Occupational licensing stifles innovation

by Eric Shierman

Earlier this year I wrote about the issue of occupational licensing and how it imposes unnecessary costs on consumers while barring entrance to service sector jobs. Perhaps the greatest harm it poses on society however comes from the way it stifles innovation. As we get closer to election day, I can’t help but notice that occupational licensing remains probably the biggest structural issue restraining our economy that goes completely unmentioned in politicians’ stump speeches on either side.

It is remarkably difficult to make an efficient search for rental housing, particularly now as we transition from an overproduction of housing for sale to an undersupply of housing for rent. This seems to cry out for the development of a website or even an app on our phones to connect prospective renters with land lords in a more transparent way than Craigslist ads and other anonymous postings like rent.com however better they are than the old newsprint classified section. Technology has not been the barrier here, real estate licensing has. A promising case represented by the Pacific Legal Foundation sought to override the Missouri Real Estate Commission’s ruling that blocked Kansas City Premier Apartments from doing just that. This innovative firm developed a low cost way to broker renters and landlords. What a great case for the Supreme Court to take up, but with five Republican appointees, this case was denied cert earlier this year for the same reason Obamacare was confirmed: years of jurisprudential focus on curtailing a constitutional right to privacy have come at the expense of any coherent legal theory to proactively protect our economic liberty.

New York City, which imposes on its hotels the most burdensome regulatory regime of any other city on an industry that is all too happy to comply due to the consequent lack of competition, also has the highest lodging prices. Enterprising New York residents began using the home swapping website airbnb.com to sublet by the night, until the New York City Council passed a law a year ago banning home swapping for periods of less than 30 days to protect their hotel cartel.

The classic case of a handful of politically connected companies operating under blatantly restrictive licensing is of course the Taxi business. Most of the disadvantages from cities’ protection of their taxi cartels remain obvious to the rest of us. Taxi services are far more expensive than they would otherwise be. Taxi companies also do not have to compete hard with each other for labor. So despite the higher prices, taxi drivers aren’t benefiting, and good luck finding a taxi when you need one in Portland beyond the airport and the downtown bar scene late at night.

Over the years it has been interesting to compare the taxi business here in Portland with its ironically more free market alternative in the District of Columbia. I have a DC taxi app on my phone and marvel at its effectiveness in getting me a taxi when I need it, where I need it, with little to no wait and an affordable price. Nothing like this exists in Portland, but unfortunately the country’s last free taxi market has been undergoing a political takeover.

Taxi service could be a far more integral part of our transportation economy if it were not subject to such regulatory induced market failure, but the greatest disadvantage our taxi laws impose on us is just around the corner – if they are allowed to stifle the innovative promise of self driving vehicles. One of the greatest technological innovations in transportation is about to take us by storm. The ability to increase the mobility of the disabled, the elderly, and the young is obvious, but this a killer app promising far more: to eliminate traffic jams, parking shortages, and even perhaps, the mass ownership of the personal automobile the way email has eliminated dictation, filing cabinets, and postal costs.

The self-driving automobile is the most radical technological advance on the horizon that few have heard of and is closer to implementation than you think. Since humans have such a lousy safety record as manual drivers of cars, establishing the lack of danger from the automation of the automobile is the lowest hurdle to clear. The most effective lobbying technique for Google, this technology’s leading developer, has been to give state legislators demo rides. So far the primary opposition Google has faced, in its effort to get states to legalize self driving vehicles, has been from domestic auto companies that fear Google will actually begin manufacturing its own cars. The first state to legalize autonomous vehicles was Nevada. Since then Florida and California have too.

The full utilization of this technology’s potential as it competes with not only the existing auto industry, but with taxi companies, rental companies, and public transit monopolies like Trimet will be politically daunting. The thing cars do today more than anything else is to remain parked. Owners of self driving vehicles will be able to rent them out when not in use. The ability to create a vibrant market of sharing vehicles through an app on our phone will mean far fewer cars getting sold and far more car pooling than exists today. One could pay a premium for the kind of single occupant commuting so common today, or one could save a lot of money by accepting a ride from a self driving vehicle that will pick several other passengers up along the way. There are many occupational licenses that stand in the way of this killer app.

A final example of the use of licensing to stifle innovation played out last week where, in a classic case of reductio ad absurdum, the State of Minnesota announced it is illegal for its residents to take free online classes because they are not licensed. This story was not broke by the Onion, but rather by the official trade magazine of the university industrial complex, The Chronicle of Higher Education which you can read here. The story then went viral, and in a tribute to the power of our twittered world, the state’s office of higher education backed off 24 hours later, offering to not enforce their licensing law and to seek its amendment in the next legislative session.

We would never do anything dumb like that here in Oregon now would we? Trying to ban free educational materials may seem silly, but wait until Portland regional planners, who are at this very moment trying to figure out how to increase our population density without any increase in vehicle trips traveled over the next twenty years, react to the self-driven automobile, an innovation that will change everything.

Eric Shierman lives in southwest Portland and is the author of A Brief History of Political Cultural Change. He also writes for the Oregonian’s My Oregon blog.