The Littlest Crony

Terry’s travels threw off his blog-writing last week. He is sorry and wishes you could have been with him. Well, maybe not everybody. Just that person who sent the great pic. Whew.

We all hear regularly about the crony capitalists who make the headlines–Solyndra, GM, and all the other large companies that get subsidies and other favors from the government. What we don’t hear about are the millions of tiny cronies roaming the economy.

There are two ways to compete in business. The first is to provide something to others that is cheaper, faster, better, or prettier than your competitors. This represents true free-market capitalism, wherein the consumer gets to choose who wins and who loses in the marketplace. For those who think “capitalism” has failed, think again. The US has never known this ideal completely.

The other way is to prevent others from competing with you. In a free market, this can only be accomplished by legitimate means–say, a valid patent or a secret recipe. In a mixed economy such as ours, there are more nefarious ways, all of which involve the use of force.

For example, if I want to cut hair in Illinois, I have to obtain 1500 hours of training. Not having had hair for some years now, I was prompted to think back to whether that made sense given the skill required to cut mine back then. Nope. Can’t say it did. Maybe that’s just me. If I try to cut yours, I am in for a fine or a jail sentence.

They let me fly an airplane by myself with 40 hours of training. Granted, I could not charge for flying anyone, but even then the total requirement was well short of 1500. The real issue though, is not whether 1500 is too much for a barber, but why it is required at all.

If I come to you and say, “I hear you can cure warts with fairy dust” and pay you for the service, you and I have contracted freely. Why should anyone care? No fraud is involved. The “goods” are delivered as promised. Any dufus who believes in fairy dust receives exactly what he pays for.

Likewise, if I can cut hair and you trust me to do that for you, there is no reason for the state to say anything at all. As long as I do not misrepresent my credentials, you are getting exactly what you paid for. Any dufus that lets me cut his hair should go see my cousin about curing his warts.

So why is credentialing so rampant? It is said to be for the good of consumers, but I have my doubts. Licensing requirements do more to protect established practitioners of a trade than the consumers who do business with them. By lobbying legislators to prevent others from competing, professional service providers are able to make a profit through force–you and I are forced to go to an “approved” provider.

How many more people could earn a decent income were they not burdened by time-consuming and expensive licensing requirements? From the guy who opines on diet to the horse masseuse in Nebraska, free exercise of economic rights is under assault everywhere.

More disturbing than the silliness this all exemplifies are the cultural norms that come with it. Rather than priding ourselves on our excellence, we prevent others from doing same. Rather than asking how to do things better, we block others from doing it at all. No amount of badgering legislators will change a thing until the people at large regain their sense of self-efficacy and pride. When it is unthinkable to ask another to refrain from competing with us freely, we will not need to seek political favors to secure our livelihoods. We will reach down deep to find the best within us to provide value to others. And we will be better people for it.

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About Terry Noel

I am an Associate Professor of Management and Quantitative Methods at Illinois State University. My specialty is entrepreneurship.
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3 Responses to The Littlest Crony

  1. Great article.. leaves me with a lot of appreciation for hairdressers..

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  2. David says:

    I would really like to see rationality brought to regulations on all levels of government. I believe our economy would be better for it. Mitt Romney argued eloquently in the debate this week as to the need for regulations for an economy to function. He also stated, correctly, that over-regulation is harmful as it creates undue burden on businesses just trying to do business. For example, painters that want to bid on removing paint from pre-1978 homes, must undergone extensive training, have all specified supplies, and bag everything in a specific way. Failure to do any required step can result in fines on the order of $35 000 per day of non-compliance. If they used 3 mm-thick plastic instead of 4-mm thick plastic sheeting by mistake, the fine would apply for every day they used the wrong plastic. I’m not sure what the required thickness is. I’ve used these numbers as an example. The point is this… It’s an incredible risk for an employer of such a company as they are responsible for everything every employee does or doesn’t do. To minimize risk, they don’ t take on such jobs.

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  3. AW says:

    There obviously must be a balance between regulations that deal with consumer protection and those which do nothing but stifle competition. In David’s example, I would say that the disposal of toxic paints would fall under the category of consumer protection, in addition to protection of the workers themselves. Pre-1978 painted homes are likely to contain a number of harmful chemicals which could endanger either the homeowner or the contracted painters. Proper disposal of these materials is probably a good thing to regulate. The problems lie in how far we choose to go in that regulation. Dr. Noel also mentioned the 1500 hr requirement for hairdressers in the state of IL. I recently started a position as an Operations Assistant at the Paul Mitchell School in Chicago, and believe me, seeing the differences in skill levels between a student who has been cutting hair for 1250 hrs and one who has just started the program will make you believe that this regulation is a necessary evil as well. The reality is that most regulations are created in the hopes of protecting people, but quickly turn out to hinder more than they help because they are discriminatory in some way. I’m not against regulation, I just understand those who are against it a little better (partly due to this article). As a society, we need to stop pretending we know what’s best for everyone else and worry about ourselves, while at the same time not throwing caution to the wind and creating a free-for-all. It’s a delicate balancing act.

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