Aug 20, 2018

Lemonade Stands and Permits

Should We Teach Children to Be Entrepreneurs, or How to Pay Licensing Fees?
Adam Thierer Senior Research Fellow , Jennifer Huddleston Skees Research Fellow

Today is National Lemonade Day. For many Americans a lemonade stand was their first experience in entrepreneurship. But unfortunately, this time honored tradition that teaches the value of hard work, entrepreneurship, and innovation may be under threat from overzealous grown-ups.

Should we really force kids to get licenses to start lemonade stands, sell bottles of water outside a ballpark, or mow lawns for a little extra money? And wouldn’t it be better to teach them the value of hard work and entrepreneurial effort instead of threatening them with penalties for not getting costly permits to do basic jobs?

Recent news stories have highlighted examples of kids being confronted with local regulations that essentially tell them not to be entrepreneurial until they’ve gotten someone’s blessing--or else face fines or other penalties for those efforts. 

Out in San Francisco, for example, a neighbor threatened to call the police on an eight-year-old girl selling water to raise money for a trip to Disneyland after her mother had lost her job. The neighbor berated the little girl for “illegally selling water without a permit.” Luckily, national outrage seems to have fallen in favor of this rogue entrepreneur instead of “Permit Patty.” But this is far from an isolated case.

Another story went viral earlier this year involving kids and lemonade stands. Country Time lemonade pledged to pay the fines received or the permit cost for children’s lemonade stands. Who thought we’d reach the day when we need a Lemonade Legal Defense Fund? But just prior to the launch, Stapleton, Colorado police were called to shut down the lemonade stand of  four and six year-old brothers for failing to have a business license. Kids who probably can’t read or fill out the necessary forms are expected to obtain a formal license for a tradition that dates back about 120 years.

Kids are confronted with other meddlesome local permitting rules even when they aren’t selling food or beverages. The town of Gardendale, Alabama made news last year after attempting to charge a teenager $110 for a business license for mowing neighbors’ lawns during the summer to earn money for a mission trip. A local professional lawn service had apparently pressured local parents about the need for kids to have licenses to mow. The city later clarified teenagers would be allowed to mow lawns for a little extra money without needing a license to do so as long as the work was part-time and they were students.

Should we have expected kids to seek permits in these cases? Some sticklers might say yes, we should. After all, it’s the law!

But complying with the law is costly in two important ways. First, the actual fees can be exorbitant. In San Francisco, for example, the filing fee for a “peddler’s permit” costs $330-$525 depending on whether you are selling non-food or food items. Then, if you get the city’s blessing, you have to pay an additional $166-$624 annually for a license to serve the community. It’s safe to say that most kids and their parents probably could not afford that expense.  

But the more important cost might be the mental transaction costs or general hassles associated with navigating the labyrinth of red tape that entrepreneurs must confront to get new ventures started. The very act of going through a laborious, confusing, and time-consuming permitting process will be too much for many to bear, especially kids. When a mother tried to get a license for a lemonade stand in Texas, she was told that an inspection by the health department would also be necessary because of the “bacteria that can grow in lemonade.” As a result some children and parents have gotten creative by not “selling” these dangerous products but instead offering it “free” but accepting donations.

The costs of permitting have important real-world implications. They are sending a clear message to kids and their parents: Don’t even bother trying to be entrepreneurial unless you are willing to deal with a world of regulatory pain. Worse yet, to the extent they learn anything by attempting to comply with such silly rules, it’s probably only a lesson in how to manipulate a political process for your own gain. All too often, many incumbent businesses who already worked their way through the system figured out how to exploit it for their own gain to keep competitors out. They then become the guardians of the licensing systems

This is what Philip K. Howard, chair of Common Good, calls The Death of Common Sense, in a book of the same name. “Like sediment in a harbor,” he argues, rules and regulations in the US have accumulated, “until most productive activity requires slogging through a legal swamp. “It’s degenerative,” he says. Indeed, laws and regulations like these sap the entrepreneurial spirit of young Americans and discourage them from taking the initiative and learning important skills they will use throughout their lives.

A common refrain of just about every generation of adults is that the younger generation doesn’t work as hard as their generation did. Such “kids-these-days!” complaints are almost always off-base. But they are particularly outlandish when it’s the adults who are acting juvenile by refusing to reform illogical and costly rules that do nothing to protect the public but make it harder for young people to pursue their dreams and engage in entrepreneurial activities.

We shouldn’t actively encourage kids to break the law, of course. But what happens when rules and regulations utterly defy common sense, as these and countless others do today? Perhaps a little “evasive” entrepreneurialism and civil disobedience is the answer. Luckily, public interest law firms like the Institute for Justice, the Goldwater Institute, and the Pacific Legal Foundation already exist to defend our general right to earn a living. Sometimes it will be necessary to push our luck against what Goldwater’s Timothy Sandefur calls “the Permission Society” if we hope to get policymakers to wake up to the illogical and unfair nature of archaic old licensing regimes.

Luckily some states have started to realize that these burdensome licensing and permitting requirements may have gone too far and at least in some cases are not serving their original purposes. For example, Utah recently passed a law that exempts lemonade stands and other similar child-run businesses from permitting requirements. And recently health inspectors helped a Minneapolis 13-year-old get the necessary permits and paid the costs of the licenses to keep his hotdog stand open. But on a broader front, the right to earn a living is tied both to the value of entrepreneurship and the right to innovate. It is far too easy for incumbents to use licensing schemes to keep out new innovations like ride-sharing and home-sharing. Instead of focusing on raising requirements to prevent new innovations and protect existing industries, we should look to the right to earn a living as a way to even the playing field by reducing the burdens for everyone.

Kids are used to asking permission from their parents, but what are we teaching them when every attempt to do a job or earn a little money also requires endless permission slips from the government? Studies have shown that helicopter parenting makes children struggle emotionally and behaviorally later in life. Imagine how much worse that problem is when the government serves as the ultimate helicopter parent, demanding constant permission to engage in any kind entrepreneurial acts? It seems if we want to stay a nation of innovators and entrepreneurs, the least we can do is tell the kids to stick to asking “Mother may I?” of just their mothers.

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