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Saturday, 02 July 2022
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What the sale of McDonald’s in Russia symbolizes
Ian Black

Back in 1999, the New York Times columnist Thomas Friedman published an book entitled The Lexus and the Olive Tree: Understanding Globalization. The book included a theory called the Golden Arches Theory of Conflict Prevention; although slightly tongue-in-cheek, it stated: “No two countries that both have a McDonald's have ever fought a war against each other.”

 That impressively quotable sentence attracted a good deal of attention then as an insightful view of the post-Cold War world and the changing relationship between economic interests and political and strategic ones. Friedman supported that observation by writing that when a country has reached an stage of economic development where it has a middle-class strong enough to support a McDonald's network, it would become a "McDonald's country", and will not be interested in fighting wars anymore.

 The author’s main point was that, thanks to globalization, countries that have developed strong economic ties with one another have too much to lose to ever go to war with one another. No surprise then that when McDonald’s announced last week that it was selling its chain of 847 restaurants in Russia to the local billionaire Alexander Govor, I remembered Friedman’s quote.

 McDonald’s suspended operations in Russia on March 8, two weeks after Vladimir Putin’s widely-condemned invasion of Ukraine, which has 108 Big Mac outlets itself – itself an irrefutable contradiction of the Golden Arches theory. That news attracted a good deal of attention in western media coverage of the ongoing war and its devastating global repercussions.

 The opening of McDonald's first restaurant in Moscow in 1990 was among the first western consumer brands to enter Russia. Its large, gleaming store, which opened shortly after the fall of the Berlin Wall, signalled a new era of optimism in the wake of the Cold War. It became the symbol of glasnost in action and was the most prominent example of Soviet Union President Mikhail Gorbachev's attempt to open up his crumbling country to the outside world.

 More than three decades later, however, McDonald’s is one of a growing number of corporations pulling out. Starbucks, Coca-Cola and Pepsi have paused operations in Russia, as have consumer brands including Netflix, Levi’s, Burberry, Ikea and Unilever, the owner of Marmite and Ben & Jerry’s.

 Sanctions imposed on Russia because of the invasion have forced companies around the world to review their links with Russia. Sanctions have also banned American, EU or British companies to serve some of the biggest Russian businesses, including banks such as Sberbank, Gazprombank and VTB.

 But some western companies have opted to stay in Russia, arguing that they do not want to let down their staff or innocent shoppers, who need their groceries.  Procter & Gamble, an American consumer-goods giant, has stopped advertising in Russia but many of its brands remain available there.

 Last Monday McDonald’s said the humanitarian crisis caused by Russia’s invasion and the unpredictable operating environment meant continuing running restaurants in the country was “no longer tenable” or “consistent with McDonald’s values”.

 Its chief executive, Chris Kempczinski, said in a message to staff and suppliers: "This is a complicated issue that's without precedent and with profound consequences”, adding: "But it is impossible to ignore the humanitarian crisis caused by the war in Ukraine. And it is impossible to imagine the Golden Arches representing the same hope and promise that led us to enter the Russian market 32 years ago."

  Indeed. It really is the end of an era. “I was in the queue when the first Russian McDonald's opened on Moscow's Pushkin Square in January 1990 - way back in the USSR,” wrote the veteran BBC correspondent Steve Rosenberg. “There were so many people outside the restaurant, it took three hours to get inside. But what a sense of excitement. Those American burgers, fries and pies were a symbol of Moscow embracing the West. Hot food to help end a Cold War. These are very different times. Russia and the West have lost their appetite for one another.”

 Russians themselves were keen then to taste fast food. “We thought it probably tasted like freedom and we wanted to sample it,” reminisced one who did.

 Back in March lots of international companies announced they were pausing operations in Russia, hoping the situation would resolve itself and they could then reopen. Hundreds of international brands have left Russia or suspended sales there since the country invaded Ukraine. Other firms, including Burger King and Marks and Spencer, say they are unable to close stores due to complex franchise deals.

 From banks to breweries, many companies took financial risks to leave Russia amid the war. By early May roughly 1,000 international firms have curtailed their Russian operations since the outbreak of war. Many have reported significant forfeiture of assets; greater losses are expected in future.

 But the pressure to head for the exit mounts with every indiscriminate Putinesque assault on Ukraine and its besieged citizens. It would hardly a surprise if in the coming period we are going to see a lot more world-famous brands leaving Russia. And Friedman’s theory, of course, turned out to be nonsense.

 


BY: IAN BLACK