Ask almost any American what it means for a profession to be “regulated,” and you’ll hear that it entails having official rules of conduct written and enforced by government.
That is one approach, but as Bob Graboyes argues in his latest Bastiat’s Window post, you can also have regulation through the spontaneous workings of civil society. In other words, regulation can be top-down or bottom-up. He focuses on the medical profession, but the analysis is just as applicable to other professions.
He writes:
With respect to the practice of medicine, for example, society can maintain standards in two general ways:
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Centralized, formal entities (e.g., legislative, executive, judicial bodies; regulatory agencies; officially sanctioned private organizations) can enforce formal laws, regulations, and professional codes. Enforcement involves state police powers.
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Decentralized social groupings (e.g., society-at-large, religious institutions, communications networks) can enforce norms via ostracism, acclaim, opinion, gossip, and private sanctions. Enforcement involves voluntary behavior of individuals, often mixed with elements of private coercion.
In some settings, at least, it appears that the decentralized approach is quite effective, perhaps more so than the top-down approach. To Graboyes’ analysis, I’ll add that since the top-down approach invariably requires a costly licensing regime that keeps some competent practitioners out, it has the unintended side effect of raising prices and keeping some poor people from getting any service at all.
Bob’s illustrations are very interesting.
Here’s his conclusion:
Deciding whether to enforce social norms via formal or informal arrangements is an economic problem like any other. In a sense, formal oversight of occupations reflects a presumption, correct or incorrect, that informal arrangements have failed or are expected to do so. Equivalently, informal oversight can reflect a presumption, correct or incorrect, that formal arrangements have failed or are expected to do so. The challenge is in finding the sweet spot—the correct blend of formal and informal.
My view: While spontaneous regulation might under-regulate, once we embark on governmental regulation, we are almost certain to overregulate with a host of hidden costs and unintended consequences.