econlife - Throwback Thursday: When McDonald’s Went to Moscow (and Maybe Changed the World) by Elaine Schwartz

#TBT: Today’s Throwback Thursday was inspired by the rumor that McDonald’s could open in Pyongyang. It takes me back to 1990 when the first McDonald’s opened in Moscow.

Our story starts with five years of negotiations between McDonald’s and Soviet bureaucrats. One problem was the French fries. Approximately two inches long, Soviet potatoes were far too short to become a McDonald’s French fry.  The solution was to import the seeds from Holland so they could grow on Russian soil.

But there is much more…

Making the Moscow McDonald’s

Truckloads of potato, lettuce, and cucumber seeds had to be transported to local suppliers who were willing to meet McDonald’s specifications. To process it all, McDonald’s had to build a processing plant that could produce one million buns a week, 127,470 cheese slices, and equally large amounts of its other ingredients. They also needed a quality control laboratory and a distribution unit.

At the restaurant, 27,000 people applied for 630 jobs. Unlike typical Soviet sales personnel, employees were supposed to smile, to work efficiently, and treat customers with respect. The new managers attended Hamburger University in Illinois.

On that first day, January 31, 1990, they served a whopping 30,567 curious and excited people. In two kitchens, they prepared burgers, cheeseburgers, Big Macs, fries, shakes, drinks, and ice cream. A Big Mac cost 3 rubles and 75 kopeks–approximately one third of an average daily Soviet wage.

Do look at this two-minute video of the mind-boggling queue:

Our Bottom Line: A Positive Externality

In 1995, NY Times journalist Tom Friedman expressed his “Golden Arches Theory of Conflict Prevention.” Friedman explained that countries with a McDonald’s are high enough on the development ladder to afford a Big Mac. Because that burger connects them to the world economy, they have more to sacrifice during a conflict. So, they don’t fight wars against each other.

Yes, multiple wars prove Friedman was wrong. Still I would like to believe there is a glimmer of truth in the concept. An economist would call it a positive externality.

Returning to where we began, we can say that it’s not small fries when a McDonald’s opens in a country…And maybe one will open in North Korea.

My sources and more: A good starting point, The Washington Post Wonkblog alerted me to the North Korea McDonald’s rumor and linked to this NBC report. Next, you might enjoy pondering the 1995 Tom Friedman column and the Slate refutation.

Please note that my McDonald’s facts and some text came from my (favorite) textbook, Understanding Our Economy (available through econlife). Our featured image is from Adweek.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Six Facts: What We Need To Know About World Debt by Elaine Schwartz

If you want just one image of world debt, this is it:

But let’s look at some of the details…

Six Facts:

1. The world’s national governments have borrowed an estimated $63 trillion.

Governments usually borrow money by selling bonds to other governments, businesses (including banks), and individuals. Those bonds pay interest to their purchasers. How much interest? It depends on risk. The less likely a payback, the higher the interest rate.

2. Using size as a measure of debt, the U.S is #1.

The U.S. owes 31.8% of the $63 trillion that the world’s national governments have borrowed. Guilty of debt creep, what the U.S. owes has crept up from $6.9 trillion (54% of GDP) in 2001 to $20 trillion in 2017. Yes, we are talking nominal rather than real dollars but still the increase is considerable.

3. Using a debt to GDP ratio to measure world debt,  Japan is #1.

But for Japan, it’s not as worrisome as it sounds. At more than 90%, most of Japan’s debt is owned domestically.

4. The top five holders of the world debt owe 66% of the total

5. The world’s riskiest debt is from Venezuela.

Although this risky debt list used February 2016 data, it still is pretty accurate. You can see that Greece and Portugal had pretty high debt to GDP ratios. So it makes sense that they are in the orange top risk zone. Meanwhile, Japan, in green, is pretty low.

6. Africa’s national debt has also been growing.

This is some country data:

Our Bottom Line: Sovereign Debt

We’ve said that debt to GDP ratios are one way to judge whether a debt is healthy. That however is only the beginning. Next we need to ask if the country is developed or developing. Predictably, a developed nation can accommodate a higher ratio. Rather astoundingly though, at 239%, Japan’s debt to GDP ratio is gargantuan and yet our concern for Puerto Rico, closer to 65.9% (2015) is far greater. Then, we can also check to see if the country has a history of defaulting (like Greece) and whether its political institutions are strong enough to endure austerity.

My sources and more: The World Economic Forum and Visual Capitalist were ideal for the visuals and some analysis. Then for much more insightful analysis, I recommend Brookings for understanding African debt and Puerto Rico. But for a vast array of the most amazing infographics and maps, this Bank of America/Merrill Lynch Report is especially worth your time.

Several sentences in today’s “Bottom Line” were in a previous econlife post.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Why the Republicans and Democrats Are Like Coke and Pepsi by Elaine Schwartz

Asked to name two firms that dominate an industry, we could start with Coke and Pepsi.  Next, we could add FedEx and UPS, or Boeing and Airbus, or Visa and MasterCard. There is one pair though that we should have included but did not.

The Republicans and the Democrats.

Two-Firm Power

Harvard’s Michael Porter is famous for using “five forces” to judge businesses’ competitive power. Now he tells us that they also can apply to politics. Just like the firm, we need to assess the power of buyers and suppliers. We should see if new entrants and substitute products are a threat. And lastly, we have to consider the rivalry among competitors.

In politics, Dr. Porter sees the two major parties competing during elections and when they govern. Among their five “buyer” groups are the primary voters, the average voters, and the non-voters. However, the largest blocs of voters aren’t the most important. Instead, it’s the primary voters and then the donors and the special interests.

Similarly, on the supply side, the major participants have considerable money and power. They include TV, cable, newspapers, social media, and the people who directly contact voters. At the federal level, spending on “supply” for the 2016 two-year election cycle was close to $16 billion. It generated approximately 19,000 jobs for lobbyists, campaign workers, consultants, and other staffers. There were close to 1,000 organizations with consulting contracts.

Meanwhile, there is little competition from upstart entrants and substitutes. Since the Republicans in 1854, we’ve had no new major political party. The Progressives (1912) and the Reform Party (1992) came and went. The reason? Size, money, connections with suppliers, and a recognizable “brand” are formidable entry barriers.

The Results

As an industry, politics is big business. But unlike other successful big businesses, they’ve preserved their power by catering to the extremes rather than the vast center:

Consequently, bipartisan cooperation has declined:

Our Bottom Line: Duopoly

An economist would blame it all on duopoly. As a market structure whose two dominant participants have considerable power, duopoly is responsible for how Coke and Pepsi and the Democrats and Republicans behave.


You can see below that duopoly is close to monopoly on a competitive market structure continuum. Located to the far right, duopoly is on the less competitive end of the spectrum where the firm (or the party) takes power away from the market:

My sources and more: Thanks to Freakonomics for a timely alert to the 2017 Michael Porter and Katherine Gehl paper.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.