On Unsustainable levels of Debt: another perspective

January 7, 2009

johnralstonsaul6There are many, many types of debt.

  • Financial debt is really only a bit player in the rich theatre of human history. A necessary evil; a loutish relative sent to help us develop our patience and forbearance.

The recent obsession with financial debt overshadows and distorts culturally much more significant types of debt such as: ethical, debt to yourself, moral, educational, spiritual.

  • Financial debt is a simple matter that is simply a child of contract law.
  • This type carries NO moral or ethical weight, whatsoever.

Many franchise contracts carry into them a severe imbalance of economic and information power.

Some contracts are entered into with fraudulent intent.

Fusing imagination with a historical perspective may mean a different understanding of debt obligations. Some or all franchisee debt may prove to be:

  1. repaid $1.00 for $1.00,
  2. re-negotiated (certain % of claim),
  3. unenforceable (a Court will not oblige repayment),
  4. void (a conditions were not present for a valid contract to be formed), or
  5. commercially forgivable (0 to 100%, it makes economic and career sense for the creditor not to pursue the debt).

Dr. John Ralston Saul [Wikipedia, quotes] pursues a number of topics in an extremely lively and interesting way in his book, A Doubter’s Companion: A Dictionary of Aggressive Common Sense, One Review: B+.

  • Dr. Saul is a very accomplished and expansive Canadian author and philosopher. I had the great pleasure of meeting him in December 2008.
  • I told him his writings (along with Galbraith and McLuhan) had ruined my perfectly good Ivey MBA. He seemed pleased.

Unsustainable Levels of Debt is one of Saul’s more delightful entries. By substituting the words “groups of franchisees” for the word “nation, countries or civilization”, you may find it an apt franchising analogy.

I will be returning to The Doubter’s Companion and taking the liberty of free riding on Dr. Saul’s approach and insights.

Selected Excerpt

National debts are treated today as if they were unforgiving gods with the power to control, alter and if necessary destroy a country. This financial trap is usually presented as if it were peculiar to our time, as well as being a profound comment on the profligate [adj 1 shamelessly immoral 2 recklessly extravagant] habits of the population. The reality may be less disturbing.

1. The building up of unsustainable debt loads is a commonplace in history. There are several standard means of resolving he problem: execute the lenders, exile them, default outright or simply renegotiate to achieve partial default and low interest rates.

2. There is no example of  nation become rich by paying its debts.

3. There are dozens of examples of nations becoming rich by defaulting or renegotiating.

This begins formally in the sixth century BC with Solon taking power in debt-crippled Athens. His organization of general default – “the shaking off of the burdens” – set the city-state on its road to democracy and prosperity. The Athens which is still remembered as the central inspiration of WESTERN CIVILIZATION was the direct product of a national default. One way or another most Western countries, including the United States, have done the same thing at some point. Most national defaults lead to sustained periods of prosperity.

4. The non-payment of debts carried no moral weight. The only moral standards recognized in Western society as being relevant to lending are those which identify profit made from loans as a sin. Loans themselves are mere contracts and therefore cannot carry moral value.

5. As all businessman know, contracts are to be respected whenever possible. When not possible, regulations exist to aid default or renegotiation. Businessmen regularly do both and happily walk away…

8. Debts – both public and private – become unsustainable when the borrower’s cash flow no longer handily carries the interest payments. Once a national economy has lost that rate of cash flow, it is unlikely to get it back. The weight of the debt on the economy makes it impossible.

11. Civilizations which become obsessed by sustaining unsustainable debt-loads have forgotten the basic nature of money. Money is not real. It is a conscious agreement on measuring abstract value. Unhealthy societies often become mesmerized by money and treat it as if it were something concrete. The effect is to destroy the currency’s practical value.

13. Does all of this mean that governments should default on their national debt? Not exactly.

What it does mean is that we are imprisoned in a linear and managerial approach which denies reality, to say nothing of experience. Money is first a matter of imagination and second of fixed agreements on the willing suspension of disbelief.

In other words, it is possible to approach the debt problem in quite different ways.

14. There have been changes which limit our actions in comparison to those of Solon or Henry IV, who negotiated his way out of an impossible debt situation in the early seventeenth century and re-established prosperity..[discussion not relevant to franchising but he takes a shot at money market managers]

— [my definitions and emphasis]

A franchisee frequently owes the following entities:

  1. themselves,
  2. relatives (near and far),
  3. employees,
  4. government (federal, state, municipal),
  5. franchisor,
  6. financial institution,
  7. suppliers, and
  8. professionals and others (lawyers, accountants, consultants).

Both the lender and the creditor took a risk in advancing funds, or goods and services on credit. Most of the creditors have much more experience in business than the franchisee.

If, as Saul mentions, that loans are mere contracts and carry no moral weight, why should most franchisees pay themselves last?

Separate the Act and the Actor

December 22, 2008

There is a tendency to get confused when you are not meeting your financial goals in franchising.

Clear thinking is particularly important when you start becoming aware the something is wrong.

I get a little upset and  a lot suspicious when I hear name-calling (ad hominem arguments) going on. When ever I hear them from experienced industry players, my ears perk up and I question their real motives for speaking.

Not only are these arguments distracting and hurtful but most of all, they interfere with accurate decision making and the very serious work of determining what went wrong (in order to avoid the same mistake in the future).

What I think people should do, if put in an old-fashioned way is to Love the sinner but hate the sin. This is a fairly useful way of falling into a very human perception trap:

  1. For every cause there is an affect (A is caused by B) and
  2. Most outcomes are within the control of the franchisee (if I work hard, I will succeed).

I can absolutely tell you that both are functionally FALSE in modern mom-and-pop franchising.

  • But it serves the elite’s purposes to scapegoat the individual while suppressing institutional memory via gag orders and other silencing techniques.

The mistake you made was to sign a franchise agreement. At that moment, you lost control of your life savings and it was only a matter of time. That you were unaware of that fact does not change it.

  • The specific life saving Death Certificate is unique; it’s your life’s story for heaven’ sake.

But for all intents and purposes, the cause of death in immaterial. Dead is dead.

The King’s Death Certificate

Corporatism: Only real Threat to Democracy?

December 22, 2008

World War II was:

a battle between two concepts of civilization – the one based on individualism and democracy, the other on corporatist authoritarianism. Theoretically the democratic individualists won. Yet since 1945 corporatism has advanced with even greater strength and now has a real hold on day-to-day power. Somehow we seem to have lost World War II after all.


John Ralston Saul offers many original insights into what ails modern society.

In his 1994 book called The Doubter’s Companion: A Dictionary of Aggressive Common Sense, Saul defines terms in a way that brings out new ideas. One of those central words is an old but little used one: Corporatism.

Corporatism is the persistent rival school of representative government. In place of the democratic idea of individual citizens who vote, confer legitimacy and participate to the best of their ability, individuals in the corporatist state are reduced to the role of secondary participants. They belong to their professional or expert groups – their corporations – and the state is run by ongoing negotiations between those various interests.

Saul mentions that the origin of corporations are the medieval craft guild which imitated the organization and specialization of the Roman Catholic religious orders. These two experiences produced the original corporatist state, the Republic of Venice.

The ascendancy of the corporatist world view over the individual citizen perspective has be helped by characterizing democracy as inefficient, ineffective, corrupt and subject to whims and emotions. Corporatism, on the other hand, says that it is professional, responsible, delivers prosperity by ever-more specialization and reliance on experts.

Saul draws corporatism into the 20th century:

These claims resurfaced in the 1920s in Italy. And if Mussolini’s cumbersome corporatist structures didn’t function, corporatism itself did. In both Italy and Germany the relationships which were able to work quite happily under a dictatorship were those between expert groups. Even the academic community worked away happily on the theoretical structures of the new anti-parliamentary national contract.

Since 1945 we have downplayed the corporatist aspect of both the Nazis and Fascists. Instead we have demonized those two regimes into simple manifestations of evil.

Saul ends defining corporatism with his observation:

Corporatism has been for some time the only real threat to democracy. That explains why our corporatist elites never discuss it.

[above] 1939, Save 5 marks a week and you will drive your own car.

Experts? We don’t need no stinkin’ professionals

November 27, 2008

VoltairesBastardsPeople sense that our society is backwards but they lack the understanding of why.

Saul suggests that it has to do with our fetish with the individual:

Just how confused we are over what we mean by individualism can most easily be seen by looking at the West from the outside. Buddhist societies are horrified by a great deal in the West, but the element which horrifies them most is our obsession with ourselves as a subject of unending interest. By their standards, nothing could be unhealthier than a guilt-ridden, self-obsessed, proselytizing white male or female, selling God or democracy or liberalism or capitalism with insistent superior modesty.

The individual is an old idea but “individualism” began to take form in the early 19th century. This is when the idea of “professionalism” came about:

The rise of the professional was therefore intimately linked – throughout the Industrial Revolution, the accompanying explosion of inventions and the growth of the middle classes – with Western man’s assertion that he was a responsible individual. He was responsible to the degree that he was competent. Thus the value of individualism was pegged to the soaring value of specialization.


By becoming better at what he did, each man believed that he was increasing his control over his own existence. He was building his personal empire of responsibility. This was both the measure of his worth and the sum of his contributions to society as a whole.

But, oddly, as the specialization and professionalism increased, the expert became much more isolated. In fact, we have pepper/fly poo time:

While our mythology suggests that society is like a tree with the ripening fruits of professional individualism growing thick upon it, a more accurate image would show a maze of corridors, blocked by endless locked doors, each one leading in or out of a small cell.

Voltaire’s Bastards: The Dictatorship of Reason in the West, John Ralston Saul, 1992.

  • Franchising is barren because certain members of the franchise bar feel personally insecure as men.

Maybe in the 2nd half of their life they can become less fearful of death (and life).

Survival is the second law of life.

November 25, 2008

campbellcompanion3The first is that we are all one.

“There is something really mysterious, something for which Reason can provide no explanation, and for which no basis can be found in practical experience. It is nevertheless of common occurrence, and everyone has had the experience. It is not unknown even to the most hard-hearted and self-interested. Examples appear every day before our eyes of instant responses of this kind, without reflection, one person helping another, coming to his aid, even setting his own life in clear danger for someone whom he has seen for the first time, having nothing more in mind than that the other is in need and in peril of his life.” Schopenhauer.

There was an article in the New York papers a few months ago about a kid who dove into the Hudson River to save a drowning dog and then had to be saved himself. When asked why he’d dove in, he said. “Because it was my dog.” Then there was the girl who went into a buring building – twice – to save her little brother and sister, and when she was asked why she’d done that, she said, “Because I loved them.”

Such a one is then acting, Schopenhauer answers, out of an instinctive recognition of the truth that he and that other in fact are one. He has been moved not from the lesser, secondary knowledge of himself as separate from the others, but from an immediate experience of the greater, truer truth, that we are all one in the gound of our being.

That’s the power. These people didn’t know if they had the strength or not. It’s not duty, not reckoning. It is a flash: a breakthrough of the reality of this life that lives in us. At such moments, you realize that you and that other are, in fact, one. It’s a big realization.

The key to the Grail is compassion,

suffering with, feeling another’s sorrow

as it it were your own.

The one who finds

the dynamo of compassion

is the one who’s found the Grail.

…what’s meant by the image of the Grail, since the thing that effected the healing of the Grail King was the spontaneous act of asking that question and not withholding it. Often you feel that such a spontaneous act will make a fool out of you and so you don’t do it – I will look like a fool if I do that. That’s the failure in the Grail Castle.

— A Joseph Campbell Companion: Reflections on the Art of Living, Edited by Diane K. Osbon, 1991

The psychological pain and dis-ease former franchisees feel that have betrayed a stranger is caused by denying this larger reality (everyone is one).

  • When you sell someone down the river, you’re only really deceiving yourself: the Devil always returns for his payment.

Franchises bastardize charitable giving

November 24, 2008

mcdbun1Humans tend to like stories above almost anything else. We have survived by being excellent listener to and stories tellers.

Corporations via public relations and advertising know this and craft very sophisticated messages to have us believe what is in their financial interest.

I am reminded me of this everytime I go through a drive-thru and see the change collection box.

I know that the franchisee and the franchisor will not be contributing one penny to the inevitable cheque presentation for a sick kids’ house or camp or a wish trip to his first hooker.

I bet many people think that the franchises match their customers’ giving.

  • They don’t folks.

Charity is an important human impulse. I don’t like corporations that debase this human coinage. I’ve raised money for all manners of causes since I was 13 years old.

Giving is giving of yourself not buying an extra cookie once a year to send some snotty nosed brat to camp.

Seriously: How pathetic is it that a junk food firm feels compelled to peddle their empty calories in every pediatric hospital?

  • Is nothing sacred?

nazinursingmomThis image is a mid 1930 attempt to get Germans to support the Nazi charity, NSV (Nationalsozialistische Volkswohlfahrt or in English: National Socialist People’s Welfare).

The NSV was the official charity of the Third Reich.

This poster is translated as: “Support the assistance program for mothers and children.”

All ideologically-based belief systems use communication archetypes to reach and mold their followers.

Images have a power that text lacks.

Propaganda is defined by the winners.

Franchise’s best practices get much worse: Gresham’s Law

November 20, 2008

greshamtSir Thomas Gresham (1519-1579) was a British merchant and financier. He is best known (in a very backhanded way) for something called Gresham’s Law which is commonly stated as “good money is driven out by bad money”.

He had urged Queen Elizabeth to act to restore the debased pound sterling. The value of all money is weakened by allowing low quality species to circulate within the economy.

One application: second hand automobiles.

lemon automobiles (analogous to bad currency) will drive out the good cars. The problem is one of asymmetry of information. Sellers have a strong financial incentive to pass all cars off as “good” cars, especially lemons. This makes it chancy to buy a good car at a fair price, as the buyer risks overpaying for a lemon. The result is that buyers will only pay the fair price of a lemon, so at least they won’t be ripped off.

High quality cars tend to be pushed out of the market, because there is no good way to establish that they really are worth more. The Market for Lemons is a work that examines this problem in more detail.

Franchising is just like selling used cars.

  • There are heavy incentives for franchise offerings to be of much lower quality than advertised. Over time, this trend continues: The highest quality offerings achieve the same (or lower) rate of return than does the lowest quality.
  • The highest quality franchisors leave and the lowest quality ones multiply, based on information asymmetries, made worse by confidentiality agreements and SLAPP lawsuits.
  • The insurmountable costs involved in accessing justice or remedy for fraud accelerate this race to the bottom.
  • There is no use of quality improvement methods such as ISO.

The franchise industry’s practice becomes worse (not better) over time.

Paraclete: advisor, intercessor, comforter, advocate

October 30, 2008

Paraclete comes from the Koine Greek word παράκλητος (paraklētos, “one who consoles, one who intercedes on our behalf, a comforter or an advocate”).

It has several meanings.

A. Wiktionary:

  1. A person who argues the case of another, such as a lawyer in a court.
  2. A person who speaks in support of something.
  3. A person who supports someone to make their voice heard, or ideally to speak up for themselves. lawyer or attorney.

B. Wikipedia
The Holy Spirit: In mainstream Christianity, the Holy Spirit or Holy Ghost is one of the three persons of the Holy Trinity which make up the single substance of God; that is, the Spirit is considered to act in concert with and share an essential nature with God the Father and God the Son (Jesus Christ).

C. The Catholic Encyclopedia:

an appellation of the Holy Ghost. The Greek word which, as a designation of the Holy Ghost at least, occurs only in St. John (14:16, 26; 15:26; 16:7), has been variously translated “advocate”, “intercessor”, “teacher, “helper”, “comforter”.

According to St. John the mission of the Paraclete is to abide with the disciples after Jesus has withdrawn His visible presence from them; to inwardly bring home to them the teaching externally given by Christ and thus to stand as a witness to the doctrine and work of the Saviour.

The Holy Spirit:

…is one of the three persons of the Holy Trinity which make up the single substance of God; that is, the Spirit is considered to act in concert with and share an essential nature with God the Father and God the Son (Jesus Christ).

The Christian theology of the Holy Spirit, or pneumatology, was the last piece of Trinitarian theology to be fully explored and developed. For this reason, there is greater theological diversity among Christian understandings of the Spirit than there is among understandings of the Son (Christology) and of the Father. Within Trinitarian theology, the Holy Spirit is sometimes referred to as the “Third Person” of the Triune God – with the Father being the First Person and the Son the Second Person. Wikipedia

The Holy Spirit is frequently symbolized by a dove.

Who Has Seen the Wind

October 30, 2008

This posting title is a title of a 1947 book by the Canadian author W.O. Mitchell (1914 – 1998).

To have sold a million copies over the years with a Canadian population in 2008 of 33.3 million indicates how influential this book has been.

The Canadian Encyclopedia:

Who Has Seen the Wind … tells the story of a prairie boy’s initiation into the mysteries of life, death, God, and the spirit that moves through everything: the wind.

The novel’s greatest strengths lie in its sensitive evocations of Brian O’Connal’s “feeling,” sometimes associated with his various experiences of death, sometimes with a child’s fundamental, inarticulate but insistent curiosity to discover the world within and beyond himself.

Brian learns about life and death in town and on the prairie: the town is the setting for social conventions, institutions and hypocrisies; and on the prairie is a natural order throughout which the wind metes out its invisible imperatives, chief among them change and death. Vibrant with the serious comedy of children’s dialogue, rich with poetic descriptions of the prairie in all its guises, Who Has Seen the Wind articulates a universal theme in a classically western Canadian voice. The novel has been translated into French as Qui a vu le vent (Montréal, 1974) and into several other languages; it was also made into a successful movie. Author: Neil Besner

I met Mitchell when he was writer-in-residence at The University of Western Ontario in 1982. He was kind enough to sign a copy for me that has somehow survived my sloppy stewardship.

It caught my imagination in high school, maybe because both my mom and dad from the the Canadian prairies. Dad was born in Kindersley, Saskatchewan and mom was raised on 1.5 sections (about 1,000 acres) in Ste. Agathe, Manitoba.

I think we underestimate the role of geography and the landscape.

John Kenneth Galbraith: born 100 Years ago Today

October 15, 2008

Galbraith was born on October 15, 1908 in the rural farming community of Elgin County, Canada. He died in Boston, April 8, 2006 after a very distinguished public service and academic career.

I am reading Professor Galbraith’s book, The Great Crash 1929 right now. [Wikipedia] See my posting on Financial Speculation.

  • The man who is admired for the ingenuity of his larceny is almost always rediscovering some earlier form of fraud. The basic forms are all known, have all been practiced. The manners of capitalism improve. The morals may not.
  • In economics, the majority is always wrong.
  • People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.

This photograph peers down on me from the wall as I type these words. He and his administrative assistant Ms. Baldwin were kind enough to send it to me a year before he died.

  • The contented and economically comfortable have a very discriminating view of government. Nobody is ever indignant about bailing out failing banks and failed savings and loans associations. But when taxes must be paid for the lower middle class and poor, the government assumes an aspect of wickedness.

I grew up and was named after one of these long faced, dour Scotch Presbyterians on my Dad’s side. Johnny and Mary Boychuk raised Mom on a section and a half of the red clay of southern Manitoba.

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