Occupational Licensing and Antitrust Revisited: Teeth Whitening at the Supreme Court: Focus
Last week I noted my wife Ann Marie’s:
>…a poster child for the clear articulation and active supervision standards required to determine whether an anticompetitive policy is indeed the policy of a given state, and entitled to immunity…. North Carolina’s Dental Board functioned more as a trade association with super powers granted to it by the state–apparently with an open-ended portfolio of responsibilities relating to dentistry in the state…. The dissent argues the delegation was valid….
>Whatever you think of the dissent, Justice Alito is spot on when he notes that the majority opinion is potentially quite disruptive for state medical licensing boards… long… under full sway of the regulated health professions…. We have almost no tradition of genuine state regulation of doctors, dentists, and optometrists other than the North Carolina Dental Board model…. If we aim to take it over it will not be a taking it back, but a taking it on–an invention out of whole cloth.
Now we have the sharp Rebecca Haw Allensworth and Aaron Edlin in the *Wall Street Journal**:
>…In 2006… the North Carolina State Board of Dental Examiners banned salons, spas and other businesses from offering teeth-whitening services…. The FTC sued, arguing that the move constituted unfair competition…. The upshot…. Many professional boards in the U.S. will be vulnerable to antitrust suits for anticompetitive regulations…. The stakes are high, as roughly 30% of the U.S. workforce needs an occupational license….
>The changes that states must enact to immunize boards from litigation will make regulation more transparent…. Boards comprised of some licensed professionals–not a majority–and rounded out with members representing other interests such as consumers or safety experts are more likely to be immune from lawsuits…. States could also avoid antitrust lawsuits by actively supervising board activities… review the substance… not simply the procedure…. The states have another option: Do nothing…. If board regulations are designed to address real problems, as the professionals often argue, they have little to worry about…. The Supreme Court… has taken an important step toward restoring competition in these licensed professions.
The remarkable thing to me is that [the dissent](http://www.supremecourt.gov/opinions/14pdf/13-534_19m2.pdf) drew three–THREE!–votes: Alito, Scalia, and Thomas:
>The Court’s decision in this case is based on a serious misunderstanding of the doctrine of state-action antitrust immunity…. The Sherman Act does not prevent the States from continuing their age-old practice of enacting measures, such as licensing requirements, that are designed to protect the public health and welfare. The case now before us involves precisely this type of state regulation…. The Court [says]… the Board is not structured in a way that merits a good-government seal of approval… is made up of practicing dentists who have a financial incentive to use the licensing laws to further the financial interests of the State’s dentists….
>Professional and occupational licensing requirements have often been used in such a way…. [In the] Parker immunity… [case] the very state program involved in that case was unquestionably designed to benefit the regulated entities, California raisin growers. The question before us is not whether such programs serve the public interest. The question, instead, is whether this case is controlled by Parker…
Justice Kennedy–and the other five–would presumably reply that the California Agricultural Prorate Act did not delegate the state’s powers to a group of raisin growers and then cloak that group of raisin growers in the state’s antitrust immunity, and that if it had then Parker would (or should) have come out differently. And I, at least, would find that reply convincing.
What I do not find convincing is how Alito and company’s declaration in the first paragraph I quote that states are allowed to regulate commerce in the interest of “public health and welfare” has morphed by the end of the second to “the question is not… the public interest”. If you craft an exception so that states can serve the public interest, isn’t the scope of that exception properly drawn when actions taken under it do serve the public interest? What else could the question be?
And we have Alito, Thomas, and Scalia’s Parthian Shot:
>When the Court asks whether market participants control the North Carolina Board, the Court in essence is asking whether this regulatory body has been captured by the entities that it is supposed to regulate. Regulatory capture can occur in many ways. So why ask only whether the members of a board are active market participants? The answer may be that determining when regulatory capture has occurred is no simple task. That answer provides a reason for relieving courts from the obligation to make such determinations at all. It does not explain why it is appropriate for the Court to adopt the rather crude test for capture that constitutes the holding of today’s decision.
Again, this seems to make no sense. It is highly likely that regulatory capture has taken place when it leads to the delegation of state powers to a group of professionals drawn from only one side of a market. It is much less likely that regulatory capture has taken place when a regulatory board has members from diverse constituencies and when its actions are supervised by those elected by the voters. That the test is “crude” does not mean that it is a bad test–in fact, a crude test that is almost optimal is almost always a much better test than a complex one that would be optimal if it could be costlessly implemented. And that some rent-seeking and regulatory-capture remains outside is no more an argument for *laissez-faire* in this case than it would be for dropping laws against fraud.
Rather, Alito, Thomas, and Scalia’s opinions here seem to tie in rather well to one of Thomas Piketty’s major arguments. In a plutocracy, Piketty argues, the principal aim of government power is to preserve the rents that the rich have acquired and hold, not to advance societal welfare via increasing the efficiency of a competitive market.
Back when I first noticed the existence of right-wing law-and-economics as a movement, it argued that judges should make decisions to maximize the consumer surplus generated in a market (taking account of producer surplus would, it was thought, provide too much encouragement to rent-seeking). Then over the decades it shifted to maximizing the total of consumer plus producer surplus (as higher producer surplus would spur innovation, an activity with positive spillovers). Now it seems that the argument has become that judges should act not to enhance economic efficiency but rather simply to preserve property, even if the property is in the unusual form of the right to use the state’s antitrust immunity to shut down one’s competitors.
This is an interesting intellectual journey we seem to be on…