McDonald’s and Black America
Season 3, Episode 6
Kate Cooney (00:00):
This is CitySCOPE.
Eun Sun Cho (00:01):
A podcast on cities and inclusive economic development from the Yale School of Management.
Kate Cooney (00:07):
Are we ready?
Manuel Morales (00:08):
Kate Cooney (00:24):
This is episode 6 of season 3 of the CitySCOPE podcast. I’m Kate Cooney, faculty at the Yale School of Management and founder of the Inclusive Economic Development Lab. Today, we continue our exploration of Black capitalism. We feature a conversation with the historian, Marcia Chatelain, about her Pulitzer Prize winning history of how the McDonald’s franchise intersected with the civil rights movement, initially, as a target for activism and later as a conduit for the kind of entrepreneurial opportunities that the Black Capitalism movement espoused. It’s a complicated history and a fascinating conversation, so let’s get to it.
Marcia Chatelain (01:02):
My name is Marcia Chatelain and I’m a professor of history and African-American studies at Georgetown University.
Kate Cooney (01:08):
We begin with the early history of the firm, how it got started and how it grew.
Marcia Chatelain (01:12):
The McDonalds brothers came to Southern California from New Hampshire. They had seen the ravages of the depression and decided to try their hands in California, which I think is a very American story about early 20th century prosperity, right? You move out west and you see what can happen, and they actually really liked Hollywood. And so they tried to work in movie production. They worked at a studio. They had a movie theater, I believe in Burbank or Glendale, and they tried their hands on different types of businesses, and they eventually found that they did well in food. So they had a hot dog stand. And then the sketch of what is McDonald’s today, which is a drive-In restaurant that offered barbecue and tamales and peanut butter and jelly sandwiches. And they operated this business in San Bernardino, which at the time was expanding because of the military bases growing in that area.
Kate Cooney (02:12):
McDonald’s started with a fuller menu, but as successful entrepreneurs do, they looked at where the product best fit the consumer market and adjusted accordingly.
Marcia Chatelain (02:22):
The McDonalds brothers discovered that the drive in was really popular with teenagers and high school students. They soon realized that the formula for success came in burgers, fries, and milkshakes, and they dispensed with the other items from their menu. And they started to really focus on affordability, as well as simplicity of menu. And so they were really successful throughout the 1940s, but they never imagined what McDonald’s is today as a global brand with thousands of locations and a complex network of suppliers and franchisees, that really wasn’t what they had in mind when they thought of expanding McDonald’s. They really saw it as something that had a potential for a few more stores in California and a few in Arizona. But this kind of all 50 state strategy was really the vision of Ray Kroc.
Kate Cooney (03:17):
Maybe you’ve seen the movie version of this part of the story. Ray Kroc had the vision to take a small regional chain national using the franchise model. But what you may not know is that he started out as a supplier.
Marcia Chatelain (03:29):
Ray Kroc was a salesman who sold the multi spindle milkshake machines, right? So when milkshakes used to have like real ice cream and real milk, it’s really hard to blend. And so Kroc was used to selling one, maybe two, to a successful business. But McDonald’s had actually had purchased so many of these, and they had to doctor them to try to make enough milkshakes to fulfill the demand at their stores that Ray Kroc had read about McDonald’s in the service industry newspapers and just kind of wanted to see for himself if this place was for real. And he just saw the efficiency. He saw the volume that these guys were doing, and he immediately started to approach the McDonalds brothers to franchise. And then slowly but surely, he bought them out and he brought McDonalds to the Midwest. And it went from being the small chain in Southern California and in Ray Kroc’s hand, it became a national and global phenomenon. What Ray Kroc understood was that McDonald’s was going to be successful because of its consistency, and the consistency would only come to the training of its management. And so the franchise expectation that we have today is that no matter where you are, you will have the same experience. And so whether you’re in Portland, Maine or Portland, Oregon, a Big Mac should taste the same, french fries should taste the same. And it’s really Ray Kroc vision for that kind of consistency. But what’s interesting about it, even though he embraced this kind of uniformity of experience, he really believes that the franchise owners should treat McDonald’s like their own small business. They should be present in the store, that they should volunteer in the local community, that they really should be a fixture. People should know who the franchisee is. And at the same time, the experiences be interchangeable. It’s a really strange set of competing impulses where there’s a familiarity in terms of the presence of the franchise owner, but there is a kind of flattening in terms of the experience, because of the consistency, and Ray Kroc did this by recruiting a certain class of man to become a franchise owner. These are usually people who are incredibly aspirational, some who are able to tap into benefits from World War Two, from the GI Bill to start small businesses, he kept the entry fees for franchising relatively low and guaranteed profits very early in order to keep people enthused about this business model.
Kate Cooney (06:04):
All of this expansion is occurring over a segregated housing and business landscape. And so initially, this was primarily a white-owned business with white franchisees located in white communities in an era of segregated neighborhoods, a deeply segregated country. Is that correct?
Marcia Chatelain (06:27):
Yeah. So, you know, a lot of the growth strategy for McDonald’s was predicated on McDonald’s buying real estate, which is so key to McDonald’s. Well, the joke is that they’re a real estate company that offers hamburgers. And then the other part of it was there’s a scene in the movie, “The Founder,” and I hate movies about real things because, you know, they always take license. But this is actually true that Ray Kroc would fly in an airplane and he would just hover above communities as they were being planned and parceled into suburbs. And he would say, “We need a McDonald’s near the school, we need a McDonald’s near the church.” And so they were so strategic with the placement of their restaurants. And he said that suburbia is where McDonald’s grew up. And so what you do see, interestingly enough, is that as McDonald’s opened in the south, they were loyal to local segregation laws. And one of the things I discovered in my research was that McDonald’s was the target of activism on the part of civil rights organizations that were trying to end segregation in public accommodations like restaurants. And so McDonald’s was the target of civil rights activities in Pine Bluff, Arkansas, Durham, North Carolina, Memphis, Tennessee. The list of places in which the strategy to expand civil rights was about targeting kind of known quantities that exercise segregation.
Kate Cooney (07:49):
That’s so interesting because you often you know you hear about Woolworth’s and the lunch counter, and we have these iconic moments. But McDonald’s was actually also embroiled in that moment in American history and vulnerable to campaigns and boycotts. How did they respond to that?
Marcia Chatelain (08:10):
It’s interesting. I have no documentation on how McDonald’s corporate responded. I do know that at some point, I believe in 1963, the Congress of Racial Equality and the Student Nonviolent Coordinating Committee says, “We’re going to go to Chicago and you know, we’re going to go right to Ray Kroc’s office and talk to him about segregation.” It isn’t clear if that action ever happened. But I do know that on the local level, when local activists would challenge McDonald’s segregation, that there sometimes would be confrontations with police and with mobs, and that the desegregation of these McDonald’s restaurants were usually part of widespread initiatives citywide to reduce segregation, and so they were successful on the local level. But it’s never clear how the National Office reacted to what was happening.
Kate Cooney (08:57):
This began to change at the end of the 1960s. Let’s move to Martin Luther King’s murder and the aftermath of that. That was a really a big turning point in the history of McDonald’s and its relationship to the Black community.
Marcia Chatelain (09:14):
Yeah, you know, 1968 is such a pivotal year in terms of the kind of corporate alignment with an imagined idea of civil rights. And so after King’s assassination in ‘68, there’s all of this unrest in the major cities. There’s all these questions about what’s the future direction of the civil rights movement. And here’s McDonald’s among a group of corporations that are starting to see themselves in alignment with some of the goals of folks who are flying the banner of Black capitalism. And it’s essentially the idea that civil rights gains are going to be had in the legislative space and that some of King’s goals to have equal housing and integrated schools and beloved community wasn’t possible. And so what was possible was an infusion of capital into Black neighborhoods for economic opportunities. And so, at the time that this conversation is being had, McDonald’s finds itself in some communities that the racial demographics have changed very rapidly, from majority white to majority Black. Some of its franchise owners that are in Black communities are afraid that they’re going to be targets of future social unrest and they want out. And McDonald’s had, prior to King’s assassination, thought about what if they were to grant the opportunity for franchising to an African-American business person? So all of these different moments converge into the central drama of the book, and that is the search for Black franchise owners. In the early days of African-Americans’ franchises of McDonald’s, they are inheriting stores that white franchise owners no longer want. And so some of these stores have been damaged in uprisings, some of them have been poorly maintained. And McDonald’s says, “If you want it, it’s yours.” They allow white franchise owners to move into the suburbs, and at this very moment that this is happening, the Nixon White House is pledging its commitment to Black capitalism, and it comes in the form of subsidies for small businesses and fast food franchises are classified as small businesses for the purposes of these different loans and grants programs. And by the early 70s, McDonald’s is hiring an in house person to manage these programs, and they’re seeing this as a win-win situation for them because as they enter African-American communities, they’re doing so as a lot of other businesses are exiting those same communities.
Kate Cooney (11:51):
An interesting part of your book, I thought, was your characterization of the relationship between Black community in these northern cities that are in segregated neighborhoods, very tense relationship with the businesses that were operating in those neighborhoods. There’s discussion of the Mother’s Day price increases. Can you tell us a little bit about that?
Marcia Chatelain (12:16):
Yeah. Throughout the 60s, there’s a kind of northern movement and a southern movement that’s evolving. So while the southern civil rights movement is focusing on things like access to the ballot, the desegregation of public accommodations, in the North, you have fewer overt acts of racial segregation, but you have the problem of housing. And one of the issues that comes with these deeply segregated Black neighborhoods in the north is a business landscape that is incredibly discriminatory and disrespectful. And so people are reporting that there’s price gouging. There’s low quality products that are being offered to community members, the businesses that are in the community that they will not hire local people. So there’s all of these issues about what is the relationship to the buying public. And in my research on Cleveland, there’s a report that the local businesses will increase the price of groceries at the beginning of the month because they know that’s when women who are receiving public assistance are getting their public assistance benefits and they’re trying to squeeze every dollar out of them. There’s a huge campaign in Chicago during this time with an organization called Operation Breadbasket, and they are trying to boycott businesses so that these businesses will actually employ local people. So there’s all of this activism about marketplace relationships that is also shaping this moment.
Kate Cooney (13:41):
Tell us about that first franchisee in Chicago. It was in Woodlawn. Is that correct? And Woodlawn is a neighborhood that when I look at some of William Julius Wilson’s statistics, you know, from When Work Disappears, it’s always so striking to me how fast the demographics shifted in Chicago in this time period. And maybe that’s emblematic of other cities as well, but they’re quite dramatic.
Marcia Chatelain (14:07):
You know Woodlawn is like a lot of neighborhoods in Chicago at mid-century that goes from majority white ethnic to Black in a very short period of time. And so that McDonald’s that becomes the site of this big ceremony, if you will, in December of 1968, it would have been previously franchised by a white franchisee who no longer wanted to do business in Woodlawn. And so it’s offered to a man named Herman Petty, who had experience as a barber and as a bus driver and had been recruited to become a franchise owner of the McDonald’s. And you know, this is a huge opportunity in 1968, although at that point McDonald’s was not an all 50 states brand and it wasn’t a global brand quite yet. It was on the verge of that. And so for him to enter into this space of a franchiser was a very big deal. And so Herman Petty reopens that store in Woodlawn. And then slowly but surely, over the next five years, a small cohort of Black franchise owners emerge in cities like St. Louis and Kansas City, Los Angeles, eventually New York City. And they are rooted in the very communities that have been the eyes of the storm of racial unrest throughout the 1960s.
Kate Cooney (15:29):
So the story that you tell about Herman Petty’s experience moving into that franchise ownership is a positive one, but not all of the stories that you tell are positive, and there’s a lot of violence that has to do with this transition of expansion of ownership rights. There’s a murder. Can you tell us more about that, though?
Marcia Chatelain (15:49):
Some of it gets really creepy. I think it’s the high stakes feelings around the business, as well as just the creepiness of the 1970s where intimidation tactics like bombings are very common. Jeffrey Toobin wrote a book about Patty Hearst last year. The point that he makes in the book was that bombings are like, commonplace in the 70s, and it’s not just radicals who are using bombing as an anti-state form of protest. It’s also a form of intimidation that’s done within communities. And there’s a long history of bombings being a technique of racial intimidation from the 1910s and 1920s in Chicago to try to deter African-Americans from moving into certain neighborhoods. And so it’s kind of part of this backdrop of everyday violence that is very much shaping how people are looking at neighborhoods and communities. So all of this is to say that while Chicago embraced, for the most part, African-American ownership of McDonald’s, I think because Chicago becomes the new home and headquarters of McDonald’s, it’s a very familiar brand in that part of the Midwest. In Cleveland, McDonald’s is also very popular, but there is all of this contention about who should own a McDonald’s in a Black neighborhood. And so there is an African-American man who tries to seek out franchising a McDonald’s. He gets the runaround and he ends up being murdered in his driveway. And his widow claims that he is killed because he is trying to seek this McDonald’s. No one can quite verify this claim, but the claim is so powerful that it creates an activist movement in Cleveland to boycott McDonald’s until they install Black franchise owners. And this thing gets really unwieldy because there’s a newly elected Black mayor, Carl Stokes, who’s this boycott is compromising his re-election bid. The organization leader of this umbrella organization that is fighting with McDonald’s over ownership, he has kind of a checkered past and at some point flees to Guyana and establishes his own cult. And there’s all these questions about can he return to the United States. It’s so high stakes and it’s so dramatic and this is over McDonald’s. But I think that the point is that this presence in communities was really vexing. This is before a period of time where McDonald’s is everywhere and people are recognizing the economic potential of it, and they’re questioning the motives of this company that’s coming into their communities and trying to align themselves with African-American struggle in African-American culture.
Kate Cooney (18:31):
I was also interested in the stories out of Portland, Oregon, in some research I’m doing on this new form of corporation called benefit corporations, I’m looking at the way this new form of corporation is being pulled down in different regions. And one of the things that I’ve noticed in the data I’m looking at right now is Portland is very distinctive from the other three metropolitan areas in the United States, where there are a lot of these benefit corporations, New York, L.A. and San Francisco. Portland, this corporation is being pulled down in a very unique way, and it’s being utilized by locals basically to provide much more worker-oriented rights than those other three metros. And so it was really interesting to hear about the history of the Black Panther movement in Portland because it’s still not very racially diverse, even today, and to hear how active the Black Panthers were in Portland even then, with such a small Black community and how they interacted with the Black capitalists, and this movement, was very interesting. Can you tell us a little bit about that?
Marcia Chatelain (19:45):
Of course. What’s a benefits corporation?
Kate Cooney (19:48):
We took a little detour here to talk about benefit corporations. And it turned out that Marcia had uncovered some interesting attempts to get creative with the corporate ownership structures in the McDonald’s franchises in the 1970s.
Marcia Chatelain (20:00):
Oh, this is fascinating. Well, I think this is interesting because in some of the early examples of McDonald’s in African-American communities, people are trying to mold something in which the McDonald’s franchise is the people’s franchise. And so one of the reasons why Cleveland was so contentious was because the dream was that every member of the community could put in five dollars to cover the franchising fees and then the profits would be reinvested in the community for the community’s basic needs and that McDonald’s would be on the hook to put in some public resources, right where it was earning money. So McDonald’s pays for a swimming pool, a park, and that the people have like shares into this local franchise. McDonald’s is like, “Absolutely not. We’re not going to do this.” But what they did allow for a short period of time was for community organizations to franchise McDonald’s, and they were using the community development corporations, which were all the rage in the late 60s, right? These public-private partnerships to try to use this as a vehicle for franchising. And so this worked for a short period of time, but the carrying costs of a franchise are really high. And so sometimes these foundations and these CBCs weren’t able to hold on to them. But all of this is to say, in Portland, the central tension wasn’t necessarily about ownership. I think about it in terms of what kind of citizen are you going to be within this community? And so the Black Panther Party for Self-Defense as an organization that emerges in the late 1960s as a kind of counter movement to mainstream civil rights by focusing on armed self-defense and community self-determination. They were very much interested in how business could contribute to their larger goals of providing meals and healthcare to the local community. I love that I was able to do research in a city like Portland about African-American communities to take this story out of just the cast of characters, places that have large populations of African-Americans that are often defining the story of the 60’s and 70’s, like Chicago, like New York, and say, you know, in Portland, in this set of circumstances of the hyper segregation and the inability to create a mass political movement that could lead to a Black mayor or Black city council people, people were still finding ways to articulate their political power. And it was through this conflict with McDonald’s. There’s a great book by a former Yale professor who’s now working in the Biden administration, Alondra Nelson, called Heart and Soul, about the Black Panther Party in healthcare, and a lot of it is about Portland, Oregon, and the way that they used medical training from the University of Oregon, Portland Medical School and Dental School to provide these services to local people.
Kate Cooney (22:52):
I want to get into the economics a little bit. So one of the things you described are these salt and pepper arrangements. Were these ways that provided access to capital for potential Black owners? Was there something more controlling going on with that?
Marcia Chatelain (23:08):
So access to capital was almost nonexistent, right? Banks were not lending to anyone, African-American, even if they had some small business funding or financial backing. And so what a lot of the early agreements asked was that Black franchise owners would get some type of abatement of fees or some type of assistance from the corporation to enter franchising, and then they had to come up with the remaining capital themselves. And so what a lot of people were doing is they were basically going to loan sharks who were charging this huge interest rates. And what they did is they called these partnerships salt and pepper partnerships, in which the African-American franchisee was the face of the business and was applying for these minority grants. But they were white financial backers that were propping them up. And these backers, you know, the anecdotes were like they would show up at the end of the night and clear up the cash registers, and they would create these financial situations that no one could get ahead of. And so some people lost their franchises as a result. And McDonald’s stepped in, I think, around ‘71 and they paid off these nefarious lenders. And then they were able to create a structured loan program for Black franchise owners because they were not getting loans from the bank. One of the things I did write about explicitly in the book that I wish I had talked a little bit more about is that I think the success in franchising is what opened up some of the community banks to African-Americans franchise owners because throughout the 70s and early 80s, a lot of the banks on Chicago’s south side. Some of the New York banks really advertise the fact that they were providing capital to franchisees, and I think that having the McDonald’s guarantee behind you is a really strong position to be in to go to a bank for assistance.
Kate Cooney (25:06):
One of the things that you talk about is the role of that local multiplier, how much money circulates within the community and with McDonald’s franchise, it’s sort of a mixed story, right? On the one hand, there’s hiring locally. Perhaps a Black owner of a franchise will hire more generously from the Black community than the older white owners did, but yet there’s still leakage.
Marcia Chatelain (25:30):
This was one of the arguments on why fast food was positive. It provided jobs and provided jobs, but the analysis was that, you know, when you think about the profits that are coming out of a fast food establishment after the franchise owner pays salaries and pays local taxes, a lot of money is flying out of that community. It’s going to corporate licensing fees. It’s going to advertising funds that are advertising with national companies. Local companies are not part of that advertising effort. Mostly. It’s going into suppliers that are not local suppliers, right? They’re suppliers that have been negotiated by McDonald’s. And so they’re all of these costs that are associated with keeping the brand consistent that don’t happen at the local level. And so that the economic development is low-wage jobs that don’t have benefits associated with them. And then perhaps the individual philanthropies that the local franchise owners are involved in. And then massive amounts of money that either go back to McDonald’s or go back to their predetermined suppliers.
Kate Cooney (26:37):
One of the things you referred to, and I think that’s part of the archival research you were able to draw on, has to do with affinity group among African-Americans who owned franchises. Were there efforts to scale that community philanthropy or ideas that were traded? I know you talked about growing up going to McDonald’s. I also grew up going to McDonald’s. And when I was in Los Angeles doing some interviews around welfare reform, we interviewed in some fast food. I was reminded of the interview with the McDonald’s franchise owner that I did back in the 90s reading your book because he was African-American, and it was in Los Angeles, and he was so passionate about the number of programs and services and scholarships and after school, even just providing space for people in the community to come and do homework and have a place to be. I remember that interview so well, now that you reminded me through your book about it, it stood out for those kind of commitments that that particular business owner was making.
Marcia Chatelain (27:40):
I’m curious if it was, ah, Reginald Webb. He was a big Los Angeles franchise owner and his son is now in fast casual, is in, I think Buffalo Wild Wings. This is one thing that’s kind of interesting about these communities. They might retire from McDonald’s and then franchise something else. They really believe in the model. So the National Black McDonald’s Operators Association is founded in, I think, ‘72, and they really see themselves as not only advocates for Black franchise owners, but to be a real vehicle for philanthropy to organizations like the NAACP, historically Black colleges and universities. And they are very, very much connected on the local level to communities and largely in part is because they’re less likely than their white counterparts to have an opportunity to have these massive stores under their portfolio where they’re having, you know, 10, 20, 30 restaurants at a time, though there are some African-Americans who do franchise in these huge volumes. And so they, as an organization, I think, have been able to distinguish themselves from other fast-food franchises because of the position that they’re in and the types of communities that they tend to have businesses in. And they will tell you that they really see themselves as community leaders and that they are part of the long tradition of African-American business leaders who are filling that void that occurs when you have structures in the public good that doesn’t serve all communities equally. Right. So they’re filling in those gaps. But I think for them, you know, as an organization, they are also sometimes in a really difficult position because although many of them have been quite wealthy through franchising, there’s often a tension that exists within the system in which they say that they are still subject to a lot of racial discrimination because they’re Black business owners and that relative to their white colleagues in franchising, they’re not as wealthy and they don’t get as many opportunities to expand their businesses outside of some very specific areas.
Kate Cooney (29:41):
So how do you apply to get a franchise and is the charge that if you’re African-American and applying to be a franchise owner, you’re steered into certain stores? How does that work? Do they have? Are they building new stores? Can you decide what to acquire or as a franchisee, are you constantly applying and being accepted or not accepted?
Marcia Chatelain (30:06):
So this claim of racial discrimination within McDonald’s, it goes back to lawsuits or attempts to sue McDonald’s as early as ‘69 and ‘70. This is a constant problem, and a lot of the ways that people talk about franchising is the ways that we talk about real estate in terms of discrimination, so steering, red lining, all of these different methods that have been used to historically keep African-Americans and Jewish Americans out of certain neighborhoods. People argue it’s replicated with the franchising system, but franchising is a little bit more difficult because there’s no kind of statute that protects your right to a franchise where it is at the discretion of a private company. And so if you want to franchise, you have to apply. You have the financial vet and then a regional manager contacts you and will tell you what stores are available within a certain area. And so the charges that have arisen since the late 60s is that McDonald’s keeps two different lists, one that is open to white franchise owners that is abundant and one that Black franchise owners are privy to. There’s 50 plus of these lawsuits right now, and basically what the claim is is that regional managers will only put African-Americans and African-American communities and that when you are in these densely, highly segregated areas, your carrying costs are higher because you’re more likely to be in an urban neighborhood that has higher taxes, that some of your insurance costs are higher just by virtue of the zip code, and then the cost of doing business around security is higher and that these restaurants tend to not be as new as the ones that are built in the suburbs. And so as a result, your modernization costs are higher. And in the lawsuit that was launched in the summer of 2020, the franchisees claim that they are earning about $68,000 less than their white counterparts per month. And so you see, first of all, $68,000 is a lot of money. So you see just how lucrative it is, but franchising is predicated on the franchisee absorbing a lot of risk. And with COVID, with other kind of issues that are happening economically in some parts of the country, these franchise owners believe that they are set up to assume the most risk and then they put themselves in a position where they can lose their businesses. In the early days, McDonald’s, I don’t think, anticipated that its African-American franchise stores would perform so well and outperform some of its suburban stores. But I think as of late, the argument is that this is no longer the case. That because of the proliferation of so many restaurants now, as well as so many market competitors, that the kinds of revenue that was once generated in the 70s and 80s and 90s is a little bit harder to come by.
Kate Cooney (32:59):
For those who have been able to take this franchise ownership as a pathway to wealth generation, did you get any insight either from people who are whispering in your ear on your book tour or from your research about what the path those pathways to wealth were? Were they multiple acquisitions or were they multi-city? Were they regional? Were they primarily in majority Black neighborhoods? Have people been able to get into the suburbs?
Marcia Chatelain (33:27):
Yeah. So you know, there’s a real mix of experiences. If you are able to leverage your one store into 10 stores or 20 stores, you can do really well. There was a period in the 90s where a group of Black franchise owners, they call themselves the Eighteen. They kind of went to corporate and they said, “You know, this is ridiculous. We need an opportunity to grow our portfolio like our white counterparts. This strategy of letting us have two or three stores at a time is not going to really lead to any kind of parity.” And so there have been different parity agreements that have been negotiated internally. There has been some external pressure put on McDonald’s to kind of help out their Black franchisees. You know, the pathway to wealth is volume. And so if a person is able to get a strong portfolio, a mix of city and suburban and airport and Wal-Mart, right, like these different places where McDonald’s exist, then they are in a good position to amass a lot of wealth. I think one of the existential questions for franchise owners is what to do with their wealth into the second generation. Sometimes they have children who don’t want to inherit a franchise business. There’s kind of different perceptions of what the experience is and what the opportunity is that’s vastly different than the time in the eighties and nineties of the parents or the grandparents got into this business. The big question is, is this a sustainable, multigenerational family business that isn’t quite like a traditional family business that can generate a great deal of wealth? But I also think that for people who see themselves as advocates for community people who really want to make change, I think there is an overwhelming question of is this a mechanism to really deliver some of the changes that people are desiring?
Kate Cooney (35:19):
You wrote a short piece for the Atlantic about different kinds of franchise chains that have a different approach, perhaps even more exploitive of an orientation to their franchisees. Can you contrast that approach to franchising to the one that you studied and illuminate some of these trends more broadly?
Marcia Chatelain (35:41):
There are some of these franchise companies that have a lower bar of entry. You can become a franchisee for ten thousand, fifteen thousand dollars. They often advertise to immigrant communities. I think they understate how hard it is to maintain those businesses. You have to have a pretty strong financial position initially to even get the application for McDonald’s. It’s still risky, but if you’re investing in a McDonald’s, you have a few million dollars liquid. Your financial stability is probably at the top of the franchising system, but everything underneath it, and it’s not just fast food, it’s cleaning services, it’s print shops. There’s all sorts of franchises out there. They’re the ones that you have to be really careful of. And the reason why Burgerim went out of business is that it was doing something bananas, which any person with a little understanding of business, it would be a red flag is that they said they weren’t going to collect any fees until you opened your business. Well, opening a business can take you months, if not years, to execute. So how exactly is this business functioning if it’s not collecting any fees from its franchisees? And so one would understand that it’s probably creating a shape that is not conducive to a sustainable business because it’s dependent on new entry fees in order to support the existing business. Throughout the late 60s and early 70s, celebrities, former athletes tried to start their own franchises, and those were sometimes investigated for the same type of financial model. And so it’s unfortunate because people put their life savings into this. They clear up their retirement because of this dream that is just not possible, especially when we think about food businesses and all the risks associated not only with supply chain, but liabilities, if someone gets sick, it’s tough business. And so it’s something that I think people really need to think very carefully about before entering.
Kate Cooney (37:39):
Just wanted to end with this sort of bigger question. One of the things that really struck me in your discussions about Black capitalism were how much those ideas are still in currency today and in the aftermath of George Floyd’s killing, the calls for supporting Black-owned businesses, for driving more capital to wealth building strategies. And in your book, you really interrogate that whole idea and you put it in contrast to other movements. And so I just wonder what you learned through this book that speaks to the current moment in terms of what is the promise of a Black capitalism approach and what are some of the cautionary tale that we might learn from this history?
Marcia Chatelain (38:33):
It’s all a cautionary tale. Business cannot solve the problems of civil society. They just can’t, nor should they, because we actually have a mechanism to solve these problems, and that’s the public good that is interpreted through taxes. And so I think that it is wonderful that so many of these Black franchise owners see themselves as a beacon of community that are so generous in their philanthropy. But they do not have the capacity to solve any of the problems that animated their entry into the business in 1968, and they will not have the capacity to solve the problems of 2021. I think this is such dangerous thinking, and I think that the more vulnerable the community, the more that there is a dependence on this thinking. If we look at it today, there might be like one and a half million Black-owned businesses in the United States. It might just be one million, but they’re about this number, more than 90 percent of them just employ one. It’s like a sole proprietorship, one person working, probably having another job in order to go to business. This will not create jobs. It just can’t. Nor should it be our jobs strategy. We actually have a federal government that can have a basic jobs guarantee in which they contract with business to ensure that people have jobs. Universal basic income guarantee. Because once we start putting that kind of pressure on business, we are setting ourselves up for failure because there just isn’t capacity. And so while I appreciate the deep desire of all of these different industries to support Black business and contracts and creators and initiatives, perhaps a more sound racial justice platform would involve paying more into the public goods through taxes than any kind of scheme. I just bought a new house and among all these furniture websites and it’ll say “Pledge for 15.” I’m like, “Oh, this is a coupon, and I click on it and it says 15 percent of our suppliers or our designers will be African-American.” First of all, I’m a little appalled that 15 percent is the goal. But anyway. But besides that, this does nothing. This does nothing to repair the very serious breach of racial capitalism or economic injustice. I’m very excited for that designer, maybe I’ll purchase something from them. But this is not a strategy for social change. This is a marketplace choice. And any time we confuse the two, I think we’re just in a very dangerous territory.
Kate Cooney (41:15):
Marcia, we just want to thank you so much. You’re so welcome. For the time you spent with us and for telling this really interesting, complicated story and giving us a lot to think about. Join us next time, we continue the conversation about the racial geography of cities, networks, and platforms for business development, with Boris Sigal, SOM MBA working at the intersection of cooperative purchasing and community organizing. Stay tuned.
Manuel Morales (41:48):
This podcast was created by Kate Cooney in collaboration with James Johnson-Piett and the students of the Spring 2021 Lab.
Eun Sun Cho (41:56):
All engineering and production by Ryan McAvoy and Kate Cooney.
Kate Cooney (42:01):
Special thanks to Rhona Ceppos for administrative support and to Ryan Carpenter for assistance with Zoom.
Eun Sun Cho (42:07):
Music from the album City Trees, composed and performed by the artist K-Dub.
Manuel Morales (42:12):
For more information and show notes, visit our website at IEDL.yale.edu.
Eun Sun Cho (42:19):
Thank you for listening.