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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Thoughts Podcast.

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Speaker 2: I'm Tracy Alloway and I'm Joe.

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Speaker 3: Isn't Joe?

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Speaker 2: I will fully admit I think I have a romanticized

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Speaker 2: view of fast food chains.

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Speaker 3: Yeah, you're the only one. Yeah, I know. Literally, I

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Speaker 3: know I like fast food, chairs I don't have a

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Speaker 3: romanticize view of them.

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Speaker 2: I blame coming to America, huh, and the restaurant that

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Speaker 2: was in there, and also my overseas upbringing that probably

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Speaker 2: made American fast food seem a lot more exotic and

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Speaker 2: interesting than perhaps actually is. But I was thinking the

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Speaker 2: other day about the franchise model. It is really weird

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Speaker 2: once you start digging down to it, because it's like

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Speaker 2: this and coming to America is you have the small

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Speaker 2: business owner I want to be all entrepreneurial, so they

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Speaker 2: get this franchise, but then everything is basically dictated to

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Speaker 2: them about how to do the business by the actual

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Speaker 2: corporate franchise owner.

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Speaker 3: Wait, coming to America, he didn't open to McDonald's.

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Speaker 2: No, it was yeah, right.

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Speaker 3: But that was the whole thing.

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Speaker 4: There was like a legal fight against you know, because

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Speaker 4: they claimed that like he want, but he want what

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Speaker 4: he wanted.

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Speaker 3: To do it his own.

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Speaker 4: I mean, he really just wanted to commit intellectual property theft.

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Speaker 4: I mean, that's really what was going on. I suppose

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Speaker 4: you could tell an optimistic version he wanted to go

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Speaker 4: his own way and do his own thing, but he

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Speaker 4: was really just committed.

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Speaker 3: I love. You know, it's a.

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Speaker 2: Perfect summary of why people are interested in the franchise model,

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Speaker 2: which is like, Okay, you're ostensibly supposed to be your

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Speaker 2: own business person I guess independent, but you get a

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Speaker 2: leg up because you get that like built in customer

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Speaker 2: base and the insisting brand and all of that.

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Speaker 4: But to your point, like the pitch in many franchise

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Speaker 4: esque relationships, it's like, this is your chance to be

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Speaker 4: an entrepreneur, et cetera. Except when you think about entrepreneurship,

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Speaker 4: you don't think about like so many constraints, like here's

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Speaker 4: the thing, and here's the price, and here's the thing.

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Speaker 5: You know.

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Speaker 4: And also in a typical entrepreneurial environment, there is quite

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Speaker 4: a bit of like you know, people often go into

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Speaker 4: entrepreneurship for like big like right tail outcomes, you know,

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Speaker 4: so for.

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Speaker 3: Example, big payoff. Yeah, and so like for example, I

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Speaker 3: remember you know in the I guess.

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Speaker 4: You still hear it, but like the glory days of

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Speaker 4: like uber and stuff like that, or being like an

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Speaker 4: Amazon van driver or something like that, they talk about

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Speaker 4: start your own business, and on some level it was

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Speaker 4: like on paper, it's like there was legally a business.

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Speaker 4: It's not going to be like a high scale, high

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Speaker 4: margin business the way many people hope for when they

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Speaker 4: do quote entrepreneurship unquote the sort of like parameters of

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Speaker 4: the outcome. It's like, Okay, maybe they've taken off some

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Speaker 4: of like the really bad outcomes, yeah, but it's not

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Speaker 4: the sort of like really good right tail outcomes that

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Speaker 4: many people so with like the aspirations of the entrepreneur.

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Speaker 2: Well, this is the other thing I'm interested in because

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Speaker 2: certainly in the eighties and nineties you would hear stories

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Speaker 2: about people who became relatively welcome by running like franchise empires.

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Speaker 2: So I'm curious if that still exists. But the other

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Speaker 2: thing that's really interesting to me is like, Okay, you're

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Speaker 2: an independent owner of a franchise. What levers do you

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Speaker 2: actually have to pull to improve the business.

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Speaker 4: I know, I always think like sometimes you see those

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Speaker 4: stories again not to keep picking on McDonald's, which we

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Speaker 4: both love, but like you'll see these stories from time

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Speaker 4: to time about like a bad product rollout right, I

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Speaker 4: introduced a new sandwich and nobody likes it or something

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Speaker 4: like that, And I always think, man, it would be

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Speaker 4: so annoying to be a franchise ee. Yeah, you have

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Speaker 4: to be at the whims of some like how much

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Speaker 4: do they have to carry the sandwich?

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Speaker 3: Can they change the price?

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Speaker 4: Like, you know, you're really putting a lot of faith

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Speaker 4: and money on people who like make big decisions that

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Speaker 4: are or you like, let's say you run a bad ad. Right,

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Speaker 4: let's say you run an ad that McDonald's corporate runs

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Speaker 4: an ad that ournishes the whole brand, which could could

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Speaker 4: theoretically happen. It's like you've just like totally outsourced some

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Speaker 4: of your future outcome.

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Speaker 2: The CEO seems reluctant to eat their own meal products.

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Speaker 2: Oh yeah, okay, Well we should talk about I guess

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Speaker 2: the franchise model and the franchise economy because it is

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Speaker 2: really interesting episode. So I am happy to say we

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Speaker 2: have the perfect guest. We're going to be speaking with

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Speaker 2: Brian Colachi. He is the chief economist at the Open

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Speaker 2: Markets Institute and author of the book Chains of Command,

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Speaker 2: The Rise and Cruel Reign of the Franchise Economy. So, Brian,

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Speaker 2: thank you so much for coming on outlaws.

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Speaker 5: Yeah, thanks for having me.

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Speaker 2: Can you maybe just give us an overview like the

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Speaker 2: actual legal and corporate structure of a franchise What does

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Speaker 2: it look like and how does it differ from I

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Speaker 2: guess either like mcdowells mcdowas.

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Speaker 5: Yeah, there we go.

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Speaker 6: Yeah, So the legally, it's a very simple structure. It's

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Speaker 6: really an artifact of trademark law. So you know, you've

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Speaker 6: got a brand owner on McDonald's, let's say, and they license,

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Speaker 6: you know, ostensibly we can get into how independent they

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Speaker 6: really are. By an independent business owner to run a

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Speaker 6: McDonald's restaurant and use the McDonald's trademark and in exchange

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Speaker 6: the franchise e both want The operator called the franchise e,

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Speaker 6: kicks a percentage of their sales and royalties usually between

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Speaker 6: six or you know, twenty percent, and so McDonald's takes

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Speaker 6: that revenue stream and in return also the franchise e,

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Speaker 6: this is the key sticking point, agrees to follow all

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Speaker 6: of their instructions and it is quite minute I mean

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Speaker 6: everything from the you know, in many cases even the prices,

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Speaker 6: hours of operation, product mix, and even things like you know,

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Speaker 6: how long does your employee have you know, deserve as

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Speaker 6: a customer to drive through? What words do they use

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Speaker 6: to greet the customer. There's very little left to discretion

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Speaker 6: of the franchise. They're basically a middle manager for a

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Speaker 6: large corporation, but with a little bit more risk and

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Speaker 6: a little more skin in the game.

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Speaker 5: Because of that, the way that the structure of it works.

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Speaker 3: They even like constrained the equipment you can use to

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Speaker 3: repair ice cream machines.

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Speaker 6: That as a famous yeah example of yeah franchise e's

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Speaker 6: as I'm an avid consumer.

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Speaker 5: Of I love it. As a consumer, I love it.

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Speaker 6: But yeah, that's a joke among a McDonald's fans is

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Speaker 6: their ice cream machines are always broken.

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Speaker 4: Do you remember we did that episode a couple of

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Speaker 4: years ago and the guy who we're talking to was

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Speaker 4: bullish on that company, Oh it makes the ice cream gear.

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Speaker 4: But he was very straightforward, which I respect. It is

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Speaker 4: like they have the monopoly. Their equipment breaks a lot,

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Speaker 4: and only they can repair it, and so that's a

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Speaker 4: lot of I mean, that's how investors should be.

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Speaker 2: A popular business model, especially in the tech world, where

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Speaker 2: we see companies create problems that only they can solve. Anyway, Okay,

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Speaker 2: so you mentioned skin in the game. There give us

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Speaker 2: the sort of origin story of the franchise model, because

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Speaker 2: my understanding is part of this was about incentives, right,

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Speaker 2: So you tell people, well, you're not just going to

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Speaker 2: be like a person working for us, You're actually going

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Speaker 2: to have ownership in this particular restaurant and the revenue

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Speaker 2: that it's throwing off. You want to incentivize people to

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Speaker 2: I guess work harder for you.

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Speaker 6: M yeah, So it solves you know what you know

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Speaker 6: we economists call the principal Asian problem, you know, where

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Speaker 6: you have the local manager more incentivized to exert effort

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Speaker 6: to put in you know, put in work than a

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Speaker 6: salaried employee would because you know, their life savings depend

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Speaker 6: on it. You know, they invested their families money in

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Speaker 6: that restaurant or that other whatever kind.

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Speaker 5: Of business it is.

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Speaker 6: But the other reason why franchising was so appealing to

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Speaker 6: these franchisors is that the fact that they were a

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Speaker 6: separate business, they were not employees of the chain, meant

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Speaker 6: that they were covered by overtime or minimum wage or

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Speaker 6: if you know, the McDonald's workers wanted to you know,

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Speaker 6: join a union or something like that, they weren't able

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Speaker 6: to do. So they had no rights against McDonald's. All

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Speaker 6: of their rights are only against this franchisee who really

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Speaker 6: doesn't have the money. The money is all, you know,

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Speaker 6: sort of coming to the top, so that access I

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Speaker 6: legal barrier to exclude workers from those rents. And the

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Speaker 6: other aspect I would say again back to those incentives,

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Speaker 6: is that you know, what are these franchises incentivized to do.

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Speaker 6: As I was, you know, researching the book, I met

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Speaker 6: someone I'm from New England, so dunkin Donuts is our

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Speaker 6: big chain, and you know, someone who had worked at

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Speaker 6: a dunkin Donuts said, yeah, my franchise was obsessed with bananas,

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Speaker 6: Like why bananas? And so well because all the other

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Speaker 6: ingredients you know, were controlled by Dunkey Donuts, but bananas

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Speaker 6: you can you could send us around to look at

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Speaker 6: the stopping shop, you know, for the chiefest chief is banana.

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Speaker 5: So there was that aspect of it.

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Speaker 6: So they yeah, they're highly incentivized because nothing else is

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Speaker 6: under the control pretty much what they do outside of

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Speaker 6: bananas is they they extract effort and push down wages

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Speaker 6: for their franchised employees. So it's it's a high stress,

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Speaker 6: a high if you've ever been to one, you know,

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Speaker 6: very high motivated workforce. You know the phrase that that

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Speaker 6: workers that these restaurants uses. Their managers always tell them,

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Speaker 6: if you can lean, you can clean, you know, you

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Speaker 6: always got to be doing something.

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Speaker 4: Yeah, all right, so that explains the sort of corporate logic.

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Speaker 3: What is like the history of it.

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Speaker 5: Who were the.

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Speaker 4: Real like innovators We've just mentioned duncan and McDonald's, But

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Speaker 4: who were like the early players, What did they realize?

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Speaker 4: What were the conditions, et cetera? Tell us about that period.

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Speaker 6: Yeah, so you know, the initial legal structure comes out

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Speaker 6: of you like auto dealers and like these new manufacturing

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Speaker 6: companies in the nineteenth and early twentieth century. But the

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Speaker 6: fast food and modern franchise as we know it, where

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Speaker 6: you have that your license is like an entire business

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Speaker 6: package to a small entrepreneur. That really dates to the

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Speaker 6: postwar period nineteen fifties, nineteen sixties, and the innovators who

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Speaker 6: who invented this business model are there. They are fascinating.

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Speaker 6: It was a joy to research the book. Very colorful people.

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Speaker 6: Colonel Sanders was a real guy.

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Speaker 5: You know.

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Speaker 6: Ray Kropt is a movie about him. It's fantastic with

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Speaker 6: zotobiography is good.

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Speaker 5: Yeah, that's also excellent.

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Speaker 6: Yeah, a lot of quotes from there in my book,

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Speaker 6: because yeah, he's such a verbose guy. But you know,

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Speaker 6: I'm an economist, and so I just started to look.

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Speaker 6: I just wanted to know a little bit of the

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Speaker 6: background so I could run my regressions, you know. But

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Speaker 6: as I you know, got deep into the history, like

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Speaker 6: I decided I really wanted to write a book about

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Speaker 6: how it was founded. It's very fascinating because you know,

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Speaker 6: these guys had a great idea. But they also they

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Speaker 6: said this openly. There was no secret to on earth.

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Speaker 6: They said pretty clearly, what we're doing isn't really legal.

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Speaker 6: We need to change the laws to make it legal.

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Speaker 6: Let's form an association, a trade association, international franchise association

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Speaker 6: to make this business model legal. And the body of

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Speaker 6: law that actually they're up against it's kind of hard

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Speaker 6: to believe now, but it was antitrust. Anti trust law

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Speaker 6: protected these small business owners from that kind of control.

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Speaker 4: So would the issue be that under a prior regime,

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Speaker 4: a McDonald's or a franchise or would be the monopoly

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Speaker 4: seller of McDonald's IP and so forth to all their like,

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Speaker 4: how did this run up against franchise or anti trust law?

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Speaker 6: Yeah, so a lot of the a lot of the

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Speaker 6: case law actually comes from the petroleum industry refiners who

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Speaker 6: had branded stations, you know, like a Shell station or

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Speaker 6: a Chevron, and they came up with a way to

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Speaker 6: get around chain store taxes and also anti trust to

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Speaker 6: control the independent dealers make sure they're only selling shell

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Speaker 6: oil and also only selling approved brands of you know,

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Speaker 6: batteries and tires and other accessories. But they also did

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Speaker 6: this to avoid when the Fairly Standards was packed in

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Speaker 6: nineteen thirty eight, and you know Ray Kroc and Colonel

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Speaker 6: Sanders and all these founders of the franchise, Well, we

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Speaker 6: should do that in service industries, not just product distribution.

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Speaker 6: But the anti trust body of law was it's sort

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Speaker 6: of like you know, nineteenth century anti monopoly idea of

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Speaker 6: you know, like there's like meaning to being like owning

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Speaker 6: a business, you know, owning your own farm or you know,

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Speaker 6: employment is like you can't have a democratic society where

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Speaker 6: people are taking commands from someone else. So the anti

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Speaker 6: trust course through the mid nineteen seventies are still enforcing that.

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Speaker 6: Not in every case, but for example, if McDonald's wanted

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Speaker 6: to set the price of a big Mac, that was

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Speaker 6: against the law. If they wanted to, you know, tell

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Speaker 6: a franchisees you know what territories they could operate, that

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Speaker 6: was against the law.

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Speaker 5: And so so, for example, is a.

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Speaker 6: Great moment that I've now talked about so many times

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Speaker 6: that I've basically memorized. The quote is there's a series

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Speaker 6: of hearings in front of the Senate Anti Trust Committee.

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Speaker 6: There's a bunch of them in nineteen sixty three, and

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Speaker 6: then a more robust set in nineteen sixty five, where

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Speaker 6: you have the chair of the Senate Anti Monopoly Committee,

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Speaker 6: guy named Jerry s Cohen. He's interviewing or questioning the

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Speaker 6: president of the International Franchise Association, a guy named Many Penaldon,

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Speaker 6: and he can't really believe his ears that franchisers are

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Speaker 6: trying to get away with this, you know, he tells him,

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Speaker 6: wait a minute. You know the argument that you're giving

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Speaker 6: us for why we should allow this business model under

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Speaker 6: anti trust is that you know it creates all these

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Speaker 6: opportunities for independent business owners. It allows an independent man

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Speaker 6: and it's it's a very gendered thing here, but an

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Speaker 6: independent man to be independent. But if he's told what

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Speaker 6: products he has to sell, what price he has to charge,

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Speaker 6: what operation he has to operate, and well, he was

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Speaker 6: not really independent, is he. He's part of an integrated

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Speaker 6: franchiser's operation. And franchises themselves say repeatedly throughout this period,

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Speaker 6: we're trying to get vertical integration by other means. We

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Speaker 6: don't want to own the assets, we don't want to

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Speaker 6: employ the workers. Those are risks we'd rather do without.

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Speaker 6: We want the benefits of that control, but we really

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Speaker 6: don't want to be held liable for it.

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Speaker 2: So somehow the franchisers are able to successfully argue that

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Speaker 2: they should be I guess treated like single entities when

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Speaker 2: it comes to antitrust law, but at the same time

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Speaker 2: they should be exempt from I guess the obligations and

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Speaker 2: liabilities that would normally come with that.

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Speaker 5: Yeah.

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Speaker 6: Absolutely, So there's another A few years before the hearing

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Speaker 6: I just mentioned, the Teamsters union was trying to organize

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Speaker 6: gas station attendance and they sent their guy to testify,

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Speaker 6: and he complained about this. You called it double barrel immunity.

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Speaker 6: You know, so you know, when you're going to anti

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Speaker 6: trust courts, you tell them that you are a single entity.

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Speaker 5: You know, you're all just one company.

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Speaker 6: So it's like logically impossible for you to violate the

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Speaker 6: anti trust laws because that requires a conspiracy, you know,

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Speaker 6: two people have to agree. But at the same time,

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Speaker 6: when we try to organize your workers, you say no,

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Speaker 6: you know, the labor laws don't apply. They are a

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Speaker 6: totally separate company. They have nothing to do with this.

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Speaker 6: And you know that that was the sixties. The same

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Speaker 6: thing happened in franchising is happening and franchising. You know,

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Speaker 6: people remember the fight for fifteen whole thing a few

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Speaker 6: years ago. But they've been able to win this so far.

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Speaker 6: They can just sort of have those two worlds states

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Speaker 6: separate and this. Yeah, it's interestingly they've been able to

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Speaker 6: do that for so long.

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Speaker 3: So okay, I see it.

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Speaker 4: In one version of it, the parent company or the

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Speaker 4: franchise or has taken a lot of risk off the table.

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Speaker 4: They don't have to make many capital investments, they don't

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Speaker 4: have to worry about their employees going on strike. On

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Speaker 4: the other hand, any franchisee enters into this voluntarily, right, Like,

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Speaker 4: no one has to like open McDonald's. And so they're like,

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Speaker 4: can see the risk rewards the McDonald's will ensure I believe,

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Speaker 4: or the franchise or will ensure that, say, like another

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Speaker 4: one isn't going to open up on the same block,

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Speaker 4: which is a risk if an independent business, Right I

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Speaker 4: open up like my own independent pizza shop, someone opens

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Speaker 4: one of the next door suddenly like they undercut me,

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Speaker 4: et cetera. So it's like I don't have like the

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Speaker 4: risk of like another McDonald's undercutting.

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Speaker 2: Don't have a mcdoal's.

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Speaker 3: You could have a McDonald's.

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Speaker 4: But you know, like since we're talking about brands, like

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Speaker 4: there is McDonald's brand affinity in a way that many

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Speaker 4: independent burger shops have, like you know, either have yet

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Speaker 4: to never achieve. So like at least some of these

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Speaker 4: sort of like classical business risks are taken off the

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Speaker 4: table for the franchise. And also it's my understanding like

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Speaker 4: generally McDonald's franchisees have done very well and they're consistently

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Speaker 4: quite profitable.

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Speaker 3: Yeah, is this all is this an all fair characters?

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Speaker 5: Yeah, well, a lot of that is fair.

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Speaker 6: Yeah, particularly if you got in with McDonald's like at

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Speaker 6: the beginning, if you're on the ground floor with these,

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Speaker 6: I think it's fair to say, yeah, Ray krot he

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Speaker 6: allowed his franchisees to get rich before he did.

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Speaker 2: Uh.

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Speaker 5: You know, that's a brag that the company does. It's

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Speaker 5: kind of true.

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Speaker 6: So that definitely was that there was that dynamic. On

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Speaker 6: the other hand, there are some chains that don't give

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Speaker 6: that protection. For example, Subody's an example of one where

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Speaker 6: they will open one up up across the street from you.

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Speaker 6: Or if there was some litigation in the past with

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Speaker 6: let's say churches chicken mergers with Popeyes, well you know,

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Speaker 6: the contract might protect the churches, but they could put

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Speaker 6: a Popeyes across the street from you. So there there

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Speaker 6: is still some of that risk. But you know, if

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Speaker 6: I have any you know, like more you know Marxist

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Speaker 6: and client listeners. You know, there's this you know, everyone

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Speaker 6: who's a worker, you know, it's someone who doesn't have

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Speaker 6: access to the means of production, so they have to

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Speaker 6: you know, sell their labor, you know, to a capitalist.

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Speaker 6: But you know, franchising has this whole other layer of use.

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Speaker 6: A pe who can afford to open a restaurant. They

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Speaker 6: have some capital, they supply capital as well as labor.

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Speaker 6: They're investors, but they don't have the means of marketing

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Speaker 6: at the scale that they don't have a brand. And

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Speaker 6: so another thing you see in the whole history of

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Speaker 6: franchising is franchise is saying, yeah, you know, I kind

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Speaker 6: of wanted to be an entrepreneur or I used to

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Speaker 6: own like my own donut shop, but you know, one

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Speaker 6: stuck in donuts or at that time, there was another

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Speaker 6: chain called Mister Donut, you know, game to town. I

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Speaker 6: really couldn't compete. I had to sell out, you know,

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Speaker 6: and join their chain. And that brand is very powerful.

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Speaker 6: So there's this is even in the film you know

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Speaker 6: Ray Croc famously, you know, he stole all the well

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Speaker 6: they agreed to sell their whole business basically, the the

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Speaker 6: McDonald brothers, the guys who created McDonald's, to him and

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Speaker 6: he but after he controlled the McDonald's name in the trademark,

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Speaker 6: they thought they could keep operating, you know, and doing.

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Speaker 6: And he just opened the McDonald's right across the street

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Speaker 6: from their original place and put him out of business.

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Speaker 6: And so that's something that you see that that brand

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Speaker 6: is very powerful, but it also gives the franchiser power

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Speaker 6: for the franchisee to do what they say.

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Speaker 4: You know, I'm not surprised that McDonald's did this. Probably

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Speaker 4: the only fact that really sticks out at me from

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Speaker 4: Ray crocs autobiography where he's like talking about his personal

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Speaker 4: life and he was like in love with some woman

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Speaker 4: and in like one sentence is like, oh, she was

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Speaker 4: married at the time, and I took her away from

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Speaker 4: her husband or it's like one paragraph. So I was like, oh,

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Speaker 4: I'm very forthright about that. So I can't say I'm

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Speaker 4: surprised that he opened up a McDonald to cross the

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Speaker 4: street from.

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Speaker 2: A normal aside, but actually the.

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Speaker 3: Goal pursuing individual.

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Speaker 2: Yes related to this. One thing I was very surprised

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Speaker 2: to learn from your book is that there are no

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Speaker 2: poaching agreements between McDonalds. So if I'm a worker at

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Speaker 2: a particular McDonald's franchise and I want to go work

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Speaker 2: for another one, I have to get the permission of

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Speaker 2: my current franchise owner in order to do that.

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Speaker 6: Yeah, and they may have since dropped those, but they

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Speaker 6: had them, and a lot of chains did for a

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Speaker 6: very long time. And that sort of gets at this

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Speaker 6: weird niche that they've been able to occupy in anti

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Speaker 6: trust and labor law. So this is the I think

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Speaker 6: I would characterize it any think fairly as the absurdity

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Speaker 6: of anti trust law. Whether is this what you know,

400
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Speaker 6: it's called the vertical horizontal distinction, And what that means

401
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Speaker 6: is that you know, for to McDonald's, you know, across town,

402
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Speaker 6: to pick up the phone and say, hey, don't hire

403
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Speaker 6: any of my workers, I won't hire any of yours.

404
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Speaker 6: That's a horizontal agreement that is so so illegal you're

405
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Speaker 6: going to face you might go to jail for doing that.

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Speaker 6: But if McDonald's from above tells them unilaterally don't hire

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Speaker 6: each other's workers, it's not per se illegal. It gets

408
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Speaker 6: put under what's called the rule of reason, which just

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Speaker 6: means that now you have it keeps people in my

410
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Speaker 6: profession employed, but you have competing econometric reports.

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Speaker 5: You know.

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Speaker 6: It's it's very difficult for a plaintiff, for a worker

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Speaker 6: to challenge these kinds of no poach agreements, though they

414
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Speaker 6: have tried, because it's very difficult to win because that

415
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Speaker 6: once it's vertical. Now McDonald's can enter evidence it says, yeah,

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Speaker 6: we know, maybe you know it has a bad effect

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Speaker 6: on of wages, but you know, it helps us sell

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Speaker 6: more hamburgers because again we're a single entity, you know,

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Speaker 6: we should have This just makes it more efficient, and

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Speaker 6: in that sense, low wages can be more efficient.

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Speaker 4: I think I'm just going to accept it. We're just

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Speaker 4: going to use McDonald's. It's like a stand for franchising.

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Speaker 4: Let's say we're talking about McDonald's. Some do very well,

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Speaker 4: some maybe. Let's so, is there anything that the franchisee

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Speaker 4: actually has discretion on that could either improve or lessen

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Speaker 4: their odds of success.

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Speaker 2: Other than bananas at douncan Jos?

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Speaker 5: How hard they work?

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Speaker 6: And I think the key to that is looking at

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Speaker 6: what are they then incentivized to exert that effort towards.

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Speaker 5: And it is because.

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Speaker 6: The one thing that McDonald's doesn't directly touch is besides bananas,

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Speaker 6: is their labor cost.

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Speaker 5: So how big is your crew?

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Speaker 6: Actually the staffing requirements are even required, So how hard

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Speaker 6: are they working, how low are their wages?

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Speaker 5: And making sure everyone's you know.

438
00:19:30,560 --> 00:19:34,240
Speaker 4: Or doesn't have any discretion about the staffing levels.

439
00:19:34,240 --> 00:19:36,840
Speaker 6: The staffing levels are mandated in the operations Manual, which

440
00:19:36,840 --> 00:19:40,080
Speaker 6: is incorporated into the contract and can unilaterally changed but

441
00:19:40,160 --> 00:19:42,640
Speaker 6: at any time by McDonald's. So it's a very one

442
00:19:42,640 --> 00:19:45,360
Speaker 6: sided contract, you know, to be fair. The pro argument

443
00:19:45,400 --> 00:19:49,000
Speaker 6: for that is that you know, again willing consenting buyers

444
00:19:49,000 --> 00:19:52,760
Speaker 6: and sellers, and it incentivizes those franchises to follow the

445
00:19:52,800 --> 00:19:54,880
Speaker 6: system into work as hard as they possibly can.

446
00:19:55,359 --> 00:19:58,240
Speaker 2: Sorry, just to make this very clear, the major lever

447
00:19:58,480 --> 00:20:02,200
Speaker 2: that franchisees have to be a better business to produce

448
00:20:02,240 --> 00:20:05,520
Speaker 2: more money is to basically squeeze wage costs.

449
00:20:05,680 --> 00:20:08,280
Speaker 6: Yeah wow, and you can see you know, in the

450
00:20:08,720 --> 00:20:10,920
Speaker 6: and this is something again franchises are very open about.

451
00:20:11,320 --> 00:20:13,080
Speaker 6: I think there's a quote in the book that's from

452
00:20:13,119 --> 00:20:15,760
Speaker 6: another book called Franchise Dreams. But you know, a franchise

453
00:20:15,840 --> 00:20:18,960
Speaker 6: or just look at entrepreneur makes the worst franchisey. You

454
00:20:19,000 --> 00:20:21,080
Speaker 6: don't want someone who's an independent thinker who has their

455
00:20:21,119 --> 00:20:24,199
Speaker 6: own business ideas. Similarly, you know, Ray CrOx said, you know,

456
00:20:24,240 --> 00:20:27,240
Speaker 6: it doesn't take any particular aptitude or intellect to make

457
00:20:27,240 --> 00:20:28,600
Speaker 6: it in one of our restaurants. You know, it just

458
00:20:28,680 --> 00:20:31,280
Speaker 6: takes grit in hard work. He wanted workers. As a

459
00:20:31,280 --> 00:20:34,040
Speaker 6: matter of fact, he sought out people who really needed this.

460
00:20:34,440 --> 00:20:37,040
Speaker 6: You know, his first investors in McDonald's were his friends

461
00:20:37,080 --> 00:20:38,960
Speaker 6: from like the country club. Oh yeah, it's a nice

462
00:20:38,960 --> 00:20:41,560
Speaker 6: investment opportunity, you know, Yeah, I'll put in some money

463
00:20:41,560 --> 00:20:44,359
Speaker 6: and sure, I'll manage the restaurant in my spare time.

464
00:20:44,760 --> 00:20:46,560
Speaker 6: It didn't work out. They didn't put in the work,

465
00:20:47,080 --> 00:20:48,920
Speaker 6: and so he found people who were a little a

466
00:20:48,920 --> 00:20:53,119
Speaker 6: little more scrappy, you know, yeah, immigrants, you know of Yeah.

467
00:20:52,920 --> 00:20:55,000
Speaker 3: There are constraints or are there not?

468
00:20:55,160 --> 00:20:57,639
Speaker 4: Like let's say I wanted to open a McDonald's, but

469
00:20:57,640 --> 00:20:58,680
Speaker 4: I didn't want to work hard.

470
00:20:58,720 --> 00:20:59,879
Speaker 3: I just wanted an investment.

471
00:21:00,400 --> 00:21:04,480
Speaker 4: Am I allowed to like front someone else capital to

472
00:21:04,600 --> 00:21:04,879
Speaker 4: do that?

473
00:21:05,000 --> 00:21:06,399
Speaker 3: How does that work? I don't know.

474
00:21:06,440 --> 00:21:09,240
Speaker 4: You never hear very much about, like say, I don't

475
00:21:09,280 --> 00:21:13,679
Speaker 4: know PE or finance, like backing like a thousand new franchisees.

476
00:21:13,760 --> 00:21:14,440
Speaker 3: Is that allowed?

477
00:21:14,880 --> 00:21:17,040
Speaker 6: Yes, a lot of the franchise contracts. In my other

478
00:21:17,080 --> 00:21:19,400
Speaker 6: work outside the book, A lot of this work joint

479
00:21:19,480 --> 00:21:23,040
Speaker 6: with Marshall Steinbaumer and Sergio Pinto, we actually coded, we

480
00:21:23,200 --> 00:21:26,800
Speaker 6: read hundreds of franchise contracts. Those guys have since like digitized,

481
00:21:26,800 --> 00:21:29,040
Speaker 6: and you know they have thousands of contracts and one

482
00:21:29,080 --> 00:21:32,359
Speaker 6: key contract clause and across most chains is a personal

483
00:21:32,400 --> 00:21:34,440
Speaker 6: obligation to work, so you are not allowed to be

484
00:21:34,480 --> 00:21:37,240
Speaker 6: a passive investor, and you also have to Also, there's

485
00:21:37,240 --> 00:21:39,520
Speaker 6: no corporate shield. If you messed up, they can come

486
00:21:39,520 --> 00:21:41,560
Speaker 6: for your house, in your car and your savings and

487
00:21:41,560 --> 00:21:43,399
Speaker 6: all that stuff that said there has you know, I

488
00:21:43,400 --> 00:21:45,560
Speaker 6: wouldn't I wouldn't want to hide this. There has been

489
00:21:45,560 --> 00:21:48,399
Speaker 6: a move in recent years to more of a different

490
00:21:48,480 --> 00:21:51,720
Speaker 6: kind of franchise operator. Some of them are incorporated now,

491
00:21:52,200 --> 00:21:55,719
Speaker 6: some of them own multiple even hundreds of locations, some

492
00:21:55,760 --> 00:21:59,120
Speaker 6: of them even own locations across multiple chains. And since

493
00:21:59,119 --> 00:22:01,439
Speaker 6: then also there's been a migration private equity used to

494
00:22:01,560 --> 00:22:04,680
Speaker 6: only own the franchise brands, and that's a great business.

495
00:22:04,920 --> 00:22:07,320
Speaker 6: Like Burger King famously is flipped, you know, through private

496
00:22:07,359 --> 00:22:09,520
Speaker 6: equity owners. All you got to do is get those royalties.

497
00:22:09,560 --> 00:22:11,439
Speaker 6: Someone else already built the brand, you know, just all

498
00:22:11,440 --> 00:22:13,680
Speaker 6: it is is cash. But since then there's prim private

499
00:22:13,680 --> 00:22:16,920
Speaker 6: equity franchise operators, so it's a very different dynamic. It's

500
00:22:16,920 --> 00:22:20,879
Speaker 6: no longer obviously a private equity firm is a legal entity,

501
00:22:20,920 --> 00:22:23,920
Speaker 6: not a person. They can't exert effort. They can hire

502
00:22:23,960 --> 00:22:25,920
Speaker 6: people that do that. But there is a new breed

503
00:22:26,240 --> 00:22:28,720
Speaker 6: of franchise e that in some chains that's a little

504
00:22:28,720 --> 00:22:29,840
Speaker 6: bit different than the old model.

505
00:22:30,720 --> 00:22:33,479
Speaker 2: Again, I hate to bring up AI in every single

506
00:22:33,840 --> 00:22:36,760
Speaker 2: conversation that we do nowadays, but I think it's kind

507
00:22:36,760 --> 00:22:40,000
Speaker 2: of unavoidable. We have all this new technology, and Joe

508
00:22:40,040 --> 00:22:42,879
Speaker 2: and I have done plenty of trucking episodes where we

509
00:22:42,920 --> 00:22:46,160
Speaker 2: talk about, you know, tech that monitors whether people's eyes

510
00:22:46,160 --> 00:22:50,400
Speaker 2: are open and things like that. Does that new technology

511
00:22:50,400 --> 00:22:53,440
Speaker 2: play a role in, I guess, exerting more control over

512
00:22:53,480 --> 00:22:54,640
Speaker 2: some of these franchises.

513
00:22:54,960 --> 00:22:57,600
Speaker 6: It absolutely does, and it started in the nineteen nineties

514
00:22:57,640 --> 00:23:01,760
Speaker 6: with broadband internet and is accelerated now with AI for sure.

515
00:23:02,080 --> 00:23:04,320
Speaker 6: So think about the nineteen sixties, right, you want to

516
00:23:04,359 --> 00:23:07,959
Speaker 6: have this legal structure where this independent operator is operating

517
00:23:08,000 --> 00:23:10,120
Speaker 6: the restaurant they kicked me back, or royalty. I try

518
00:23:10,160 --> 00:23:11,960
Speaker 6: to control everything they do, But how can you wear

519
00:23:11,960 --> 00:23:14,679
Speaker 6: the control you can? There's fax machines, there's telephones. You

520
00:23:14,720 --> 00:23:17,320
Speaker 6: can send secret shoppers, but there's only so much you

521
00:23:17,359 --> 00:23:20,760
Speaker 6: can really do. By the nineteen nineties, particularly with broadb

522
00:23:20,760 --> 00:23:23,760
Speaker 6: interne connected to the cash registers through point of sale systems,

523
00:23:23,920 --> 00:23:26,280
Speaker 6: there's a steady data stream now going back to headquarters

524
00:23:26,440 --> 00:23:28,280
Speaker 6: where they have an intense amount of control. And I

525
00:23:28,280 --> 00:23:31,560
Speaker 6: think onely interesting things about that technological changes. First of all,

526
00:23:31,760 --> 00:23:33,720
Speaker 6: in terms of, you know, the motivation for these kinds

527
00:23:33,720 --> 00:23:37,439
Speaker 6: of outsource industrial structures. It's usually technology is a story.

528
00:23:37,640 --> 00:23:40,199
Speaker 6: But they started doing this way before the technology. But

529
00:23:40,320 --> 00:23:43,679
Speaker 6: now the technology exists, it allows just think about like

530
00:23:44,160 --> 00:23:47,479
Speaker 6: a truly verticallygated corporation like US Steel or General Motors

531
00:23:47,480 --> 00:23:50,159
Speaker 6: in nineteen fifty, the control they have over all of

532
00:23:50,200 --> 00:23:53,720
Speaker 6: their plants is less than McDonald's that they own, and

533
00:23:53,720 --> 00:23:56,960
Speaker 6: they employ you know, those hundreds of thousands of industrial workers.

534
00:23:57,119 --> 00:24:00,320
Speaker 6: McDonald's now hardly employs anybody, but they have way more

535
00:24:00,320 --> 00:24:02,760
Speaker 6: control because they're able to get that stream of data.

536
00:24:03,040 --> 00:24:06,800
Speaker 6: And now the AI has made that surveillance of workers themselves.

537
00:24:06,800 --> 00:24:08,239
Speaker 6: And by way, you don't have to fire them if

538
00:24:08,280 --> 00:24:10,080
Speaker 6: they're too slow with the register. You just send a

539
00:24:10,119 --> 00:24:12,240
Speaker 6: note to the franchise. Hey, so and so. They even

540
00:24:12,240 --> 00:24:13,520
Speaker 6: know the names of the employees. You know, it's a

541
00:24:13,520 --> 00:24:15,920
Speaker 6: little too slow. Do something about that, you know, you.

542
00:24:15,880 --> 00:24:18,720
Speaker 4: Know, so wait, can you say, just talking more about

543
00:24:18,760 --> 00:24:21,959
Speaker 4: like I guess this is theory of the firm type stuff,

544
00:24:22,200 --> 00:24:27,119
Speaker 4: explain this notion that like a US Steel, it's no

545
00:24:27,160 --> 00:24:29,840
Speaker 4: intuitive to most people, is like, would be a more

546
00:24:29,960 --> 00:24:33,840
Speaker 4: distributed type of entity than a McDonald's. Well is that

547
00:24:33,920 --> 00:24:34,960
Speaker 4: what do you talk when you say that?

548
00:24:35,000 --> 00:24:35,440
Speaker 3: What do you mean?

549
00:24:35,600 --> 00:24:36,439
Speaker 5: Yeah? So I think you know.

550
00:24:36,520 --> 00:24:38,040
Speaker 6: So the theory of the firm, I think you know,

551
00:24:38,200 --> 00:24:40,760
Speaker 6: no matter your political proclivities, sure, I you know, like

552
00:24:40,760 --> 00:24:42,680
Speaker 6: for you know, you know, Marx called it the firm

553
00:24:42,720 --> 00:24:45,159
Speaker 6: the hidden vot of production. What happens there is that

554
00:24:45,200 --> 00:24:47,680
Speaker 6: there's an entity that owns assets and there's someone who works,

555
00:24:47,720 --> 00:24:49,919
Speaker 6: and you put them together and it happens inside a

556
00:24:49,920 --> 00:24:53,439
Speaker 6: firm coast you know. The great Chicago ansertive economist had

557
00:24:53,480 --> 00:24:55,879
Speaker 6: a similar notion, where what the nature of the firm

558
00:24:56,000 --> 00:24:56,639
Speaker 6: is is command.

559
00:24:57,160 --> 00:24:57,240
Speaker 1: Uh.

560
00:24:57,320 --> 00:24:59,200
Speaker 6: You know, a workman doesn't go from the department wider

561
00:24:59,240 --> 00:25:01,440
Speaker 6: department X because of a change of relative prices, but

562
00:25:01,520 --> 00:25:03,479
Speaker 6: because he's ordered to do so. So that was sort

563
00:25:03,520 --> 00:25:06,200
Speaker 6: of the reason why. That's the classical economic reason why

564
00:25:06,280 --> 00:25:09,359
Speaker 6: firms exist. And then there's you know, of course, you

565
00:25:09,400 --> 00:25:11,959
Speaker 6: know Chandler with his you know, Visible hand Book, which is,

566
00:25:12,040 --> 00:25:14,159
Speaker 6: you know, the foundation for most business history of this

567
00:25:14,320 --> 00:25:16,679
Speaker 6: is why do we have these big corporations? And his

568
00:25:16,760 --> 00:25:20,120
Speaker 6: answer was the economics of high throughput and the efficiencies

569
00:25:20,160 --> 00:25:23,280
Speaker 6: of you know, if you want to make steel, you

570
00:25:23,280 --> 00:25:25,760
Speaker 6: can't really rely on the uncertainties of those of those prices.

571
00:25:25,760 --> 00:25:27,800
Speaker 6: You kind of want to have everything under control and

572
00:25:27,840 --> 00:25:30,640
Speaker 6: have managers, you know, sort of running it. What they're

573
00:25:30,640 --> 00:25:33,159
Speaker 6: trying to do with franchising is get sort of that

574
00:25:33,240 --> 00:25:36,480
Speaker 6: same type of control, but without having the legal risks

575
00:25:36,480 --> 00:25:38,880
Speaker 6: and liabilities. And I would say just one more thing

576
00:25:38,960 --> 00:25:41,359
Speaker 6: is that the legal door that franchisers open in the

577
00:25:41,400 --> 00:25:44,479
Speaker 6: nineteen sixties and the nineteen seventies has since been you know,

578
00:25:44,520 --> 00:25:46,480
Speaker 6: started as a little loophole. Now it's just a huge,

579
00:25:46,520 --> 00:25:49,080
Speaker 6: you know, Bay door that you know, an uber or

580
00:25:49,200 --> 00:25:52,760
Speaker 6: Amazon can walk through. So, you know, Amazon's fascinating because

581
00:25:52,800 --> 00:25:55,040
Speaker 6: they are very much like a US steal and that

582
00:25:55,119 --> 00:25:57,879
Speaker 6: they found a need to totally reorganize distribution in the

583
00:25:58,000 --> 00:26:00,119
Speaker 6: United States. They didn't want to rely on USPS, they

584
00:26:00,119 --> 00:26:02,480
Speaker 6: didn't rely on UPS or FedEx. They brought it all

585
00:26:02,520 --> 00:26:05,040
Speaker 6: back in house in economic terms and the fact that

586
00:26:05,080 --> 00:26:07,040
Speaker 6: they controlled it, but they did not bring it in

587
00:26:07,080 --> 00:26:08,679
Speaker 6: house in terms of the legal liabilities.

588
00:26:08,680 --> 00:26:10,080
Speaker 5: Because those trucks.

589
00:26:09,840 --> 00:26:12,800
Speaker 6: You know driving around your neighborhood are independent contractors and

590
00:26:12,840 --> 00:26:16,120
Speaker 6: they are able to control them because of this litigation

591
00:26:16,200 --> 00:26:19,840
Speaker 6: and legislation battles that franchisors fought in the sixties and

592
00:26:19,880 --> 00:26:22,120
Speaker 6: seventies to legalize those kinds of controls.

593
00:26:22,200 --> 00:26:25,359
Speaker 2: What exactly is I guess the concrete lineage between the

594
00:26:25,400 --> 00:26:29,000
Speaker 2: franchise model and the gig economy and the independent contractors.

595
00:26:29,320 --> 00:26:33,000
Speaker 6: Yeah, so franchisors in the nineteen sixties and nineteen seventies,

596
00:26:33,240 --> 00:26:35,840
Speaker 6: you know, don't like the antitrust jurisprudence that says you

597
00:26:35,880 --> 00:26:38,199
Speaker 6: can't control independent businesses through I don't know if I've

598
00:26:38,240 --> 00:26:40,240
Speaker 6: used this term yet about vertical restraints is like the

599
00:26:40,320 --> 00:26:42,760
Speaker 6: term of our and anti trust for that. So they

600
00:26:42,760 --> 00:26:45,440
Speaker 6: go about filing cases to you know, a very concerted,

601
00:26:45,520 --> 00:26:48,040
Speaker 6: very smart, strategic effort to change the law. They ended

602
00:26:48,080 --> 00:26:50,760
Speaker 6: up having a huge, very important ally in the University

603
00:26:50,800 --> 00:26:54,040
Speaker 6: of Chicago economics department and law school, who are have

604
00:26:54,160 --> 00:26:56,639
Speaker 6: the same ideas that you know, we shouldn't be judging

605
00:26:56,840 --> 00:26:58,760
Speaker 6: what is this, you know, horary old idea of the

606
00:26:58,960 --> 00:27:02,239
Speaker 6: independent entrepreneur efficiency, that's all we care about. So they

607
00:27:02,280 --> 00:27:04,760
Speaker 6: won those battles in the courts, and then after that

608
00:27:04,800 --> 00:27:07,720
Speaker 6: they also were able to head off any you know,

609
00:27:07,880 --> 00:27:10,360
Speaker 6: after they win those get in this control you start

610
00:27:10,400 --> 00:27:12,919
Speaker 6: seeing the Department of Labor, the National Relations Board, and

611
00:27:13,040 --> 00:27:15,480
Speaker 6: litigants say wait a minute, all that control you probably

612
00:27:15,480 --> 00:27:18,720
Speaker 6: should be responsible, you know, for the underpayment of wages.

613
00:27:18,960 --> 00:27:21,280
Speaker 6: Or let's say, you know, for example, Domino's, you've got

614
00:27:21,320 --> 00:27:24,480
Speaker 6: this thirty minute delivery rule. Your driver's speeding to make

615
00:27:24,480 --> 00:27:26,800
Speaker 6: that delivery hit somebody. That's kind of your fault, you know,

616
00:27:26,840 --> 00:27:29,480
Speaker 6: that's not the franchise ease fault or even the drivers.

617
00:27:29,760 --> 00:27:30,880
Speaker 5: So they win all these.

618
00:27:30,920 --> 00:27:32,920
Speaker 6: So they are able to say, well, no, that doesn't

619
00:27:32,960 --> 00:27:35,120
Speaker 6: really apply to us. You know, they're still so they're

620
00:27:35,119 --> 00:27:37,159
Speaker 6: able to have their cake and idiot too. And so

621
00:27:37,240 --> 00:27:40,240
Speaker 6: that's just that there's not only there's any explicit coordination,

622
00:27:40,520 --> 00:27:42,960
Speaker 6: but once you start getting companies that try to do

623
00:27:43,040 --> 00:27:46,560
Speaker 6: this with, you know, rather than explicit contractual vertical restraints,

624
00:27:46,640 --> 00:27:48,800
Speaker 6: it's algorithmic. You know, here's the route you're going to drive,

625
00:27:48,840 --> 00:27:50,840
Speaker 6: here's the price you're going to charge. They're able to

626
00:27:50,840 --> 00:27:52,880
Speaker 6: do it that way. And that would not have been

627
00:27:53,080 --> 00:27:55,600
Speaker 6: or that would have raised some judicial eyebrows if they

628
00:27:55,600 --> 00:27:57,720
Speaker 6: had tried to do uber in the nineteen sixties. So,

629
00:27:57,840 --> 00:28:00,840
Speaker 6: you know, obviously the technology is highly important. The other

630
00:28:00,880 --> 00:28:02,880
Speaker 6: story I think is important too, is that the fact

631
00:28:02,880 --> 00:28:05,399
Speaker 6: that these things are legally permissible is the result of

632
00:28:05,440 --> 00:28:06,720
Speaker 6: this of a franchise.

633
00:28:06,720 --> 00:28:07,720
Speaker 2: Those efforts.

634
00:28:23,400 --> 00:28:26,000
Speaker 4: Amazon Uber, Do they still use that like be your

635
00:28:26,040 --> 00:28:28,600
Speaker 4: own boss and start your own business rhetoric when they're

636
00:28:28,600 --> 00:28:32,119
Speaker 4: trying to look for new drivers or little local carriers.

637
00:28:32,480 --> 00:28:33,120
Speaker 5: Yeah, they do.

638
00:28:33,240 --> 00:28:36,440
Speaker 6: But with the Amazon models even closer to franchise than Uber,

639
00:28:36,520 --> 00:28:39,200
Speaker 6: because you know Uber and Lyft, it's each driver is

640
00:28:39,240 --> 00:28:41,200
Speaker 6: you know, treated as sort of like an independent entrepreneur.

641
00:28:41,360 --> 00:28:43,840
Speaker 6: They own their own business. Yeah yeah, where yeah, be

642
00:28:43,920 --> 00:28:45,600
Speaker 6: your own boss, and that's about It's a powerful thing,

643
00:28:45,760 --> 00:28:46,960
Speaker 6: you know, I want to be my own boss. I

644
00:28:47,000 --> 00:28:49,240
Speaker 6: mean no, no, it is, I gues said American like

645
00:28:49,280 --> 00:28:51,200
Speaker 6: a very if that's how you you know, get your

646
00:28:51,240 --> 00:28:52,960
Speaker 6: nest egg and take care of yourself and your family.

647
00:28:53,160 --> 00:28:55,640
Speaker 6: But the Amazon is called that a delivery service partner

648
00:28:55,680 --> 00:28:58,480
Speaker 6: or a DSP model is much closer to a franchise

649
00:28:58,520 --> 00:29:01,440
Speaker 6: than that. Every driver is not an independent entrepreneur. It's

650
00:29:01,440 --> 00:29:02,800
Speaker 6: the contractor company.

651
00:29:03,000 --> 00:29:05,400
Speaker 4: Right, So they might have like thirty or whatever some yeah,

652
00:29:05,600 --> 00:29:06,760
Speaker 4: thirty trucks or whatever.

653
00:29:06,880 --> 00:29:08,800
Speaker 5: Yeah, So it's a small it's a relatively small business,

654
00:29:08,840 --> 00:29:08,920
Speaker 5: you know.

655
00:29:09,040 --> 00:29:10,840
Speaker 6: Amazon, I think even front some of the capital but

656
00:29:10,880 --> 00:29:12,760
Speaker 6: it's legally a distinct entity, even though it's painted with

657
00:29:12,800 --> 00:29:15,120
Speaker 6: the Amazon logo, you know, and tightly control.

658
00:29:16,000 --> 00:29:19,080
Speaker 2: Since you're an economist and you mentioned regressions before, do

659
00:29:19,120 --> 00:29:23,000
Speaker 2: you have any empirical research about the relationship between the

660
00:29:23,040 --> 00:29:27,520
Speaker 2: growth of the franchise model and wages in the US,

661
00:29:27,560 --> 00:29:29,960
Speaker 2: Because again, like if we're talking about the primary lever

662
00:29:30,240 --> 00:29:34,360
Speaker 2: that an independent franchise owner can actually pull to improve

663
00:29:34,360 --> 00:29:36,000
Speaker 2: the business, it's all wages.

664
00:29:36,720 --> 00:29:38,280
Speaker 6: Yeah, so I don't have that time series of the

665
00:29:38,320 --> 00:29:40,920
Speaker 6: growth of franchising and the growth of wages, but there

666
00:29:40,960 --> 00:29:43,080
Speaker 6: are you know, my work and other work. We do

667
00:29:43,160 --> 00:29:45,720
Speaker 6: know a couple of things about franchising. One is that

668
00:29:46,000 --> 00:29:48,720
Speaker 6: if you're a wage worker, now there's work from Krueger

669
00:29:49,080 --> 00:29:51,840
Speaker 6: back in the nineteen nineties. There's David Wile, who's I

670
00:29:51,840 --> 00:29:54,520
Speaker 6: should have mentioned it before. He's like the economists on

671
00:29:54,520 --> 00:29:56,680
Speaker 6: this stuff. He wrote a book called The Fishered Workplace,

672
00:29:57,080 --> 00:29:59,120
Speaker 6: where we do know that if even within the same chain,

673
00:29:59,480 --> 00:30:01,240
Speaker 6: you want to be get the company owned one, not

674
00:30:01,320 --> 00:30:03,640
Speaker 6: at the franchised one, because your wages will be higher.

675
00:30:03,840 --> 00:30:05,520
Speaker 5: You'll have a higher tenure.

676
00:30:05,280 --> 00:30:07,440
Speaker 6: Wage profile, meaning you're going to get promoted and your

677
00:30:07,440 --> 00:30:09,200
Speaker 6: wage is going to go up more over time. And

678
00:30:09,240 --> 00:30:13,560
Speaker 6: also franchised establishments violate their workers safety and other rights

679
00:30:13,560 --> 00:30:16,160
Speaker 6: at a much higher rate than ones that are company owned.

680
00:30:16,440 --> 00:30:18,160
Speaker 6: So we do know that stuff, and then we have

681
00:30:18,960 --> 00:30:20,840
Speaker 6: my work. We have one we were able to take

682
00:30:20,880 --> 00:30:23,880
Speaker 6: advantage of a really nice natural experiment where Washington State

683
00:30:24,200 --> 00:30:26,520
Speaker 6: entered a consent decree with McDonald's and a bunch of

684
00:30:26,520 --> 00:30:28,640
Speaker 6: other chains to get rid of those no poetry agreements

685
00:30:28,720 --> 00:30:31,480
Speaker 6: I mentioned earlier, and we found I mean, maybe not surprising,

686
00:30:31,480 --> 00:30:33,880
Speaker 6: but there's a causal effect. Once they got rid of

687
00:30:33,880 --> 00:30:36,080
Speaker 6: those no potra agreements, wages went up. And then you

688
00:30:36,080 --> 00:30:37,680
Speaker 6: know again because it's very hard, you don't want to

689
00:30:37,680 --> 00:30:39,360
Speaker 6: be careful as an economists, you know, it's hard to

690
00:30:39,360 --> 00:30:41,920
Speaker 6: get those natural experiments. So we don't have that for

691
00:30:42,040 --> 00:30:44,960
Speaker 6: like specific contract terms. But in work again with Marshall

692
00:30:44,960 --> 00:30:50,160
Speaker 6: Steinbaum and Sergio, we found, you know, correlations with lower wages.

693
00:30:50,520 --> 00:30:52,320
Speaker 6: And then they have a new paper where they look

694
00:30:52,360 --> 00:30:54,640
Speaker 6: at franchise contracts over time and find that they have

695
00:30:54,680 --> 00:30:57,560
Speaker 6: gotten more restrictive even over the past twenty years.

696
00:30:57,600 --> 00:30:59,280
Speaker 2: Wait, how do they actually measure that?

697
00:30:59,360 --> 00:30:59,479
Speaker 1: Now?

698
00:30:59,520 --> 00:31:02,640
Speaker 2: I'm really interested because if we're talking about well, I

699
00:31:02,640 --> 00:31:05,840
Speaker 2: guess I'm interested in how the actual like franchise or

700
00:31:06,360 --> 00:31:09,880
Speaker 2: communicates a lot of the restrictions to the actual business,

701
00:31:09,920 --> 00:31:11,400
Speaker 2: Like how did they do that, and then how do

702
00:31:11,440 --> 00:31:13,480
Speaker 2: you tally that up in an empirical way.

703
00:31:13,640 --> 00:31:17,320
Speaker 6: Yeah, So studying franchising I was very fortunate because these

704
00:31:17,360 --> 00:31:21,080
Speaker 6: contracts are sort of public records. So there's there's a

705
00:31:21,120 --> 00:31:24,480
Speaker 6: requirement from a nineteen seventy nine Federal Trade Commission rule

706
00:31:24,760 --> 00:31:28,920
Speaker 6: that requires franchisors to furnish to a franchisee a what's

707
00:31:28,920 --> 00:31:31,880
Speaker 6: called a franchise disclosure document, which is sort of plain English,

708
00:31:32,240 --> 00:31:35,080
Speaker 6: lays out key contract terms, what the royalty is going

709
00:31:35,160 --> 00:31:38,800
Speaker 6: to be, and basically it's meant to inform the franchise e.

710
00:31:38,920 --> 00:31:41,680
Speaker 6: The idea being the franchises are getting swindled into, you know,

711
00:31:41,800 --> 00:31:44,000
Speaker 6: entering these incredibly one sided contracts. They should know what

712
00:31:44,000 --> 00:31:46,240
Speaker 6: they're getting into. Let's make a lot of disclose that.

713
00:31:46,320 --> 00:31:49,200
Speaker 6: So that there's this franchise disclosure document and then usually

714
00:31:49,480 --> 00:31:52,360
Speaker 6: the franchisor will file a as an attachment the entire

715
00:31:52,400 --> 00:31:55,640
Speaker 6: franchise contract. So we have the contracts and they're not

716
00:31:55,760 --> 00:31:57,840
Speaker 6: filed with the FDC, but some states require them to

717
00:31:57,880 --> 00:31:59,800
Speaker 6: be filed, so you just go to Wisconsin or California

718
00:31:59,840 --> 00:32:01,560
Speaker 6: and wants to do a study on this. You can

719
00:32:01,600 --> 00:32:04,200
Speaker 6: get the contracts back in When I was doing this

720
00:32:04,480 --> 00:32:06,960
Speaker 6: ten years ago, I had to read the contracts and

721
00:32:07,000 --> 00:32:09,200
Speaker 6: hand code them. It took me like eighteen months, but

722
00:32:09,280 --> 00:32:11,120
Speaker 6: you know, I got through five hundred and thirty contracts,

723
00:32:11,560 --> 00:32:14,120
Speaker 6: hundreds of contract terms, so we got a pretty good

724
00:32:14,160 --> 00:32:16,640
Speaker 6: But it's only a cross section about what my colleagues

725
00:32:16,680 --> 00:32:18,760
Speaker 6: have been able to do since then. Is I mean

726
00:32:18,840 --> 00:32:21,760
Speaker 6: just you know, a text recognition software and you know

727
00:32:21,800 --> 00:32:24,880
Speaker 6: text scraping abilities, and you know AI in an afternoon,

728
00:32:24,960 --> 00:32:27,720
Speaker 6: you know, you could program a computer to scrape thousands

729
00:32:27,720 --> 00:32:29,440
Speaker 6: of these contracts and you can get them over time,

730
00:32:29,680 --> 00:32:31,640
Speaker 6: which I wasn't able to do. But yes, these are

731
00:32:31,680 --> 00:32:33,880
Speaker 6: these are public records, so anyone could do this.

732
00:32:34,280 --> 00:32:40,120
Speaker 4: You mentioned treatment of workers and wages at franchise locate

733
00:32:40,240 --> 00:32:45,840
Speaker 4: McDonald's franchise locations versus the McDonald's owned and operated locations.

734
00:32:46,240 --> 00:32:52,200
Speaker 4: What about franchise locations versus just pure independent restaurants, Because

735
00:32:52,840 --> 00:32:54,920
Speaker 4: it seems like one of these things that people don't

736
00:32:54,960 --> 00:32:57,240
Speaker 4: want to talk about that much, that when we talk

737
00:32:57,320 --> 00:33:01,400
Speaker 4: about like wages, when we talk about wage theft and

738
00:33:01,480 --> 00:33:02,680
Speaker 4: some of these other things.

739
00:33:03,560 --> 00:33:04,240
Speaker 3: We all like to.

740
00:33:04,200 --> 00:33:07,200
Speaker 4: Glorify small businesses, but there's a lot of like these

741
00:33:07,320 --> 00:33:11,560
Speaker 4: pathologies seem to be fairly prevalent or more prevalent, I think,

742
00:33:11,840 --> 00:33:14,240
Speaker 4: in small businesses than say, like large corporations.

743
00:33:14,320 --> 00:33:15,479
Speaker 5: Is that is that accurate?

744
00:33:15,600 --> 00:33:18,240
Speaker 6: You know, I haven't looked at that comparison between independent

745
00:33:18,600 --> 00:33:22,200
Speaker 6: restaurants and between fast food restaurants. Yeah, but yeah, but

746
00:33:22,240 --> 00:33:23,800
Speaker 6: I think that's a that's a fair case. And I

747
00:33:23,800 --> 00:33:26,560
Speaker 6: think what franchises are trying to do is capture that

748
00:33:26,600 --> 00:33:30,080
Speaker 6: small business labor model and then graft it to a

749
00:33:30,160 --> 00:33:33,400
Speaker 6: large corporation, but make sure that all the rents go up,

750
00:33:33,600 --> 00:33:35,960
Speaker 6: you know, to the shareholders and the and the top

751
00:33:36,160 --> 00:33:39,240
Speaker 6: corporation rather and not not be shared with the workers.

752
00:33:39,240 --> 00:33:41,480
Speaker 6: Where if you're at a Starbucks or Chipotle, which is

753
00:33:41,520 --> 00:33:44,040
Speaker 6: totally corporate owned, not saying they have great working conditions,

754
00:33:44,040 --> 00:33:45,760
Speaker 6: but some of those rents do appear to be shared

755
00:33:45,880 --> 00:33:48,400
Speaker 6: because wages are higher at Chipotlee than Taco Bell, and

756
00:33:48,400 --> 00:33:51,360
Speaker 6: they're higher at Starbucks than at Duggin Donuts. And also

757
00:33:51,400 --> 00:33:53,800
Speaker 6: Starbucks workers even they don't have a contract yet, but

758
00:33:53,840 --> 00:33:55,360
Speaker 6: they were able to at least, you know, vote for

759
00:33:55,400 --> 00:33:57,200
Speaker 6: a union in a way that has never happened in

760
00:33:57,200 --> 00:33:57,680
Speaker 6: fast food?

761
00:33:57,760 --> 00:34:03,200
Speaker 4: Can you explain the large either, like why companies aren't

762
00:34:03,200 --> 00:34:05,560
Speaker 4: all franchises? So first of all, like why would a Chipotle?

763
00:34:05,720 --> 00:34:08,000
Speaker 4: Why did they not go down the franchise road? But

764
00:34:08,160 --> 00:34:11,360
Speaker 4: why does McDonald's actually have a pretty significant number of

765
00:34:11,360 --> 00:34:12,600
Speaker 4: owned and operated restaurants?

766
00:34:12,680 --> 00:34:14,319
Speaker 6: Yeah, you know, so, I think there's a There could

767
00:34:14,320 --> 00:34:16,400
Speaker 6: be a few reasons for that. You know, one is

768
00:34:16,880 --> 00:34:20,719
Speaker 6: owning the assets and employing the managers. Is there is

769
00:34:20,800 --> 00:34:23,279
Speaker 6: a little bit more control that you get there. If

770
00:34:23,440 --> 00:34:25,680
Speaker 6: then then if it's franchised, and particularly if you're not,

771
00:34:25,800 --> 00:34:28,320
Speaker 6: if you don't have the McDonald's model or McDonald's and

772
00:34:28,400 --> 00:34:30,960
Speaker 6: Raycrop talks about this in his book. He really has

773
00:34:31,000 --> 00:34:33,120
Speaker 6: a hammer over those franchisees in that if they lose

774
00:34:33,160 --> 00:34:35,800
Speaker 6: that trademark, he can evict them from their own, you know, business,

775
00:34:35,800 --> 00:34:38,520
Speaker 6: because McDonald's owns the land. But if you're you're starting

776
00:34:38,520 --> 00:34:41,400
Speaker 6: at chain now, you probably don't have the money to

777
00:34:41,440 --> 00:34:44,160
Speaker 6: actually own all that real estate. So there is there,

778
00:34:44,160 --> 00:34:46,200
Speaker 6: there are those those elements of it. But yeah, I

779
00:34:46,239 --> 00:34:48,840
Speaker 6: think there's and there's also there the the other the

780
00:34:48,960 --> 00:34:51,040
Speaker 6: Chipotles of the Starbucks, Yeah, are a little bit more

781
00:34:51,120 --> 00:34:53,279
Speaker 6: high end, you know, like like a few cents more.

782
00:34:53,680 --> 00:34:56,360
Speaker 6: It's not quite the same quality ingredients. It's just a

783
00:34:56,360 --> 00:34:58,359
Speaker 6: little little bit of a different model than the you know,

784
00:34:58,440 --> 00:35:01,520
Speaker 6: churnout high through put as low wages as possible model

785
00:35:01,560 --> 00:35:03,840
Speaker 6: of a franchised fast food restaurant.

786
00:35:04,160 --> 00:35:06,520
Speaker 2: You mentioned unions just then, and one of the interesting

787
00:35:06,560 --> 00:35:08,880
Speaker 2: things in your book. I think it's maybe in the

788
00:35:08,920 --> 00:35:11,920
Speaker 2: preface or something like that, but you talk about like

789
00:35:12,000 --> 00:35:16,480
Speaker 2: the legal structure of a franchise even if you wanted

790
00:35:16,480 --> 00:35:20,719
Speaker 2: to unionize or negotiate with the franchise or it's not

791
00:35:20,960 --> 00:35:24,640
Speaker 2: entirely legally clear that you can do that because of

792
00:35:24,680 --> 00:35:26,319
Speaker 2: the corporate structure. Is that right?

793
00:35:26,440 --> 00:35:29,120
Speaker 6: Yeah, that's absolutely correct. So yeah, so the and this

794
00:35:29,160 --> 00:35:31,520
Speaker 6: is something again that the franchisers were They were clear

795
00:35:31,560 --> 00:35:34,440
Speaker 6: this is what they wanted to achieve with their business model.

796
00:35:34,640 --> 00:35:37,319
Speaker 6: They didn't want to deal with unions. Up until on

797
00:35:37,360 --> 00:35:39,680
Speaker 6: the twenty teens. In the five or fifteen, no one

798
00:35:39,719 --> 00:35:42,239
Speaker 6: really thought that there was a way for workers who

799
00:35:42,280 --> 00:35:45,240
Speaker 6: wanted to form a union to negotiate with McDonald's. McDonalds

800
00:35:45,239 --> 00:35:46,880
Speaker 6: could willingly do this at any point, but you know,

801
00:35:47,040 --> 00:35:49,439
Speaker 6: they choose not to. Something called the taft Heartley Act,

802
00:35:49,520 --> 00:35:51,680
Speaker 6: which is an anti labor law from nineteen forty seven

803
00:35:51,920 --> 00:35:54,560
Speaker 6: that makes it illegal for workers. You can't go on strike,

804
00:35:54,600 --> 00:35:57,120
Speaker 6: you can't pick it, you can't target McDonald's corporation. You

805
00:35:57,120 --> 00:35:59,960
Speaker 6: can only target your immediate employer. So that creates a

806
00:36:00,040 --> 00:36:03,280
Speaker 6: normous incentives. You know, franchising not coincidentally takes off after

807
00:36:03,320 --> 00:36:07,080
Speaker 6: the Taft Hartley Act. But during the Obama administration they

808
00:36:07,160 --> 00:36:09,960
Speaker 6: enacted something called that Joint Employer Rule, which did make

809
00:36:10,000 --> 00:36:12,719
Speaker 6: it possible for or made it easier for workers to say,

810
00:36:13,000 --> 00:36:15,080
Speaker 6: you know, I really can't. You know, you look at

811
00:36:15,120 --> 00:36:17,680
Speaker 6: the realities of the situation, the economic realities. If I'm

812
00:36:17,760 --> 00:36:19,879
Speaker 6: to get a raise or I'm going to get better

813
00:36:19,920 --> 00:36:22,680
Speaker 6: working conditions, we need to bargain with McDonald's because they

814
00:36:22,680 --> 00:36:25,600
Speaker 6: control the staffing levels, they control the supplies, they control

815
00:36:25,680 --> 00:36:28,359
Speaker 6: how what hours we operate, and all that stuff. So

816
00:36:28,400 --> 00:36:30,840
Speaker 6: that have under Obama. Of course, it was overturned during Trump,

817
00:36:30,840 --> 00:36:33,279
Speaker 6: it flipped back during Biden. Now it's flipped back. So

818
00:36:33,360 --> 00:36:35,440
Speaker 6: it's just no one really knows their rights are. It's

819
00:36:35,480 --> 00:36:38,080
Speaker 6: not it's a whole other issue that we could get into.

820
00:36:38,239 --> 00:36:39,960
Speaker 6: But yeah, so there has been have been attempts to

821
00:36:40,000 --> 00:36:42,640
Speaker 6: sort of fix that problem, but we have not fixed it.

822
00:36:42,680 --> 00:36:46,120
Speaker 4: Yet from a sort of like broader public policy standpoint.

823
00:36:46,160 --> 00:36:48,960
Speaker 4: I mean, my doorbell rings a lot or too much

824
00:36:49,000 --> 00:36:51,880
Speaker 4: because there's a random like grocery deliveries and stuff like that.

825
00:36:52,160 --> 00:36:58,600
Speaker 4: But like, clearly the Amazon distribution logistics system that they

826
00:36:58,760 --> 00:37:02,440
Speaker 4: built out, it's clearly more like rapid than the US

827
00:37:02,520 --> 00:37:07,520
Speaker 4: Postal Service, more flexible, I think than ups. How should

828
00:37:07,520 --> 00:37:10,440
Speaker 4: we think about the sort of like the public benefit

829
00:37:10,920 --> 00:37:14,080
Speaker 4: of this model that like has made it You can

830
00:37:14,239 --> 00:37:16,640
Speaker 4: order all kinds of stuff and frequently have it delivered

831
00:37:16,640 --> 00:37:18,080
Speaker 4: in an hour, which seems pretty much us.

832
00:37:18,120 --> 00:37:19,799
Speaker 2: We do have McDonald's, which which is.

833
00:37:19,800 --> 00:37:21,480
Speaker 3: Also enjoy which we also love.

834
00:37:21,560 --> 00:37:22,320
Speaker 5: Yeah.

835
00:37:22,560 --> 00:37:25,239
Speaker 6: Yeah, So, first of all, there are benefits to the

836
00:37:25,280 --> 00:37:28,200
Speaker 6: Amazon distribution model, and I think, yeah, we should acknowledge

837
00:37:28,200 --> 00:37:30,359
Speaker 6: those for what they are. There are also costs, and

838
00:37:30,440 --> 00:37:31,960
Speaker 6: you know, we should we should make sure those are

839
00:37:31,960 --> 00:37:34,759
Speaker 6: counted to you know, whether it's pollution and neighborhood where

840
00:37:34,719 --> 00:37:37,600
Speaker 6: those distribution centers are or delivery centers I should call them.

841
00:37:38,120 --> 00:37:40,560
Speaker 6: There's the cost of workers, you know, famously being and

842
00:37:40,560 --> 00:37:41,160
Speaker 6: bottle stories.

843
00:37:41,280 --> 00:37:45,120
Speaker 4: So can you just quickly say you distinguish between distribution

844
00:37:45,320 --> 00:37:48,959
Speaker 4: centers and delivery centers. So the distribution centers are owned,

845
00:37:49,000 --> 00:37:51,719
Speaker 4: those are those our own Amazon, Yes, Amazon, But then

846
00:37:51,760 --> 00:37:54,239
Speaker 4: they go to a delivery center before they go to

847
00:37:54,800 --> 00:37:57,919
Speaker 4: your house. They don't, okay, right, And that's where the Yeah,

848
00:37:57,960 --> 00:38:01,960
Speaker 4: and the delivery center is not owned by Amazon, the

849
00:38:02,000 --> 00:38:05,279
Speaker 4: center is, but the trucking company they all so they

850
00:38:05,320 --> 00:38:07,800
Speaker 4: all go. So if you're a driver for these companies,

851
00:38:08,000 --> 00:38:10,360
Speaker 4: you show up at an Amazon facility, you put on

852
00:38:10,400 --> 00:38:12,120
Speaker 4: Amazon uniform, you drive an Amazon truck.

853
00:38:12,160 --> 00:38:14,000
Speaker 5: But your employer is one of these contractors.

854
00:38:14,080 --> 00:38:15,520
Speaker 6: So yeah, I think we should have First of all,

855
00:38:15,560 --> 00:38:16,960
Speaker 6: you got it, we have to account for the cost

856
00:38:17,040 --> 00:38:19,560
Speaker 6: on workers and other communities and all that kind of stuff.

857
00:38:19,640 --> 00:38:22,360
Speaker 6: But also, I mean, my proposition for policy here is

858
00:38:22,360 --> 00:38:26,160
Speaker 6: pretty simple. Is that the problem is not that there's innovation,

859
00:38:26,320 --> 00:38:28,840
Speaker 6: that there's control. That's what a firm is, That's what

860
00:38:28,840 --> 00:38:31,080
Speaker 6: a corporation is is. You know, markets shouldn't do everything.

861
00:38:31,120 --> 00:38:33,359
Speaker 6: Sometimes having a little central planner, you know, a mini

862
00:38:33,360 --> 00:38:36,000
Speaker 6: central planner, you know, coordinating activity is a great thing

863
00:38:36,120 --> 00:38:38,360
Speaker 6: for you know, getting more efficient and innovating.

864
00:38:38,480 --> 00:38:39,319
Speaker 5: So we should have that.

865
00:38:39,520 --> 00:38:42,719
Speaker 6: The problem is then you can't avoid the obligations and

866
00:38:43,320 --> 00:38:46,799
Speaker 6: liabilities and risks that go with owning assets and employeing workers.

867
00:38:46,840 --> 00:38:48,520
Speaker 6: And we used to have, you know, our whole legal

868
00:38:48,600 --> 00:38:52,480
Speaker 6: architecture for regulating and holding these companies accountable was based

869
00:38:52,520 --> 00:38:54,719
Speaker 6: on that like archetype. You know, we pretty much only

870
00:38:55,040 --> 00:38:57,279
Speaker 6: our wave of regulation. It was like nineteen thirty five,

871
00:38:57,320 --> 00:38:59,400
Speaker 6: you know, to the mid nineteen sixties, and we know

872
00:38:59,440 --> 00:39:01,640
Speaker 6: what a company. It's a it has a smoke stack,

873
00:39:01,840 --> 00:39:03,920
Speaker 6: it employs a bunch of workers, it owns a factory.

874
00:39:03,960 --> 00:39:06,239
Speaker 6: Like that's what that's what a company is. Now with

875
00:39:06,400 --> 00:39:08,840
Speaker 6: all of these you know, and partly due to franchises

876
00:39:08,880 --> 00:39:11,120
Speaker 6: creating this loophole, it's no longer so clear what an

877
00:39:11,120 --> 00:39:14,520
Speaker 6: employer is. And all I I would propose we do is, well, hey,

878
00:39:14,560 --> 00:39:16,759
Speaker 6: if you want to direct to control the work of

879
00:39:16,800 --> 00:39:19,839
Speaker 6: these drivers, well look you're their employer. And if you're

880
00:39:19,840 --> 00:39:22,080
Speaker 6: not paying them the you know, the legal wages, or

881
00:39:22,080 --> 00:39:23,880
Speaker 6: if they want to bargain with you for a union,

882
00:39:24,320 --> 00:39:27,319
Speaker 6: or if you know, because of you, because of your algorithm,

883
00:39:27,560 --> 00:39:29,680
Speaker 6: they ran a red light and hit someone, that's those

884
00:39:29,680 --> 00:39:31,400
Speaker 6: are all those things you caused.

885
00:39:31,520 --> 00:39:33,280
Speaker 5: You should be held responsible for those.

886
00:39:33,360 --> 00:39:35,640
Speaker 2: All right, Brian Calacchi, We're going to have to leave

887
00:39:35,640 --> 00:39:37,680
Speaker 2: it there. Thank you, so much for coming on all thoughts.

888
00:39:37,880 --> 00:39:38,279
Speaker 5: Thank you.

889
00:39:38,360 --> 00:39:52,440
Speaker 2: So I had a great time, so Joe, that was

890
00:39:52,480 --> 00:39:57,680
Speaker 2: a fascinating conversation, and I'm really glad we ended up

891
00:39:57,719 --> 00:40:01,320
Speaker 2: doing a franchise model because Brian truly was the perfect guest.

892
00:40:01,480 --> 00:40:04,880
Speaker 2: But it's so interesting to hear. I mean, it just

893
00:40:04,960 --> 00:40:08,279
Speaker 2: kind of blows my mind to have your cake and

894
00:40:08,360 --> 00:40:10,760
Speaker 2: you get two aspect of all of this, right.

895
00:40:10,719 --> 00:40:11,280
Speaker 3: No, totally.

896
00:40:11,320 --> 00:40:14,680
Speaker 4: I mean, look again, no one has to enter that

897
00:40:14,880 --> 00:40:16,640
Speaker 4: like right like to me, that's like one of the

898
00:40:16,640 --> 00:40:19,560
Speaker 4: main things I did think it was interesting that it

899
00:40:19,640 --> 00:40:24,440
Speaker 4: really is literally about the intellectual property. Like that is

900
00:40:24,480 --> 00:40:27,960
Speaker 4: literally what Coming to America is about is about a

901
00:40:28,000 --> 00:40:31,360
Speaker 4: guy who you know, commits intellectual property theft by making

902
00:40:31,360 --> 00:40:32,879
Speaker 4: something that looks like McDonald's.

903
00:40:32,920 --> 00:40:34,279
Speaker 3: But that is the core thing.

904
00:40:35,160 --> 00:40:37,160
Speaker 4: You know, most people aren't going to be able to

905
00:40:37,320 --> 00:40:40,360
Speaker 4: manufacture that, et cetera. So being able to plug into

906
00:40:40,440 --> 00:40:42,520
Speaker 4: that No, I thought it was like really interesting.

907
00:40:42,600 --> 00:40:43,120
Speaker 5: The history.

908
00:40:43,160 --> 00:40:45,520
Speaker 4: I am not surprised at all. The Ray Crop book

909
00:40:45,560 --> 00:40:47,800
Speaker 4: is so good. He's so forth right, he's so unself

910
00:40:47,880 --> 00:40:51,719
Speaker 4: conscious about everything that he done did in life. It's

911
00:40:51,800 --> 00:40:54,440
Speaker 4: just like a very like weird and fun read for

912
00:40:54,480 --> 00:40:55,560
Speaker 4: that purpose alone.

913
00:40:55,640 --> 00:40:56,520
Speaker 2: I'm going to have to read it.

914
00:40:56,600 --> 00:40:58,000
Speaker 3: Yeah, I kind of want to read.

915
00:40:57,840 --> 00:40:58,920
Speaker 2: The Colonel Sounders one.

916
00:40:59,120 --> 00:41:01,040
Speaker 4: It's so funny to hear Colonel Standards and it's like

917
00:41:01,040 --> 00:41:03,360
Speaker 4: Red Croc and Colonel Sanders, Like, wait, that's it. It

918
00:41:03,400 --> 00:41:05,760
Speaker 4: still feels like that's just like a made up character. Really,

919
00:41:05,880 --> 00:41:07,399
Speaker 4: yeah to me, it does. I mean I knew who

920
00:41:07,480 --> 00:41:10,960
Speaker 4: was real, but it still feels like that's a real person.

921
00:41:11,160 --> 00:41:11,799
Speaker 1: You know about the.

922
00:41:11,800 --> 00:41:15,120
Speaker 2: Whole KFC Christmas thing in Japan.

923
00:41:15,400 --> 00:41:17,800
Speaker 3: I oh, they're really into it.

924
00:41:17,680 --> 00:41:21,000
Speaker 2: But yeah, because I think, but I don't know, Colonel

925
00:41:21,040 --> 00:41:24,480
Speaker 2: Sanders like kind of looked a little bit like Santa

926
00:41:24,600 --> 00:41:28,600
Speaker 2: Oh in a lot of the Japanese KFCs, at least

927
00:41:28,600 --> 00:41:30,640
Speaker 2: when I was there, they used to have like big

928
00:41:30,719 --> 00:41:34,080
Speaker 2: statues of Colonel Sanders out and it was kind of like,

929
00:41:34,440 --> 00:41:37,400
Speaker 2: you know, that's great, a very western.

930
00:41:37,480 --> 00:41:41,960
Speaker 4: There's a great avatar of American you know, both cultural

931
00:41:42,160 --> 00:41:44,680
Speaker 4: and business traditions as Colonel Sanders.

932
00:41:44,920 --> 00:41:47,200
Speaker 3: I do think, like, you know, I.

933
00:41:47,280 --> 00:41:51,799
Speaker 4: Always found it weird when the marketing for being an

934
00:41:51,880 --> 00:41:54,040
Speaker 4: uber driver or like starting a van line was like

935
00:41:54,080 --> 00:41:56,160
Speaker 4: either like be your own boss or like start your

936
00:41:56,160 --> 00:41:59,239
Speaker 4: own business. It's like maybe like the math, look the

937
00:41:59,320 --> 00:42:02,359
Speaker 4: left tails reduced and the right tail is reduced. So

938
00:42:02,400 --> 00:42:06,120
Speaker 4: there's maybe you know, clearly people have done well entering franchise,

939
00:42:06,200 --> 00:42:08,760
Speaker 4: but they do not look anything like what we typically

940
00:42:08,760 --> 00:42:12,239
Speaker 4: think of as like quote entrepreneurship, business ownership. It's like

941
00:42:12,280 --> 00:42:14,759
Speaker 4: a very it's clearly a very different thing.

942
00:42:14,840 --> 00:42:18,759
Speaker 2: No, that tension is also remarkable, the idea that like,

943
00:42:18,840 --> 00:42:22,319
Speaker 2: you're an entrepreneur, you're independent, but also the franchiser is

944
00:42:22,320 --> 00:42:24,080
Speaker 2: going to dictate basically everything to you.

945
00:42:24,200 --> 00:42:27,080
Speaker 3: I also just think I like that except wage cost.

946
00:42:27,160 --> 00:42:30,560
Speaker 3: I liked that. Brian brought up like, you know, even

947
00:42:30,719 --> 00:42:31,560
Speaker 3: the most like U.

948
00:42:31,680 --> 00:42:36,120
Speaker 4: Chicago schooled economists is like, no, it's really good, and

949
00:42:36,160 --> 00:42:38,719
Speaker 4: there are a lot of efficiency gains when you do

950
00:42:38,760 --> 00:42:43,360
Speaker 4: a lot of activity under a centrally planned umbrella, such

951
00:42:43,400 --> 00:42:46,000
Speaker 4: as a large corporation. And the sort of like thing

952
00:42:46,040 --> 00:42:48,759
Speaker 4: that hardly anyone talks about, which is like, how much

953
00:42:48,800 --> 00:42:51,759
Speaker 4: of the economy it's literally under central planning. We just

954
00:42:51,760 --> 00:42:54,080
Speaker 4: don't call it central planning because it's corporate.

955
00:42:54,280 --> 00:42:57,600
Speaker 2: Yeah, I mean yes, there are clearly some benefits to it,

956
00:42:58,000 --> 00:43:00,560
Speaker 2: both you and I. It sounds I think you use

957
00:43:00,600 --> 00:43:01,359
Speaker 2: Amazon Prime?

958
00:43:01,480 --> 00:43:02,479
Speaker 3: Do I do? Yeah?

959
00:43:02,560 --> 00:43:04,960
Speaker 2: So do I I'm McDonalds of course. Okay, shall we

960
00:43:05,040 --> 00:43:05,319
Speaker 2: leave it there?

961
00:43:05,440 --> 00:43:06,120
Speaker 3: Let's leave it there.

962
00:43:06,480 --> 00:43:09,120
Speaker 2: This has been another episode of the Audlots podcast. I'm

963
00:43:09,160 --> 00:43:11,960
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway and.

964
00:43:11,920 --> 00:43:14,080
Speaker 4: I'm Jill Wison. Thought you coun follow me at the Stalwart.

965
00:43:14,120 --> 00:43:17,440
Speaker 4: Follow our guest Brian Calachi, He's at Brian Underscore Colachi.

966
00:43:17,719 --> 00:43:20,719
Speaker 4: Follow our producers Kerman Rodriguez at Kerman armand desh Ol

967
00:43:20,719 --> 00:43:23,960
Speaker 4: Bennett at Dashbot, cal Brooks at Kilbrooks and Kevin Lozano

968
00:43:24,000 --> 00:43:26,560
Speaker 4: at Kevin Lloyd Lozano. And from our odd Laws content,

969
00:43:26,600 --> 00:43:29,000
Speaker 4: go to Bloomberg dot com slash odd Lots. We have

970
00:43:29,000 --> 00:43:31,520
Speaker 4: a daily newsletter and all of our episodes. You can

971
00:43:31,600 --> 00:43:33,480
Speaker 4: chat about all these topics twenty four to seven in

972
00:43:33,640 --> 00:43:36,759
Speaker 4: our discord Discord dot gg slash odlats.

973
00:43:37,080 --> 00:43:39,840
Speaker 2: And if you enjoyed this conversation, if you like it

974
00:43:39,880 --> 00:43:43,799
Speaker 2: when we talk about how ip underpins the franchise fast

975
00:43:43,840 --> 00:43:46,279
Speaker 2: food model, then please leave us a positive review on

976
00:43:46,360 --> 00:43:49,239
Speaker 2: your favorite podcast platform. And remember, if you are a

977
00:43:49,280 --> 00:43:52,200
Speaker 2: Bloomberg subscriber, you can listen to all of our episodes

978
00:43:52,320 --> 00:43:54,640
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979
00:43:54,680 --> 00:43:58,120
Speaker 2: the Bloomberg channel on Apple podcasts and follow the instructions there.

980
00:43:58,560 --> 00:44:16,160
Speaker 2: Thanks for listening in