One of Warren Buffett’s key tenants when it comes to investing is to find companies that have a “competitive moat.” My father found such a moat when he was the dealer of record in Utah for 3M’s business products line.
Being the exclusive 3M dealer in Utah gave Pembroke’s a competitive moat. This allowed us to set pricing on our machines, supplies and service as we determined to be in the best interest of our stockholders. Competition from other dealers of competing brands of copiers kept us in check. The state of Utah did not require that our salespersons or service technicians have an occupational license.
Occupational licensing is a competitive moat offered by the state that protects our citizens when it comes to incapable or unscrupulous operators. The intent is proper, but the execution is the pits. I can go along with occupational licenses for doctors, engineers and architects but not for hairdressers.
The Obama administration cited renowned economists Adam Smith and Milton Friedman in its support of rolling back occupational licensing a few years ago. Obama’s Council of Economic Advisers, the Department of the Treasury and the Department of Labor released a report in 2015 drawing on the works of Smith and Friedman that concluded, “The practice of licensing can impose substantial costs on job seekers, consumers and the economy more generally. Eliminating irrational regulation would improve economic opportunity.”
Occupational licensing is out of control. In 1950, only 5 percent of the U.S. workforce had occupational licenses. By 2016 that number had risen to 30 percent. There is a very compelling reason for the unprecedented growth. Wikipedia, in citing arguments against licensing, says: “Licensing creates a regulatory barrier to entry into the workforce and this results in higher income for those with licenses and usually higher costs for the consumer.”
The cost of lemonade is going up in the state of New York where the “lemonade police” fined a 7-year-old entrepreneur for not having a license to sell lemonade. If you want to become a travel agent in Nevada, you are required to take 733 days of training and then shell out $1,500 for the license, according to the Brookings Institute.
The Mercatus Center published a report that points out some of the ridiculous licensing requirements around the country. In “The Effects of Occupational Licensing on Completion, Consumers and the Workforce,” the institute said that in one state, it takes 26 days of training and a couple of exams to become an emergency medical technician with people’s lives in your hand. But to become a licensed painting contractor, you need 1,824 days of education or on-the-job training and an exam. If you want to be a security guard, it’s 1,095 days of training plus two exams, and to become an athletic trainer, how about 1,460 days of education or experience and an exam?
Enough said.
Occupational licensing is killing the American Dream. The notable think tank Institute for Justice tells us “burdensome laws prevent upward mobility for lower income workers and aspiring entrepreneurs.” Even though our unemployment rates are at historic lows, policymakers are still struggling with ways to assist the low-wage workers achieve the American Dream. In my opinion, returning the number of jobs that require a license back to the 1950 level of 5 percent would a great way to help them.
I never had the need to have occupational licensing to protect my income. I was capable of getting along with just my skill set. Sure, my competitors were nipping at my heels, but superior fire-in-the-belly made me a money-maker.
So, what should Utah do to make our state the home of the American Dream? The first thing to do is for the state Legislature to make a cost/benefit analysis mandatory for occupational licensing. Next, and most importantly, the governor needs to order a complete review of all occupational licenses in effect that includes a cost/benefit analysis. And finally, the state should start a major marketing effort touting the reason why Utah is the home of the American Dream because of the way it handles occupational licensing.
“Our nation was founded on the principles of liberty and freedom, while encouraging entrepreneurship and efficiency,” said Edwards Timmons, director of the Center for the Study of Occupational Regulations at Saint Francis University. “We can no longer afford to have our citizens believe that burdensome occupational licensing requirements and the minimum wage are the most they can hope for.”
Robert Pembroke is the former chairman and CEO of Pembroke’s Inc. in Salt Lake City.