Does the Supreme Court Want Whiter Teeth?
Ever tried whitening your own teeth? How’d that work out for you? In North Carolina, you probably wouldn’t even have had the option. In the middle of the 2000s, the North Carolina State Board of Dental Examiners systematically hounded non-dentist teeth-whitening operations out of operation -- and effectively blocked the sales of teeth-whitening agents. Now the Supreme Court will decide whether this was an antitrust violation, as the Federal Trade Commission ruled, or whether the board’s status as a quasi-official North Carolina agency means its campaign was out of the commission’s reach.
The facts that gave rise to the case are entertaining -- and highly instructive. North Carolina’s board of dental examiners is the entity created by the state to regulate dentists, and six of its eight members are dentists selected by their peers. (The other members are one civilian and – you guessed it – one dental hygienist.) Pressed by its dentist constituents to do something about the scourge of non-dental whitening procedures that was plaguing Tarheel dentition, the board undertook a multiyear investigation, then issued numerous cease-and-desist letters to non-dental practitioners of the art. By the time its work was done, as an appeals court put it, “the Board successfully expelled non-dentist providers from the North Carolina teeth whitening market.”
The FTCsaw this campaign for what it was: classic anticompetitive behavior, in which the states’ dentists were using their licensing arm to chase competitors out of a lucrative business that required no special medical or scientific training. It sanctioned the board; and the U.S. Court of Appeals for the Fourth Circuit upheld its determination.
But the dental board had a trick up its sleeve. Antitrust law exempts state organizations exercising legislative authority from the FTC’s jurisdiction. The idea is that states, unlike private actors, possess general regulatory authority, which sometimes has anticompetitive effects. What’s more, unlike private entities, state organizations are chosen through some form of democratic process, and so should have (in theory at least) an interest in serving the median consumer rather than acting purely on behalf of an industry out to raise prices and kill off competition. The board argued that, since it is a creature of state law, it should fall into this antitrust exemption.
Both the FTC and the Court of Appeals rejected this argument. They held that, because the board isn't the state itself but is an entity created by state law, it must both be authorized by the state to displace competition and also -- more important for our purposes -- be “actively supervised” by the state. No one disputes that the board is authorized to displace competition from unlicensed dentists. But the board isn’t supervised by the state. And a controlling number of its members are chosen by the dentists, not the government, and so they can be expected to follow the dentists’ interests rather than the consumers’.
So why did the Supreme Court take the case? The board’s lawyers argued that the FTC had made new law by requiring active supervision to earn the antitrust exemption for a state entity. According to the board, the simple fact that it is authorized by the state means it should it be exempt from the antitrust laws. This, said the board, was “contrary to the basic principles of federalism.” And four justices, the number needed to grant certiorari, seem to have been convinced that the case isn’t about predatory dentists, but concerns states’ rights.
The dentists’ lawyers deserve a medal (or at least their doubtless impressive fee) for framing the issue in terms of federalism and getting the court to take the case. But it would be a sad day for the principles of economic rationality if the lawyers’ cleverness led the Supreme Court to decide in favor of their clients.
The deepest part of problem lies with the doctrine that exempts state action from antitrust rules in the first place. As a practical matter, such a rule is no doubt inevitable, since government regulation will almost inevitably benefit certain market actors over others. But this inevitability isn't something to be celebrated or treated as a deep principle of states’ rights. State governments are thoroughly susceptible to what is classically called “capture” by special interest groups. These will inevitably try to use the state regulatory power to produce anticompetitive effects that reduce welfare for consumers. Some degree of capture is an unavoidable result of the democratic process in a free society in which money talks. But we need to be vigilant about fighting the effects of such capture.
Sub-state agencies are far more likely to be captured by special interests even than the state legislature. Maybe, just maybe, the yellow-toothed constituents of North Carolina state legislators might object if their elected officials banned cheap teeth-whitening. But it beggars belief to think that individual legislators would be held accountable because an unsupervised, unelected dental regulatory body did the same thing.
Given this, the legislature has every incentive to offload important regulatory decisions to unelected bodies like the dental board. If the Supreme Court were to strike down the FTC’s ruling, it would mean giving the dentists and their ilk what I can’t help but call carte blanche. And that’s a whitewash that states rights shouldn’t be allowed to cover.
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