Is (productive) big business taking over services?

From today’s WSJ, by Chang-Tai Hsieh and Esteban Rossi-Hansberg:

If you live in a midsize American city, you’ve probably noticed that an increasing share of local services are provided by chain establishments such as the Cheesecake Factory and Wegmans. Why? It’s because the industrial revolution that transformed U.S. manufacturing more than a century ago is finally reaching many local services, which had long resisted standardization.

…Locals sometimes lament when a new chain in town bears down on a mom-and-pop shop. But in the past four decades industries in which top firms have grown in share have created many more jobs than ones where market share is dispersed among small peers. Companies that have taken advantage of the industrial revolution in services grow by expanding into smaller cities or exurbs, and provide competition to previously dominant local monopolists. This brings jobs, as well as cheaper and higher quality services from groceries to health care, to areas that need them most.

In contrast, employment has shrunk in sectors still dominated by small independent operators, such as plumbing and electrical wiring. Over the past four decades, the growth of the top 10% of firms in local services in a given year has accounted for 80% of the cumulative wage and employment growth in the U.S.

Might this also someday mean that services will become easier to export?  I am also happy to recommend the authors’ underlying piece The Industrial Revolution in Services.

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In many cases (the majority?) these chains are in franchising, so they are hardly “big business”. Franchising is a great solution to find the best equilibrium between economies of scale (purchases, branding, best practices...it depends on the industry) and cost of agency. Just as suzerainty was a great institution to define the boundaries of a country, franchising is often a great way to define the boundaries of the firm.

Both Cheesecake Factory and Wegmans are examples of service jobs where little to no craftsmanship is involved. As opposed to plumbing and wiring, which is are skilled, and usually also highly regulated (requiring certification).

So, an enterprising service firm who can reduce the costs of vocational education and equipment can create a faster, cheaper method of creating certified plumbers and wirers, who then can perform tasks at a fraction of the local mom-and-pop construction and household maintenance firms.

The fixed cost is pretty low for the plumber or electrician, it the variable cost that needs to be brought down to do this. Not sure how a bigger enterprise will cut wages more successfully than a small one.

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Kiss franchising goodbye. House Democrats are voting to take California’s save unions and Dem slush fund (gig economy) law national.

Eu gusto do salto.

Sobre o que?

A palavra toda.

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You are thinking of restaurant chains which have their share of franchises but the local grocery store, hardware store, consumer goods shop, or local bank that are run by chains aren't going to offer franchising.

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Franchise chains certainly seem like big business for this discussion. They are huge corporations, and they exercise almost complete control over the products, service, and operations at their local outlets.

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Great! Big Corp.Co will decide what we eat, how we are treated and much more. Communism took kver America and we did not care!

No, causality is the other way around: We have so little taste that we are happy to consume the garbage offered by chains because it is so much cheaper. :-(

This, about truck stops in France

http://www.weareneverfull.com/cafes-routiers-oh-to-be-a-trucker-in-france/#sthash.UFaiSIqR.dpbs

is ten years old. I expect the spirit is still more or less accurate. Prices in these restaurants are low, but truckers are apparently willing to spend time getting there.

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d is right: causality *is* the other way around: corps, from Big Food to Big Services, want to give you exactly what you ask for.

But if I'm not mistaken, Big Corp has been serving hamburgers for about 60 years, so I don't think it's a new thing for Big Corp to be in the service industries.

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Sounds like you need a hug

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Sorry that hug was for James Thompson only! the polarization between corporate America and communism rocks because it just demonstrates my point further.

Capitalism is defined as private ownership and control over the means of production, where the surplus product becomes a source of unearned income for its owners. By contrast, socialism is defined as social ownership of the means of production so that the surplus product accrues to society at large.

You mean ... Capitalism is defined as private ownership and control over the means of production, where the surplus product accrues to its owners. By contrast, socialism is defined as social ownership of the means of production so that the surplus product becomes a source of unearned income to society at large.

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Productive?

What, like Starbucks & its burnt, scungy coffee across 50,000 outlets?

We pity the [Yank] fools

ps another instalment in Cowen's embrace of shitty corporations

"ps another instalment in Cowen's embrace of shitty corporations"

+100

If it is a big corporation, like Walmart, Amazon, or Uber, which bankrupts thousands of local businesses--Tyler loves it.

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Capitalism delivers what the people want (to spend). Don't blame the system, blame the people's tastes.

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In the US almost no one actually likes coffee (and Starbucks isn't the worst chain either -- I'm looking at you, Dunkin' Donuts). They like 1000 calorie milkshakes with three token drops of coffee swill lost in the mix.

For people who actually drink coffee, the reason many insist it be scalding hot is for a similar reason: it's very hard to taste drinks that are extremely hot (I actually like the flavor of good coffee so I drink it black at around body temperature so I can actually taste it).

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What's the alternative scenario you're thinking of here?

Let fifty-thousand tiny diners with terrible coffee bloom?

Let fifty-thousand state-run milk bars with terrible coffee bloom?

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"In contrast, employment has shrunk in sectors still dominated by small independent operators, such as plumbing and electrical wiring. "

It's not clear that this is evidence for the alleged benefits of nationalized branding and "the industrial revolution in services". I think more workers would rather work as plumbers or electricians than in an Amazon warehouse or a Whole Foods: wages are much higher.

My son is a plumber and talking to him I think you are wrong. Plumbing work is much harder and dirtier. His boss has to pay more to get good workers.

I heard it's shitty work.

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mkt42: " would rather work as plumbers ... wages are much higher"
Floccina: "boss has to pay more to get good workers."

You are in violent agreement with each other.

He said "I think more workers would rather"

I say it is in equilibrium because though plumbing jobs pay more they are much harder jobs. I'd bet you that there are more college grads for example in retail where the pay is lower than in plumbing.

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With regards to "trade in services", it's useful to note that it probably is already higher than we currently measure because of how international data are organized.

See this paper:

https://static1.squarespace.com/static/562636cfe4b043d43a7492bf/t/5c6edbaa53450aa521c6ca3c/1550769068776/GMRR_Feb_19.pdf

Basically, "trade in services" probably lives in the current account but not in NIPA trade because a lot of it can be done via licensing intellectual property. In addition, insofar as all these license transfer / pricing decisions are opaque and done for tax advantages it will often be misattributed to tax havens.

However, the exactly "right" way to undo this mismeasurement is difficult to parse since it can be tricky to decide exactly when and where a unit of intellectual property delivers a service flow. For example - should Google US or Google Ireland get credit for using Google IP in Europe? Should licensing fees be recorded as investment income (in primary income or the woefully named "capital account" and outside GDP) or as a service export (and thus in GDP).

I don't care (very much) how it's recorded as long as the consolidated, world-wide profits get taxed as shareholder income.

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Does that mean that we need to replace local regulation with national regulation? Especially in medical and building codes.

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I work in real estate in South Florida and this trend is alive and well here but highly location specific and size dependent. High rent, high visibility locations with large floor plans in retail areas with lots of foot traffic and/or city center corners are trending towards the chains, mainly because they have almost universal brand recognition and can maintain the volume both during the day and in the evening to support the extraordinarily high rents these premier locations command. However there's still a flourishing culture of mom-and-pop type stores and restaurants, but they've migrated out of those area into trendy or transitional neighborhoods that are a little rougher, where not only rents are lower, but the neighborhoods are perceived as being cool or trendy, and especially appeal to the type of consumer who values buying locally and eschews the chains.

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What service did cheesecake factory take over? DMV? Corrections?

Oh, food service. well, that's a marginal revolution alright.

People can dress it up all they want, privatized service exists on three foundations: paying the employees less, giving less actual service, and charging more for it. Not exactly rocket science. Add in a sweat-heart deal, a public asset giveaway, and the inevitable bailout when they screw up....

But we buy the stuff, not somebody else.

"We have met the enemy, and they is us."

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Okay, shame on me. I read that as "local government services."

They mean local anything services. I didn't get past the pay wall. But I am wondering, services, like, what? Because I do not see that occurring. Again, besides food, which hardly counts as a revolution and has every thing to do with leveraging retail space rent.

I mean, occasionally you'll see a franchise hvac duct vac company or something, but those are basically just marketing co-ops. And this time of year there are the ubiquitous payday loan companies that disguise themselves as tax prep firms.

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Thanks, came here to say this. What valuable local service is Cheesecake Factory providing? Surely a service only the shareholder-value-maximizing robots at the WSJ could love.

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Allow me to offer a simple alternative theory:

The cost of employing people has gone up. Be it from real regulation, law suit risk, or just the social media/PR costs if you want to hire more people today you face higher burdens complying with the many different "directives" that are required to employ them profitably. From a business's perspective it does not matter if you have to provide expensive benefits due to California classifying everyone as an employee, because you risk being sued for sex/race/etc. discrimination if your full timers have privileged demographics compared to your part timers, or if you risk some viral social media post overlooking the cost/benefit calculation of hiring marginal employees without good benefits ... any of these can tank your business's bottom line.

Growing beyond "small business" typically requires hiring a lot of people and for most sectors hiring a bunch of people whose skills are just not worth six figures. Navigating the labyrinth of how to mobilize labor without running afoul of some regulatory, legal, or media pitfall is hard.

Large corporations figure out once and then spread the cost over thousands of employees. Small firms don't. Every small business boycott, regulatory investigation, or law suit makes it that much riskier to hire people so ceteris parabis we should see more and relatively more hiring by large firms that can better spread fixed HR expenses (e.g. hiring a social media brand manager)

+1

As a small business owner/operator who has faced three class action law suits over nonsense I do everything I can to either (a) automate a job or (b) off shore a job.

Employing entry to mid level talent in the US is an absolute nightmare and a ticking time bomb.

Right now I'm deciding if an entry level sales person who sold 2 contracts in 15 months before they were let go is worth paying $50,000 to settle a discrimination lawsuit I've already spent $30,000 on. They sold 2 small contracts in 15 months, but obviously they were terminated for their gender/age/orientation/hair color/race/whatever, not performance.

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Perhaps plumbing looks like a shrinking sector because some plumbing services have been made more efficient by things like flexible connections instead of brazed copper pipe. In other words improving productivity. Other services are improving quality, a restaurant that adds waiters to improve services looks like it is decreasing productivity. So I don’t necessarily agree that the apparent increase in employment in one are is actually due to big business.

For those people decrying the mediocrity of much big business food, yes it is worse than the best independent food, but it is much better than the worst independent food. Dependability is worth something in itself.

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I think ordinary people could still compete in retailing, if push-cart or truck-vending was not routinely criminalized in the United States. And elimination of property zoning, which restricts retailing to just certain zones, would be an additional benefit to both small-business people and consumers.

But American Libertarians are much happier talking about the evils of rent control and the minimum wage.

Another reason why your choices in 2020 are likely to be Sanders and Trump..... The establishment is not cutting the employee class into the deal.

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Sounds like an alliance between big business and labor cartels. Labor cartels, like socialists, prefer to deal with big businesses. Also, some labor likes to run its own business and be its own boss.

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This reminds me of a piece you linked a while back: https://www.ribbonfarm.com/2017/08/17/the-premium-mediocre-life-of-maya-millennial.

The thing is, a lot of chains are better than their local competitors. Not all of them and not all the time. Chipotle is not the best Mexican food I have ever eaten (not even close), but I have eaten worse Mexican food at a lot of local shops. Chipotle imposes a quality minimum. Most Home Depots and big hardware stores are better than the smaller hardware stores. This pattern repeats.

That piece seems like a piece of perhaps slightly amusing product marketing analysis stretched too far into a sketchy class-historical analysis designed will totally make its "late-stage capitalism" mouthing audience go "So Totally Me".

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Why aren't there big plumbing companies? At both the low end (Amazon warehouse workers) and high end (lawyers), there are firms that employ thousands of workers. Is there something weird about middle tier jobs?

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I didn't make it through the paywall. Does "services" only mean "prepared food"?

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