Self-regulated professions

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The Competition Bureau is an independent law enforcement agency. The Bureau contributes to the prosperity of Canadians by protecting and promoting competitive markets and enabling informed consumer choice. Under the direction of the Commissioner of Competition, the Bureau administers and enforces the Competition Act . As a law enforcement agency, the Bureau investigates allegations of anti-competitive conduct and pursues criminal and civil remedies to stop anti-competitive behaviour.

In addition to law enforcement, the Bureau also promotes competition through advocacy, of which this study is an example. As an advocate for competition, the Bureau frequently makes submissions to various legislative bodies and regulators, offering its unique perspective on how to implement reforms that encourage competition and ensure that competitive factors are taken into consideration in the formulation and review of policies.

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Introduction

The Competition Bureau embarked on this study of self-regulated professions—that is, professions governed in part by government and in part by organizations given self-regulatory powers—in its capacity as an advocate for competition. The intent of the study is to identify restrictions self-regulated professions place on the entry of prospective members into the profession and on how existing members do business that may unnecessarily hinder competition. The Bureau also hopes to contribute to the discussion on how best to regulate these professions, and others, in an effective way that achieves the benefits of both regulation and competition.

The purpose of this study is not to urge professions to deregulate. Rather, it is to promote strong, effective regulation by applying competition analysis to this vitally important sector of the economy. In this way, the Bureau invites regulators—comprising provincial and territorial governments and self-regulating organizations—to consider the competition policy perspective when formulating, enacting and reviewing regulations, rules and policies.

As a first attempt to identify restrictions on competition in the self-regulated professions, this study focuses on five groups of professionals: accountants, lawyers, optometrists, pharmacists and real estate agents. This choice in no way indicates that these are necessarily the most regulated professions. Rather, the Bureau selected these groups based on their volume of commerce and the volume of complaints about anti-competitive behaviour, both from the public and from within the profession, since this gave the Bureau good reason to believe that existing regulation might be the cause of that anti-competitive behaviour. However, the Bureau's findings are transferable to other professions, since it is reasonable to expect the type of regulation found in these professions generally exists in others.

The Bureau approached this study, not as an impartial onlooker, but as a voice for the promotion of competition and the application of market forces wherever possible. The Bureau supports regulation only when necessary, and then, only to the minimum extent needed to achieve policy objectives. This study is premised on the Bureau's belief that competition is generally the best means to ensure consumers benefit from low prices, broad choice and the many other advantages of a dynamic, competitive landscape.

The importance of professions to Canadians

As the providers of services of great importance to the Canadian public, the five professions included in this study play a significant role in society and the economy. In this increasingly integrated and fast-paced world, the importance of access to advanced, innovative and competitive professional services is rising; individual consumers and business clients depend heavily on them every day. In fact, many professional services are at the heart of today's knowledge-based economy, meaning that the success of the professions is integral to the success of the Canadian economy as a whole.

Professions affect the cost of many other services as well as most goods, including basic consumer goods. The prices of the vegetables and breakfast cereal consumers buy at the grocery store, for example, have the grocery chain's legal, accounting and real estate costs built into them. When the chain offers its employees drug or eye care coverage, the prices of the products it sells will be influenced by its costs to provide that coverage.

It is difficult to quantify the contribution of professional services to the Canadian economy. However, there are some indications of their importance. For example, a University of Minnesota professor has estimated that in the United States 20 percent of workers in the year 2000 were in occupations with some form of state licensing, up from five percent in the 1950s. Taking into account local and federal government requirements, perhaps three of every 10 workers in the U.S. are required to have a licence to do their jobs. It is difficult to obtain parallel data for Canada, but it is reasonable to assume that the situation would be similar, although perhaps not as dramatic, since some of the occupations included in the professor's research are not considered to be self-regulating professions in Canada. ¹ According to a recent Conference Board of Canada report, however, professional services account for approximately seven percent of the total business sector hours worked in Canada in 2004. ²

Given the significance of the professions in Canada, it is worrisome that recent evidence shows that they comprise one of the overall economy's least productive sectors. According to the Conference Board, professional services rate in the bottom quintile for productivity per hours worked. In addition, labour productivity in the professions in Canada is approximately half that of the professions in the United States. ³ At the same time, the professions are one of the most regulated sectors of the Canadian economy, and the regulation in place in the professions is more restrictive in Canada than in many other member nations of the Organization for Economic Co-operation and Development (OECD). ⁴

The role of regulation

In Canada, professional services are often governed by considerable regulation—both direct government regulation and the rules self-regulating organizations impose on their members. Trade associations can also play a governing role; however, since they do not have direct power to regulate, they are outside the scope of this study.

The primary basis for regulating the professions is to protect consumers of these services as well as the general public in response to the presence of factors that may cause the market to function less efficiently than it otherwise should. (See Chapter 1 for a thorough review of the economic theory behind regulation and the related effect on competition.)

While the nature and rigour of regulation varies across professions, the net result is that the professions have not traditionally been subject to the full forces of competition that prevail in other sectors of the economy, thus reducing the many ways in which consumers benefit from a competitive environment.

The regulatory restrictions that have the greatest potential to hamper competition are restrictions on market entry, including restrictions on entering the profession, mobility and on overlapping services and scope of practice, and restrictions on market conduct, including rules controlling advertising, pricing and compensation, and business structure.

While appropriate standards of quality can improve the efficiency and effectiveness of markets for professional services, professionals must be unburdened by ineffective, unnecessary and outdated regulations. This will allow professionals to make full use of their qualifications and deploy their vitally important skills in vibrant, efficient and competitive markets. Consequently, this will ensure that Canada is well positioned to take advantage of the many benefits of the knowledge-based economy. (See Chapter 2 for more on effective regulation.)

In addition, given the considerable body of evidence that shows that reducing regulation improves productivity, it is reasonable to ask whether and how professional services could be less regulated in Canada. ⁵

Research process

The Competition Bureau conducted extensive research on the five groups of professionals, soliciting input from provincial and territorial regulators through a voluntary questionnaire (see Appendix 1) and by reviewing existing restrictions (as found in legislation, regulations, policies, codes of conduct and other instruments), holding follow-up consultations on the findings and conducting independent research. (See Appendix 2 for a complete list of regulators, self-regulating organizations and others that provided input at various stages of the research process.) Due to the sheer volume of information collected, the report only highlights selected restrictions in various provinces and territories to illustrate potential competition issues.

In using the questionnaire and the subsequent consultations, the Bureau made every effort to be accurate. While mindful that restrictions are not always implemented the same way as they are written in regulation, the Bureau worked with the available information. Although the Bureau relied heavily on the information it received from the questionnaires and consultations, the views and recommendations contained throughout this report are the Bureau's own.

To complement its own extensive expertise in the area of competition economics, the Bureau also sought the assistance and advice of expert economists to analyze the potential anti-competitive and efficiency effects of regulations regulators may impose.

Structure of the study

The study comprises seven chapters. In Chapter 1, economic analysis guides a theoretical discussion of the rationale for regulation of the professions, and exposes the types of restrictions that have the potential to negatively impact competition. The economic arguments for and against regulation are considered together to highlight the need for policymakers to balance the public benefits of restrictions against the potential anti-competitive effect.

Chapter 2 sets out overall recommendations for the formulation of optimal regulation. In particular, the Bureau posits six guiding principles to help regulators develop strong, efficient regulation that will maximize consumer welfare through competition but still meet policy objectives. The chapter concludes with a brief discussion of how to incorporate an assessment of the impact on competition into the formulation or modification of regulation.

Chapters 3–7 consider existing restrictions on five groups of self-regulated professionals: accountants, lawyers, optometrists, pharmacists and real estate agents, respectively. The Bureau identified six categories of restrictions that have the greatest potential to harm competition: restrictions on entering the profession, mobility, overlapping services and scope of practice, advertising, pricing and compensation, and business structure. Details on problematic restrictions, including any rationale for them the Bureau found or was made aware of, and how they are likely to reduce competition, are accompanied by recommendations to review, and when necessary, remove or replace them with less intrusive alternatives. Appendix 3 contains a complete list of the recommendations.

The questionnaire responses and consultation submissions referenced in chapter 3–7 are on file with the Competition Bureau. The URLs for websites referenced throughout this study are accurate as of mid-October 2007.

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¹ Kleiner, Morris, Licensing Occupations: Ensuring Quality or Restricting Competition? (Upjohn Institute, 2006).

² Conference Board of Canada, Mission Possible: Stellar Canadian Performance in the Global Economy (January 2007), p. 46, www.conferenceboard.ca/documents.asp?rnext=1886 .

³ Ibid.

⁴ OECD, Going for Growth, 2007: Structural Policy Indicators and Priorities in OECD Countries (OECD, 2007), p. 45, www.oecd.org/document/8/0,3343,en_2649_201185_37882632_1_1_1_1,00.html .

⁵ For example, in the mid-1990s, the Australian government launched comprehensive pro-competition reforms at the national and state levels, and among other things identified 1,800 laws with a potential impact on competition in various sectors to review and then either amend or eliminate. In just a few years, Australia substantially improved its economic performance, becoming one of the OECD's top-performing economies, with an average growth rate of more than three percent since 2000 and the lowest unemployment rates since the 1970s. Australia, National Competition Council, Report by the Independent Committee of Inquiry into a National Competition Policy for Australia (August 1993), www.ncc.gov.au/publication.asp?publicationID=219&activityID=39 .