Article published by José Alberto León Alonso in El Día on 01/24/15.
“Zidane's assistant at Real Madrid does not have a license.” “Uber, banned.” “Almost 600 pharmacists are fighting for the 60 pharmacies in competition.” News like these about the regulation of the most diverse economic activities appear quite frequently in our media, without anyone finding it strange that a series of permits are required to coach a football team, drive a taxi or open a pharmacy.
In principle, entry into economic activities should be free and unregulated. It is not necessary to have a “license” to be dependent and nothing happens. But establishing more regulations than necessary to practice a profession has its costs. They represent a barrier to the entry of new competitors and, therefore, benefit those who are already established who, in the face of less competition, can charge their services at higher prices than would exist if they were not regulated. Therefore, the ideal policy is to establish controls on the exercise of certain activities only when the benefits of management exceed its costs, but to try to limit regulated activities to the essential minimum.
This rule has exceptions. The main one is when it is difficult to know the professionalism of the worker and the consequences of errors are important. The classic and obvious example is that of doctors. Our medical knowledge is little or none, especially when it comes to medical specialties. While I can judge whether a clerk has treated me better or worse, I cannot do the same with the technical competence of a neurologist. If we add to this that the consequence of a medical error can be death, it seems reasonable that we establish filters that ensure the competence of those who practice medicine. For this reason, the exercise of the medical profession is regulated for those who have passed a degree and passed a specific exam or experience as a physician.
So, is it really difficult to know the professionalism of the worker and are the consequences of errors important in the case of many regulated activities? No. Obviously not in the case of football coaches, but also in many other activities: taxis, pharmacies, tobacconists, lottery administrations and a long etcetera. Taxi drivers could be required to have a more demanding driving license (as in fact is done), but why limit their number at the discretion of the city council in charge, thereby limiting competition? Pharmacies could be required to have a Pharmacy graduate present in their facilities, but why should the owner be a pharmacist? Why is the license inherited? Why is the number of pharmacies limited? The thing about tobacconists and lottery administrations has even less justification.
These entry barriers in different professions are representative of the systematic restrictions imposed on competition in our economy and that cause multiple problems of lack of competitiveness and productivity. In Spain we have the vice of excessive regulation. These are a good number of activities artificially subjected to an oligopoly regime, the establishment of which benefits license holders to the detriment of consumers. As any economics student learns, companies in an oligopoly offer a smaller quantity than the potential demand for a service and at a higher price than in a competitive market, since in this way they maximize their profit. For this reason, the owners of the licenses, constituted as a lobby, pressure the Administration to freeze or reduce the granting of new permits in order to limit competition. The entire process harms consumers, who consume less of the regulated product or service than they would like and who do so at a more expensive price, and reduces efficiency.
Our rulers should learn from the work of the Frenchman Jean Tirole, winner of the 2014 Nobel Prize in Economics. One of the main focuses of Jean Tirole's work is that of \"asymmetric information\", that is, those areas where governments do not really know how the industry works, which makes regulation difficult. The fundamental question that Jean Tirole has tried to answer throughout his career is “to what extent should the Government intervene in a market?” And his answer is that sometimes he should intervene, and other times he should not. Markets often have unnecessary regulatory barriers imposed on competition, inhibiting the market's ability to offer the greatest number of products and services at the best price.
A supporter of efficient regulation, that is, when its benefits exceed its costs, Tirole is also a supporter of the liberalization of services, because it generates lower prices in their provision. “We should not fear the markets, but rather regulate them properly,” he says. And he is also in favor of introducing competition mechanisms in public services, such as giving educational or health checks to citizens so that they can choose an educational or health center. All of this as a way to reduce the cost of providing public services, make the Welfare State sustainable and increase citizen satisfaction with the services provided.
I don't ask for that much. I agree that we analyze whether it is really necessary to require licenses for a hundred activities in which regulation is not really necessary, nor would the consequences of its non-existence be serious.
