17 October, 2013

Distributism and the Franchise

Back in April, McDonald's announced it was considering offering their breakfast menu all day. What has this to do with Distributism? It reveals an incompatibility of the franchised outlet with the distributist model.

There are those who consider the franchise system to be nothing more than creating an opportunity for small, locally owned businesses to come into existence and flourish. Since Distributism favors the expansion of the number of small, locally owned businesses, wouldn't franchises fit right in? I don't think so, and this move by McDonald's reveals the reason why. That reason is independence, the freedom of the locally owned business to independently adapt to meet the needs and wants of its local customer base.

While some franchise chains might not require quite the same level of uniformity as McDonald's, uniformity is part and parcel of the franchise system. Depending on the franchise agreement, the owner of the franchise is not free to choose the look of his restaurant, the clothing of his employees, the type of furnishings, what suppliers he uses, how much his employees are paid, what benefits are offered to the employees, what products he offers, or how they are prepared and delivered to the customer. In cases like McDonald's, he is not even free to choose what time he offers those products allowed by the corporate bosses. For example, you might walk into a McDonald's at 10:25 hoping to catch a last minute breakfast sandwich, only to find that the menu gets switched while you are waiting in line.

Walk into a McDonald's and try to order a Reuben sandwich. Because he must get all of his food supplies from the corporation, the franchise owner doesn't have, and is technically not allowed to stock, the supplies needed to offer one. The menu boards are provided by the corporation and the franchise owner is only allowed to offer what is approved by the corporate offices. All transactions are done through computerized registers programmed by the corporate offices with only those items on the approved menu. Even if the local community has a strong market for selling Reuben sandwiches, the owner of a McDonald's franchise is not free to add it to his menu. In other words, what he offers is not driven by the needs and wants of the local community, but by the profit margin of corporate headquarters.

One of the fundamental principles of Distributism is that local economic activity should primarily be determined by the needs and wants of the local community, because economics, by which I mean the true and fundamental essence of economics, is primarily about meeting the needs and wants of families. If the local community wants a sandwich consisting of a sausage patty and a slice of cheese in an English muffin at 1:00 PM, or if it wants a better quality sausage or cheese in that sandwich, or if it wants a Reuben sandwich, it should not have to wait for approval from some board of directors located across the continent whose only real concern is maximizing shareholder profits.

Another fundamental principle of Distributism is that local businesses should not only serve local customers, but they should also be local customers to the greatest practical extent. The typical franchise agreement does not allow this because the local franchised business is required to purchase all of the products sold from the parent company. Many agreements also require that all furniture and decorations be purchased form the parent company. This locks out any local providers of those items.

The franchise arrangement sends money out of the local economy. Not only does the local franchise owner have to pay a license agreement to open the franchise, not only must he buy all of his products, furnishings, uniforms, etc., from the parent company, he must also send a percentage of the sales income to the parent company. The money that is sent outside of the community represents the economic vitality of the community. If it is sent away, then the local economy is weakened. Some will argue that the franchise creates local jobs, but those same jobs could not only be created by an independent business, but they could also have the option of being worker cooperatives.

So, why do local city councils seem to prefer the franchise outlets over other applications for independently run businesses? It seems they feel that the promise of more jobs (and more tax revenue) is better met by these outlets. I seriously doubt this is the real outcome when you consider that independent locally owned businesses or cooperatives will also provide more jobs and tax revenue, and some franchises pay so little to employees, that those employees become a tax burden as they apply for government benefits.

This is why the principles of Distributism favor not only locally owned businesses, but businesses that are independent from distant corporate decision makers, so that they can respond to the needs and wants of the local community, so that they are primarily accountable to that community rather than to the stock portfolios of countless shareholders, and so that more of the money brought in by those businesses remains within the community, reinforcing its local economic health and stability. The local economy is the foundation of higher levels of the economy. If the local economies around the country founder, the higher levels of economy won't long be able to stand.

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