April 29, 2017
Simon Lester took the time to write a thoughtful response to my often repeated complaint that we don’t have free trade in doctors. The gist of his response is that trade liberalization usually results from the other party demanding more access to U.S. markets. In the case of doctors, we don’t generally have foreign countries demanding that we make it easier for their doctors to practice in the United States, therefore there is little pressure to have liberalization.
A friend asked for my response, which I thought I would share below. Before getting to this, let me just respond again to a widely repeated complaint, that liberalization of professional services would lead to brain drain from the developing world.
As I always point out, we can easily compensate developing countries for the loss of the doctors and other professionals they train. We can provide enough money to train two or three doctors for every one that comes here and still be way ahead.
I realize that many people don’t like this idea, but this seems more a matter of religion that anything based in the world. As it is, we already get many doctors and other professionals from developing countries and their home countries get zero by way of compensation. I am proposing a route that might double or triple the flow from the developing world, but provide compensation. In almost all cases I suspect that developing countries would come out way ahead in this story.
Anyhow, the response is below.
First, it is important to note a point where there is no dispute, we don’t have free trade in doctors (or dentists or other highly paid professionals). This is a simple fact.
It matters because when people talk about manufacturing workers losing jobs and pay because of international competition, and thereby putting downward pressure on the pay of the 70 percent of the workforce who don’t have a college degree, this is not due to “globalization,” it is due to a policy of selective protectionism. There is no shortage of smart and ambitious people in India, China, Mexico etc. who would be happy to train to our standards, learn English, and work as doctors for a fraction of the pay of our doctors. The reason this doesn’t happen is because we have rules that don’t allow it.
This is a hugely important fact for people to acknowledge. It is protectionism that allows doctors to get an average annual pay in excess of $250,000 a year, not anything inherent to the market and the process of globalization.
In terms of Lester’s basic point, that the demand for liberalization typically comes from the other side, he is partly right. Often you have foreign producers of cotton, sugar, cars, etc. that want the U.S. to lower tariff or other barriers so that they can sell more of their stuff here. But this is not always the story. Much of NAFTA was about writing investment rules for Mexico so that our auto manufacturers could feel comfortable setting up shop in Mexico. That push came from here, not there.
The other point is that there is inevitably an intellectual echo chamber in the NYT, NPR, WaPo, and all sorts of other outlets yelling about the importance of free trade and the stupidity of tariffs on steel, cars, etc. They routinely denounce in the strongest terms anyone who supports barriers on these items.
There is zero talk, by way of intellectual echo chamber, around removing the barriers to highly paid foreign professionals working in the United States. In fact, there is virtually no acknowledgement that it is even a trade issue. (I suspect this is because it interferes with the story that these people are winners from globalization because they are smart and hard working, unlike those stupid manufacturing workers.) The amount that we would save if we paid European-type salaries for doctors rather than U.S. salaries swamps the savings from removing most other barriers — it’s around $80 billion to $100 billion a year. And of course it would be much more adding in the other professions. (By the way, our autoworkers and retail workers get comparable or lower pay than their European counterparts,so this is not a story of the U.S. being a richer country.)
As far as how you break the barriers to trade in professional services down, I have been thinking and writing about this. Many rules on licensing, like the requirement that doctors have to complete a U.S. residency program, are set nationally, but there are things states can do to get around them. Several states are now allowing doctors to practice under the supervision of other doctors without completing a U.S. residency program.
Presumably, this can allow foreign doctors to practice if they have completed a comparable training program. I have also been a big promoter of medical travel. Clear legal rules and a reputable credentialing system for foreign facilities (there are some issues about existing private ones) can go a long way here. I also have suggested that state Medicaid programs could give people the option to go overseas for expensive operations (with family members) and split the savings with the government. (The savings can be well over $100K for some major surgeries.) This would both save some money for the government, but also drive home that we are getting ripped of by our health care system.
Finally, as to Lester’s question as to whether I raise protectionism for doctors as a cover for opposition to trade liberalization, I think I have been very clear on my views. I opposed NAFTA and other deals because the liberalization was one-sided and also because they are protectionist by imposing longer and stronger patent and copyright protection, especially on prescription drugs. However, once you have the liberalization, it doesn’t make sense to go backwards. We shouldn’t try to re-establish trade barriers (although currency adjustments are a different story).
One final point on liberalization: we need rules to facilitate foreign reading of things like MRIs overseas. Given the enormous difference in labor costs, it makes far less sense to have MRIs read in the U.S. than to make t-shirts here.
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