Licensing and Laissez Faire
Case 4.2 Licensing and Laissez Faire
The United States is a capitalist country and our system of medical care is to a significant extent
organized for profit. True many hospitals are nonprofit but the same cannot be said of doctors who
judged as a whole form an extremely affluent and privileged occupational group. Sometimes physicians
themselves seem a little uncomfort-able about the business aspect of their professional lives or worry
that outsiders will misinterpret their attention to eco-nomic matters. For example the professional
journal Medical Economics which discusses such pocketbook issues as mal-practice insurance taxes
fees and money management ( Are You Overpaying Your Staff? is a typical cover story) works hard at
not being available to the general public. When a sub-scriber left his copy on a commercial airliner
another reader found it and sent the mailing label to the magazine; the maga-zines editor sent a
cautionary note to the subscriber. The editor advises readers to do your part by restricting access to
your personal copies of the magazine. Dont put them in the waiting room dont leave them lying about
in the examination rooms and dont abandon them in public places. 73 Medical Economics probably
suspects that even in our capitalist society many people including probably most doc-tors would not
like to think of physicians simply as medical entrepreneurs who are in it for the money. And indeed
many people here and many more in other countries criticize our medical system for being profit
oriented. They think medical care should be based on need and that ability to pay should not affect the
quality of medical treatment one receives. Interestingly though some people criticize medical practice
in the United States as being insufficiently market oriented; prominent among them was the late Milton
Friedman a Nobel Prize winning economist at the University of Chicago. Friedman was a long- standing
critic of occupational licen-sure in all fields. His reasoning is straightforward: Licensure the
requirement that one obtain a license from a recognized authority in order to engage in an occupation
restricts entry into the field. Licensure thus permits the occupational or pro-fessional group to enjoy a
monopoly in the provision of serv-ices. In Friedmans view this contravenes the principles of a free
market to the disadvantage of us all. Friedman had no objection to certification that is to public or
private agencies certifying that an individual has certain skills. But he rejected the policy of preventing
people who do not have such a certificate from practicing the occu-pation of their choice. Such a policy
restricts freedom and keeps the price of the services in question artificially high. When one reads the
long lists of occupations for which some states require a license librarians tree surgeons pest con-
trollers well diggers barbers carpet installers movie projec-tionists florists upholsterers makeup
artists even potato growers among many others74 Friedmans case gains plausibility. But Friedman
pushed his argument to include all occupations and professions. Does this mean we should let
incompetent physicians practice? Friedman would say yes. 75 In his view the American Medical
Association ( AMA) is simply a trade union though probably the strongest one in the United States. It
keeps the wages of its members high by restricting the number of those who can practice medicine. The
AMA does this not only through licensure but also even more effectively through controlling the
number of medical schools and the number of students admitted to them. Today for instance over
42000 applicants vie every year for roughly 18000 medical school vacancies. The medical profession
Friedman charged limits entry into the field both by turning down applicants to medical school and by
making standards for admission and licensure so difficult as to dis-courage many young people from
ever trying to gain admis-sion. And in fact fewer students apply to medical school these days than in
the 1990s. Viewed as a trade union the AMA has been singularly effective. As recently as the 1920s
physicians were far down the list of professionals in terms of income; the average doc-tor made less
than the average accountant. Today physicians constitute the profession that arguably has the highest
status and the best pay in the country. The median income for pri-mary- care physicians is $ 157000. For
general surgeons it is $ 265000. And in certain specialties it is a great deal higher. Cardiologists pain
specialists radiologists hand surgeons and others often earn over half a million dollars a year. 76
American doctors earn far more than their foreign counter-parts do even in countries where average
wages are similar to those in the United States. Still the medical establishment remains worried. It
believes that there are too many doctors in the United States and that this surplus breeds
inefficiency and drives up costs. 77 The economic logic behind this proposition is murky. An increase in
the supply of barbers plumbers or taxi drivers does not drive up the cost of getting a haircut having
your pipes fixed or taking a cab. Why should it be different with doctors? Critics of the medical
profession believe that its real worry is the prospect of stabilizing or even declining incomes. In any
case the doctors have written two prescriptions. The first is to reduce the number of medical students
by closing some medical schools; the second is to make it more difficult for foreign doctors to practice
in the United States. Although the medical establishment has often expressed concern about the quality
of foreign medical training today the worry is strictly a matter of quantity. Weve got to stop the
pipeline of foreign medical graduates says Dr. Ed ONeil of the Center for the Health Professions at the
University of California San Francisco. They are a big chunk of physician oversupply. . . . Were just
trying to be rational. 78 As for homegrown doctors Congress followed medical advice. To stem the
supposed glut it decided a few years ago to pay hospitals around the country hundreds of millions of
dollars to decrease the number of physicians they train. It now turns out however that the United
States ( which already has fewer doctors per 1000 people than do almost all European coun-tries79) is
predicted to have a physician shortage of at least 125000 by 2025.80 Medical licensure restricts the
freedom of people to prac-tice medicine and prevents the public from buying the medi-cal care it wants.
Nonetheless most people would probably defend the principle of licensure on the grounds that it raises
the standards of competence and the quality of care. Friedman would contest this. By reducing the
amount of care available he contended licensure also reduces the average quality of care people
receive. ( By analogy suppose that auto-mobile manufacturers were forbidden to sell any car that did
not have the quality of a Mercedes- Benz. As a result people who owned cars would have cars of higher
average quality than they do now. But because fewer people could afford cars and more of them would
therefore have to walk or ride bicy-cles such a regulation would not raise the quality of transpor-tation
enjoyed by the average person.) Friedman charged furthermore that the monopoly created by the
licensing of physicians has reduced the incentive for research develop-ment and experimentation both
in medicine and in the organization and provision of services. Since Friedman initially presented his
argument some of the alternatives to traditional practice that he proposed have come to pass; prepaid
services have emerged and group and clinic- based practices are on the increase. But what about his
main contention that instead of licensure we should allow the marketplace to sort out the competent
from the incompetent providers of medical services? Friedmans critics contend that even if the
licensing of professionals involves violating a moral rule against restricting individuals freedom of
opportunity it is still immoral to allow an unqualified person to engage in poten-tially harmful
activities without having subjected the person to adequate tests of competence. 81 Despite the appeal
of Friedmans arguments on behalf of free choice the danger still remains they say that people will be
victimized by the incompetent. Consider for example the dietary supplements and bogus
medications things like healing gels or iconic silver offered as preventions or cures for the
H1N1 ( swine flu) virus. 82 Or the quack remedies and treatments peddled to AIDS patients here and
abroad. Bottles of processed pond scum and concoctions of herbs injections of hydrogen peroxide or of
cells from the glands of unborn calves the eating of bee pollen and garlic $ 800 pills containing
substances from mice inoculated with the AIDS virus and even whacking the thymus gland of patients to
stimulate the bodys immune system all these are among the treatments that have been offered to
desperate people by the unscrupulous and eccentric. Deregulation of the medical field seems most
unlikely to diminish such exploitation.
Discussion Questions
1. What explains the fact that licenses are required for so many occupations? What do you see as the
pros and cons of occupational licensure in general? Does it have benefits that Friedman overlooked?
2. Do you believe that licensure in medicine or any other field is desirable? If so in which fields and under
what circumstances? What guidelines would you use to deter-mine where licensure is needed?
3. Is occupational licensure consistent with the basic principles and values of capitalism? Is it a violation
of the free- market ideal? How would you respond to the argument that licensure illegitimately restricts
individual freedom to pursue a career or a trade?
4. Does licensure make the market work more or less effectively? Would you agree that as long as
consum-ers are provided with accurate information they should be permitted to make their own choices
with regard to the services and products they purchase even when it comes to medical care? Or is
licensing necessary to protect them from making incorrect choices?
5. Friedman and others view the AMA as a trade union and they believe that the high incomes of doctors
are due more to artificial restrictions on the free market than to the inherent value of their services. Is
this an accurate or fair picture of the medical profession? 6. Is licensing an all- or- nothing issue? Or is it
possible that although only licensed professionals should be permit-ted to perform certain services
paraprofessionals and laypersons could perform less expensively but equally competently other
services now monopolized by licensed professionals?

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