Today, Explained - McMoscow

Episode Date: July 25, 2022

The 1990 opening of a McDonald's in Russia heralded not just burgers and fries but, get this, a new era of peace and prosperity. The Economist’s Patrick Foulis explains how the promises of globaliza...tion never entirely materialized. This episode was produced by Avishay Artsy, edited by Matt Collette, fact-checked by Laura Bullard with help from Victoria Dominguez, engineered by Paul Mounsey, and hosted by Noel King. Transcript at vox.com/todayexplained   Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

Transcript
Discussion (0)
Starting point is 00:00:00 Today, finally, McDonald's threw open the doors to its first restaurant in Moscow. And make no mistake, this was an event of major gastronomic proportions. If you'd been watching the news that January day in 1990, you might have wondered why everyone was being so extra about a Mickey D's. A feast in the time of plague. The words of Alexander Pushkin, Russia's greatest poet. On the square that bears his name and statue, Pushkin now contemplates McDonald's. This was the start of a new era of globalization.
Starting point is 00:00:32 American brands and culture would soon be found all over the world, and products from China and Mexico would become ubiquitous in the U.S. This was how we lived for 30 years. Then in February, with global supply chains already shattered by the pandemic, Russia invaded Ukraine and McDonald's decided it had had enough. Coming up on Today Explained, what McDonald's exit West tells us about the future of globalization. Get groceries delivered across the GTA from Real Canadian Superstore with PC Express. Shop online for super prices and super savings.
Starting point is 00:01:07 Try it today and get up to $75 in PC Optimum Points. Visit superstore.ca to get started. It's Today Explained. I'm Noelle King. McDonald's was in Russia because of globalization. The flow of people and money and ideas and stuff all around the world. It's meant to be a good thing. Your country produces the things that it's best at producing and exports them, and it imports what it can't make cheaply. And then came the pandemic and Russia's war in Ukraine, both of which have some very smart people asking, is globalization changing?
Starting point is 00:01:45 We were really keen to come up with a new word that captured the idea. And I literally spent about five hours, as have several people, desperately scrambling to come up with some sort of single word. And I'm afraid we actually failed. I'm sorry to tell you. Patrick Fowles is business affairs editor at The Economist, the OG pro-free trade publication. Patrick, there is a long history. You know, if you go back a long time, there was a burst of globalization before the First World War. So in the late 19th century and early 20th century and then the first world war and second world war really exploded that world completely and in the ruins of the world in 1945 there was an attempt to rebuild
Starting point is 00:02:34 connections between countries and most of that to be honest happened between rich western countries the big event really happened after the fall of the Berlin Wall and the collapse of the Soviet Union. Mr. Gorbachev teared down this wall. And in the 1990s, you saw what some people call hyper-globalization begin. And that's when countries all around the world begin to become more connected, when Russia, China, India open up their economies and try and connect more with the West. China's economy has grown faster than that of any other major country, a true heavyweight in international trade.
Starting point is 00:03:17 And for some time, really for the 1990s and much of the 2010s, that system was really very successful, integrating ever more closely, and in effect, being something of a global boom. There was a moment when all of a sudden, I and millions of other people became aware that everything I bought had a Made in China sticker on it. And I wonder, which countries became most economically dependent or most integrated with each other? Typically, it's countries with their next-door neighbors. So America, you know, it's Canada, Mexico. If you're in Europe, it'll be with Germany, France, Italy, Britain, etc. So those connections are still the strongest. But the big thing that's different is there are long distance relationships between the
Starting point is 00:04:12 West and Asian manufacturing countries, particularly between the US and China, with China obviously making a lot of stuff, and America buying that stuff. What were the links at that point? Let's say starting in the 90s, when you talk about globalization going into hyperdrive, the Berlin Wall coming down, what were the economic links between the United States and Russia? There was some trade in energy, pretty limited, but you'd be staggered by how small the connections were.
Starting point is 00:04:41 I mean, obviously there were diplomatic links, but really the level of economic connections were minus I mean, obviously, there were diplomatic links, but really the level of economic connections were minuscule. You had maybe one or two, a handful of Western consumer brands with a tiny presence in Russia. What did it mean for McDonald's to open up in Moscow in 1990? Why did everyone make such a big deal out of that? Well, I suppose McDonald's represents, in a way, everything the Russian communists hated, right? Huh. Muscovites are used to queuing up for something to eat. The difference at McDonald's is they promise there'll be something left when you get to the head of the line.
Starting point is 00:05:16 It's kind of junk food. It's easy. It's very homogenous. It kind of represents a particular part of America. It seems simultaneously trashier and better than whatever food they had locally. So it's a sort of a bit of a kind of love-hate relationship, which I think we probably all have with McDonald's. I don't like it at all, he says. It's not Russian. It's very beautiful, but I expected more, I think.
Starting point is 00:05:45 So for it to open up at the heart of Moscow, where Stalin and Lenin had worked not that far away, was a really huge symbolic moment. It's a cultural milestone because we suspect the Soviets are about to learn what Westerners have known for years, that political systems come, political systems go, but junk food is forever. And I should add, it's still true now
Starting point is 00:06:10 that when McDonald's opens or spreads in a country, it's very much a sort of symbol of it becoming more integrated, and even now. In fact, to your point, the writer Thomas Friedman had this thing called the Golden Arches Theory of Conflict Prevention in the 90s. And the idea was no two countries that both have a McDonald's have ever fought a war against each other. Yeah, I mean, behind his observation is kind of a really serious point. Essentially,
Starting point is 00:06:38 it's that when countries are linked economically, when people have more contact with each other, when people's jobs depend on what happens in another country, when your savings and investments are partly reliant on something happening in another country. When those connections are tighter, this theory went, the odds of conflict go down, that people have a bigger stake in keeping things peaceful, keeping things stable. Now, there are many examples of this being true in history, but obviously there are many examples of it not being true. But I think what Thomas Friedman was arguing is in the 1990s, after decades of a Cold War and huge geopolitical tensions, a new, more promising era was opening up where you had America as the dominant power, the policemen of the world, and the prospect of everyone getting
Starting point is 00:07:34 richer and more prosperous through trading and getting more economically connected. And wasn't there also an idea, Patrick, that as countries got richer and more open and more integrated, they would also get freer? There would be more world democracies. Yes. And if you read or study the people who were running the Soviet Union as it collapsed and tried to sort of see the future of that country in the very early 1990s, I mean, they really did, many of them believe, it would become like Europe, like America. And similarly, when China began to open up, certainly a big chunk of people felt the ultimate direction was not just that it would embrace McDonald's and Starbucks and buy German cars and drink French wine, but that there would be political reform as well, that capitalism and democracy,
Starting point is 00:08:30 or at least a more liberal political culture, went hand in hand. When you believe in magic, only one can do it. I believe in magic. I believe in you. When you believe in magic. In fact, one writer famously called it the end of history, you know, when everyone wanted to be capitalist and democratic. The brilliant young American political scientist Francis Fukuyama
Starting point is 00:08:56 argued that the end of communism might presage what he called the end of history. He added a question mark in the original version. And then comes February of this year, and Russia invades Ukraine. And among other global brands, McDonald's says, we are leaving Russia. It's a wrap for McDonald's in Russia. After 30 years, the company will be shutting its doors because of the Russia-Ukraine conflict. Is that moment in 2022 symbolic or significant, or is it both? I think it's both. I mean, it really sort of captures how things have changed. And, you know, what's happened in Russia is Western countries have left either because the sanctions
Starting point is 00:09:41 imposed by Europe and America have forced them to leave, or they've voluntarily left because they think it's immoral or the customers in the West will not forgive them. So in the case of McDonald's, a local firm has taken over the first original McDonald's branch in Moscow and reopened it under the name Tasty and That's It, and essentially is now sort of operating it independently. The customers we spoke to were loving it. Russians can do fast food just as well, Raviel tells me. And as for Western sanctions and global brands leaving Russia, we are very tough people. You can't scare us. So yes, I think it is a really big symbolic moment when McDonald's leaves Moscow, just as it was when it arrived in Moscow.
Starting point is 00:10:29 Right. And the owners of Tasty and That's It decided they didn't need to be McDonald's. Russia has hamburger meat, it has potatoes, it has chicken. What was that telling us about globalization? Well, I think you'll find is that a lot of what McDonald's buys is bought locally anyway. So, you know, really what's global about McDonald's is the brand, the standards, the quality control, the menu innovations, and the training of the staff and so on. So, can you do without that, I guess, is the question you're asking. I think probably you'll find that in five or 10 years, the Russian clone of McDonald's is
Starting point is 00:11:12 awful compared to McDonald's itself. So, you know, we can all probably with some help from our friends, you know, run a restaurant for a week without everything collapsing. But if we have to run a restaurant empire for a decade, that's when the difference between, you know, run a restaurant for a week without everything collapsing. But if we have to run a restaurant empire for a decade, that's when the difference between, you know, the leading company in the world at doing that and the local pretenders will become very clear, would be my prediction. I think your prediction is right. I was reading that Tasty and That's It ran out of potatoes because of supply chain issues. And then the buns got moldy and customers were trying to take pictures of the buns and then they banned the customers from taking pictures. So like the dream of globalization bringing freedom in the case of Russia, it did not come true.
Starting point is 00:11:58 Yeah, I mean, it may be the promise of McDonald's in Russia did come true in the sense they had a good product that people liked. But the wider political sort of symbolism of their arrival has obviously gone horribly wrong with Russia going in a very, very different direction from what people hoped it would do in the early 1990s. Coming up on Today Explained, so are we not doing globalization anymore? Support for Today Explained comes from Aura. Aura believes that sharing pictures is a great way to keep up with family. And Aura says it's never been easier thanks to their digital picture frames. They were named the number one digital photo frame by Wirecutter. Aura frames make it easy to share unlimited photos and videos directly from your phone to the frame.
Starting point is 00:12:54 When you give an Aura frame as a gift, you can personalize it, you can preload it with a thoughtful message, maybe your favorite photos. Our colleague Andrew tried an Aura frame for himself. So setup was super simple. In my case, we were celebrating my grandmother's birthday. And she's very fortunate. She's got 10 grandkids. And so we wanted to surprise her with the AuraFrame. And because she's a little bit older, it was just easier for us to source all the images together
Starting point is 00:13:22 and have them uploaded to the frame itself. And because we're all connected over text message, it was just so easy to send a link to everybody. You can save on the perfect gift by visiting AuraFrames.com to get $35 off Aura's best-selling Carvermat frames with promo code EXPLAINED at checkout. That's A-U-R-A-Frames.com promo code EXPLAINED. This deal is exclusive to listeners and available just in time for the holidays. Terms and conditions do apply. Bet MGM, authorized gaming partner of the NBA, has your back all season long. From tip-off to the final buzzer, you're always taken care of with a sportsbook born in Vegas.
Starting point is 00:14:04 That's a feeling you can only get with BetMGM. And no matter your team, your favorite player, or your style, there's something every NBA fan will love about BetMGM. Download the app today and discover why BetMGM is your basketball home for the season.
Starting point is 00:14:20 Raise your game to the next level this year with BetMGM, a sportsbook worth a slam dunk, an authorized gaming partner of the NBA. BetMGM.com for terms and conditions. Must be 19 years of age or older to wager. Ontario only. Please play responsibly. If you have any questions or concerns about your gambling or someone close to you, please contact Connex Ontario at 1-866-531-2600 to speak to an advisor free of charge. BetMGM operates pursuant to an operating agreement with iGaming Ontario.
Starting point is 00:14:54 The whole world is watching! The whole world is watching! It's Today Explained. Patrick Fowles of The Economist. I have a very specific memory from 1999. There were protests in Seattle and I was a teenager and I did not really know what was going on. But what I heard over and over and over again was that people in Seattle were really angry about globalization. When did the pushback start? One of the things to remember about globalization is it implies change and disruption, right? And if you think about Bill Clinton's presidency, you know, in the 1990s, a lot of what his political project was, was to reassure ordinary working people that they could cope with this new world, that it wouldn't see them lose their jobs, get
Starting point is 00:15:38 poorer due to foreign competition. Good jobs, rewarding careers, broadened horizons for the middle class Americans can only be secured by expanding exports and global growth. So I think the seeds of some of the mistrust and concern were then. There were these big protest movements by the late 1990s, but really things didn't, in terms of the backlash, get full momentum, I think, until China began to be a really big presence, which was after it joined the World Trade Organization in 2001. And that's when the scale of China's trade and exports really gets significantly bigger. By adding China to the WTO, we strengthen the organization by further integrating China's 1.2 billion people and $1 trillion economy into the world market network.
Starting point is 00:16:32 And then in almost every country, the concern arising that jobs would be lost to factories and manufacturing companies in China. And there was something to their worry, wasn't there? The evidence very clearly is that globalization is incredibly powerful in terms of reducing poverty and improving the world. And that's because lots of very poor countries and middling countries get the chance to integrate with richer economies to trade, to develop. But the cost is that there are clusters of people who, particularly in the West, see their jobs destroyed. The numbers are clear. The U.S. government has certified that at least 700,000 Americans have lost their jobs due to changing trade flows resulting from
Starting point is 00:17:29 NAFTA. And originally, economists and politicians sort of said, well, you know, those people who lose their jobs, they'll find different jobs because the economy will change. You know, so for example, in the US, there's less manufacturing. On the other hand, tech and health care are much bigger than they used to be. The total number of jobs has gone up. So what's the problem? But actually, what we've discovered is if you live in one of those forgotten places, it's very, very difficult to escape. And that created pockets of deep anger and resentment across the West. The world is not for sale! The world is not for sale! deep anger and resentment across the West.
Starting point is 00:18:12 Right. And then in 2008, the word global was everywhere again because of the global financial crisis. Did any countries start to unintegrate to say maybe globalization is not all it's cracked up to be? Let's do some of this stuff at home. Yeah, I mean, we've we've looked at this at The Economist and we've used the term slowbilization to describe what happened. And that's when you began to see the level of corporate globalization slow down really sharply. And then on the political side, you have figures like Donald Trump and Boris Johnson, who seem to be speaking directly to people who've been hurt by globalization and winning them over. And that didn't really get to primetime until, of course, you had Brexit in Britain.
Starting point is 00:18:53 We want our country back. We don't want it run by the EU, which are, in my eyes, very corrupt and sort of like a dictatorship. And the election of Donald Trump. The future does not belong to globalists. The future belongs to patriots. And then we had the pandemic, and then we had Russia's war in Ukraine.
Starting point is 00:19:18 Well, if you look at the last few years, there's been three shocks. So one is the pandemic, which has caused chaos in supply chains. And, you know, we've all experienced empty supermarket shelves, the costs of things going up, big delays in buying stuff. The other is China. So China has decisively turned away
Starting point is 00:19:40 from political liberalisation and is now in the hands of a clearly autocratic and illiberal, and in some ways, dangerous political regime. And then the last thing is the war in Ukraine. So all of that, those three sort of shocks of the last few years, I think have finally tipped most companies over the edge. So these supply chain shocks, we think, have knocked about 1% off global GDP. That's a really, really big number. To my mind, after a decade of slow globalization, we're now in a totally different phase where companies are actively seeking to redesign how their supply chains work.
Starting point is 00:20:24 A really good example is Intel. That's Intel, the computer inside. If you go back, Intel, before the 1990s, was kind of an all-American company that made semiconductors, the chips inside devices, and it was pretty US-centric. And then in the age of hyper-globalization, it began to outsource a lot of production to Asia, particularly Taiwan. In 1990, 80% of semiconductors were built in US and Europe.
Starting point is 00:20:58 Today, 80% in Asia. And now what's happened is Intel says it wants to bring it home and it's redesigning how it works and building these huge factories in America, actually also in Europe. And the whole idea is to reduce the reliance on Asia, China, Taiwan, where the geopolitical risks are high and bring supply chains closer to home where they're more reliable and safe, or at least this is the claim. And the amounts of money Intel is spending are jaw-dropping. Intel is going to be investing billions of dollars in a pair of new plants for chips in Ohio. The other area, just to mention quickly, is energy. So the war where Vladimir Putin has
Starting point is 00:21:48 used the threat of cutting off Europe from energy as a weapon, I think has decisively changed attitudes in Europe. And there's now a huge scramble to try and shut down reliance on Russia. The real problem is like, where else do you go? And in the short term, Europe's having to pay much more to buy, for example, gas from the Middle East. But the long run hope here is that as the world shifts to renewable power, solar, hydro and wind, that some of these problems begin to fade away because in most cases that renewable energy will be created and generated at home, lowering the dependence countries have on hostile energy supplies. I wonder if you can do a thought experiment for me. So in 10 years, if the world continues with its skepticism of globalization and begins to pull back a little bit or a lot.
Starting point is 00:22:46 What might my ordinary American life look like? How might it be different than it is today? Yeah, I mean, I think there are kind of two different parts. One is there's a kind of rational adjustment to deal with some of the problems we've been talking about, which probably means that the pattern of globalisation is more regional, that the links with really nasty regimes are smaller. But in essence, the world stays open. The worst case scenario is obviously that the world begins to break those economic links. And as in the 1930s, that that intensifies political tensions around the world and actually leads to a war particularly with the us china i think that is a possibility
Starting point is 00:23:35 but you know you just take the idea of america kind of cutting itself off more from the world doing more at home you know superficially I think um that might be comforting you buy American brands there's less competition you know the world is more familiar but I think ultimately it's far less attractive and that's because there'd be less choice it would be more expensive i think it would be more boring you know you have less a flow of ideas and weird things and original things and cool new things and inventions and flows of people to a kind of blander safer possibly but more expensive and more uniform world. And in a way, you kind of, in some respects, be going back to the 50s, 60s,
Starting point is 00:24:31 where I think you probably, in America, had a more secure social contract. That is, particularly if you were a white worker at a well-known company. But in other ways, it was a much more kind of sale of one-dimensional world, I think. The optimistic view is we go from maximum globalisation to three-quarters globalisation and some of the excesses, problems, risks, dangers are dealt with. But some underlying connectivity that links economies and people around the world is still there and not going to retreat any further.
Starting point is 00:25:22 Today's show was produced by Avishai Artsy and edited by Matthew Collette. It was fact-checked by Laura Bullard and Tori Dominguez, and it was engineered by Paul Mouncey. I'm Noelle King. It's Today Explained. Thank you.

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.