Free Trade?

March 20th, 2007

Dean Baker makes an excellent point about a lot of rhetoric in free trade discussions:

It is positively bizarre how discussions of trade liberalization always ignore the possibility of liberalizing trade in highly paid professional services.

I agree with this strongly – but the problem in this area is so severe that even thinking about free trade is a long way away. We don’t even have free markets in this area. Many professions (doctors and lawyers most famously) have very strict rules that prevent anyone who is not licensed from practicing. Now this probably seems like a very good idea – who would really let an unlicensed doctor treat them?

Well, the answer seems to be lots of people: alternative medicine practitioners (whatever opinion I might have of how well those treatments work) are very popular. But they are hamstrung by the rules on medical practice in many ways. I can make a good argument that these rules help people by saving them from themselves. But that kind of argument always makes the economic rationalist part of me pretty uncomfortable.

But even worse than restricting the right to practice, the licensing in many of these professions is actually in the hands of some professional association, rather than the government. Even if you can get the economic rationalists to agree that licensing might be a good idea, it’d be hard to convince any economist that letting the professional association manage things with only light government oversight is a good idea. As Adam Smith said in 1776:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

The professions is an area where a lot of reform is possible. It’s also extremely unlikely to ever happen, for obvious political reasons.

(By the way, I’d just like to endorse Dean Baker’s oft made point about the strange way media groups always call trade agreements ‘free trade agreements’, even if there’s nothing free about them)