It is in the long run that the corporation lives.

November 11, 2011

John Kenneth Galbraith spoke of “countervailing power”. [Detail]

His analysis is useful in viewing franchisee and franchisor relationships.

The massive reduction in risk that is inherent in the development of the modern corporation has been far from fully appreciated.

All successful revolutions are the kicking in of a rotten door. The violence of revolutions is the violence of men who charge into a vacuum.

In the assumption that power belongs as a matter of course to capital, all economists are Marxians.

JKG 1908 – 2006


Are franchise bankers running a peep-show, a clip joint?

January 31, 2011

Franchising is low-grade entrepreneurial pornography.

Read Franchising Opportunism and you judge. The horrendous losses on unregistered guaranteed government loans are self-financed on inflated appraisals.

A clip joint or fleshpot is an establishment, usually a strip club or entertainment bar, typically one claiming to offer adult entertainment or bottle service, in which customers are tricked into paying money and receive poor goods or services, or none, in return.

Typically, clip joints suggest the possibility of sex, charge excessively high prices for watered-down drinks, and then eject customers when they become unwilling or unable to spend more money. The product or service may be illicit, offering the victim no recourse through official or legal channels. Wikipedia

The process by which banks create money is so simple that the mind is repelled. John Kenneth Galbraith

See Canada Small Business Financing Program and U.S. SBA 7a Loans [and UK and France and…]


Is Blue MauMau slowing or hastening franchising’s decay?

September 17, 2010

The technology for dealing with franchising’s smell has changed.

Steps 1-2-3:

  1. tradename system executives,
  2. national franchisor-dominated associations (IFA, AAFD, CFA, FCA, FANZ) + franchise bar, and
  3. Blue MauMau.org.

Musing: #3 works on the rhetorical principle that Thomas Carlyle suggests…

If you do not wish a man to do a thing, you had better get him to talk about it; for the more men talk, the more likely they are to do nothing else.

…and John Kenneth Galbraith adds…

People need to think of themselves as unmanaged, independent and free, if they are to be controlled with maximum success.

…and more colloquially still:

Bullshit baffles brains: A deception. To put on such a good show the inspector is so impressed (s)he won’t bother with a detailed check or to question anything.


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?


Why are groups of franchisees so pathetic?

December 8, 2008

wolfsheepclothingPeople need to think of themselves as unmanaged, independent and free, if they are to be controlled with maximum success. John Kenneth Galbraith

The story coming out of Blue MauMau is that franchisees are the authors of their own misfortune in several dimensions.

  1. They’re stupid in not doing what is seen as Killer Due Diligence and therefore deserve their fate (even though the Three Wise Men admit that franchisor opportunism cannot be controlled, avoided, let alone predicted on a pre-sale basis).
  2. Proof of their stupidity is that there are few independent franchisee association, IndFA around.
  3. Franchisees compound their lack of intelligence and sloth by not having a franchise bar member manage their independent franchisee association, IndFA.
  4. Proof of their lack of intelligence is them not spending $.27 per day on some mythical national pro-franchisee lobby effort (the “Let’s not just match but outspend GM+Toyota+Exxon” public policy argument).

Conventional Wisdom: many manifestations of stupidity, one source of stupidity (ie. franchisees).

  • I would suggest this is 180 degrees wrong and that franchisees dance like white men because of the cash flow relationships within Big Franchising.

It is my expereinece is that the formation of grups happens along this way:
1. Two, three franchisees grab a few brown pops and start shooting the shit. They figure out they’re not crazy about their concerns and start working out some information sharing between themselves. They start scratching down some numbers on a wet bar napkin and start wising up to how far they’re bending over. Some sober up and continue emailing each other.

2. Other franchisees hear about what Tom, Dick and Harry are doing and want to join in. There are larger group meetings at kitchen tables: Real benefits, great value.

3. One of the still extremely effective but non-directed group mentions that they ought to get some legal advice.

4. They get some $ together and call a franchise bar lawyer who claims to represent franchisees’ interests. The franchisor lawyers up; the franchisees lawyer up. The more money that is spent with the lawyer, the tighter the bonds become to that service provider.

5. The association grows but just seems to fizzle after the initial war chest is used up in legal dances.

  • The allegations of stupidity are used to disguise the franchisees’ lawyers role as shepherd. It’s a well-choreographed dance.  A false-justice show for the crowd:  A conjurer’s trick to maintain the illusion of a balanced industry.
  • Let’s not forget that all lawyers are susceptible to cheating because they provide credence good services: franchisees can’t tell if they’re being ripped off.

Franchisees think that by hiring a franchisee “white knight” lawyer that they will continue solve their business problem. Not one of the corporate guys but their “sworn enemies” the ones that scratch themselves and cuss to show how deep they’re into the franchisee brotherhood.

  • Why would franchisee lawyers solve (rather than massage) your problems when that would decrease their future cash flows (reputation as an unmanageable in a near-monopoly of professional services)?

Proof: Who is telling you [post-signing] to talk to a franchise law expert rather than an experienced regional lawyer? (It’s the same party saying to come talk to their Ombudsman, btw.)

  • The national franchisor trade association or their captured bankers, consultants, government agencies, etc.

No wonder franchisee groups flounder: They’re sabotaged every day by their own contracted legal providers (see infanticide).

  • The solution is to grow the IndFA while avoiding being eaten by the Wolf in Sheep’s Clothing lawyer.
  • Research indicates you avoid overpaying credence good providers by paying separately for (1) diagnosing the problem and, if needed, (2) contracting for services to solve the problem. The Franchise Bar members insists on doing both (diagnosing and providing service) which is a very dangerous situation. They also will NEVER deal with an IndFA that is also being currently advised by an independent franchise consultant (control issues should not be significant if everything is on the up-and-up: but it isn’t).
  • I only diagnose, advise and support the IndFA’s executives in their relationships to their sub-contractors (lawyers, accountants, media, web designers, insurance providers, etc.)

The businesspeople should wag  the wolf’s tail, not the other way around.


Regulators’ Life Cycle

November 20, 2008

greatcrashbook1

John Kenneth Galbraith wrote in 1954 concerning regulators:

…regulatory bodies, like the people who comprise them, have a marked life cycle.

In youth they are vigorous, aggressive, evangelistic, and even intolerant.

Later they mellow, and in old age – after  a matter of ten or fifteen years – they become, with some exceptions, either an arm of the industry they are regulating [regulatory capture] or senile.

I thought of my friends in Australia when I read this yesterday.

  • I wonder if Galbraith, as a agricultural economist, would view re-invigorating the ACCC as akin to adminstering Viagra to a gelding?

Sure: Lots of pawing the ground and snorting going on. Even some lofty aspirations.

But when the parliamentary inquiries end, will it be Business as Usual or a few more years of pretense management?


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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