Arizona law avoids regulatory capture of job licensing laws

An Arizona bill just signed into law promises to reduce the dangers of “regulatory capture” in occupational licensing boards.

Political scientists and public policy institutes concerned with transparency in governance often talk about the notion of regulatory capture. A quick Google search to define this term yields results that are different in tone, but point to the same problem:

Regulatory capture is an economic theory that says regulatory agencies may come to be dominated by the industries or interests they are charged with regulating. The result is that an agency, charged with acting in the public interest, instead acts in ways that benefit the industry it is supposed to be regulating.

OR

Regulatory capture is a corruption of authority that occurs when a political entity, policymaker, or regulatory agency is co-opted to serve the commercial, ideological, or political interests of a minor constituency, such as a particular geographic area, industry, profession, or ideological group.

Regulatory capture is also sometimes referred to as “client politics.” One theory behind the cause of regulatory capture is that groups and individuals with a high level of interest in the outcome of a particular policy or regulatory decision will often focus their resources on attempting to gain those outcomes—while the general public (each individual who has a relatively low stake in the outcome of particular regulatory decisions) largely ignores the regulatory actions being proposed and implemented.

A classic example of regulatory capture comes from the now-defunct Interstate Commerce Commission, which was created to regulate and control concerns about railroad companies and the view that they had excessive power. A railroad attorney—when asked by his client if he could do something to get rid of the ICC, responded in a letter:

“The Commission… is, or can be made, of great use to the railroads. It satisfies the popular clamor for a government supervision of the railroads, at the same time that supervision is almost entirely nominal. Further, the older such a commission gets to be, the more inclined it will be found to take the business and railroad view of things.… The part of wisdom is not to destroy the Commission, but to utilize it.” [emphasis added]

Regulatory capture can be every bit as dangerous to the public good in the area of occupational licensing. The North Carolina State Board of Dental Examiners v. FTC case provides a prime example of regulatory capture. In this instance, dental practitioners making up the board, sought to prevent non-dentist teeth-whitening services from operating in the state—even though there was no evidence to show that teeth whitening services provided by non-dentists was any more dangerous for the public than that done BY dentists. In fact, one of the complaints to the Dental Board about these independent teeth-whiteners was that they were taking business away from dentists by charging lower prices; in other words, they were competing with dentists and benefiting consumers!

Licensing is typically proposed for occupations as a means to protect the “health, safety, and welfare” of the public from dangerous or unqualified practitioners. Those are goals that are hard to argue with. But what happens when a board becomes “captured” by the occupation, and has little or no public input?

Take a look at most licensing boards in any state. They almost always consist (in overwhelming numbers) of practitioners of the occupation. Most boards, in recent years, have moved to have a token “lay member” of the board, as well (ostensibly, to try and avoid some of the issues of regulatory capture).

Imagine, for instance, being the sole “public member” of a board that includes owners of businesses that employ those you are licensing, schools that train those you are licensing, and active practitioners in the field you are licensing.

If a question of whether or not a potential licensee should or shouldn’t be licensed, or whether a current licensee should be sanctioned for improper behavior, how many questions are you likely to ask, seated in a room full of active practitioners in the field—especially in areas where the differential knowledge base between layperson and professional might be great, like in medical fields?

The Arizona bill turns the unequal distribution of licensing power—a power that legislatures have given in the name of public health, safety, and welfare—away from the practitioners, and back to the public, as membership on licensing boards turns to a majority “public members,” and minority active practitioners.

Nebraska—and other states—should look to enacting provisions such as Arizona’s new law to help avoid regulatory capture and ensure that licensing benefits the public interest and not just the professional interest.