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Licensing in Greece

By Matthew Yglesias on October 15, 2010 at 10:24 am

"Licensing in Greece"

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Unlike the United States of America, Greece has no option to use fiscal policy or monetary policy to rescue its economy. All they can do is reduce nominal wages and engage in real restructuring. That’s overwhelmingly a bad thing for Greek people, but it does provide the opportunity to revisit some mechanisms of unfair privilege:

But Greek law also limits just about everything else about pharmacies. They must be at least 820 feet apart and have a likely market of no fewer than 1,500 residents. To break into the business, an aspiring pharmacist generally has to buy a license from a retiring one. That often costs upward of $400,000.

“It is an absurd system,” Mr. Avgerinos said recently. “But it has been that way my whole life.”

Maybe not for much longer.

The United States doesn’t have this particular set of problems, but we do have our own set of privileged guilds creating undue barriers to entry in fields as diverse as barbershops, tour guides, lawyering, and medicine. What’s more, I think we probably do privilege both pharmacists and doctors by demanding prescriptions for too wide a range of medications and we definite privilege doctors with our rules about who is allowed to write prescriptions. That particular set of regulations is both irrationally lax, allowing doctors to prescribe things that are outside of their field of practice and with no requirement that they stay up-to-date on new developments, and also irrationally stringent, often requiring a doctor when a lesser-trained medical professional with a lower salary would due. The way MDs win the prescription field both coming and going is a good sign that you’re looking at guild privilege rather than consumer protection.

In both Greece and the United States I don’t think understanding these kind of barriers to competition and innovation is particularly crucial to understanding the current crisis. But understanding and unraveling them is important to sustaining societies’ ability to grow over the long run. When you can obtain profits simply by extracting rents in the manner of a Greek pharmacist, and where the more efficient pharmacists are generally prohibited from driving you out of business, you create a climate that’s very hostile to prosperity-enhancing innovations.

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