What does the does the arcane socio-economic philosophy of Distributism and the business system of franchising have in common? On the surface it would appear that not only are the two concepts not philosophically similar, any comparison between the two is akin to comparing apples and oranges. Upon further examination of the central tenets of the two, however, it is clear that there are some areas in which the two systems have striking similarities. In fine, the system of franchising has as its bedrock many of the same principles that underlay Distributism. This essay briefly sets forth similarities between the two systems and the importance of recognizing these similarities.
America is experiencing a re-assessment of the belief that laissez-faire, free market capitalism is an unalloyed good. With the collapse of the capital markets in the Fall of 2008, it is beyond peradventure that a certain amount of state controlled economic governance is likely to be the result of what some are calling the “Second Great Depression”. Many on the Left are saying that a critical investigation into the merits of the Austrian school of economics that has held sway over our public policy since the early 1980’s is long over due. While many on the Right say that the problem is not with free market capitalism it is that free market capitalism has not been thoroughly tried; that we have had state intervention in the economy in some form or fashion since the last Great Depression.
One problem with looking at our current economic situation in such a manner is that it is dichromatic—Black or White, Left or Right. Economic dichromaticism is myopic in so far as it blinds one to the possible merits of a “third way”– Distributism. Simply stated, Distributism holds that the ownership of the means of production should be spread as widely as possible among the general populace rather than being centralized under the control of the state (socialism), or a few large businesses or wealthy private individuals (capitalism). Distributism cannot be categorized as a strictly economic or social or even political philosophy—as it is in fact all three. Distributism is best described a policy of a philosophy.
How does Distributism work? In the broadest possible terms, under a Distributist a system, most people would be able to earn a living without having to rely on the use of the property of others to do so. But each individual is not forced to go it alone; rather, Distributism envisions a cooperative approach to economic ordering such that property and equipment may be “co-owned” by local communities larger than a family, e.g. partners in a business. The philosophical genesis for the Distributist movement that arose in the early 20th century was the papal encyclical Rerurm Novarurm. In Rerurm Novarum Pope Leo XIII states that people are likely to work harder and with greater commitment if they themselves possess the land on which they labor, which in turn will benefit them and their families as workers will be able to provide for themselves and their household. He puts forward the idea that when men have the opportunity to possess property and work on it, they will “learn to love the very soil which yields in response to the labor of their hands, not only food to eat, but an abundance of the good things for themselves and those that are dear to them.”
Unlike Distributism most people in America have some rudimentary knowledge of how franchising works. A franchisor has a business that he wants to expand and instead of laying out the time and the capital to open each store himself he grants a licenses to individuals to do open the store and carry out the business —these individuals are known as franchisees. In so doing, the franchisor gives up his right to collect all the profits of the business. The franchisor dictates certain means and methods of doing business but is largely absent from the every day running of the business. His stake in the business is largely provided to him by royalty payments—a set percentage of the business receipts– that the franchisee remits to the franchisor. For his part, the franchisee buys the right to collect the vast majority of the profits he produces. Concomitant with this reward also goes the risk as the franchisee now bears much of the burden of the success or failure of his store.
While franchising is a fairly well understood means of conducting business its impact on the American economy is underappreciated. Franchising is a part of our every day life in America. Franchising biggest cultural impact is in the fast food arena. From McDonalds to KFC, nearly American has frequented a franchised business sometime in their life. But its not just fast food concepts that are franchised, businesses from auto repair to janitorial services to mail box centers are also franchises. Nearly 10% of American’s GDP is related to the concept of franchising. The economic, cultural and social impact of franchising is significant.
How do these two seemingly dissimilar concepts tie into each other? In order to understand the relationship, one must first understand three of the primary tenets of Distributism: subsidiarity, cooperative business associations, and the widespread distribution of property. A primary tenet of Distributism is the concept of subsidiarity. Subsidiarity holds that we should never entrust to a higher body what can be done equally well by a lower body. Production ought to be done by the smallest possible unit; often, the smallest such unit is the individual owning his own productive equipment and operating his own productive business. Subsidiarity is best fulfilled in an economic environment by the wide distribution of productive property. Distributism holds that the area of production should as far as possible be coterminous with consumption.
This ideal of subsidiarity underlies the concept of franchising in so far as the franchisor has chosen to separate the production of the product into many smaller parts. In so doing, the productive property resides—placed (licensed) by the franchisor– in the hands of the franchisee. Granted he is also employing others to help him produce the product but as regards the concept of subsidiarity franchising clearly concentrates the economy into smaller parts. Distributism views production as the conscious and intelligent transformation of man’s environment, and in his creation of the product there inheres the peculiar intelligence and creative faculty of man. The franchisee is using his own labor to produce a product. That the product was not ultimately the franchisee’s idea is largely irrelevant to this analysis. Agriculture is the epitome of the Distributists’ idea of commerce and there is little if anything that can be said to be “unique” in agriculture. With that said, the Franchisor did use his creative faculty and it his creative faculty, combined with the productive capability of the franchisee, that creates a cooperative business venture.
As to cooperatives, one of the primary concerns of Distributism is also the reestablishment of what the used to be called “guilds”. While the present day tendency is to call to call these associations “unions” rather than “guilds,” Distributists prefer to use “guilds”. Essentially, a guild is an association of workers, assembled for the benefit of those workers and to control that particular type of work within a given jurisdictions. Current day labor unions do not constitute a realization of this facet of Distributist economic order, as unions are organized along class lines to promote class interests, whereas guilds are mixed class syndicates composed of both employers and employees cooperating for mutual benefit.
It is not a broad leap to see the similarities between the cooperative—some could argue symbiotic–nature of the franchisor/franchisee relationship. Franchising is the collaboration of two producers of one product to form a unified and coordinated delivery mechanism. It is this conjoining of the productivity of the franchisee and the creativity of the franchisor that creates a union. In the strictest sense they form a business partnership that embodies the essence of Distributism in so far as the franchisee and franchisor’s success is codependent on the other parties desire to embrace fully the desire to work for himself.
The fact that a franchisee does send some of his wages to the franchisors does attenuate the argument for compatibility to a certain degree. Nevertheless, Franchising is primarily comprised of vertical businesses, and there are very few franchises that sell across industries. Thus the principle of subsidiarity seems appropriately applied–if not perfectly applied. For example, Wal-Mart and Target sell across myriad product verticals. Neither of these two commercial behemoths is and or will become franchises. Whereas specialty retail marketers like Post Net, Moe’s, and Spray Green are confined to a relatively small niche market and are prime examples of successful franchises.
Another primary tenet of Distributism is the widespread distribution of property. Distributists concern was the capitalism accumulates wealth in a plutocratic few while socialism ultimately devolves in to the tyranny of the statist economic machinery. G.K. Chesterton—one of the fathers of Distributism–held that “the only way to preserve property is to distribute it more equally among the citizens so that all, or approximately all, may understand and defend it.” Hillare Belloc—another early proponent of Distributism–observed, “[w]ithout wealth man cannot exist….and to control the production of wealth is to control human life itself.” A well-known modern day Distributist stated the problem with our current system of wealth distribution aptly when he stated
Distributists object strongly to a characteristic common to both industrial and finance capitalism, one which remains no matter how stuffed with Chinese-made garbage the non-owning worker’s heavily-mortgaged house might become: the fact that the vast majority of society are non-owning workers, with only a very few owners of productive property. In other words, while workers in the capitalist world often now have wealth, they still have no means of producing wealth, and that makes all the difference.
Thus Distributists are committed to a wide distribution of productive property, and as such the wage contract has a much smaller role in their system than it does in our current economic system. That, however, is because those who own their own means of production have no need to work for a wage, not because Distributists believe that the wage contract is evil in itself.
Franchisees do employ others to assist them in producing the product. As such the individual employee of the franchisee could not rightly be said to experiencing Distributism in its purest sense since he does not control the work and is not the direct beneficiary of his own productive property. With that said, an employee of a franchisee can become a franchisee after he has gained experience in the trade and/or become a franchisor himself. Similarly, the franchisee cannot be seen as the perfect actor in the Distributist system as in most instances the franchisees has to remit some of the fruit of his labor to the franchisor through a royalty payment. Consequently neither franchisee nor franchisor fully owns the product of his labors. So for this reason franchising does not fit perfectly within the Distributism system. But all three economic actors—franchisor, franchisee, and the employees of both- can be said to be putting their property to work for them in a manner that is similar to if not perfectly aligned with the ideals posited by Distributism.
Franchising’s greatest “selling point” is that it creates ownership. In fact the International Franchise Association President & CEO Matthew Shay stated recently “Franchise ownership helps people get into business for themselves but not by themselves.” Distributism is nothing more than an economic system in which private property is well distributed, in which “as many people as possible” are business owners. Chesterton famously remarked “too much capitalism does not mean too many capitalists, but too few capitalists.” And Belloc held that the problem inherent in a capitalist society is that it generates a “proletarian” class that only aspires for employment, and an “administrative” class of owners.
Franchising tends to rectify this “problem” as it promotes people getting into business for themselves. Belloc lamented that most people in a capitalist society think of themselves as wage earners, their object is almost always an increase in that wage, and that to somehow cease to be a wage earner is somewhat foreign to them. Franchising endeavors to eradicate this tendency by promoting small business ownership, which has at its very essence the Distributist ideal of the widespread distribution of property and the principle of subsidiarity. Moreover, to further this end there exists a cottage industry inside franchising that deals exclusively with recruiting people to become franchisees—franchise recruitment portals. These specialty portals have as their stated aim the promotion of franchising. Thus these portals help people to see themselves as something more than a simple wage earner.
As evidenced by the thousand of franchised units scattered across America, franchising works. The exact reasons why franchising works so well can be found in the common philosophical tenets of franchising and Distrubutism briefly discussed above. Stated simply it works because it fulfills man’s needs to produce his own product. As such our public policies “should favor ownership, and its policy should be to induce as many people as possible to become owners.” That is precisely what franchising does. And while few people may have heard of the term Distributism and fewer still may know of the specific tenets of Distributism it does not mean that people do not practice and or hold a de facto belief in some of the merits—both philosophical and economic– of Distributism. The exact manner in which this de facto belief is lived out in every day economic transactions remains unexplored and for the average American simply unimportant. Franchising is one such way.
Franchising attempts to put more capitalists in the system by decentralizing the capital in the system. In so doing, franchising approximates the Distributist ideal of having the product be coterminous with the consumption as the primary underpinning of franchising is that it is local. In the end, franchising may not be the perfect example of Distributism. But “le mieux est l’ennemi du bien.” The mechanics and the impetus behind franchising make clear that it is also not a pure form of industrial capitalism and especially not finance capitalism. Many of the merits in Distributism are clearly evident in franchising. What is also clear is that some of the merits that many any in our society would point to as exemplars of capitalism are in fact rooted in a Distributist ethos—even if very few presently recognize it.
1. Pope Leo XIII, Rerum Novarum, 1891.
2. Id.
3. Blair, Robert D. and Lafontaine, Francis, The Economics of Franchising, 2005
4. McNabb, Father Vincent O.P.
5. Goodman, True Sources of Wealth, Distributist Review, 2009
6. See http://en.wikipedia.org/wiki/Distributism
7. Belloc, Hillare, Servile State, 1912
8.Id. at 3
9. International Franchise Association press release 2009
10. Chesterton, G.K.,The Uses of Diversity, 1921.
11.Id.
12.See http://www.FranchiseOpportunities.com
13. Id. at 10.