A taste of tradition in Lithuania

Ona Raudeliūnienė whisks 36 eggs together on a breezy, rainy Saturday afternoon in Zūbiškės, a small rural town in central Lithuania. She is preparing the batter for a traditional šakotis, a local, spit-baked cake that is shaped like a tree, that she will spend hours baking for a client.

Šakotis holds a special place in the hearts of Lithuanians around the world. The distinctive cake is often the centerpiece in weddings and holiday celebrations such as Christmas and Easter. Beyond its sweet taste, the treat has earned its prominent place in local culture due in part to the labor of love its creation requires, sometimes taking 5 to 6 hours to bake fully.

Ona is a skilled baker of these cakes, and she is able to sell them thanks to a simple business license in Lithuania that allows micro-entrepreneurs to provide goods and services to others without getting bogged down in onerous administrative and compliance concerns. The simple business license is similar to a fixed or lump sum tax that is applied to a specific business activity. Ona pays annually—€210 in 2019—for a license to sell šakotis, supplementing her income as a librarian by 30–40 percent.

“I remember from my childhood that during all very important festivals of family, you see šakotis on the table,” says Edita Maslauskaitė, acting president of the Lithuanian Free Market Institute (LFMI), an Atlas Network partner based in the capital city of Vilnius. “And we as kids would wait until the time came that we could eat it—and it is delicious. When you have šakotis on the table, that means that something important is happening in your family and you are celebrating some important event.”

Šakotis

While its exact origin is debated throughout Eastern Europe and the Baltic states, šakotis became popular during the Polish-Lithuanian Commonwealth several hundred years ago. The batter is made of eggs, flour, sour cream, sugar, and butter, and it takes Ona two hours to mix together before baking.

Most often served plain, “šakotis” means “tree with branches” due to its distinctive shape that forms as batter is dripped over a hand-cranked, rotating metal spit near an open fire that uses birch wood. The inside of the cake has many distinctive rings, which are also reminiscent of a tree trunk. Layers of batter poured over and over the rotating cylinder form peaks, and excess batter that doesn’t stick falls into a collecting tray to be used again.

As the layers of the cake develop and harden, the speed of the rotating spit is quickened, and spikes of batter are formed that resemble branches of a tree.

License to Sell

These simple business licenses allow people with full- or part-time jobs to dabble in running a small business. Today, about 100,000 Lithuanians take advantage of this opportunity to legally supplement their income—but starting a small business hasn’t always been so simple, and the threat of losing this tool that helps entrepreneurs like Ona succeed is very real.

LFMI argues that the simple business licenses function as gateway from the informal, or “shadow” economy, which its extensive research estimates to account for 16–22 percent of the country’s GDP. The licenses provide an avenue for entrepreneurial Lithuanians to take small risks in seeing if their business ideas could be successful on a larger scale.

“These business licenses are a really good opportunity for people to get out of poverty with dignity because they refuse to receive social benefits and to be dependent, and they are trying to serve the community,” Maslauskaitė explains, pointing out that the path to entrepreneurship is open to all, regardless of education, capital investment, or government subsidies. “You just have this small amount of money paid to the government and you have permission just to start, and to see how it goes.”

There are many downstream benefits of the simple business license, such as allowing entrepreneurial people to explore running a business, providing goods and services at low cost, and creating a viable path out of the shadow economy. Despite these benefits, there have been repeated attempts to eliminate this form of business license from some in government and “big business,” which dislikes the added competition in the market.

The pernicious attempts to end the simple business license as officially sanctioned business activity take many forms—either limiting which professions are covered or abolishing the scheme entirely. Licenses for business owners in childcare, automotive repair, and construction services are no longer available and fees for others have been raised, and LFMI is concerned that other professions will be cut from the list.

“If opportunities to run this simple form of business were reduced, or cut, people like Ona would have to either establish a company—which means a lot more work and compliance costs—or it would push people like her into the shadow economy, which is fairly pervasive in Lithuania,” says Aneta Vainė, vice president of LFMI.

Amplifying the Entrepreneur’s Voice

While large companies and interest groups are represented by lobbyists and associations, there is no such representative for the thousands of disconnected license holders. The Lithuanian Free Market Institute (LFMI), founded in November 1990 shortly after the former Soviet republic gained its independence, is often a lone voice in defense of the opportunities the licenses provide to tens of thousands of would-be entrepreneurs in Lithuania. Whenever a new proposal threatens the livelihoods of license holders, LFMI is there to communicate the positive benefits that the licenses provide Lithuanian society.

“People like Ona often say that it would be too complicated to run a business and carry this heavy tax burden that otherwise falls on business companies,” says Vainė, who is quick to make the case that these licenses provide both a bulwark against and a gateway out of the shadow economy in Lithuania. By allowing people to engage in harmless economic activity while paying a modest, lump-sum tax, productive and peaceful activity is encouraged. If these licenses were to be taken away, such activity would likely still commence because weddings will always need cakes and busy parents will always need childcare.

The team at LFMI is adamant that the simple business licenses allow people to work with dignity in adding value to the lives of others—and the simple brilliance of that model allows for a hundred thousand Lithuanians to improve their lives without needing any mandate or direction from anyone else.

“Entrepreneurs are people who are thinking about other people, and they’re trying to serve them the best they can,” says Maslauskaitė. “And these people are very innovative—they bring innovations into the country, they are creating the jobs for other people, and at the same time they provide the best goods and services for consumers. They are at the center of the community.”