The Case for Laissez-faire Hair Braiding

To many, occupational licensing laws elicit instinctive approval. In their capacity as consumers, people tend to ascribe these regulations to the state’s ostensible concern for the “public interest.” It is all too easy to imagine a society in which incompetent doctors, unscrupulous stockbrokers, and rapist cab drivers are allowed to endanger the safety of their customers. Notwithstanding economic objections to the necessity of occupational licensing – such as the argument that a firm’s interest in its own reputation would compel it to weed out unqualified employees – George Stigler argues that these laws are lobbied for and crafted by entrenched economic interests. Irrespective of its effects on consumer safety, occupational licensing functions as a barrier to entry in those markets subjected to it. Using the coercive might of the state, it imposes non-market costs – typically in the form of onerous bureaucratic procedures and expensive degrees – on prospective entrants. By limiting the supply of entrants into a given market, occupational licensing tends to prevent the supply of that market’s goods from meeting demand. Licensed producers benefit by being able to raise prices above market-clearing rates. Essentially, occupational licensing laws inhibit value formation by prohibiting a class of mutually-advantageous market relationships between producers and consumers. However, they also induce licensed firms to destroy value (i.e. to create deadweight loss) by incentivizing them to expend scarce resources on political influence rather than alternative goods. Thus, these regulations exert quantifiable negative impacts on any sensible definition of the “public interest.”

The salience of Stigler’s critique and the naiveté of public interest justifications are illustrated eloquently by the documentary, Locked Out: A Mississippi Success Story. Around the 5-minute mark, the Institute for Justice commentator describes how Mississippi cosmetologists lobbied the state legislature to freeze competitors out of the hair braiding market and reaped oligopoly profits as a result. Despite Melony Armstrong’s extensive experience with and demonstrated competence in hair braiding, the Mississippi State Board of Cosmetology required her and her peers to obtain a $10,000, 18-month, and utterly superfluous credential. A credential that almost prevented Armstrong from embracing her entrepreneurial dream. The cosmetologist cronies enjoyed long-lasting success because they presented concentrated benefits and dispersed costs. Statewide, voters base their electoral decisions on the relatively small list of issues that effect them directly (taxation, infrastructure investment, public schooling, etc.) of which the costs of niche services such as hair braiding are generally not included. Thus, the rational ignorance cultivated by democratic majoritarianism enabled politically connected cosmetologists to establish an oligopoly. Armstrong had to solicit the services of a filmmaker and high profile advocacy organizations such as IJ to make her plight visible and inspire sensible policy changes. Nevertheless, dozens of other harmless occupations, from tour guides to dairy farmers to Christmas tree vendors, remain restricted throughout the nation. This moving documentary demonstrates that Stigler’s theory is not an abstract thought experiment founded on unrealistic assumptions. To the contrary, regulatory capture is an all-too real structural flaw of democratic societies which, though harmful to the public as a whole, is especially detrimental to prospective entrepreneurs who lack wealth, influence, and a voice in their supposedly representative governments.