“The free market is the greatest producer of wealth in history — it has lifted billions of people out of poverty.” – President Barack Obama at a panel discussion on poverty in May 2015.
The United States ranks as the 11th most economically free country in the world according to the Heritage Freedom Index, and has a history of embracing free-markets yet the rate of poverty still stands at a poignant 14.8 percent.
Why is this the case? While the U.S. has historically embraced free-markets, it has not been able to escape a streak of deep seeded cronyism. Cronyism is one of the biggest threats to the free-market that nearly every country faces – especially in countries where the regulatory state has grown beyond its intended reach and the federal government exercises nearly unlimited control.
Cronyism is a broad topic that can range from corporate welfare to agricultural subsidies but one form of cronyism that often gets overlooked despite having the biggest impact on the poor is occupational licensing.
Occupational licensing is essentially any form of barrier that prevents someone from entering a certain field of work.
Some forms of occupational licensing make logical sense, such as a medical doctor being required to complete a certain education and pass a rigorous test before being able to prescribe medications or operate on patients.
But, there are other forms of occupational licensing that are created to exclude hard-working individuals from entering into a specific line of work. This form of cronyism fights the free-market and serves as a barrier to lifting people out of poverty.
One example of occupational licensing that often excludes poor people from earning an honest wage for their work is hair braiding, and more specifically a type of hair braiding that is only passed on from generation to generation within the African-American community. Although we are beginning to see these restrictions loosened, many states either have or have had laws that forbade people from braiding hair for money without a license. If one wanted to obtain a license, they would need to attend a cosmetology school (where specific styles of hair braiding are not taught), gain many hours of experience, and usually pass a test. It’s silly for someone to go to school to obtain a license so that they can practice a certain kind of hair braiding that they were not even taught in that school in order to earn a living. Check out Melony Armstrong’s story on the Acton PowerBlog.
Often times, when policy makers create occupational licensing laws, they think they are protecting the consumer from purchasing a harmful service. In this case, the only people that are being protected are those that can afford and have the time to go to cosmetology school. The opportunity cost to give up whatever work someone has in order to attend school is far greater for individuals living in poverty than those who are well off. Occupational licensing barriers limit the field of competition so that the poor are excluded from earning an honest wage.
Hair braiding is the most popular example that many turn to in order to show the negative effects of occupational licensing, but this form of cronyism runs rampant in other sectors of the work force. Take a look at the Institute for Justice’s page of occupational licensing cases that they have taken up and you will see that it’s far more than just hair braiding.
The Illinois Policy Institute recently highlighted the story of a woman who served a year in prison and when she was released she turned her life around but was never able to achieve her dream of becoming a nurse because of her criminal history. Maybe it makes sense to prevent people with certain criminal backgrounds from holding certain jobs but is it prudent to prevent a single mother of three who has turned her life around from pursuing a dignified career as a nurse?
President Obama was correct when he made his comments on poverty and the market. The power of the free-market is greater than any governmental regulation program. As Christians, it is imperative that we do not lose the heart of our message. We are not simply fighting against a regulatory state because we don’t like it or because we think it’s annoying. We are fighting for the conditions that cultivate human flourishing. If we care about poverty alleviation then we must care about giving individuals the liberty that empowers them to create value in society.
Kyle Hanby is a Liberty@Work Associate at the Acton Institute. He recently graduated with a degree in economics and finance from Bethel College in Mishawaka, Indiana, where he chaired the American Enterprise Institute Executive Council and was the University Relations Intern at the Charles Koch Foundation.