Tuesday, September 9, 2014

The Independent Economy

While most people enjoy the comfort and familiarity of chain stores and businesses I think there is a greater interest among people, at least myself, for independent businesses. There is a definite strangeness to being on the other side of the world but the fast food chain your standing in is indistinguishable from one anywhere you’ve ever been before.

In my recent reading I have come across quite a bit talking about the nature of independent business and chains. I think our communities are missing a great deal by the triumph of the chain. We may have sacrificed the good of our towns and cities on the altar of familiarity and predictability.

Communities in the Northwest Territories are quite different from those back home. In Fort Smith there are only a handful of franchises or large businesses in town. Home Hardware, RBC, the Northern Store, and Staples are the only ones that come to mind, and Staples isn’t technically in town, they just have a deal with a local distributor. The grocery store, the general goods, the hotels, the restaurant, the garage, the small engine dealer, the coffee shop, the bakery, etc. are all owned by independent operators. This largely applies in a larger centre like Hay River as well.

One of the things I’ve thought about is starting my own business. Looking into something like that in Ontario is a very daunting task. On an episode of Strong Towns Chuck Marohn discussed the impact of “franchization” of our economy, he wrote about the idea here. Let’s use a Canadian example. Coffeeshops might be the lowest barrier to entry business an entrepreneur could start. It doesn’t require the extensive equipment of a full restaurant, or very much space. However, in this country seemingly only two coffee chains make any headway at all: Tim Horton’s and Starbucks. Getting enough of the market to survive is incredibly difficult.

Assuming an entrepreneur decides that it is impossible to beat the big guys so joins them and seeks a franchise. The last I heard a franchisee needs about $600,000 to purchase a business. Essentially they must already be wealthy if they hope to enter the merchant class. Our chain economy has barred new entrants and stifled innovation and competition. This stands in stark contrast with what I saw in Korea where small, even tiny businesses had the freedom to sprout up in small places and be patronized out of convenience and quality of service. Many of these businesses were quite modest but could easily grow over time, renovate their spaces, hire more staff, expand their facilities, etc. Such a landscape was hard to imagine at times back home in Ontario. 

The impact on the local economy is obvious. The corporate owners are essentially mining the local economy. Some money returns in wages, but mostly money leaves the local economy and gets concentrated in centres sometimes far removed from the area, or even the country. A study I heard referenced suggested that for a chain business only 5% of the money spent there by customers stays in the community, compared to 70% for an independent business.

While corporate chains will occasionally express some gratitude to their communities they are not rooted to them they way independent businesses are. Businesses here are intimately tied to the fate of their towns and are therefore quite active in the local chamber of commerce and give back generously to local schools and charities. They are citizens of their community and not merely visitors, or exploiters.

This is part of the reason I find it baffling that so much our local governments do are targeted at big businesses and boring chains. Their interests are not in the community, and would it not be better to help local businesspeople get off the ground and empower residents than enrich someone else? These are some things to consider in our shopping habits and how we grow our cities.

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