This article by George Will on rent seeking is a little old, but it is still worth the time to read. Will lays out a text book definition of rent seeking and then provides an interesting example.
This [legally mandated certification] is done in the name of “professionalization,” but it really amounts to cartelization. Persons in the business limit access by others — competitors — to full participation in the business.
Being able to control the number of one’s competitors, and to dispense the pleasure of status, is nice work if you can get it, and you can get it if you have a legislature willing to enact “titling laws.” They regulate — meaning restrict — the use of job descriptions. Such laws often are precursors of occupational licensing, which usually means a mandatory credentialing process to control entry into a profession with a particular title.
And a cartels primary goal is to act like a monopoly. From here everybody should see that cartelization of an industry is generally a bad thing and should only be done in very rare cases. The only justification for such a move is when such certification, licensing, etc. actually improves the quality of a product or service by so much that the losses due to rent seeking and market power is offset by the welfare gains due to improvements in quality. In practice however, this is rarely if ever the case. After all, if one is really serious about maintaining quality then tests would be periodic not a one-shot deal. Lawyers should have to take a follow-up bar exam to demonstrate that they are up-to-date on the latest case law in their field. Doctors would have to renew their license and show that they are keeping up on the latest procedures. The same goes for plumbers, carpenters and any other profession/job that requires licensing or certification.
So what example does Will give us?
Consider the minor — but symptomatic — matter of the government-abetted aggression by “interior designers” against mere “decorators,” or against interior designers whom other interior designers wish to demote to the status of decorators. Some designers think decorators should be a lesser breed without the law on its side.
Those categories have blurry borders. Essentially, interior designers design an entire space, sometimes including structural aspects; decorators have less comprehensive and more mundane duties — matching colors, selecting furniture, etc.
In New Mexico, anyone can work as an interior designer. But it is a crime, punishable by a fine of up to $1,000 and up to a year in prison, to list yourself on the Internet or in the Yellow Pages as, or to otherwise call yourself, an “interior designer” without being certified as such. Those who favor this censoring of truthful commercial speech are a private group that controls, using an exam administered by a private national organization, access to that title.
Anywhere and everywhere that a barrier to entry is put in place competition is reduced and incumbents in that industry now enjoy more market power. This market power translates into higher prices. Those higher prices are basically the suppliers in that market transferring some of the value to the consumers to their pockets. These kinds of things are quite wasteful. Not only is there the waste associated with reduced competition (the deadweight loss), but there is also the loss associated with rent seeking and rent protection. That is, you have to go out and lobby for your rents. This costs resources that are now not being productive (the resources are being used to “re-cut” the economic pie), and once you have those rents you’ll have to expend additional resources to keep them. And since there is usually more than one side involved in rent seeking these losses can actually be the most significant since they can approach a level equal to twice whatever profits the rent in question generates.
And while one can make the case that the restriction for doctors and engineers is reasonable since peoples lives depend on their skills meeting at least some level of sufficiency, what is the harm done if an un-lincensed interior decorator/interior designer comes up with an ugly color scheme? Not much. Will’s example is basially an example of greed combined with the political process that will make most people worse off.
