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Licensing in Pursuit of Quality… (Caskets, Automobiles, and Retainers, That Is)

· November 16, 2017

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This is the third post in a series on occupational and business licensing.

When a group of monks in Louisiana tried to sell their own, finely-crafted pine caskets, they were met with an unexpected message. No, not from God, but from the state of Louisiana telling them to cease-and-desist all casket selling or face “thousands of dollars in fines and possible criminal prosecution.”

Why? Because the monks failed to adhere to Louisiana’s licensing requirements passed in the name of quality control.

As we discussed last week, some licensing laws have been imposed in order to uphold certain public morals — such as protecting consumers from the hazards of drinking, for example. But licenses have also been established in an attempt to ensure the quality of a product so as not to bring harm to consumers. This justification not only underlies the casket market, but also the automobile industry as well as a current dispute over a new orthodontic innovation.

Automobiles

Statutes dating back to the early 20th century restrict automobile manufacturers from selling directly to consumers or owning auto dealerships in almost every state. As DisCo has noted before, independent auto dealers are legislatively mandatory middlemen in the auto distribution chain.

According to a 2009 paper authored by a Department of Justice economist, the statutes were put in place in response to technological advancements — particularly assembly line techniques that came to prominence during that time — that allowed for “high volume production and ushered in the era of mass-market sales in the United States. Ever since then manufacturers have sold cars through franchised dealerships.”

Selling through dealerships initially benefited manufacturers who needed to be near steel supply sites, which “…contrasted with the nationwide distribution network to reach consumers.” It was also expensive for manufacturers to open service facilities and showrooms.

Therefore, relying on local dealerships presumably allowed manufacturers to be near supply sites and, at the same time, provide consumers with more more distribution sites. Most importantly, making these services readily accessible to consumers, proponents argued, was crucial to ensuring consumer safety; dealerships, after all, could help ensure cars remained safe by offering reliable and immediate maintenance and repair services.

In recent years, however, these statutes have come under scrutiny and criticism as companies like Tesla have sought to sell directly to consumers, contrary to the existing model of intermediate automobile retailers.   

Caskets

Casket licensing laws invoked similar justification.

In the early 20th century states began restricting the sale of caskets to funeral directors by making a “funeral directing” license a prerequisite for selling caskets.

For example, although the selling of caskets was not originally included in Tennessee’s definition of “funeral directing,” for which a license was required, the state summarily expanded the law to include the sale of caskets.

Specifically, the Tennessee General Assembly expanded the definition of “funeral directing” to include the “making of arrangements to provide for funeral services and/or the selling of funeral merchandise, and/or the making of financial arrangements for the rendering of the services, and/or the sale of such merchandise” (emphasis added).

Why? To prevent consumers from receiving sub-par products during a time of presumably great emotional turbulence. As one report put it:

It has been argued that consumer protection regulation is crucial because consumers who are engaged in making funeral arrangement decisions are generally constrained to make decisions very quickly, may not always be in the frame of mind to undertake a full evaluation of their options, and may frequently be inexperienced in making funeral arrangement decisions.

Licensing requirements for the sale of caskets are also necessary, proponents argue, because improper “treatment and disposal of human remains” could have “potential public health ramifications.”

Some critics, however, contend that these regulations “serve the interests of the death care industry rather than consumers.” That is, by requiring a funeral director license to sell caskets consumers could be deprived of the lower pricing that presumably comes with a more crowded, and thus more competitive, market. In fact, this economic protectionism argument was the crux of the case the Louisiana monks brought against the state to challenge its “funeral directing” licensing law — which they were ultimately successful in overturning.

Orthodontics

A new orthodontic innovation has received similar pushback over potential violations of industry licensing laws, however, it’s too early to tell whether they, like the monks, will be able to overcome these restrictions.

SmileDirectClub is a startup that promises to “straighten teeth with a faction of the cost of braces, without the hassle of a dentist’s office.” It was created with the intention of disrupting the “stodgy” braces industry by allowing patients to take their own dental impressions from the comfort of their home rather than via an expensive orthodontist office visit.

However, the company immediately attracted ire for supposedly offering medical devices without a medical license.

The American Association of Orthodontists (AAO) argues that SmileDirectClub, which enables patients to avoid in-person dentist visits and X-rays, is “illegal and creates medical risks.”

According to the AAO, which has currently filed official complaints in 36 states, it’s illegal and risky because “SmileDirectClub is doing medical work that many state laws reserve for licensed professionals: taking bite casts (called “impressions”) and delivering dental appliances to patients.”

SmileDirectClub, conversely, asserts orthodontists’ animosity towards their product is not out of concern for patients but, rather, fear that their “economic interests” will be “affected by [SmileDirectClub’s] progress.”

Meanwhile, for some consumers “the company was their only financially feasible option to fix lifelong anxieties about their teeth and boost their self-esteem.”

A third motivation for implementing licensing regulations is to create supply restrictions, usually to guarantee a rate of return (RoR). This final motivation for imposing licensing laws will be explored in the fourth post in this series next week.

Innovation

New technologies are constantly emerging that promise to change our lives for the better. These disruptive technologies give us an increase in choice, make technologies more accessible, make things more affordable, and give consumers a voice. And the pace of innovation has only quickened in recent years, as the Internet has enabled a wave of new, inter-connected devices that have benefited consumers around the world, seemingly in all aspects of their lives. Preserving an innovation-friendly market is, therefore, tantamount not only to businesses but society at large.