
rights and not of your Fourteenth Amendment rights. That is, it 
only says you are not allowed to call yourself what you are but 
you are still allowed to do that practice, for example.
    So it is hard to answer that question, but industries like, 
in my business running the Economic Liberty Project at Pacific 
Legal Foundation, we have focused a lot on the moving industry 
because this is an entry-level industry that has low startup 
costs, it is a great opportunity for people who do not have 
much work experience or education, and yet they are licensed in 
the same way that natural gas pipelines and railroads are 
licensed, which is absurd. And that is in, as I said, 22 states 
in this country regulate the moving industry in that way. And 
then there are lots of cities and counties that impose similar 
kinds of regulations.
    I think the way I would answer your question is that the 
Certificate of Public Convenience and Necessity law for 
ordinary competitive markets should be abolished entirely. 
There is no rational justification for allowing existing firms 
to veto their own competition in a perfectly normal competitive 
market like moving or taxicab operations. Or these laws even 
apply to hospitals. If you want to start a hospital, you cannot 
start a hospital if the existing hospitals do not want you to. 
Or buy medical equipment. We are talking about people's lives 
now.
    The island of Maui a few years ago, it only had one 
hospital operating on the island run by the state, which meant 
if you were injured far away from that hospital, you would have 
to endure a long ambulance ride to the hospital. So some people 
got together and said let us start a second hospital. The state 
denied them a certificate of need to open a new hospital for 
several years. It has since been granted. But when you consider 
the fact that in an emergency every second counts, that means 
that it is very likely that there is somebody who is dead today 
who would not be dead if the state of Hawaii had not decided 
that it was more important for them to prevent economic 
competition against their state-run hospital.
    So my answer to you would be that the Certificate of Public 
Convenience and Necessity law should be radically scaled back 
or abolished entirely, and the Federal government can do that 
either as a condition of spending costs budgetary matters or 
through federal civil rights legislation, which as I said, is 
sorely needed in this area. The first federal civil rights law 
in 1866 was primarily focused on protecting the right to 
contract and the right to private property, and we have lost 
sight of the importance of those rights in just the past few 
decades. And I think it is really important for Congress to 
consider that that hurts precisely those minorities who most 
need that civil rights protection.
    Ms. HAW. So Mr. Sandefur provides some shocking testimony 
there, and I can shock it maybe in a different way.
    So there are 1,100 different professions that are licensed 
in at least one state, and I could be here for the rest of this 
hearing listing these but I will just give you a few.
    Locksmiths. This means it is illegal to do this unless you 
have a government-issued license. Locksmiths, beekeepers, 
fortune tellers, tour guides, shampooers. This list goes on and 
on.
    Mr. SANDEFUR. Fortune tellers. Even though it is literally 
impossible to be a competent fortune teller.
    Ms. MENG. I think we need to have another hearing to 
determine if that is true.
    Just to play devil's advocate, in New York City, many 
areas, for example, you talk about moving companies. We have 
heard lots of stories where moving companies will sort of prey 
on people within certain communities. They will come and move 
and steal people's furniture so people never see them again. 
They will park, taking up parking spaces, and there is no way 
to contact them or to hold them accountable, parking illegally. 
And so how do you balance the interest of consumer protection 
overregulating moving companies, for example?
    Mr. SANDEFUR. The reason I am smiling is not because that 
is a bad question but because I am actually in a dispute with 
my moving company which just started yesterday, and it is quite 
tense for me and stressful, and I am having to deal with this 
exact problem myself. And there are perfectly normal remedies. 
I could have hired a different company. I can review them badly 
on Yelp. I can sue them if they break or steal my things. We 
can call the police department if they steal my things, and so 
forth and so on. There are plentiful regulations. You are never 
going to have a regulatory system that will stop all harm. And 
these Certificate of Public Convenience and Necessity laws have 
no connection to that.
    It is true. You have to satisfy the bureaucracy that you 
would comply with the law in order to get a license, but that 
does not prevent you from breaking the law if you choose to. So 
these kinds of laws are not effective at protecting the public, 
and protecting the public is more effectively, although not 
perfectly, done through other avenues of the law.
    Now, as far as New York City is concerned, you are almost 
certainly aware that in the 1930s the city of New York capped 
the number of taxicab licenses at I think it is something like 
30,000, 13,000. I do not remember the number. Anyway, capped 
the number of available taxicab medallions so that today there 
are many cabs or fewer almost in New York City than there were 
in the 1930s so that today a medallion to operate a single 
taxicab in New York City costs a million dollars. Now, it is 
not rich white guys driving taxis; right? So if you want to run 
a taxi company, what you have to do is lease your license from 
the few wealthy people who are able to afford them. And that 
means that you are working from Monday until Thursday or so to 
pay off the hundreds of dollars a week that you have to pay for 
the lease of the license on your taxicab and then you get to 
keep the money that you earn otherwise.
    Is it any wonder that these licensing laws, not only do 
they harm the poor and entrepreneurs, but they push people into 
the underground economy or even deter them from getting a job 
in the first place because it is just too hard and they cannot 
imagine themselves getting that.
    Ms. MENG. Several states have begun to offer better 
reciprocity between their licensing regulations to enable 
workers to start working immediately following moving to a new 
state. This is especially beneficial for military families. 
Besides offering portability to increase worker mobility across 
state lines, what else can be done to reign in licensing laws?
    Mr. SANDEFUR. Well, I would say that legislation that makes 
clear--I would suggest something modeled on the Religious 
Freedom Restoration Act or the Religious Land Use and 
Institutionalized Persons Act that would say that restrictions 
on the right to earn a living must satisfy a high threshold for 
constitutionality. Another one would be what is being called 
sunrise legislation. It is similar to sunset legislation. 
Sunset legislation says a bill will expire unless it is 
renewed. Sunrise legislation says to the legislature you have 
to satisfy these standards in order to impose a new licensing 
restriction.
    There is a bill like this in Missouri right now. I just 
testified in a committee there just a couple weeks ago. And 
they are not binding. They do not actually prohibit the 
legislature from restricting or imposing a new licensing 
restriction, but they include certain factors that have to be 
proved before the legislature will impose these restrictions. 
And there are significant ones. They say prove that there is no 
free market alternative available, and so forth and so on. I 
think those are good ideas for reform.
    Ms. HAW. What I would like to see is the correct 
interpretation of the State Action Doctrine prevail in the 
Supreme Court. And what that would mean for probably around 90 
percent of boards in the U.S. is that they would be subject to 
the antitrust laws and would have to balance the 
anticompetitive effects against the pro-competitive effects.
    Ms. MENG. Thank you. I yield back.
    Chairman HANNA. A couple of quick questions.
    What do you think this costs the economy in terms of job 
creation? We have an example. A relatively small community of 
hundreds, right, and in general, job creation--anybody? You 
have talked to economists, Ms. Haw, maybe----
    Ms. HAW. Yeah, you know, I know that--so some of the 
figures that float around are licensing costs $100 billion to 
consumers. That does not directly address the question of job 
creation but it is going to be related to that; right? So 
another statistic that I think is relevant here is licensing 
tends to raise wages for the incumbent professionals. The 
figure used to be 10 to 12 percent. Modern day to now says more 
like 18 percent. So if we want to think about that as how it 
would affect job creation, you can think about that as raising 
the minimum wage or something. There are only so many places 
these dollars can go. So that is going to constrict the labor 
supply as well.
    Mr. SANDEFUR. It is really impossible to answer that 
question any more clearly than that because of what economists 
call the ``broken window fallacy.'' The kind of costs that are 
being imposed by licensing restrictions are in the form of jobs 
that just never appear. So how do you measure that? How do you 
measure the number of people who say, oh, I would like to start 
a moving company but it is impossible to get permission so I am 
not going to. And it is impossible to measure that.
    The reason it is called the ``broken window fallacy'' is it 
comes from an old story about a baker who arrives at his work 
one day to see that somebody has shattered his window in the 
middle of the night. And as he is sweeping up the glass, a 
friend says to him, ``Well, do not worry. It is good for the 
economy because now you will buy a new window to replace the 
broken window.'' Well, that is nonsense because he was going to 
spend that money on a new coat, and then he would have had both 
a window and a coat. But now he only has a window. What you 
never see is the unseen cost of this vandalism is the coat that 
is never made and never appears.
    And so what we have with economic restrictions like 
licensing laws is how do you measure jobs that are never 
created, or the innovation that might have occurred. The hair 
braiding is a great example of this because licensing boards 
define the scope of their practice as broadly as possible to 
protect themselves from competition. Well, an entrepreneur 
comes along and says, well, you know, I am not going to be a 
barber. I have got an idea. I am going to just braid hair. 
Well, then the barber and cosmetology board says, ``No, no. You 
have to have one of our licenses.'' Now, this is an innovative 
new business model. This is a new idea for a business that has 
never been around before but is being forced into this category 
of barbering that it really was not designed for it and was 
imposed decades ago.
    Well, we do not know the kinds of costs in terms of 
innovation and creativity that these licensing restrictions 
impose. It is literally incalculable.
    Chairman HANNA. Well, what we do know from Ms. Morrow and 
Ms. Armstrong is that there are literally thousands of people 
who are held back from doing what they want to do because of 
restrictions, barriers to entry that are so burdensome, either 
do not try it or they try and they quit. We know that within 
that, that lack of competition by its nature is a cost push. 
Clearly no one would be interested in limiting the number of 
moving companies if it were not something they thought moved to 
their own bottom-line.
    Mr. SANDEFUR. That is right. And you could try to measure 
the costs of these licensing restrictions by measuring how much 
time and energy the existing firms put in to restricting their 
possible competition. In the interior design field, they put in 
millions and millions of dollars to try and obtain licensing 
laws that will restrict entrepreneurs from competing against 
them. In the moving industry the existing firms would hire 
lawyers and spend hours in the process of the hearing and 
filing objections and these sorts of things in order to block 
competition. So you could measure those kinds of costs and say 
that that is more or less the cost of the license.
    Chairman HANNA. If someone is going to tens of thousands of 
dollars to keep someone out of their business, you can be darn 
sure that it is for a reason.
    Mr. SANDEFUR. That is right.
    Chairman HANNA. And it is profit.
    Yes, ma'am.
    Ms. MORROW. Mr. Chairman, in the interior design business, 
it is one national trade association that has spent allegedly 
$8 million trying to get every state regulated. And not only 
that but this same trade association, they created the exam 
that you have to take and then spun it off and they created the 
accreditation for the colleges that you would need to take, 
spun that organization off. So there are these three 
organizations that have been working together for over 40 years 
to regulate the whole industry. We call that a cartel.
    Chairman HANNA. Sure. Sure.
    Ms. HAW. We do, too.
    Chairman HANNA. So these manufactured requirements by 
people who are already in the industry are designed to keep 
other people out of whatever that is, raise prices, limit 
competition, limit job creation.
    What about innovation? I mean, what do you think of that? I 
mean, that is just a though.
    Ms. HAW. So Mr. Sandefur brought this up a minute ago, and 
I think that is absolutely right. So you are seeing a lot of 
this activity on the part of established boards of broadening 
the definition of what their practice is. And this, of course, 
is going to stifle innovation because any time you come up with 
a new business model that is to the side of a profession, 
suddenly you might find yourself receiving a cease and desist 
letter that says, ``Oh, no, no. That is in our profession.''
    So we are seeing this with teeth floaters. I guess horses 
teeth do not naturally wear down and so you have to file them. 
And it has traditionally been done by, you know, relatively low 
level of education, just sort of you learn how to do it from 
your family business-type thing. Well, suddenly, veterinarians 
have decided that this is part of veterinary practice and 
cannot be done unless you have a veterinary license which, of 
course, as we know, is many, many years of education and 
passing an exam. And guess what? They do not teach horse teeth 
floating in vet school.
    So the case that is actually before the Supreme Court is 
about teeth whitening. So it was the Dental Board of North 
Carolina saying, ``Oh, teeth whitening in all its forms is part 
of dental practice.''
    So as you see, the definition, not just more and more 
professions coming under licensing, but the established 
licensed professions becoming bigger and bigger, you are going 
to be able to see less innovation on the margins of those 
professions.
    Chairman HANNA. My sister was a farrier and did that often, 
filed teeth. And you are right. They just grow forever. They 
are like rats.
    So free markets work best. Consequences of what we are 
describing here today are good and bad. There are good and bad 
outcomes. But markets have a way of dealing with that. People 
do not need the government to tell them every little thing they 
need to know about who they are hiring. And like you said, in 
terms of moving vans in New York City, just because you have a 
license does not mean you are not a thief, no more than it 
means you are not good at what your job is. So with that, 
unless--we have a little time if anyone would like to----
    Mr. SANDEFUR. I do have one other point I would make in 
terms of economic costs, and that is what economists call the 
``Cadillac effect.'' The ``Cadillac effect'' is when government 
regulation makes it such that you can buy a Cadillac or nothing 
at all. Right? A restriction that says if you want a car it 
must be a Cadillac. And that is often what happens in terms of 
regulation of professions that say if you want to hire a 
lawyer, it has to be a lawyer who has gone through this many 
hours of continuing legal education. Or if you want to hire a 
hair braider, actually, you have to hire a barber. And this 
prices people out of the market and that is what causes a lot 
of black market problems.
    Chairman HANNA. Would you like to comment on Tesla?
    Mr. SANDEFUR. Or UBER are other examples of the recent 
headlines in which new and innovative business models have been 
excluded from the market by really obsolete licensing 
restrictions for taxicabs or car dealers.
    Ms. HAW. Yeah. And can I just say a lot of the stuff we 
talked about today is kind of shocking but it is also 
completely mundane. If you asked competitors, ``Who do you want 
to compete with?'' they are going to say as few people as 
possible. If you are going to ask dealers, you know, do you 
want Tesla to direct market their cars, they are going to say 
no. So on the one hand this is all surprising; on the other 
hand to me it seems really unsurprising.
    Mr. SANDEFUR. And it is not new. I mean, I mentioned the 
17th century cases. Lord Coke, when talking about licensing 
laws, said that the people who advocate for licensing laws are 
like a man rowing a boat. They look one way but they row the 
other. They pretend public benefit but intend private.
    Chairman HANNA. You are a man without lack of anecdotes.
    I want to hit one other theme because I think it is very 
important. And that is that minorities and women who--I have 
friends who sell Mary Kay. You have friends who do braiding and 
other things. These are cottage industries that can be done 
within the confines of someone's existing lifestyle if they can 
find the time. If they have children, stay-at-home mother. So, 
I mean, I find it compelling that in your case, Ms. Armstrong, 
that people are able to become independent through being 
entrepreneurs and able to probably stay home with their 
children while they do this. The same with you, Ms. Morrow. So 
we are really hurting a class of people, women and minorities--
and I will just throw this out there, if you can confirm it or 
not--it disproportionately affects people trying to manage in 
let us say marginal circumstances, that we have an opportunity 
to help them be transcendent and through these licensing laws 
we are actually hurting the people we are pretending to help in 
some cases with these laws.
    Any comment about that?
    Ms. MORROW. Yes. And you really hit on something because 
that is one of the main complaints that the cartel uses. They 
say anyone can hang out a shingle and be an interior designer. 
And yes, in 47 states that is true. But, you know, as I said 
before, consumers are very savvy and the needs of the person 
who is practicing are different, too. And you have the person 
who wants to do a lower level of design and you have the person 
who wants to do a hospital. And the thing is the person who is 
responsible, the administrator of the hospital is not going to 
hire the person who hung out their shingle yesterday. They are 
going to very vigorously vet the interior designer who is going 
to design.
    So there are different levels. And there are consumers for 
all levels. And if only the wealthy or only the big businesses 
could hire an interior designer, I do not think that is right. 
I think everyone should have good interior design. And it is 
such a diverse field that anyone can come into it. They can 
create their own little niche for customers that like what they 
are selling and, you know, for as many hours as they want to 
work and support their family.
    Chairman HANNA. So free enterprise works best, government 
interference is often the law of unintended consequences which 
creates more dislocation and damage economically than it 
intends, and people use government to protect their own self-
interests in a way that keeps others out, and in particular, in 
Ms. Armstrong's case and yours, stay-at-home moms and 
minorities and a whole class of people that really are not in a 
position to climb over those hurdles that the government has 
thrown at their feet.
    I want to thank you all for being here today. You have 
provided great input and done a wonderful job, all of you.
    If there are on further questions, I ask unanimous consent 
that members have five legislative days to submit statements 
and supporting materials.
    Without objection, so ordered.
    That is it. Thank you.
    [Whereupon, at 11:15 a.m., the Subcommittee was adjourned.]
                            A P P E N D I X


                 Testimony of Melony Armstrong

                      African Hairbraider

      Owner of ``Naturally Speaking'' Salon, Tupelo, Miss.

            Before the U.S. House of Representatives

                  Committee on Small Business

       Subcommittee on Contracting and Workforce Hearing

    Thank you, Mr. Chairman and members of this committee.

    My name is Melony Armstrong.

    It may surprise members of this committee to learn that, 
not too many years ago, the State of Mississippi demanded that 
I register my hands with the government.

    No, I'm not a secret agent.

    But my work has had a powerful impact in the fight for 
freedom.

    Every day across Mississippi, hundreds of low-income 
families are housed because of my advocacy and hard work. But I 
don't run a shelter.

    They are clothed through what I've done. But I don't run a 
second-hand clothing store.

    They are fed as a direct result of what I have achieved and 
continue to achieve. But I don't run a soup kitchen.

    I have transformed the lives of literally hundreds of poor 
women in my state of Mississippi not because I sought out 
government assistance for them; rather, because I demanded that 
the government get out of my way so I could provide for myself 
and for my family, and so other women around me could do 
likewise in peace, dignity and prosperity.

    What I achieved and what each of these women is now 
achieving across the American Southeast is happening because of 
one simple fact: We demanded the government respect our 
economic liberty--the right to earn an honest living in the 
occupation of our choice free from unnecessary government 
regulation.

    I am an African hairbraider.

    And if a lone braider in Tupelo, Miss., could have such a 
transformative impact helping to change the law to free so many 
around me to earn an honest living, imagine what could happen 
across our nation if state and local governments followed that 
example.

    Not every entrepreneur is a Bill Gates or a Henry Ford. 
Some are and will remain more humble in the scope of their 
impact. But that doesn't mean the impact is not significant in 
the lives of those around them.

    Imagine the creative forces that would be unleashed if 
government respected the rights of other would-be entrepreneurs 
who want to braid hair, or drive cabs, or sell flowers by the 
roadside, or pursue any of a hundred or more occupations that 
would otherwise be easy to pursue if only the government didn't 
needlessly stop entrepreneurs from doing so for no better 
reason than to protect the politically powerful from 
competition.

    Each day, I work to demonstrate the power of one 
entrepreneur.

    As my story demonstrates, the power of one entrepreneur can 
transform not only a life, or an industry or a community; the 
power of America's entrepreneurs can transform our nation.

    African hairbraiding is a skill that has been passed from 
one generation of women to another for the past 3,000 years of 
recorded history. For the vast majority of those 100-plus 
generations, women like me have practiced this craft with no 
government oversight, with no government-issued license, with 
no government-imposed demands. We learned from the previous 
generations by doing, and in so doing, we were free to earn a 
living for our families.

    But even with that history, to open my hairbraiding salon--
Naturally Speaking--in Tupelo in 1999, was no easy task; it 
took not only persistence and hard work, it also took a lawsuit 
and lobbying. It took all this even though I wanted to practice 
an occupation that is perfectly legal and perfectly safe.

    To get paid to braid hair, many states demand hairbraiders 
obtain a cosmetology license or other similar license--
typically requiring up to 2,100 hours of coursework.

    That is more than a year's worth of study, 40 hours a week 
taking classes from educational institutions that more often 
than not don't teach braiding in their curriculum.

    Let me say that again: the government in many states 
requires would-be braiders to take thousands of hours of 
classes that have literally nothing to do with the trade they 
want to practice.

    When I first opened my doors as a hairbraider, I had to 
earn a ``wigology'' license (yes, there is such a thing), which 
required 300 hours of coursework, none of which covered 
hairbraiding.

    To teach others how to braid hair, however, which was my 
ultimate goal, the state of Mississippi required me to obtain a 
cosmetology license (another 1,200 hours of classes in addition 
to the 300 I completed for wigology), then a cosmetology 
instructor's license (another 2,000 hours of classes) and then 
apply for a school license--hours I could use more productively 
running my business, teaching others about braiding, 
volunteering in my community or nurturing my family. Again, 
none of the required instruction actually spent any time 
teaching the student how to braid hair.

    In the 3,200 classroom hours it would have taken for me to 
earn a license to teach hairbraiding, I could instead have 
become licensed in all of the following occupations in 
Mississippi:

           Emergency medical technician-basic (122 
        hours plus five emergency runs),
           Emergency medical technician-paramedic 
        (1,638 hours),
           Ambulance driver (8 hours),
           Law enforcement officer (400 hours),
           Firefighter (240 hours),
           Real estate appraiser (75 hours) and
           Hunting education instructor (17 hours).

    And that would all take more than 600 hours less than 
obtaining a license to teach braiding.

    The group that benefited most from Mississippi's regulatory 
regime was the cosmetology establishment. Practicing 
cosmetologists made up the State Board of Cosmetology and could 
set the bar for entry to their occupation high (and thereby 
keep competition to a minimum), and cosmetology schools enjoyed 
captive customers.

    I was not about to submit to such naked economic 
protectionism. Instead, I decided to take on both the political 
establishment and the cosmetology regime, which had convinced 
lawmakers to limit entry into the trade.

    In August 2004, I joined with two aspiring hairbraiders, 
who wanted to learn the business from me, and with the 
Institute for Justice--a public interest law firm that 
represented us for free--to file a lawsuit against the state to 
break down the regulatory walls barring potential entrepreneurs 
from entering the field.

    In the months that followed, I took weekly trips to the 
state capital of Jackson (a seven-hour round-trip from Tupelo) 
working to convince legislators to change the law.

    We didn't go to the government seeking a handout. Across 
the board, braiders are independent individuals who take great 
pride in providing for themselves and their families through 
their own handiwork.

    In 2005, all of our efforts paid off: Mississippi's 
governor signed legislation enabling hairbraiders to practice 
their occupation without the burdensome government-mandated 
classes. The only requirement now are that hairbraiders must 
pay a $25 fee to register with the state and abide by all 
relevant health and hygiene codes.

    It is rewarding to know that the influence of my work is 
felt beyond the Tupelo area. Since the restrictions were 
lifted, more than 800 women provide for themselves as 
hairbraiders, taking once-underground businesses ``legit'' and 
opening new enterprises in places where customer demand was 
once unmet. And because of the change in Mississippi's laws, 
aspiring braiders are moving here from nearby states, including 
Tennessee, Alabama and Arkansas.

    One of the greatest benefits of our success is that it 
moves aspiring entrepreneurs from the ``underground economy'' 
into the ``formal economy.'' In the underground economy, 
braiders are forced to operate off the books and out of sight 
of intimidating and sometimes ruthless regulators who are often 
out to shut them down to protect the status quo.

    Regulators often don't care about people's dreams; they 
only care about enforcing codes, laws and regulations that 
justify their existence. And as they drive around, looking for 
the next ``scofflaw'' to shut down, those lawbreakers (who are 
nothing more than people trying to work hard to support 
themselves and provide an otherwise perfectly legal service) 
must fear that next knock on the door, which could mean losing 
what they've worked for, paying steep fines and, in some cases, 
even going to jail for practicing their trade.

    Freed from needless government-created barriers, I have now 
gone on to teach more than 125 individuals how to braid hair. 
No longer blocked from putting industrious individuals to work, 
I have employed 25 women, enabling them to provide for 
themselves and their families. For many of these women, the 
money they earn from braiding represents the first steady 
paycheck they have earned in their lives.

    For years, the government tried to stop me from doing all 
this good--stop me from reaching my full potential and from 
helping others to do likewise through the dignity of honest 
enterprise. In too many states and in too many occupations 
across the country, these kinds of government-imposed barriers 
to earn an honest living still exist.

    Thank you for holding this hearing to alert the public to 
this problem. I hope lawmakers in every state across the 
country are paying attention and will heed our calls to remove 
those laws that do nothing but prevent honest competition in 
trades from coast to coast.

    Thank you.

    --------------------

    Melony Armstrong is the owner of Naturally Speaking, a 
hairbraiding salon in Tupelo, Miss. For more information on 
economic liberty, visit: www.ij.org/PowerOfOneEntrepreneur.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



                 U.S. House Committee on Small Business


           Subcommittee Hearing on Contracting and Workforce


                       Testimony of Patti Morrow


                             March 26, 2014


    My name is Patti Morrow; I live in Greer, SC:

           Interior Designer/President - Juxtapose 
        Interior Design
           Certified in Residential Design (RIDE)
           Certified Aging in Place Specialist (CAPS)
           Board of Directors, Design Society of 
        America (DSA)
           Founder of Interior Design Protection 
        Consulting (IDPC)

    Like many other interior designers, I entered the field as 
a second career. When my children were 10 and 13, I enrolled in 
a 2-year interior design program at the New Hampshire Institute 
of Art (I was living in New Hampshire at the time). There were 
about 25 women in the class, all second-career changers.

    As I was nearing the end of the interior design program, 
HB-881 was introduced in the New Hampshire legislature. If 
enacted, this bill would have become the most restrictive 
interior design law in the country and would have prohibited me 
from my dream of having my own interior design business.

    In order to legally practice, an interior designer would 
need to have the ``proper'' credentials, aka ``Three E's:''

          1. Education. Graduate with a 4-year Bachelor Degree 
        in Interior Design from an expensive, exclusive, 
        privately accredited college. There are no such schools 
        in the entire state.

          2. Exam. Pass the National Council for Interior 
        Design Qualification (NCIDQ) exam, an extremely 
        burdensome private exam, which

                  a. Historically has had a less than a 40% 
                passage rate for all three sections taken at 
                the same time;

                  b. Can cost well over $2,000 to take

                           $1,200 just to apply for the 
                        test
                           Add in the cost of study 
                        guides and prep classes
                           Travel and accommodations to 
                        take the 2-day exam.
                           Each time a part of the test 
                        is failed, there's another fee to be 
                        paid

                  c. Is not under the purview of the state 
                legislature, so anytime the exam is changed, it 
                would result in defacto legislation, changing 
                New Hampshire law without the knowledge or 
                consent of the state legislature.

          3. Experience. Complete an internship under one of 
        the proposed licensed (NCIDQ-certified) designers which 
        could take anywhere from 2 to 15 years. There were only 
        25 NCIDQ-certified in the entire state, and there was 
        no guarantee that they:

                  a. Supported the licensing scheme
                  b. Were in a financial position or had enough 
                work to hire an apprentice
                  c. Would be willing to pay vs. just offering 
                a free internship
                  d. Would want to train a new designer who 
                would eventually become a competitor

    This bill was well in excess of what is needed to practice 
interior design, and would have put not only me, but the 
overwhelming majority of interior designers in New Hampshire 
out of business.

    But why? What logical reason could there be for putting so 
many small business entrepreneurs out of business and creating 
a barrier to entry for anyone wishing to enter the field?

    The bill asserted that interior design licensing was 
necessary to protect the health and safety of the public. But 
after doing my own extensive research, I found some very 
important facts:

           There's not a shred of evidence which would 
        warrant a conclusion that the unregulated practice of 
        interior design places the public in any form of 
        jeopardy.

           13 state agencies have studied the need for 
        interior design regulation (sunrise and sunset reviews, 
        Federal Trade Commission investigations, etc.) and 
        without exception, all recommended against any type of 
        regulation on the basis that it would add absolutely 
        nothing to protect the public beyond that which is 
        already in place (building inspectors, Certificate of 
        Occupancy requirements, architects/engineers, fire 
        marshals, construction code enforcement officials, 
        consumer affairs actions, etc.).

           According to the Better Business Bureau and 
        other data, since 1907, only 52 lawsuits have been 
        filed against interior designers in the entire country. 
        And nearly every single one of those involved contract 
        disputes, not safety issues.\1\
---------------------------------------------------------------------------
    \1\ Designing Cartels, Dick Carpenter II, Ph.D., http://www.ij.org/
designing-cartels-economic-liberty

    It seemed to me that monopoly and the denial of free 
enterprise was the true objective of HB-881. This bill had come 
about not through public outcry or legislative determinations 
that regulation was necessary for the public good, but solely 
through the efforts of industry insiders who were asking the 
legislature to eliminate their competition for their own 
---------------------------------------------------------------------------
personal monetary gain.

    This is obviously not a legitimate goal of good government, 
and I was not going to just sit back and let this small special 
interest group dictate who could and who could not practice 
interior design!

    I contacted every interior designer and student I knew and 
organized a grassroots group to attend the hearing and testify 
against this bill. That bill was mercilessly defeated at that 
hearing in March of 2007 and has never reared its ugly head 
again.

    Two years ago, I moved to South Carolina, and it was deja 
vu, all over again. In 2012 and 2013, I had to take time away 
from my business to drive to Columbia multiple times to speak 
with legislators and testify at hearings. As of right now, the 
latest bill has been tabled.

    But for how long?

    Licensing this industry is nothing more than restraint of 
trade and is a JOB KILLER.

    Interior design is a dynamic profession that celebrates 
innovation, creativity and diversity. Imposing a one-size-fits-
all licensing scheme on the profession could not be more 
contrary to those values.

    Because I am passionate about this topic, for the last 
eight years I have been networking and helping interior 
designers all across the country to help them protect their 
right to practice.

           80% of interior designers are small business 
        owners \2\ and according to the Bureau of Labor 
        Statistics, 40% are actually sole proprietors.\3\
---------------------------------------------------------------------------
    \2\ Icon, American Society of Interior Designers, 3/2014 http://
browndigital.bpc.com/publication/?i=199326
    \3\ The Interior Design Profession: Facts and Figures, American 
Society of Interior Designers, 2007.
---------------------------------------------------------------------------
           84% of practicing interior designers do not 
        have a degree in Interior Design \4\
---------------------------------------------------------------------------
    \4\ Ibid
---------------------------------------------------------------------------
           According to a study done by Harrington and 
        Treber (Kenyon College), interior design regulations 
        disproportionately exclude Hispanics, African Americans 
        and second career-switchers.\5\
---------------------------------------------------------------------------
    \5\ Designed to Exclude, Harrington & Treber, 2009 http://
www.ij.org/images/pdf--folder/economic--liberty/
designed-to-exclude.pdf
---------------------------------------------------------------------------
           Licensing prevents potential entrepreneurs 
        of low income means from entering the work force, 
        because they may not be able to afford the tuition of a 
        four year college, the burdensome exam costs, or 
        working for several years as an apprentice at little or 
        no pay.\6\
---------------------------------------------------------------------------
    \6\ The Myth of the ``Three E's,'' Patti Morrow, 2010, http://
www.idpcinfo.org/THREE--E--s.pdf

    Where do you draw the line? If you don't have the ``right'' 
credentials, you would be restricted from offering the 
---------------------------------------------------------------------------
following:

           Designs, drawings, diagrams, studies
           Consultations with clients
           Offering space planning services
           Recommend furnishings
           Drafting contract documents
           Researching and analyzing a client's 
        requirements

    These licensing bills are incredibly far reaching. You 
could not even give customers a recommendation as an employee 
of Home Depot!

    And consumers lose, too. The Federal Trade Commission 
concluded that interior design regulations result in higher 
costs and fewer choices to consumers.\7\
---------------------------------------------------------------------------
    \7\ United States of America, Federal Trade Commission, Dallas, 
1987 and 1989

    If there's a happy ending to this story, it's this.... 
Since 2007, over 150 state bills which would have expanded or 
---------------------------------------------------------------------------
enacted new interior design regulations have been defeated.

    But like zombies, they just won't stay dead!

    Conclusion

    When Barack Obama was elected President, he did what many 
Presidents before him did--he redesigned the living quarters of 
the White House. Now, the District of Columbia is one of only 
four places in the United States that has full restrictions on 
practicing interior design without a license. So who did he 
hire? Michael Smith, an un-licensed interior designer from 
California. I'm sure he did not for one minute think he was 
placing the health and safety of his little girl in jeopardy.

    If it's okay for the most protected person in the world to 
hire an unlicensed interior designer, shouldn't it be okay for 
everyone?
   THE COST OF EXCESSIVE OCCUPATIONAL REGULATION AND WHAT ANTITRUST 
             LIABILITY FOR LICENSING BOARDS CAN DO ABOUT IT


                             By Rebecca Haw


    This testimony reflects only my views on the subject and 
not that of Vanderbilt Law School or Vanderbilt University. It 
draws from Aaron S. Edlin & Rebecca Haw, Cartels by Another 
Name: Should Licensed Occupations Face Antitrust Scrutiny?, U. 
Pa. L. Rev. (forthcoming 2014), a draft of which is available 
at http://ssrn.com/abstract=2384948.

                              Introduction


    Although often overlooked, state licensing boards have 
become a significant exception to the Sherman Antitrust Act's 
ban on cartels. Boards are largely dominated by active members 
of their respective industries who meet to agree on ways to 
limit the entry of new competitors. But professional boards, 
unlike cartels in commodities or consumer products, are 
sanctioned by the state--even considered part of the state--and 
so are often assumed to operate outside the reach of the 
Sherman Act under a doctrine known as state action immunity.

    The cost of the cartelization of the professions is on the 
rise. In the 1950s, only about five percent of American workers 
were subject to licensing requirements; now nearly a third of 
American workers need a state license to perform their job 
legally, and this trend is continuing.\1\ Some recent 
additi8ons to the list of professions requiring licenses 
include locksmiths, beekeepers, auctioneers, interior 
designers, fortune tellers, tour guides, and shampooers. And 
even the traditionally-licensed ``learned professions'' are 
seeing a proliferation of licensing restrictions and 
regulations.
---------------------------------------------------------------------------
    \1\ See Morris M. Kleiner & Alan B. Krueger, Analyzing the Extent 
and Influence of Occupational Licensing on the Labor Market, 31 J. Lab. 
Econ. S173, S198 (2013).

    The excesses of professional licensing are easy to 
illustrate, Cosmetologists, for example, are required on 
average to have ten times as many days of training as Emergency 
Medical Technicians (EMT). In Alabama, unlicensed practice of 
interior design was a criminal offense until 2007. 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. And in some states, nurse practitioners must be 
supervised by a physician, even though studies show that nurse 
practitioners and physicians provide equivalent quality of care 
where their practices overlap.\2\
---------------------------------------------------------------------------
    \2\ Morris M. Kleiner, et al., Relaxing Occupational Licensing 
Requirements: Analyzing Wages and Prices for a Medical Service, NBER 
Working Paper No. 19906 (February 2014).

    Labor economists have shown that the net effect of 
licensing on the quality of professional services is 
unclear.\3\ What is clear, 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 billion every year.\4\ 
And consumers are not the only potential losers, since more 
licensing means fewer jobs. To be sure, not all licensing rules 
are harmful. Some improve service quality and public safety 
enough to justify the costs, but many do not.
---------------------------------------------------------------------------
    \3\ See Carolyn Cox & Susan Foster, Bureau of Econ., FTC, The Costs 
and Benefits of Occupational Regulation 21-27, 40 (1990).
    \4\ Morris M. Kleiner, Licensing Occupation: Ensuring Quality or 
Restricting Competition? 115 (2006).

    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 the Sherman Act to shield licensing 
boards from antitrust liability despite the fact that the 
boards often look and act like antitrust law's 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 towards cartelized labor 
---------------------------------------------------------------------------
markets.

    Last year, in North Carolina State Board of Dental 
Examiners v. FTC,\5\ the Federal Court of Appeals for the 
Fourth Circuit upheld an FTC decision finding a state licensing 
board liable for Sherman Act abuses, becoming the only 
appellate court to expose a licensing board to antitrust 
scrutiny and thereby creating a split between circuit courts. 
The Supreme Court has now granted certiorari, and one hopes the 
Court will take this opportunity to hold boards composed of 
competitors to the strictest version of its test for state 
action immunity.
---------------------------------------------------------------------------
    \5\ 717 F.3d 359 (4th Cir. 2013).

    In this testimony, I will cover three topics. First, I will 
sketch the economics of licensing, and the forces that gave 
rise to our system of professional self-regulation. Then I will 
discuss antitrust law as what I consider the most effective 
federal intervention in this otherwise state-level issue. 
Finally, I will briefly explain the legal landscape that gave 
rise to the circuit split over state action immunity for 
licensing boards and explain what I consider the Court's best 
course of action in next term's North Carolina State Board of 
---------------------------------------------------------------------------
Dental Examiners.

      I. Occupational Licensing Boards: The Road to Cartelization


     A. The Scope of Professional Licensing: Big and Getting Bigger


    Once limited to a few learned professions, licensing is now 
required for over 800 occupations.\6\ And once limited to 
minimum educational requirements and entry exams, licensing 
board restrictions are now a vast, complex web of 
anticompetitive rules and regulations. The explosion of 
licensing and the tangle of restrictions it has created should 
worry anyone who believes that fair competition is essential to 
national economic health.
---------------------------------------------------------------------------
    \6\ Kleiner, supra note 4, at 5.

    The expansion of occupational licensing has at least two 
causes. First, as the U.S. economy shifted away from 
manufacturing and towards service industries, the number of 
workers in licensed professions swelled, accounting for a 
greater proportion of the workforce. Second, the number of 
licensed professions has increased. Where licensing was once 
reserved for lawyers, doctors, and other ``learned 
professionals,'' now floral designers, fortune tellers, and 
taxidermists are among the jobs that, at least in some states, 
---------------------------------------------------------------------------
require licensing.

    Since boards are typically dominated by active members of 
the very profession that they are tasked with regulating, this 
dramatic shift toward licensing has put roughly a third of 
American workers under a regime of self-regulation. A study I 
conducted with my co-author Aaron Edlin revealed that license-
holders active in the profession have a majority of 90% of 
boards in Florida and 93% of boards in Tennessee. Given this 
composition, it is not surprising that boards often succumb to 
the temptation of self-dealing, creating regulations to 
insulate incumbents rather than to ensure public welfare.

       B. The Anticompetitive Potential of Occupational Licensing


    The anticompetitive potential of licensing is best 
illustrated with actual regulations passed by practitioner-
dominated boards. What follows is by no means a complete list 
of excessive regulations, but it serves as a sample.

                       1. The New ``Professions''


    In Louisiana, all flower arranging must be supervised by a 
licensed florist, a scheme successfully defended in court as 
preventing ``the public from having any injury'' from exposed 
picks, broken wires, or infected flowers.\7\ Minnesota (along 
with several other states) now defines the filing of horse 
teeth as the practice of veterinary medicine, a move that has 
redefined an old vocation as a regulated profession subject to 
restricted entry and practice rules despite the fact that many 
consider the practice to be low-skill and low-risk. Similarly, 
state cosmetology boards have responded to competition from 
African-style hair braiders and eyebrow threaders by demanding 
that braiders and threaders obtain cosmetology licenses before 
they can lawfully practice their craft, even though practice 
requires no sharp instruments or chemicals, and involves no 
significant risk of infection.
---------------------------------------------------------------------------
    \7\ Meadows v. Odom, 360 F. Supp, 2d 811, 824 (M.D. La. 2005), 
vacated as moot, 198 F. App'x 348 (5th Cir. 2006).

---------------------------------------------------------------------------
                  2. Old Professions, New Restrictions


    In many states, dental licensing boards restrict the number 
of hygienists a dentist can hire to two, a practice the FTC 
argues raises price but has no effect on quality of dental 
care.\8\ Similarly, the advent of nurse practitioners and 
physician assistants has ignited a turf war between these 
``physician extenders'' and doctors, resulting in a national 
patchwork of regulation related to physician supervision 
despite the fact that outcome studies reveal that unsupervised 
extenders' services are as safe and effective as that of 
supervised extenders. Lawyers, too, use licensing to limit 
competitions: advertising restrictions insulate lawyers from 
competition from other lawyers who can claim better average 
outcomes for clients. Moreover, each state has its own bar exam 
and licensing procedure, which reduces lawyer mobility across 
state lines. The justification for this is colorable--a 
different exam is necessary for each jurisdiction because of 
differing state laws--but it fails to account for practices 
such as California's requirement that lawyers qualified in 
other states retake the multistate portion of the exam when 
sitting for the California bar.
---------------------------------------------------------------------------
    \8\ J. Nellie Liang & Jonathan D. Ogur, Bureau of Econ. Staff Rep. 
to the F.T.C., Restrictions on Dental Auxiliaries: An Economic Policy 
Analysis 44-47 (1987).

---------------------------------------------------------------------------
        C. How We Got Here: Why License, and Why Self-Regulate?


                     1. The Economics of Licensing


    The past twenty years have witnessed an explosion of 
empirical work on the effects of licensing restrictions on 
service quality and price. Economists agree that a licensing 
restriction can only be justified where it leads to better 
quality professional services--and that for many restrictions, 
proof of that enhanced quality is lacking.

    a. The Costs of Licensing: Higher Consumer Prices

    Studies that have the statistical power to identify a 
relationship between licensing and wages tend to suggest that 
licensing requirements raise wages by 10% to 18%, which has an 
obvious effect on consumer prices.\9\ Likewise, most studies 
examining practice restrictions show that when a licensing 
board is more heavy-handed in dictating hours, advertising, or 
levels of supervision within a profession, the consumer prices 
are higher. For example, restricting the number of hygienists a 
dentist may employ increases the cost of a dental visit by 
7%,\10\ and in optometry, restrictions on advertising have been 
shown to inflate prices by at least 20%.\11\ Geographic 
restrictions--like nonreciprocity between states--also tend to 
increase consumer prices.\12\
---------------------------------------------------------------------------
    \9\ Morris M. Kleiner, Regulating Occupations: Quality or 
Monopoly?, Emp't Research (W.E. Upjohn Inst., Kalamazoo, Mich.), Jan. 
2006, at 2 tbl.1, available at http://research.upjohn.org/
empl--research/vol13/iss1/1.
    \10\ Liang & Ogur, supra note 8, at 40, 43.
    \11\ John E. Kowka, Jr., Advertising and the Price and Quality of 
Optometric Services, 74 Am. Econ. Rev. 211, 216 (1984).
    \12\ One study estimated that universal reciprocity between states 
for dentists would result in a geographical reallocation of dentists 
generating $52 million (in 1978 prices) in consumer surplus. Bryan L. 
Boulier, An Empirical Examination of the Influence of Licensure and 
Licensure Reform on the Geographical Distribution of Dentists, in 
Occupational Licensure and Regulation 73, 94-95 (Simon Rottenberg ed., 
1980).

    But to get a complete picture of the economic harm from 
professional licensing, one needs a theory of how efficiently 
an unrestricted market would function. Advocates of licensing 
argue that the free market would do a poor job of efficiently 
allocating professional services to consumers because service 
quality would be too low without licensing. To the advocates of 
professional licensing, measuring the value of licensing by 
---------------------------------------------------------------------------
observing its effect on prices misses the point.

    The notion that a free market would result in too-low 
quality service rests on two possible sources of failure in the 
market for professional services. First, absent licensing, the 
asymmetry of information between professional providers and 
consumers about the quality of service would create what 
economists call the ``lemons problem.'' Second, free markets 
for professional services would result in sub-optimal quality 
because the market participants (providers and consumers) do 
not internalize all the costs of bad service. In other words, a 
free market for professional services creates negative 
externalities. But if licensing has any effect on the market 
failures it is designed to address, then it should improve 
service quality.

    b. The Benefits of Licensing: Improved Quality?

    The economic research on quality of service as a function 
of licensing paints a murky picture. Some studies show modest 
increases in quality, at least for some kinds of consumers, but 
other studies do not find that same effect. A few studies even 
claim to show that licensing reduces quality.\13\
---------------------------------------------------------------------------
    \13\ For a comprehensive discussion of this research, see Aaron S. 
Edlin & Rebecca Haw, Cartels by Another Name: Should Licensed 
Occupations Face Antitrust Scrutiny?, U. Pa. L. Rev. (forthcoming 
2014), a draft of which is available at http://ssrn.com/
abstract=2384948.

---------------------------------------------------------------------------
    2. The Durability of Our System of Professional Self-Regulation


    If licensing can at least theoretically benefit consumers, 
why do we see so many obviously harmful licensing restrictions? 
The answer may lie with our current system of professional 
self-regulation, and its striking durability in the face of 
wide-spread criticism. When it comes to professional 
regulation, states have largely handed the reins of competition 
over to the competitors themselves. States justify this move by 
arguing that expertise is essential to creating efficient 
regulations, but it creates an obvious temptation of self-
dealing. In any other context, antitrust law could be used to 
prevent combinations of competitors from maximizing their own 
welfare at the expense of consumers. But because the dominant 
interpretation of antitrust immunity holds boards immune from 
Sherman Act scrutiny, antitrust law has until now had little 
impact on professional regulation. That leaves only 
constitutional avenues of redress, which have proven to be weak 
against self-dealing boards.

    a. State Action Immunity Shields State Licensing Boards 
from Antitrust Liability

    The Supreme Court first created antitrust immunity for 
``state action'' in Parker v. Brown,\14\ shielding state 
governments and bodies delegated a state's authority from 
federal antitrust liability. In holding that the Sherman Act 
does not apply to state government action, the Court found the 
identity of the actor--the state or private citizens--essential 
but provided no guidance on how to draw the line. This created 
serious problems for lower courts trying to apply Parker 
because states rarely regulate economic activity directly 
through a legislative act. Rather, states delegate rulemaking 
and rate-setting to agencies, councils, or boards dominated by 
private citizens.
---------------------------------------------------------------------------
    \14\ 317 U.S. 341 (1943).

    The Court responded in 1982 with California Retail Liquor 
Dealers Ass'n v. Midcal Aluminum,\15\ which provided a test to 
distinguish private action from state action. To enjoy state 
action immunity, the Court held, the challenged restraint must 
be ``one clearly articulated and affirmatively expressed as 
state policy to restrict competition,'' and the policy must be 
``actively supervised by the State itself.'' Since Midcal, 
however, the Court has created a category of entities not 
subject to the supervision requirement at all.\16\ These 
entities, which include municipalities, enjoy immunity if they 
can meet the clear articulation prong alone. The circuits are 
split on whether state licensing boards are like municipalities 
in this respect; in particular, whether licensing boards 
dominated by competitors--who regulate the way they compete and 
exclude would-be competitors--enjoy state action antitrust 
immunity without being supervised by the state. The Supreme 
Court is poised to resolve this split in next term's North 
Carolina State Board of Dental Examiners. The last section of 
this testimony will further explore the legal question in that 
case.
---------------------------------------------------------------------------
    \15\ 445 U.S. 97 (1980).
    \16\ See Town of Hallie v. City of Eau Claire, 47 U.S. 34 (1985).

    b. The Common Route to Challenging State Licensing 
---------------------------------------------------------------------------
Restraints: Due Process and Equal Protection

    With powerful antitrust immunities in place, the only 
viable avenue for consumers or would-be professionals seeking 
to challenge the actions of state licensing boards is to make a 
constitutional claim. Like all state regulation, professional 
licensing restrictions must not violate the due process and 
equal protection clauses of the Fourteenth Amendment. Due 
process prevents a state from denying someone has liberty 
interest in professional work if doing so has no rational 
relation to a legitimate state interest. Similarly, equal 
protection requires that states distinguish licensed 
professionals from those excluded from practice on some 
rational basis related to a legitimate state goal. The two 
analyses typically conflate into one question: did the 
licensing restriction serve, even indirectly or inefficiently, 
some legitimate state interest?

    That burden is easy to meet, as illustrated by Williamson 
v. Lee Optical,\17\ the leading Supreme Court case on the 
constitutionality of professional licensing schemes. Indeed, 
the Court has only once found an occupational licensing 
restriction to fail rationality review, in Schware v. Board of 
Bar Examiners of New Mexico,\18\ and then only because an 
otherwise valid licensing requirement was unlawfully applied to 
an individual. In applying Schware to the activity of state 
licensing boards, lower courts have found even extremely thin 
justifications for anticompetitive licensing restrictions to 
suffice for rationality review. One circuit has even held that 
insulating professionals from competition is itself a 
legitimate state interest, making matters even more difficult 
for plaintiffs alleging harm to competition.
---------------------------------------------------------------------------
    \17\ 348 U.S. 483 (1955).
    \18\ 353 U.S. 232 (1957).

---------------------------------------------------------------------------
II. Why Sherman Act Liability for State Licensing Boards is a Good Idea


A. Antitrust Liability for Professional Licensing: An Economic Standard 
                           for Economic Harm


    The Sherman Act--famously called ``the Magna Carta of free 
enterprise'' \19\--protects competition as a way to maximize 
consumer welfare. According to courts and economists alike, 
competition is harmed when competitors restrict entry or adhere 
to agreements that suppress incentives to compete. The 
normative question in both traditional cartel cases and 
licensing contexts should be the same: Does the combination, on 
net, improve consumer welfare? To ensure that this important 
question is asked and answered in the licensing context, 
antitrust law and its tools for balancing pro- and 
anticompetitive effects should be brought to bear on licensing 
schemes.
---------------------------------------------------------------------------
    \19\ United States v. Topco Assocs., Inc., 405 U.S. 596, 610 
(1972).

    This close fit between the Sherman Act's intended target 
and the economic harm of excessive licensing can be seen in the 
functional equivalence of the restrictions promulgated by 
occupational boards and the business practices held unlawful 
under Sec. 1. The Ohio Rules of Professional Conduct prohibit 
attorneys from advertising their prices using words such as 
``cut rate,'' ``discount,'' or ``lowest.'' But when similar 
restrictions on price advertising are imposed by private 
associations of competitors, rather than as a licensing 
requirement, it is per se illegal. Additionally, all lawyers 
must prove their ``good moral standing'' to join a state bar. 
But when a multiple listing service (a private entity not 
created by the state) comprised of competing real estate agents 
tried to impose a ``favorable business reputation'' requirement 
on its members, a court found the requirement to violate the 
---------------------------------------------------------------------------
Sherman Act because the standard was vague and subjective.

    Thus, licensing schemes can be similar to cartel agreements 
in substance, which alone may justify antitrust liability. But 
making matters even worse for consumers, licensing schemes come 
in a particularly durable form. Licensing boards, by their very 
nature, face few of the cartel problems that naturally erode 
price and output agreements between competitors. By 
centralizing decision making in a board and endowing it with 
rulemaking authority through majority voting, professional 
competitors overcome the hurdle of agreement that ordinarily 
inhibits cartel formation. Cheating is prevented by imposing 
legal and often criminal sanctions--backed by the police power 
of the state--on professionals who break the rules. Finally, 
most cartels must fend off new market entrants from outside the 
cartel that hope to steal a portion of its monopoly rents. For 
licensed professionals, licensing deters entry and ensure that 
all professionals (at least those practicing legally) are held 
to its restrictions.

B. Antitrust Federalism: Its Modern Justifications and Applicability to 
                Antitrust Liability for Licensing Boards


    The most serious argument against Sherman Act liability for 
state licensing boards is that it would upset the balance 
between state and federal power struck in Parker and its 
progeny. But an examination of the normative commitments behind 
antitrust federalism, as revealed in scholarship and in the 
cases, reveals that boards--as currently comprised--should not 
enjoy immunity. All accounts of the purpose of antitrust 
federalism agree that self-dealing, unaccountable decision-
makers should face antitrust liability. State licensing boards 
fall squarely in this category when a majority of members are 
competitors subject to or benefitting from the boards' rules.

    For state licensing boards, the temptation of self-dealing 
is especially high and the potential for holding officials 
accountable especially low. First, those must hurt by excessive 
professional restrictions--consumers--are particularly ill-
represented in the political process of licensure. Second, and 
most important, occupational licensing is currently left up to 
members of the profession themselves. When Parker is used to 
protect the efforts of incumbent professionals to restrict 
entry into their markets, it creates the very situation Midcal 
warned against--it casts a ``gauzy cloak of state involvement 
over what is essentially a private price-fixing arrangement.'' 
\20\
---------------------------------------------------------------------------
    \20\ Cal. Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 
U.S. 97, 106 (1980).

    Public participation in state board activity is very low 
because as our empirical study of boards in Florida and 
Tennessee confirms, the typical state board is comprised of 
appointed professionals, not consumers or other public members. 
On one hand, practitioner dominance is inevitable. Tailoring 
restrictions to benefit the public (namely, encouraging 
competent practice) usually requires experience in the 
profession. But the need for expertise creates a problem: those 
who have the most to gain from reduced consumer welfare in the 
form of higher prices are tasked with protecting consumer 
welfare in the form of health and safety--the fox guards the 
---------------------------------------------------------------------------
henhouse.

 II. North Carolina State Board of Dental Examiners and the Future of 
                     Immunity for Licensing Boards


    Because any state mandate calling for the regulation of 
entry and good standing in a profession is likely to meet the 
Court's low bar for clear articulation, a board's status under 
Parker turns on whether it is subject to Midcal's requirement 
of supervision at all. Next term, the Supreme Court will 
consider this question for the first time. The case, North 
Carolina State Board of Dental Examiners, is an appeal from a 
Fourth Circuit case that held a licensing board to both Midcal 
prongs, creating a circuit split and delivering a victory to 
consumers and unlicensed professionals harmed by 
anticompetitive regulation. The Supreme Court should affirm the 
Fourth Circuit's decision, but also clarify, in contrast to the 
concurrence in the Fourth Circuit case below, that any board 
dominated by practitioners must pass Midcal's supervision 
requirement, no matter how the board's membership is elected.

    The legal question in North Carolina State Board of Dental 
Examiners has its roots in Town of Hallie v. City of Eau 
Claire,\21\ where the Court found a municipality immune under 
Parker because it acted pursuant to the state's clearly 
articulated policy to displace competition, despite being 
unsupervised. The Court reasoned that, for municipalities, 
supervision is unnecessary because there is no ``real danger 
that [it] is acting to further [its] own interests, rather than 
the governmental interests of the State.'' Although Hallie did 
not provide a test for determining which entities, in addition 
to municipalities, are entitled to this fast track to immunity, 
a footnote provided a hint: ``In cases in which the actor is a 
state agency, it is likely that active state supervision would 
also not be required, although we do not here decide that 
issue.''
---------------------------------------------------------------------------
    \21\ 471 U.S. 34, 47 (1985).

    Many courts concluded that occupational boards are among 
the ``state agencies'' to which the Hallie Court was referring, 
and thus exempted them from Midcal's supervision prong. Other 
courts equivocated, implying the possibility of needing 
supervision without holding so squarely, at least until last 
year when the Fourth Circuit decided North Carolina Board of 
Dental Examiners v. FTC.\22\ This case is correctly decided 
because practitioner-dominated boards are very different from 
municipalities, which make decisions through elected officials 
and civil servants. In the case of incumbent-dominated boards, 
it cannot be said that ``there is little or no danger'' of 
self-dealing. For that reason, the Court should affirm the 
Fourth Circuit opinion holding licensing boards to the 
strongest test for antitrust immunity.
---------------------------------------------------------------------------
    \22\ 717 F.3d 359 (4th Cir. 2013).

---------------------------------------------------------------------------
                               Conclusion


    Licensed occupations have been free to act like cartels for 
too long without Sherman Act scrutiny. With nearly a third of 
workers subject to licensing and a continuing upward trend, it 
is time for a remedy. I do not propose an end to licensing or a 
return to a Dickensian world of charlatan healers and self-
trained dentists. But the risks of unregulated professional 
practice cannot be used to rationalize unfettered self-
regulation by the professionals themselves. The law needs to 
strike a balance. That balance is the same one sought in any 
modern antitrust case: a workable tradeoff between a 
restriction's salutary effects on the market and its harm to 
competition. Immunity from the Sherman Act on state action 
grounds is not justified under antitrust federalism when those 
doing the regulation are the competitors themselves, where they 
are not accountable to the body politic, where they have too 
often abused the privilege, and where the anticompetitive 
dangers are so clear. The threat of Sherman Act liability can 
provide the necessary incentives to occupational regulators 
trading off competition for public safety and welfare.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                                 
