trade barriers

Interstate Commerce: Trade Barriers Between States

Doctor sees patients via Internet

Doctor sees patients via Internet

Ilya Somin has a post at Volokh/WaPo about “foot voting” (people choosing to move to jurisdictions that have local governments that reflect their values or offer economic opportunities lacking in their current home areas.)

One phenomenon often discussed is migrants bringing their voting habits with them and voting into place local governments that duplicate the conditions in, say. California (they are said to “Californicate” the new area.) People who move because of economic opportunities may have no understanding that the existence of the better job opportunities and lower costs of living in the new place owes much to more enlightened, less business-suppressing tax and regulation in the new location. Since they never realized those business-unfriendly California laws were suppressing local opportunities that might have kept them there, they don’t modify the type of politicians they support and so begin the process of bringing Progressive political machines and micromanagement to their new homes.

Outside observers look a country like India and wonder why reform of internal trade barriers, which are relics of the pre-colonial states, are widely understood to be prosperity-enhancing, but progresses very slowly if at all. Products made in one Indian state can’t be sold to a customer in another without paying additional taxes or being blocked by local content regulations.

In the US, regulation of interstate commerce was intentionally made a Federal matter, making the US a free trade area. This aided in creating the world’s largest internal free market and allowed local industries to grow up specializing in one manufacturing segment to serve a national market — regions specialized in furniture, shoes, textiles, steel, and so on, aided by economies of scale and able to take advantage of local resources that gave them a national advantage. If each state had been able to put tariffs on incoming products or block shipments from other states by regulation, the nation’s growth would have been stunted.

But services and professions are still licensed by states and even smaller units. To braid hair or do massage in a town can require licenses from both state and local authorities, with professional guilds using such licensing to block competition. This prevents poor entrepreneurs from finding work providing services and increases costs of those services for poor consumers, all in the name of consumer protection.

At the higher end, doctors are cartelized and regulated by states as well as the Federal government, which runs the subsidies and residency schemes that keep production of new physicians expensive and restricted. Healthcare services that could easily be handled by less expensive technologists are often required to be provided only under a licensed doctor’s supervision, pumping up the incomes for even the worst doctors (who may use their credential to take jobs in prison or institutional settings where their record of incompetence is ignored because their license is valid.)

New technology that might allow low-cost Internet doctoring by out-of-state or even out-of-country physicians is blocked in most states. Concern for consumer health is always cited as the reason, even when poor consumers can’t afford to seek any face-to-face care for their health issues. It is apparently better to go untreated than to allow the poor to buy “good enough” services on the Internet. The inability of above-board, higher-quality companies to run such remote doctoring systems leaves the field open to bootleg quacks.

So even the US is not truly a free trade zone, since many services (cable TV, real estate, medicine, restaurants, schools) are heavily regulated by state and local governments, and outsiders trying to break in face high barriers to entry. Big companies can overcome the need to manage 50 or more different regulatory regimes, but smaller chains just starting out have to choose wisely and only expand in areas where the regulatory environment is more supportive.

Not surprisingly, the result is vigorous competition and lower prices in less regulated areas, and sluggish investment and higher prices in more-regulated areas.

It’s clear that Federalism (state and local control) applied to service regulations is costing the economy growth and raising prices in an era where barriers to travel and communication have come down. Medical, teaching, and real estate professionals should not have to undergo licensing in every jurisdiction where they might practice. Cities and towns should not be able to extract concessions from a monopoly cable TV-Internet provider which result in high prices and no local competition.

Perhaps we should thank those Progressives who battered the Supreme Court into submission and started making the case that every local economic decision could be regulated by the Feds, since even the tiniest decision locally has some effect on the national market, no matter how minuscule.

The Progressives opened the way, so now it would be constitutional to overrule all local and state licensing of professionals, insurance companies, and other services, which could now be much more competitive in a true free national market. So if they wanted to, Congress could rule all medical and communications services licensed in one jurisdiction to be sellable in others. nationwide insurance policies would provide travel flexibility and economies of scale, and these companies could provide services via Skype examination that would undercut local doctor and hospital cartels. Sick people in the Bronx projects could be “seen” and prescribed treatment and medication from doctors in low-cost South Dakota, say. “Oh, no!” cry the Progressives, “They could be quacks!” And the products sold in New York from manufacturers in South Dakota, Michigan, or even China could be fakes or defective. Yet we tolerate the free trade of goods because it is in the long run best for everyone, and the wholesalers and retailers of goods have an interest in keeping bad products out of their systems. And now that low-skilled manufacturing jobs are mostly outside the US, isn’t it interesting that professions and industries that benefit from barriers to trade in services — lawyers, doctors, communications giants, drug companies, public schools — resist any effort to open themselves up to competition.

In “Death by HR” I discussed one remedy — a “Freedom of Contract” Amendment to the Constitution to clarify the Common Law right of adults to contract with each other and service providers in any way they choose. If I choose to buy a product from a Chinese company, I deal with the risk and consequences. I should be allowed to buy services from anywhere I want — to have my skin lesions imaged to a doctor in Florida, to have the treatment done by medications from a pharmacy in Oregon, to have a local contractor handle any hands-on services, and so on. The key problem with many necessary services today is regulation and a resulting lack of low-cost options. This is especially true in medicine, which Obamacare only made worse by restricting practical treatment options to small geographic regions. The solution is radical deregulation.

More reading:

A Clinton Christmas Carol
“High Tech Under Diversity Pressure
Ban the Box, Credit Scores, Current Salaries: The Road to Hiring Blind
HireVue, Video Interviews, and AI Job Searches
“Death by HR” – Diversity Programs Don’t Work