February 14, 1995

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The following scenario will demonstrate the principles: "Free" vs. "Fair" Trade.

.....

RESORT AMERICA

There is a long established, year-round vacation resort which was developed, over several decades, by a group of investors who first discovered this three hundred square mile territory.

The group invested millions and enlisted a large cadre of partners to create a self-sustaining business area for resident-workers and year-round visitors. After extensive toil and effort, this resort became the premier spot for work and play for a wide, social and economically, affluent clientele.

Because of the advanced and progressive development, many year-round investors and non-investors developed all types of businesses to cater to this popular and wealthy clientele. The original group collected fees and royalties from these business that used the resources of the resort. The investors and non-investors, alike, who lived year round at the resort, paid fees and royalties, to use the land owned by the original group. Some owned their homes and others rented group-owned homes.

They, who worked at the businesses and eateries in the resort, paid part of their incomes as franchise fees and royalties on the profits from their labor, as well as for business volume.

Some resort clientele also paid fees on their use of the land and an annual membership fee for use of the facilities.

*{The founding group of the resort had failed to provide that non-members pay more than dues-paying members for use of the resort's space and resources.}

After the resort became the most popular, the largest, and most successful resort in existence, due to its vast customer base, and its affluent clientele, concessions and vendors, who had been there first, were making good profits and produced most of the services and goods sold to, both, the year-round residents, the members and non-member patrons of the resort. The owners of the resort were prospering from the concession fees and royalty revenues generated by this popular operation. More money was coming in to the resort than they were spending for outside goods and services.

*{The Resort's Balance of Payment was positive. There was a Trade Surplus.}

Soon, most of the concession businesses were owned by a mix of members and non-members of the resort's founding group.

*{The Resort's founders had failed to provide that non-members be charged an over-ride for resources they used equally with members. The original members benefited when they sold their franchises, but the resort got no royalty for its on-going and current contributions to the non-member owner's welfare. Member-owners, who sold at a profit, petitioned for a reduction in any royalties they owed on the sales profits. They called any such fee an Excess Profits Tax.}

The many year-round tenants who worked the concessions were engaged in producing food, souvenirs and collectibles which were sold in great volume to the resort's clientele. These producers paid a royalty on the business volume produced from using the resort's resources and space.

* {The Resort's Balance of Trade was positive as the resort's own timber and minerals were used to produce these products and the resort group received income from royalties on those resources.}

The resort's clientele, which had been developed over many years, most of whom were members of long-standing, were the top income earners and spenders in the entire world, and where concentrated in this one, exclusive, resort area. Other outside vendors saw this large, affluent customer-base and were envious. They gradually infiltrated the resort area with their shops and souvenirs. They resorted to various devices to avoid paying the concession fees and imported employees who were not tenants or royalty-payers to the resort's owners.

This was soon reported to the membership, but they weren't too concerned as the prices at these non-franchised concessions were lower. Those shops, owned by those paying user fees for land, did not have to cover royalties on the volume these non-franchise shops generated.

*{The group of resort owners had failed to protect themselves by requiring royalties on all sales volume, no matter whether produced on the resort's property, or not. They had neglected to provide that the landowners pay the fees for non-franchise vendors who gained access to the resort's valuable clientele.}

Soon, the owner group received few royalties, as other non-members had bought the land, the non-paying businesses were using. The resort received only the land-use fees from the these non-member owners. These did not increase as much as did the royalties based on sales volume. The number of clientele was growing every year, as did sales volume.

In no time, the souvenirs and curios which were produced with resources from outside the resort, where no franchise fees or royalties were paid, outsold the products of the resort's tenants and owners. The resort filed dispossession writs on the non-franchise businesses to vacate the shops of the resort. The owners of the shops refused to pay their tenants' franchise fees and were not able to pay the royalty fees that were based on sales volume.

Clever people, the outside vendors closed their shops and fired the resort's labor force as they could produce the goods elsewhere, where the labor didn't have to pay the resort's royalties and land-use fees.
Some members saw it to their advantage to move their production outside the resort, as well. The owner group soon had tenants who were unable to pay royalty fees on their labor, nor land use fees for their cabins.
These tenants who, formerly, were creating the souvenirs and curios sold by fee-paying franchisees, had lost their businesses to the outside vendors who received the resort's advantages, at no cost.

*{The amount of money going outside the resort soon grew larger. The Balance of Payments began to show a reduced Trade Surplus.}

Outside vendors and their workers benefited from the resort owners' invested millions, over the years. The outside vendors paid no land-use fees nor royalties on their workers' labors.

Their workers did not spend their income at any of the resort's concessions.

*{The Trade Surplus soon disappeared and more money was going out from the resort than was coming in.}

Soon, the resort owners were borrowing money to support their facilities and activities. If they raised the fees on the resorts services and products, the money flowing out of the resort increased, as the clientele began to buy more of the goods produced outside the resort. Smart clients began to resist price increases with no real increase in benefits.

The member owners, who had started the resort, began to feel that the failures to protect their investments, forced them into an unfair and inequitable situation.

***

What would you do if you were the original founders?

Money Talks.

Bob$$$