When Life Gives You Lemonade, The Government Will Turn It Into Lemons

Last week, budding entrepreneur, 7 year old Julie Murphy, loaded up her wagon with packets of Kool-Aide brand lemonade, sugar, and bottles of water and, accompanied by her mother, headed to the Last Thursday monthly arts and crafts festival in Portland, Oregon. Business was brisk, until about 20 minutes after Julie opened, until a Multnomah County inspector arrived and asked to see Julie’s temporary restaurant license. After being told that the 7 year old did not have the $120 license, the inspector told Julie that she would have to shut down or face a $500 fine.

A friend who sent me this story titled his email “You Won’t Believe This.” Unfortunately, as I told him, it is all too believable. In fact, this happens every day, maybe not to 7-year-old girls, but to small businessmen and women across the country.

After the case was publicized, Multnomah County wisely publicly apologized to Julie and the county manager assured Julie’s mother that he would “look into” what should be done in future incidents of this kind. But what if the lemonade stand owner was not a 7-year-old girl? What if the lemonade stand owner had been a 30-year-old man? Do you think that the next time, the temporary business license would be waived?

This case seems like a very minor incident, but it is emblematic of a major problem in our country. Overregulation by the government is a burden on small business and this is often intentional.

I looked up the Multnomah County Health Departments site on temporary restaurant licenses. It seems that, even if Julie had forked over the $120 and filled out the two page application form, she still would have been require to come up with the following items:

· An Approved Kitchen – If any food is to be prepared ahead of time, stored, or handled at a different location than the event, then it must be done in an approved and licensed kitchen.

· Handwashing – A handwashing station providing free flowing water must be set up inside the booth. This can be as simple as a 5+ gallon container with a faucet on the bottom which can drain out fresh warm water, a 5+ gallon bucket underneath to catch the falling water, liquid soap, and paper towels. The spigot must be the type that can stay on by itself so that you can wash both hands under the running water.

· Cold and Hot Holding Facilities – For cold items you can use commercial refrigerators, ice chests, and refrigerator trucks work well. For hot items you can use grills, steam tables, ovens, and/or burners.

· Roof and Floor – Unless you are inside a building your will need these items. For a roof a tarp like rain cover should suffice. For a floor sheets of plywood work well, unless you happen to be on concrete which will suffice.

· Probe Thermometer – A pocket probe thermometer with a range of 0 – 220 F is needed to check food temperatures.

· Sanitizing Cloths – A one gallon bucket of water with 100-ppm free chlorine (about a teaspoon/tablespoon of bleach is needed to sanitize food contact surfaces

Of course, this assumes that Julie had already obtained her county food handler’s card. Oh, and nothing can be made at home, it all must be made on site or in an “approved” kitchen.

It is easy to see how these regulations increase costs to the businessperson. Every increased cost, particularly in the natal period of the business, decreases that business chance of survival. The fact of the matter is that every regulation increases the cost of business. The cost is not only in fees and fines, but man-hours assuring compliance and often alterations to efficiency and the costs of bringing the business into compliance with the regulations

A dirty little secret is that, often, these regulations are placed at the behest of large corporations. It should come as no surprise that one of the biggest supporters of the recent financial regulatory reform bill was Citibank. (Citibank, incidentally, was the sixth largest donor to Pres. Obama’s campaign and the largest donor to his inauguration. Citibank was also the 4th largest donor to Chris Dodd’s latest re-election campaign. Dodd was the author of the reform bill.) The fact of the matter is that these regulations are often written by corporations with the intention of putting smaller, competing companies out of business.

Let’s take an example: In the recently passed Financial Reform Bill, there is a clause that requires any financial business to submit an IRS 1099 form to any business in which they conduct more than $600 worth of business in any given year. So who is going to be better able to absorb this cost, the mega-bank that has thousands of employees and low-level clerks, or the small town community bank that employs a dozen people? As a percentage of income, this regulation has a markedly greater impact on the smaller business.

Overregulation costs consumers, as well. Not only do we pay a higher price, passed along in the goods that we buy, but someone has to pay the regulators. That means taxes. So essentially, we are paying more money to bureaucrats to regulate – an activity in which nothing tangible is produced. In other words, it is an outlay with recompense.

Rarely taken into account when passing regulations is the Law of Unintended Consequences. This “law” says that there are always unforeseen consequences whenever there is regulation. For instance, in order to protect US steel from cheaper foreign imports, the United States placed quotas on foreign steel. Not having to compete with the foreign steel, the steel companies in the United States were able to sell their steel at higher prices. Good for them, right? Not so fast. It seems that auto manufacturers, faced with rising costs of steel, started moving their factories overseas, where steel is cheaper. Consequently, the auto companies stopped buying steel from American producers. Now, there are no more major steel manufacturers in the United States.

Now, I’m not saying that regulations are all unnecessary. You can make a case for a few of them, but if we want to encourage small business and economic growth, we need to realize the burden that government regulations impose. Increased regulations decrease efficiency, increase barriers to business – disproportionally to small businesses -, and increase costs for everyone.