California’s Department of Consumer Affairs (DCA) has as part of its mission statement “protecting licensees from unfair competition.”
The DCA comprises 40 bureaus, programs, boards, committees, and commissions totaling 2,700 employees and a budget of $468 million, covering 255 professions and 2.4 million licensees.
The DCA’s bureaus and boards budgets pay for themselves by charging fees from licensees. This income frees taxpayers from ponying up money to protect licensees from “unfair competition.” Only consumers who use the licensees indirectly pay the licensing fee; not all taxpayers do.
DCA licensing requirements are designed with industry and political input. These laws, along with a plethora of local business licenses and permits, put speed bumps in the way of skilled people offering their services to consumers, thereby reducing competition and increasing prices.
Unlicensed skilled craftspeople offering affordable services who prove they can do a job, and then perform the job satisfactorily, don’t need DCA or local business licensing. This situation covers neighborhood entrepreneurs who have a nail or hair salon in their homes, sell homemade sandwiches at construction sites, or provide local neighborhood taxi services.
Let’s see how the DCA does “protect licensees from unfair competition” by examining one of the boards: the Contractors State License Board (CSLB).
The CSLB has 316,000 licensed contractors in 43 classifications. To protect contractors and consumers from “unfair competition,” CSLB uses undercover sting operations by the Statewide Investigative Fraud Team, or SWIFT.
SWIFT targets handymen who charge more than $500 for a job. The CSLB claims that this targeting helps eliminate unlicensed contractors. According to CSLB, unlicensed contracting generates an estimated annual $60 to $140 billion underground economy, which includes a whole passel of underground contractors ignoring licensing requirements.
The $500 limit is out of kilter with today’s inflationary cost of materials and labor. The $500 maximum job cost for materials and labor stops poor-but-skilled people from making a decent living. Consumers pay the price for having state-mandated protectionism for licensees who don’t want “unfair” competition.
Consumers hiring a CSLB-licensed contractor should expect decent results, right? And we should assume that the CSLB weeds out incompetent contractors so consumers are protected by the CSLB, right? Not from the experience of a friend of mine.
This acquaintance had an electrical fire break out in the deck at the back of his house even though a licensed electrical contractor had wired the lighting installation. One-third of his home was destroyed and the remainder suffered smoke and water damage.
The insurance company provided a list of approved licensed general contractors. My acquaintance talked with several before hiring one who had references, insurance company approval, and a state-approved general contractor license. What happened next was general contractor hell.
What should have been a six-month renovation project took a year-and-a-half. Subcontractors were paid late or never showed up on time. Installations had to be torn out and redone. Wrong materials were ordered, or parts were installed improperly. The insurance company finally had its construction inspector force the general contractor to complete the renovation.
The CSLB didn’t put the general contractor on probation or suspend or revoke its license for incompetence. So much for protecting consumers.
However, the CSLB does post pictures online of “Most Wanted” contractors who haven’t been caught for construction scams. This is how CSLB protects consumers from the bad guys.
Previously, the marketplace — without interference of laws, rules, regulations, licenses or protectionist bureaucracies — did what it does best. Incompetent flim-flam tradesmen were tarred, feathered, and ridden out of town on a rail. Today we aren’t allowed to tar and feather miscreants but still have to pay anti-competitive prices for state-licensed contractors.
State licensing protects licensees with latter-day versions of trade cartels and guilds.
Skilled unlicensed tradespeople are forced out of the marketplace. Consumers then pay higher prices due to lack of competition. With this system, the marketplace is prevented from weeding out the incompetent. Tradespeople are also prevented from forming voluntary associations that have ethical standards of conduct and performance for membership in place of licensing.
The DCA needs to repeal its anti-competitive licensing requirements to allow greater competition and lower prices for consumers. The DCA’s supposed “protecting licensees from unfair competition” simply doesn’t cut, whether it comes to protecting consumers or generating competitive prices.
Ron Getty is the senior staff member of a tax attorney with his practice located in San Francisco. His background includes an electrical engineering degree and 30 years of sales, marketing and advertising with small to large corporations.