License to Work: Webs of Regulation Sidebar
Miami mobile vendor and IJ client Silvio Membreno
Occupational licensing is a widespread barrier to entrepreneurship, but it is by no means the only way laws and regulations stifle new enterprises.
Street vendors, for example, face a complicated web of rules in most cities that make it needlessly difficult if not impossible to set up shop. Street selling of everything from fruit to flowers has long been a means to economic independence and upward mobility for low-capital entrepreneurs, particularly in urban areas. Recently, food trucks have boomed in popularity by offering customers in many cities cutting-edge cuisines and entrepreneurs an affordable way to break into business.
Yet, of the 50 largest U.S. cities, all but five put substantial roadblocks in the way of would-be vendors, and most of these rules do little but protect established businesses from upstart competitors.1 Some cities ban vending on public property entirely, while others make whole areas off-limits, often including lucrative commercial and entertainment districts. In 20 major cities, vendors are banned from setting up shop near competing brick-and-mortar businesses, and such incumbent businesses are often the biggest proponents of restrictions on vendors.
Working from home is an even more common way to start a new business and test an idea with low up-front costs. But all too often, burdensome regulations block this route to entrepreneurship as well. Los Angeles, for example, bans certain categories of home-based businesses altogether,2 while Miami3 and the District of Columbia4 permit only certain categories. In many parts of Philadelphia, home occupations are entirely prohibited without a difficult-to-obtain zoning variance.5
Some cities dictate not only what kind of business may or may not run out of a home but also how much of a home may be devoted to it. In Los Angeles, setting up an office or studio in a garage is banned; garages may be used only for “incidental storage” for a home-based business.6 Milwaukee limits such storage to 50 percent of a garage and declares that only 25 percent of a home may be dedicated to a business.7 D.C. has a similar floor-space restriction.8 Cities also prescribe how many people may work in a home (only two in Miami and no more than one non-resident in Chicago, Los Angeles and D.C.) and how many customers a business may serve in a day (in Chicago, no more than two at once and 10 in a day).9 Los Angeles limits home-based businesses to just two deliveries or pick-ups per day.10
Regulations and bureaucratic practices governing businesses outside the home evince outright hostility toward entrepreneurs on the parts of many large cities. Starting a new business is never easy, but permitting and licensing processes often pile difficulty upon difficulty. Rarely is just one business permit required. There will often be occupancy permits, building permits to modify a space, sign permits and more depending on the city and the business, and each of these will carry its own paperwork, hassles and fees—plus the possibility of denial.
One Milwaukee entrepreneur spoke of the “death by a thousand cuts” from fees and special licenses the city imposes on restaurateurs, including those for outdoor flower pots, sidewalk café permits for outdoor seating (plus a second liquor license), garbage fees, sign taxes and even permits to play music inside.11
Navigating such bureaucracy is so challenging that in a few cities, so-called permit “expediters” make a living by charging entrepreneurs to help guide them through the system. In Los Angeles, such expediters focus largely on restaurants.12 In D.C., the expediters are often former employees of the city’s Department of Consumer and Regulatory Affairs who troll the agency’s offices looking for downtrodden applicants.13 In Chicago, expediters are now so common that they themselves are licensed by the city.14
Securing a needed permit or license is made harder still in cities like Milwaukee and Chicago, where the practice of “aldermanic privilege” gives city aldermen virtual carte blanche to hold up or deny permits in their districts, as well as the power to extract ransom or other concessions from applicants.15
Philadelphia’s impenetrable and outdated zoning code has essentially created a presumption among city bureaucrats that anything new is disallowed. Entrepreneurs can seek a variance from the Zoning Board of Adjustments, but community members and others will be allowed to weigh in and block approval or extract unrelated concessions.16
All this bureaucracy can cost entrepreneurs dearly. Typically, a space must be bought or leased before permits can be acquired, so delays mean that costs mount while a business sits idle. Incorrect and contradictory information and other permitting hurdles delayed the opening of one D.C. restaurant by 18 months, during which the owner spent $30,000 on rent for an unused space. After two years of similar frustration, successful coffee-shop owners elsewhere in the city scrapped their plans to expand.17
If cities want to unleash their own citizens to create new enterprises and new jobs, they should start by clearing away the tangles of regulation and bureaucracy that treat entrepreneurship as a privilege bestowed on a lucky few.
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1 Norman, E., Frommer R., Gall, B., & Knepper, L. (2011). Streets of dreams: How cities can create economic opportunity by knocking down protectionist barriers to street vending. Arlington, VA: Institute for Justice.
2 Examples of forbidden home-based businesses include cutting hair, dog sitting, sewing, car detailing and applying makeup. Bindas, M. (2010). L.A. vs. small business: City of angels no heaven for entrepreneurs. Arlington, VA: Institute for Justice.
3 In Miami, home occupations are limited to “architect, artist, broker, consultant, dressmaker, draftsman, engineer, interior decorator, lawyer, manufacturer’s agent, notary public, teacher (excluding band instrument, and group instruction), and other similar occupations.” Sherman, P. (2010). Miami’s Vice: Overregulating entrepreneurs. Arlington, VA: Institute for Justice.
4 Frommer, R. (2010). Washington, DC vs. entrepreneurs: DC’s monumental regulations stifle small businesses. Arlington, VA: Institute for Justice.
5 McNamara, R. (2010). No brotherly love for entrepreneurs: It’s never sunny for Philadelphia’s small businesses. Arlington, VA: Institute for Justice.
6 Bindas, 2010.
7 Adkins, J. (2010). Unhappy days for Milwaukee entrepreneurs: Brew city regulations make it hard for businesses to achieve high life. Arlington, VA: Institute for Justice.
8 Frommer, 2010.
9 Milnikel, E., & Satterthwaite, E. (2010). Regulatory field: Home of Chicago laws. Arlington, VA: Institute for Justice; Bindas, 2010; Frommer, 2010.
10 Bindas, 2010.
11 Adkins, 2010.
12 Bindas, 2010.
13 Frommer, 2010.
14 Milnikel, 2010.
15 Adkins, 2010; Milnikel, 2010.
16 McNamara, 2010.
17 Frommer, 2010.