Free Our Markets

by Howard Baetjer Jr

A neighbor stopped six-year-old Devin, one of Sharissa’s clients, on the sidewalk one day and asked, “Who did your hair for you?”

  “Rissy did it,” said Devin. That night, Sharissa’s mother received a call from a neighbor. The neighbor said she had heard through the grapevine that Sharissa was doing hair without a license. That was illegal, and she should stop. Sharissa’s mother reluctantly told Sharissa to cancel her other appointments. “We don’t want any trouble.”

  Sharissa found out later that the woman who had stopped the child and asked, “Who did your hair for you?” has a niece … who is a licensed hairdresser, who had had a thirty-two dollar appointment canceled by the mother of one of Sharissa’s five-year-old clients.

  Based on this story, what would you say is the actual purpose of hairdresser regulation, as opposed to its official purpose, if in fact there is a difference?

  * * * * *

  In trying to understand the effects of government regulations that interfere with free exchange, concentrate on the incentives those regulations generate. Ask yourself,

  Where hairdressers must get a license from the state in order to practice, what are the incentives for licensed hairdressers with respect to the licensing?

  In the case of Sharissa and her little neighbors, at least, the actual effect of the licensing was to hinder competition. It blocked Sharissa from earning some income, it forced the five-year-olds’ parents to pay six-fold higher prices, and it protected the income of the licensed hairdresser. This effect in Sharissa’s Baltimore neighborhood generalizes to all licensing everywhere. Licensing blocks competition and thereby supports the incomes of the already-licensed practitioners. Accordingly—and this is crucial—the existence of licensing gives licensed practitioners a strong incentive to support licensing requirements that are strict and strictly enforced, regardless of their effect on the public health and safety.

  The actual purpose of hairdresser licensing is to block competition to raise the prices licensed hairdressers can charge.

  The general public believes that licensing protects their health and safety, and licensed hairdressers encourage this belief. But the public has been bamboozled in this; they are ignorant—“rationally ignorant” (we discuss this phenomenon in Chapter 7)—of what is really going on. In the crude vernacular, hairdresser licensing lets licensed hairdressers rip off consumers by squashing their competition. A thoughtful look into the details of the regulations makes this plain. In the description that follows, keep asking yourself, how does this protect the public health and safety? And, notice the systematic effect of restricting entry into the profession in a wide variety of ways that have nothing whatever to do with public health and safety.

  Sharissa’s story inspired me to do some investigation of Maryland’s hairdresser licensing laws. I visited the offices of the Maryland State Board of Cosmetologists, which regulates the work of hairdressers, manicurists, and cosmeticians. Naively, I asked to see a copy of the licensing examination, because I wanted to confirm Walter Williams’s assertion that the written part of the examination was often irrelevantly difficult—designed to exclude those who have had poor schooling. The clerk whom I asked for the test looked at me with astonishment: no one gets to see the examination except those taking the test.

  All right, then, could I please see the regulations? Of course. The clerk handed me The Annotated Code of Maryland, Article 566, Sections 479-507, with Code of Maryland Regulations 09.22.01, 09.22.02, 09.01.03, and 09.22.12. Of the booklet’s fifty-six pages, slightly less than four deal directly with health and safety, in two virtually identical passages, one for beauty salons and one for beauty schools. The requirements related to health and safety are either so obvious as to go without saying, or so petty as to be more a nuisance than anything else.

  It is required, for example, that salon employees wear clean clothes, wash their hands, and keep their curling irons “free from rust, grease, and dirt.” Is this a necessary regulation? Can we imagine a hairdresser staying in business using rusty, greasy, or dirty curling irons? Some other important rules:

  “A minimum of 12 combs and 4 brushes shall be available for each on-premises employee licensed to perform beauty culture.”

  “Implements to be used for pressing and thermal waving shall be adequate in quantity and variety to perform the complete service.”

  “Protective neck bands shall be used on each patron.”

  “Fluids and powders shall be applied to patrons from a bottle or shaker dispenser.”

  If such regulations do improve safety, the effect is surely miniscule, because any beauty shop must stay clean and sanitary enough to keep its customers coming back and to convince the insurance inspector that lawsuits are unlikely. In any case, the other ninety-three percent of the regulations make clear that protecting health and safety is a minor goal at best—a cover for the real work regulations do.

  To begin with, only those who practice cosmetology “for compensation” are covered by the statutes; this is stated three times on the first page. But if hairdressing is dangerous and if the law is meant to protect the public safety, shouldn’t any practice, whether for compensation or for free, be covered?

  Anyone under seventeen is excluded from the business. Sharissa, no matter how competent, would not have been allowed to offer her services for pay for three more years.

  The regulations define and control various job categories and access to them. For example, a beauty shop “owner” (distinct from “owner-operator”) may not simply promote a capable employee from “junior manager” to “senior manager.” That employee must first take a test, but not until “such person has had twelve months’ experience working as a junior manager.”

  Entry into the profession at the lowest level (as an “operator”) is tightly controlled. All would-be operators must pass the board’s examination. Though I’ll argue below that even an examination is unnecessary, a test of basic competence does not seem unreasonable on its face. But being competent to pass the examination is not legally sufficient. No one may take the examination until having already put in 1500 hours training or served as an apprentice in an approved beauty shop for at least two years. That’s right; even if one is already competent enough to pass the examination, it does not matter; he must nevertheless get (more) extensive training before getting permission to take the examination.

  Beauty school is expensive. In 1988 the total price of beauty school in Maryland (enrollment fee, kit, tax, insurance, and tuition) ran about $3,300, not counting foregone income from a job. Today tuition, fees, books and supplies run about $16,150.

  Beauty schools are regulated also, with the same effect—and purpose—of limiting access to the profession. Each school must be licensed, and each must hire the right number of duly trained and licensed teachers, as well as a licensed physician “as a consultant.” School terms may not run less than nine consecutive months nor give more than forty hours of training per week (for day school; for night school it is eighteen months and twenty hours per week).

  Would-be hairdressers can avoid beauty school by going the apprenticeship route, but similar restrictions apply to apprentices. They must be licensed as such and “shall be required to work at least 40 hours per week, for a period of 24 months.” Part-time work is out. “Apprenticeship training shall be completed in not less than 24 months, nor more than 30 months.” (Why the six-month window?) Beauty shops may take on only a limited number of apprentices. (Why?) They “may not charge for operations performed completely by an apprentice,” and these operations must in any case have the “complete and constant supervision of the designated operator or the junior-manager.”

  The evident purpose of this maze of regulations is to restrict entry into hairdressing. If competence were the object, a suitable examination would do the trick. The suitability of the examination we cannot judge, but the regulations are clearly designed to reduce dramatically the number of people who ever get to take that exam.

  Once licensed
, a hairdresser faces still more restrictions. One that indirectly but potently reduces competition is number 09.22.01.11 B: “Operations may not be performed at the dwelling house of the licensee, or at any other premises other than the dwelling place of the patron, without the permission of the Board, which shall be received in advance of the operation, in writing.” No dressing hair in one’s own house is permitted—no saving the cost of a separate facility, no saving the cost of travel there, no keeping an eye on one’s children in one’s own house while one earns money to provide for them. All these are forbidden, for the sake of the public health and safety, of course.

  Not only do the licensing regulations themselves suggest that licensing aims to restrict competition; so does the manner in which they are enforced. Eunice Alper, executive director of the Maryland Board of Cosmetologists, explained to me that most illegal hairdressing is performed not by unlicensed people but by licensees operating outside the rules. It can be difficult for the Board to track down such miscreants, because the consuming public virtually never complains about such violations. Sometimes a neighbor, but usually “some other cosmetologist makes the complaint.” See who’s protected by the regulations?

  The public’s attitude is well illustrated by Alper’s account of one basement beauty shop that the board shut down with the help of a ruling on the particular meaning of “compensation.” The shop was just that: a full-fledged beauty salon, with people waiting in line and a closet full of supplies. But the hairdresser and her patrons all insisted that this was not a beauty shop under the law, because the service was not provided “for compensation.” No cash changed hands. The patrons, in exchange for having their hair done, would do favors for the hairdresser: bake cakes, do laundry, make clothes, baby-sit, and so on.

  The ruling was: that’s compensation. For three patrons at $500 per violation, the hairdresser was slapped with a $1,500 fine. The board closed down her salon, thereby denying her customers a convenient service they valued. Those actions were to protect the public?

  Alper added that money probably did change hands. “But why wouldn’t the customers have said so?” I innocently asked. “Some people are protecting their hairdressers,” replied Alper, “so they lie.” The irony is delicious, isn’t it? The board pretends to protect the health and safety of customers from improper hairdressers, while the customers protect those hairdressers from the board.

  Regulatory Capture

  Hairdresser licensing illustrates what economists call the capture of regulation. The basic idea is as follows: Whenever governments regulate a particular industry, the dominant enterprises within that industry are strongly affected by the regulations. Accordingly, they have a strong incentive to influence those regulations in their own favor. They respond to this incentive. They strive to influence the regulators and regulations, acting through their industry associations and lobbyists. Eventually they come to direct the regulatory process more or less.

  The influence of the regulated group results in part from the necessities of regulation: Who knows enough about an industry to craft appropriate regulations? The members of that industry do, of course. For this reason, industry representatives are almost inevitably in a position to influence the regulations, if not to write them directly.

  When representatives of the dominant groups in an industry control the regulatory process, we say that the regulation has been captured by the regulated group. They direct the regulation not in the public interest, but in their own particular interest, usually at the expense of their politically weaker competitors and the general public.

  In our current example, established beauty salons and already licensed hairdressers dominate the hairdressing industry. As long as the salons can keep themselves satisfactorily staffed, they benefit from keeping newcomers out of hairdressing altogether. They also benefit by restricting the number of places where licensed hairdressers may work, and by preventing them from working anywhere they and their customers might choose, such as in the hairdresser’s home. If that were allowed, every hairdresser’s basement would become a potential competing salon. The regulations do not protect the public; they protect the established salons, which have captured the regulatory process. In effect, licensing gives established hairdressing salons a legal cartel.

  Members of the hairdressing industry want the regulation. They fight for it. So I was informed by Thomas Berger, the cheerful executive director of the National Cosmetology Association, headquartered in St. Louis. He told me proudly of the association’s successful lobbying against some states’ efforts to “sunset” their licensing boards (let their licensing laws expire), and he sent me a copy of the model bill the association was sending state legislatures. Among its recommended provisions were increasing the schooling minimum from eighth grade to high school graduation, and boosting the training-time requirement from 1,500 to 2,100 hours. What would be the purpose of this increased restriction, I asked Mr. Berger. He replied, “No reason other than consumer protection.”

  There are many, many examples of regulatory capture. Occupational licensing alone has been spreading across the United States at a great rate as established practitioners in various fields use it, or try to use it, to block competition. Here are some examples from the web pages of the Institute for Justice, a public-interest law firm that, among other things, litigates on behalf of ordinary people trying to earn an honest living providing a valued service, who are being obstructed from doing so by captured regulators. Notice how in each case the regulated group is trying to use the licensing process to their own advantage, to the detriment of their (would-be) competitors and the general public.

  Massaging Horses

  On behalf of veterinarians and chiropractors, Maryland restricts who may massage horses. The effort is being challenged in the case of Clemens v. Maryland State Board of Veterinary Medical Examiners, et. al.:

  Mercedes Clemens is a Maryland entrepreneur with a thriving massage practice in Rockville that, until recently, offered both human and animal massage. In addition to being a licensed massage therapist, Mercedes has more than 30 years of practical experience as a horse owner and rider, has been certified in equine massage—a growing practice that can alleviate physical discomfort and calms horses, making them easier to handle—and has even taught animal massage to others.

  Despite these qualifications, Mercedes has found herself whipsawed by two licensing boards intent on protecting a veterinary cartel from competition. According to the Maryland State Board of Veterinary Medical Examiners, Mercedes cannot practice animal massage without spending a fortune on four years of veterinary school. Further, in February of 2008, the Maryland Board of Chiropractic Examiners ordered Mercedes to stop practicing equine massage and take down her website or else lose her license to massage humans, which now makes up the bulk of her practice.

  Owning Funeral Homes

  On behalf of funeral home owners, Maryland restricts who may own (not work in, own) a funeral home. This restriction is being challenged in the case of Brown v. Hovatter:

  All Charles S. Brown wants is the chance to offer consumers the best service a funeral home can at the best price. But the State of Maryland is standing in his way.

  Brown owns Rest Haven Cemetery in Hagerstown, Maryland, and runs it with his wife Pat and their son Eric. Charles wants to own the funeral home he built in order to provide additional revenue to care for the gravesites in his cemetery when the cemetery itself is full.

  The State of Maryland arbitrarily restricts who can own a funeral home. In Maryland, only licensed funeral directors and a handful of politically favored corporations and individuals may own a funeral home. Becoming a licensed funeral director takes two years of study and thousands of dollars. Among the many requirements of a mortuary science degree is learning how to embalm corpses. As a result, consumers pay more than they otherwise would, and opportunities for would-be entrepreneurs are blocked.

  Interior Design

  Connecticut does not (yet) requ
ire interior designers to get a state license, but on behalf of state licensees it restricts unlicensed interior designers from advertising themselves as designers. The Institute for Justice is challenging this restriction in the case of Susan Roberts v. Jerry Farrell:

  Susan Roberts is an interior designer, but the state of Connecticut will not allow her to tell anyone that. This is because Connecticut has a law that allows anyone to perform interior design services, but dictates that only those with government-issued licenses may call themselves “interior designers.” Besides unconstitutionally censoring truthful commercial speech, “titling laws” like Connecticut’s serve as precursors to full-blown occupational licensure, which is the ultimate goal of a small faction within the interior design industry led by the American Society of Interior Designers (ASID).

  In November 2007, the Institute for Justice (IJ) released an updated case study, “Designing Cartels,” which documents a long-running campaign by ASID and its affiliates to increase regulation of interior designers in order to thwart competition and impose a one-size-fits-all set of credentials for the entire interior design industry. Not surprisingly, the nationwide push for more regulation of interior designers has come not from the public or the government, but from a small cartel of industry insiders seeking government protection from competition.

  Only three other states besides Connecticut license the use of the term “interior designer” without regulating the work itself. The anti-competitive intent behind such title acts is clear: anyone who goes looking for an “interior designer” on the Internet or in the Yellow Pages in those states will find only government-licensed cartel members, while overlooking scores of capable designers like Susan Roberts.

  Hairdressing, Again

  And bringing us back to hairdressing, Utah protects hairdressers by making it illegal to braid hair without a cosmetology license. Jestina Clayton is challenging this restriction in the case of Clayton v. Steinagel: