Friday, 17 August 2012

Economics of Mom and Pop

This is how things worked in the 1950s and 1960s. Mom and Pop opened up a store, and did well. They ran a profitable operation and employed a couple of folks. They paid local property taxes and local income taxes. The profit they made? They plowed into the local region. They bought a cabin up in the mountains. They bought a boat. They bought a second car, and a third car. They opened a second store. They bought a couple of houses and rented them out. They branched out and had various pieces and parts of their income which were taxed locally and by the state. The authorities made their money (city, county, and state), and the local area profited by the spread of the money.

Something happened in the 1980s….as franchise operations came in….competed heavily against Mom and Pop. Mom and pop did their best, but they downsized operations which weren’t as profitable. They closed up a shop or two.

The franchise operations? Well….they paid the sales tax and the property tax. The owners might have paid on their state income tax…..if they lived in the state. If they lived in another state….that income was never taxed.

The franchise profits? Well…..they got shifted back to franchise headquarters… Arkansas, or such. There…..the big headquarters went to the state and ensured that property taxes were minimal, and income taxes were low….by paying state senators and state representatives to “fix” things. The national tax on the franchise? Oh, they fixed that by wining and dining US Senators and Representatives.

The expenditure of profits by the Headquarters? That went to stockholders…..not to local communities or states where the money started out.

A logical thinking guy would sit there and eventually come to this conclusion: that local money left the local area, and never fell back into local benefits, local employment, or local growth.

Since the 1980s….this has been going on at an expanding rate. Mom and pop shops have mostly disappeared except in fairly rural areas of America. Franchise operations ended up like a timber operation….clearing out the forested area and leaving a fairly limited situation for local growth. Either you work for the franchise operation….or you work for a handful of mom and pop operations left.

There is no growth pattern that you can find in most major urban areas of the US. The anchor for the franchise direction? Basically, you end up with friendly political people who ensure zoning regulations are tough, and business permits are geared toward a significant amount of work and capital to get started. Banks aren’t willing to get involved offering capital to a new mom and pop opportunity like they did in the 1970s….course, in those days…..they were getting ten and fourteen percent back on loans…thus feeling pretty good about their future.

 In the end….Mom and Pop shops are dissolving left and right. Mom and Pop operations made the first 180 years of American history pretty profitable for the local folks. Their demise makes you wonder about the next 180 years.

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