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McDonalds on Pushkin Square: From Joint Venture to Foreign Subsidiary and from Communism to Capitalism, 1990-1999

Kristy Ironside

The epically long line to get into the first McDonald’s restaurant in Moscow is one of the most

enduring images associated with the Soviet Union’s collapse and Russia’s transition from communism to capitalism.1 What is often forgotten is that this scene occurred not in the fateful year of 1991, but on January 31, 1990, almost two years before the Soviet Union was swept into the dustbin of history. It was the culmination of over a decade of persistence on the part of McDonald’s executive George Cohon, who made it his personal mission to introduce the quintessentially American and capitalist fast-food chain to the communist world. It was also the result of changing attitudes on the part of Soviet authorities, who were now more eager to work with, not against, capitalism. What is also often forgotten is that the first McDonald’s in Moscow was not a branch of the parent company in Elk Grove, Illinois, but a “joint venture” (sovmestitel’noe predpriatie) between its foreign subsidiary McDonald’s Canada and the Moscow city soviet—an arrangement that was facilitated by liberalizing economic reforms under Mikhail Gorbachev. One of the few joint ventures that survived the collapse of communism and Russia’s economically disastrous 1990s, McDonald’s on Pushkin Square remains at the center of the Golden Arches’ profitable network of restaurants across Russia to the present day.

Though widely discussed in journalistic accounts, McDonald’s expansion into Russia has scarcely been touched by scholars, least of all by historians. Management scholars and economists, mostly commenting as contemporary observers in the early 1990s, focused on McDonald’s myriad difficulties entering the Soviet market and staying there in Russia’s volatile first post-communist decade. They tend to depict Cohon and McDonald’s in positive terms, contending with the Soviet Union’s formidable bureaucracy and bringing American business and managerial savvy to implicitly ‘backward’ Russia.2 In his study of privatization, economist Marshall Goldman portrays McDonald’s as a rare example of a foreign business prospering in “a ubiquitous culture of deceit and corruption.”3 Anthropologists have given McDonald’s more sustained attention, in particular Melissa L. Caldwell,

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who has looked at both the company’s and Russian customers’ attempts to “domesticate” its products amid Russia’s increasing integration into Western culture and the global economy.4

This paper, by contrast, constitutes a first stab at historicizing McDonald’s presence in Russia, looking at how and why McDonalds became one of the most successful and prominent examples of foreign economic cooperation during perestroika and into the 1990s. In doing so, it aims to shed light on the expectations placed upon, and anxieties associated with, international economic cooperation at this critical juncture. Following legislation enacted in 1987, joint ventures paired Soviet and international partners in a purportedly mutually beneficially enterprise, among the last-ditch innovations Mikhail Gorbachev introduced to save the rapidly disintegrating Soviet economy. Foreign investors gained access to what was widely believed to be a vast, lucrative, untapped market on the other side of the Iron Curtain, as well as embedded local contacts and access to property and other resources; Soviet firms gained access to Western technology, production and management techniques, and perhaps most important: hard currency. For both Soviet and Western partners, joint ventures anticipated ruble convertibility and the Soviet Union’s fuller integration into the world economy.

McDonalds was uniquely poised to succeed in this venture, as this paper shows. First, George Cohon invested enormously into this project, cultivating relationships with Soviet/Russian officials, and pouring labor and money into what, for a long time, was an extremely uncertain outcome. Second, despite often being accused of cultural imperialism, McDonalds carefully constructed itself as a local actor and fostered good relations with local employees and producers, a strategy that was not specific to its entry to the Soviet/Russian market, but which served it especially well in this context.5 Third, as a huge, wealthy, multinational firm, McDonald’s could endure the wait for currency convertibility faced by all Western partners of joint ventures. Setting up shop in the Soviet Union was a gamble that its economy would open up, but some firms needed that gamble to pay off sooner rather than later. McDonald’s could afford to be in the latter category, and, in the meantime, it reinvested its ruble profits in ways that gave it a first-mover advantage when the country abruptly transitioned to capitalism in the early 1990s. As Russia’s economic problems multiplied during the remainder of that decade, anti-Western sentiment exploded, and McDonalds became a potent symbol of the country’s diminished status. Yet McDonald’s continued (indeed, continues) to enjoy a strong position in the post-Soviet Russian economy, in large part, because of how it entered in the first place.

George Cohon’s “Insane” Dream

As Goldman writes, the story of McDonald’s in Russia is “quite a story, and it is very much tied up with the persistence of one man, George Cohon.”6 Cohon, originally a lawyer in Chicago and a personal friend of McDonald’s founder Ray Kroc, gave up his law practice in 1967, moved to Toronto, and oversaw the opening of the first McDonalds in London, Ontario as the licensee for Eastern Canada, after which Kroc immediately bought back the franchise. Cohon continued to oversee McDonald’s expansion across Canada, becoming the Chairman, President, and Chief Executive Officer of McDonald’s Restaurants of Canada, a position he held until 1992. In 1976, McDonalds became an official sponsor for the summer Olympics held that year in Montreal. Ahead of the games, Cohon received a phone call from the Canadian Ministry of Foreign Affairs, asking if they could borrow the custom-made bus McDonalds used for charity events to shepherd around a group of Soviet officials who were observing the games in Montreal ahead of Moscow hosting its own Olympics in the summer of 1980. Cohon let them use it, but not without getting something in return: he used the opportunity to meet the Soviet delegates, take them to McDonalds for a snack, and pitch an idea: could they see a McDonalds opening in Russia? The Soviet delegates were receptive.7

In his memoirs, Cohon explains his desire to expand into Soviet Russia as part whim and part good business sense: Moscow’s population was 35% that of Canada’s as a whole, and Canada already had 300 McDonalds in operation by the late 1970s. It was a market that was “just too big to pass up.”

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His instincts were that it would be “one of the most profitable parts of the McDonalds world.”8 At the same time, he acknowledged that the project would not earn the company any profit in the short term but, “in fact, we had to think of it as an elaborate and possibly costly R & D [research and development] project. It was a chance for us to impress upon the Soviets what McDonald’s was and what kind of a contribution we could make.”9

After the Olympic games ended, Cohon pitched the idea to Alexander Yakovlev, the future architect of perestroika, then the Soviet Union’s ambassador to Canada, purportedly sent there “into exile” because of his too-liberal ideas and too-positive attitudes toward capitalism.10 Cohon told Yakovlev that he wanted a McDonalds stand at the Moscow games in 1980 and, when it was over, to keep a McDonalds open there. As Yakovlev entertained Cohon’s pitch, he “stayed impassive” because “anyone who was familiar with the stagnation of Brezhnev’s USSR would have realized this man’s dream was insane.”11 There were no privately owned businesses in the Soviet Union because capitalism was the enemy, and, as it expanded dramatically in the 1970s, McDonalds was rapidly becoming the epitome of capitalism.12 Yet, the Soviet official was intrigued by Cohon’s proposition and by the businessman, himself. In his memoirs, Yakovlev described Cohon as a “wonderful person and entrepreneur, very well-disposed toward our country.”13 Yakovlev promised to help, writing that he “understood all the difficulties this experiment would necessarily entail but, all the same, I sent some telegrams to Moscow.”14

Setting aside Cohon’s tenacity and Yakovlev’s liberal vision, there were other reasons why McDonalds might succeed in the Soviet context. The Bolsheviks had long been attracted to the idea of fast food. After the October revolution, public canteens were supposed to replace home cooking, freeing up workers’ labor, especially that of women; though this never worked out as planned, the Soviets remained attached to the idea.15 After a 1936 fact-finding trip to America to study its mass production methods, Stalin-era Minister of Trade Anastas Mikoyan imported technology to produce fast-food staples like ground meat and ketchup.16 Under the banner of his campaign to raise living standards and achieve consumer abundance, Nikita Khrushchev eagerly promoted the production of convenience food beginning in the late 1950s; Soviet officials began learning about American fast food, observing manufacturing processes, and purchasing equipment in the United States and other industrialized countries to that end.17 In 1959, Pepsi got a booth at the American National Exhibit in Moscow and, at the urging of one of Pepsi’s executives, Richard Nixon encouraged Khrushchev to give it a try. In 1972, it became the monopoly supplier of cola syrup to the Soviet Union.18

Cohon needed to do more than convince Yakovlev or whet Soviet consumers’ appetites; he needed to convince more skeptical officials in Moscow. Beginning in 1976, he made the first of dozens of trips to Moscow to lobby Party officials; Yakovlev also played a key role here, arranging meetings with the relevant personnel.19 In Moscow, Cohon met with “a constantly changing line-up of negotiators and advisers” including representatives of the Soviet Olympic organizing committee, the Moscow city soviet, and Executive Committee. They signed many protocols, that is, “agreements to meet again to try to reach an agreement” that often seemed important but accomplished little in reality. They eventually signed a protocol on establishing a fast-food service restaurant on the territory of Luzhniki stadium, where the Olympics would take place.20 Meetings were frequently cancelled at the last minute, and, as Cohon writes, “we were not taken to be the representatives of a celebrated, worldwide corporation. Rather we were all too often dealt with like irritatingly persistent gnats.”21

By the late fall of 1979, they had not yet signed an official agreement, but negotiations still seemed promising; finally, Cohon recalls, they “shook hands” and the Soviet representatives assured him it was just a question of translating and typing up the agreement, which would take only a few more days.22 Seventeen days later he was summoned to Koval’s office and told that the deal was off. Yakovlev later told Cohon that the refusal had “come from high up,” probably from the chairman of the Executive Committee of the Moscow Council of People’s Deputies. In his memoirs, Yakovlev

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recalls that top Soviet officials were divided on the plan: “The chairman of the Moscow soviet executive committee was for it. He was supported by the Chairman of Sovmin [Aleksei] Kosygin, but half-heartedly. Grishin was against it—he was the Party leader in Moscow, and he was supported by [Mikhail] Suslov.”23 In other words, the deal was nixed by Party hardliners.

Although Cohon had to answer to his bosses in the United States—he had spent millions on a losing bet—this rejection turned out to be a blessing in disguise. When the Soviet Union invaded Afghanistan a few weeks later, the United States and dozens of other countries boycotted the Olympic games in protest. McDonald’s presence there would have been a public relations disaster. Cohon called it “the best deal I never made.”24 Yakovlev advised Cohon not to give up and to have “patience,” assuring him that, “our country was changing, even if I wasn’t entirely sure of it myself.”25 Cohon continued to travel to Moscow and negotiate with the Soviets into the 1980s, and Yakovlev continued to give him tips. They held out hope that the government would eventually change its mind—which it did, but not before major changes in its thinking about the benefits of the kind of economic cooperation Cohon and Yakovlev had in mind.

The 1987 Law on Joint Ventures In 1985, Mikhail Gorbachev was made General Secretary of the Communist Party, and, upon ascending to power, he openly admitted that the Soviet economy was in crisis: growth had slowed to virtually zero, widespread cynicism and apathy had settled over the Soviet workforce, and many industries were only kept afloat by costly subsidies. Over the next several years, he announced a series of economic reforms intended to revitalize it, including wage reforms and an anti-alcohol campaign aimed at boosting productivity. He also allowed for market mechanisms that created a mixed economy in the Soviet Union for the first time since the New Economic Policy (NEP) was abolished by Stalin in 1928. Under the banner of this mixed economy, Gorbachev wanted to build more productive trade relationships with the outside world, including joint ventures.

These were admittedly not a new idea. The Soviet economy is often described “autarkic,” cut off from world trade and the global economy by design; however, as Oscar Sanchez-Sibony has shown, Soviet authorities were, in fact, heavily invested in developing foreign trade.26 During the NEP, the Soviet government offered concessions to foreign investors to establish private, mixed, and joint-stock enterprises to help the devastated post-Civil War economy recover; however, these failed amid ideological anxieties about a rapprochement with private property and because their terms were not especially attractive.27 Later, the Soviet government signed a number of “cooperation agreements,” including the already-mentioned Pepsi deal and the 1966 agreement between the Soviet government and the Italian car manufacturer Fiat to build an automotive factory in symbolically located in the town of Togliatti, named after the Italian communist.28

Around 1986, George Cohon and his team began “picking up reports that the Soviets were about to authorize joint ventures” and, thereafter, the government agencies that would likely be touched by these new ideas became the focus of their lobbying efforts.29 They zeroed in on the Main Administration of Socialized Eating (Glavnoe upravlenie obshchestvennogo pitaniia, Glavobshchepit) the institution that was responsible for public eateries in Moscow, and its head, Vladimir Malyshkov. Malyshkov would eventually become the chairman of the Moscow side of the joint venture; in the meantime, however, Cohon, his Moscow partners, and McDonalds Canada had to wait for official authorization to proceed. On January 13, 1987, the Supreme Soviet adopted the law “On procedure for the establishment and operation of joint ventures in the USSR involving Soviet organizations and firms from Western and developing countries,” which outlined how a joint enterprise was to be created.30 McDonalds was one of the very first joint ventures to be formed: the agreement was signed on April 29, 1987, and its joint venture with the Moscow city soviet was registered the following year.

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The joint venture was attractive for the Soviet government because it allowed it to not only retain a controlling stake in the company, but to benefit from Western managerial and production expertise. Each joint venture was to be financially self-sufficient, relying upon no funding from the central budget—important at time when subsidized enterprises were virtually bankrupting it. To that end, the joint venture was required to create a ‘reserve fund’ (reservnyi fond), which would be deducted from its profits until it reached 25% of its foundational or “charter” fund, which remained in the State Bank. Profits were to be divided according to the partners’ shares in the enterprise, with Soviet enterprises maintaining a dominant stake. Although joint ventures were to be exempt from paying tax for two years, thereafter they were expected to pay a tax of 30% on profits after deductions to the reserve fund and other funds intended for developing production, science, and technology.” Any profits that were transferred abroad would be additionally taxed at a rate of 20% in the absence of a tax treaty between the foreign partner’s home country and the Soviet Union, incentivizing those funds remaining in the Soviet Union.31

From Western firms’ perspective, the joint venture was attractive because the Soviet Union, with its large population and inexpensive labor force, was increasingly seen as a lucrative market to expand into in the long term, even if was not a source of substantial short-term profits. The ruble’s non-convertibility had long hampered the Soviets’ foreign trade ties, forcing foreign partners to turn to creative solutions, including barter: Pepsi traded cola syrup for tomato paste, which it used on Pizza Hut pizzas in Western Europe, for Stolichnaya vodka, and, later, armored war ships.32 It remained non-convertible during perestroika. Even Soviet commentators acknowledged that the ruble’s non-convertibility was a problem. It disadvantaged the Soviet Union vis-à-vis other socialist countries, such as Hungary and Bulgaria, who did not have the 49% shareholder rule for their own joint ventures, nor was it as difficult to get profits out of these countries, and it disadvantaged them vis-à-vis China, where it was now possible to set up businesses entirely owned by foreigners—the Soviet investment climate, journalist Fyodor Lukyanov noted, was at best “lukewarm” (umerennyi).33 Foreign partners of joint ventures thus had to be patient. “Companies moving into the Soviet economy must accept that they are betting on the eventual success of what perestroika has unleashed, a liberal market revolution that will span a generation,” one contemporary foreign analyst argued. “For most companies, it would be futile to pursue quick profits and then look to repatriate them in hard currency. Rather, global companies ought to make contingency plans to grow and grow in the Soviet economy, to absorb and to teach suppliers, as though rubles and ruble-backed assets will someday be worth owning.”34

Though they retained the controlling share, local Soviet partners were essential to a joint venture’s success because they brought knowledge, contacts, and access to scarce resources to the table. The process of entering the Soviet Russian market as an outsider was extremely complicated, to say the least. Negotiations were typically long and arduous. According to Keith A. Rosten, an attorney who studied and consulted on many Soviet-American joint ventures, the average time between finding a partner and simply registering the joint venture was one year: four months to find a partner, six months of negotiations, and two months for the registration process.35 On December 2, 1988, the Council of Ministers issued a decree simplifying the procedures for establishing a joint venture, including eliminating the necessity of obtaining multiple approvals from various ministries and allowing joint ventures to maintain their own freely convertible currency, in an effort to encourage more exports.36 Yet, even these simplified procedures were enough to discourage less persistent firms and investors than McDonalds and George Cohon—many joint ventures, in fact, never made it beyond the registration phase.37 Setting up Shop in Soviet Russia

Once bureaucratic hurdles had been cleared, joint ventures still had their work cut out for them. Soviet supply chains were notoriously plagued with shortages and bottlenecks, meaning that

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many products would have to be imported or joint ventures would face the same disruptive supply issues Soviet firms did. Early on, Cohon rejected the idea of importing everything to Russia as “clumsy,” and instead focused on finding most of what was needed inside the Soviet Union and could be bought with rubles.38 Instead of importing potatoes, McDonalds imported Russet Burbank potato seeds (Russian potatoes were too small for American-style French fries) and they trained Soviet collective farmers in how to increase their yields and properly store and transport products. Some items had to be imported and paid for in hard currency, like plates and cups; others were imported from fraternal socialist countries like Bulgaria, which accepted payment in rubles.39

Alongside a shortage of supplies, joint ventures also faced a shortage of qualified staff, especially of executive personnel. Under the law, the head of the company had to be a Soviet citizen—as already mentioned, that was the head of Glavobshchepit, Vladimir Malyshkov. Manual labor was not in short supply. Indeed, after it ran a single ad in a Moscow newspaper in 1989, McDonald’s received 30,000 applications, many of them from university graduates attracted to working for a foreign firm.40 But finding and training managers, and inculcating McDonald’s particular brand of loyalty in them, was a more difficult task.41 In late 1989, four Russian managers were sent to Hamburger University, the training facility that McDonalds still runs in Chicago, whose curriculum could not have been more different in its approach to educating cadres than Soviet trade schools. Over eight months, students learned about computerized processes, had “lively conversations” with their instructors, played games and, perhaps most different from the Soviet training methods, were asked for feedback about instructors, that is, “what they liked and what they did not.”42 One of those four managers was Khamzat Khazbulatov, the former assistant manager of the prestigious Budapest restaurant in Moscow, who was rapidly promoted to general director of the first Moscow McDonalds. When asked about his experience working for the company, Khazbulatov told a television crew that: “Many people talk about perestroika, but for them perestroika is an abstraction. Now, me—I can touch my perestroika. I can taste my perestroika. Big Mac is perestroika.”43 Khazbulatov has remained with McDonald’s ever since and is, at present, the head of its entire operations in Russia.44

Another challenge was the absence of a traditional commercial real estate market in the Soviet Union for joint ventures to physically occupy. McDonald’s first headquarters consisted of two rented rooms in, and later an entire floor of, the Minsk Hotel in downtown Moscow. The same deficit affected production facilities. Cohon convinced Moscow city authorities to let McDonalds build its own: construction of its main production facility, the 100,000-square-foot “Makkompleks” in the Moscow suburb of Sol’ntsevo, began in 1989. The building opened in 1990. When it came to the first McDonalds restaurant, they settled on a building at the intersection of Bol’shaia Bronnaia street and Tverskoi boulevard in central Moscow. The building had to be partly torn down and reconstructed in order to increase its capacity; it became McDonald’s largest restaurant in the world. This spot was not chosen merely for its centrality: it was the site of the former Café Lira, immortalized in a song by the then-popular rock band Time Machine (Mashina Vremeni) and it sat across the street from the monument to Russia’s national poet, Aleksandr Pushkin.

Finally, if profits were trapped inside in the Soviet Union in worthless rubles, retail ventures like McDonald’s were also dealing with a customer base who mostly had rubles to spend. For decades, it was illegal for anyone but the state to conduct transactions in hard currency; however, by the late 1980s, the real value of the ruble was in sharp decline and, with the opening up of the Soviet Union to more foreigners, dollars and other currencies were more openly in circulation. Cohon claims that, from the start, he felt it was important that McDonalds took payment only in rubles: payment in hard currency “would have effectively cut out almost the entire Soviet population from our restaurants,” moreover, “the hard-currency route just flew in the face of what McDonald’s was all about… I also thought that it was very important that we send a strong signal to say that we were not carpetbaggers, that we weren’t coming in for a quick kill.”45 The first McDonald’s restaurant in Moscow prominently

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featured a brass plaque that read “Rubles Only,” and its prices were in line with those of nearby cafés. The first Big Macs sold in Russia cost a relatively affordable 3 rubles a piece.

Opening day on January 31, 1990, was a massive spectacle. On Cohon’s orders, 50 children were served first.46 The line, as already mentioned, contained thousands of people. Staff expected to serve 10,000 meals that day, but they served over 30,000—breaking McDonald’s own record. It was also their slowest day that year.47 The successful opening of the restaurant was widely interpreted as a sign that Soviet-Western relations were headed in the right direction. As Gorbachev writes in the foreword to Cohon’s memoirs: it was “a breakthrough which demonstrated that new economic relations between our country and the rest of the world were possible. It was a symbol of the good will of international business which would be important in helping us build a democratic society.”48 It was also seen as emblematic of an uptick in Soviet-Canadian relations, as Leigh Sarty has observed, bolstering Canada’s position as an intermediary between the Soviet Union and the United States and potentially opening up trade opportunities between the Soviets and the Canadians.49

However, like all joint ventures, even its most successful example faced serious problems in operation. Substantial red tape existed beyond the registration phase. Partnerships, and the technology and knowledge transfer they supposedly facilitated, were often characterized by more friction than cooperation. Soviet partners, eager to access Western capital more than anything else, were not always interested in the opinions or expertise of their Western partners; Western partners, eager to access the Soviet market and long-term profits, often acquiesced to what Rosten called the “fictitious marriage” of a joint venture.50 McDonald’s had a uniquely good relationship with its partner, the Moscow city soviet, but central authorities were more remote and unmovable and, as already demonstrated, not all were thrilled by having a virtual shrine to American capitalism in the heart of the communist system. Increasingly, joint ventures faced problems that stemmed specifically from the collapsing Soviet economy, especially the rapidly declining purchasing power of the ruble. In May 1990, Gorbachev announced unpopular increases in basic food prices, which had long been heavily subsidized and did not reflect the true cost of production. This, in turn, put up McDonald’s operating costs. In response, on October 1, 1991, it more than doubled the price of a Big Mac, to 6 rubles, 95 kopeks, effectively putting the Big Mac out of the reach of the average Soviet citizen.51

By the following year, the Soviet economy was barreling toward its demise. At the G-7 summit in July 1991 Gorbachev unsuccessfully pleaded for economic aid to stave off this outcome, assuring the other participating leaders that: “We have made our choice—we stand for a mixed economy and equality of state, private and all other forms of property ownership.” These enterprises were now protected by law, he went on, and could now engage in free market competition. He promised the “minor privatization” of state-run shops, as well as the expansion of cooperatives and joint ventures with foreign firms, all of which the state fully intended to promote.52 But Gorbachev also knew that he did not speak for everyone in the Soviet government; many of his colleagues were bitterly opposed to the quasi-capitalist reforms Gorbachev was promising. This, in turn, limited his options and hampered the country’s access to aid.53 Canadian Prime Minister Brian Mulroney recalled that, in order to illustrate to Gorbachev why the G-7 would not simply sign “blank aid cheques before he implemented profound structural reforms to his country’s economy,” he invoked his friend George Cohon’s experiences in Russia: “‘George Cohon told me that securing rights to land in the USSR has been like dental surgery,’ I said. ‘And he is a persistent man!” Gorbachev reportedly “nodded resigningly” as Mulroney spoke, “knowing that what I had said was true...”54 From Minority to Majority Partner

The Soviet Union collapsed on December 25, 1991, and, in its wake, Russia implemented an aggressive program of capitalist ‘shock therapy,’ entailing the release of price controls, fiscal discipline, privatization of state assets, and austerity measures overseen by Russian president Boris Yeltsin and

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his liberal-capitalist adviser, Yegor Gaidar. The ruble finally became convertible in 1992. The collapse was the death knell for many joint ventures, whose local partners disappeared. But not for McDonalds: instead, it continued its relationship with the Moscow city government, successor to the Moscow city soviet, and it continued to expand. On June 1, 1993, it opened a second location on Ogareva street and a third on the Old Arbat one month later. By then, it had served around 50 million customers.55

To some young Muscovites, especially those with Western eyes, McDonalds tasted like “freedom” and was a “window to the world.”56 Simultaneously, the endless line in front of McDonalds featured heavily in critiques of post-communist “New Russia” with its emphasis on Western-style consumerism and excess. To some, the restaurant’s symbolic location adjacent to the statue of Russia’s national poet was insult added to injury. As Aleksandr Rutskoi, Russia’s Vice President, who famously locked horns with Yeltsin during the 1993 constitutional crisis, lamented:

“When I see the long line in front of McDonald’s, the former Café Lira on Pushkin Square, it depresses me almost more than the possible loss of nuclear parity with America. This line in front of an eatery probably puzzles Aleksandr Sergeevich [Pushkin] too, rooted to his pedestal… People stand for hours in front of McDonald’s, not in expectation of eating but in expectation of receiving communion. Yes, these young people and old people silently spend weary hours in line so that they can receive communion, if only to a small degree, in the Western way of life after decades of living locked up in the totalitarian utopia. So that they can feel that they, too, are a tiny part of the civilized world that is filled with freedom, abundance and prosperity.”57

Cultural commentators frequently pointed to McDonald’s success as a prime example of Russia’s humiliation by its former Cold War enemy. “They built McDonald’s in Moscow and other places, bamboozle our people with garbage and tasteless food, turn the country into a culinary colony,” wrote the journalist Aleksandr Levintov.58 The culinary historian Vill’iam Pokhlebkin took an especially harsh stance on McDonalds in his magnum opus, Cuisine of the Era (Kukhnia veka), devoting the last section of the book he wrote before his untimely death in 2000 to it, and arguing that McDonalds was unhealthy garbage that was alien to Russian culture. He attributed McDonald’s great success in Russia to the breakdown of the public catering sector in the late Soviet period and into the 1990s.59

This nationalist backlash, or “culture of restoration” as Svetlana Boym put it, helps explain the emergence of a more patriotic competitor, Russkoe Bistro, at mid-decade.60 In 1995, Russkoe Bistro opened its first branch a stone’s throw away from the first McDonald’s in Moscow. It was a pet project of then- mayor Yuri Luzhkov, who provided it with financial backing and opened it as a “quasi-public service.”61 Russkoe Bistro offered cheap, high-quality domestic alternatives to McDonald’s, like hand pies (pirozhki), soups, and cutlets, and it grew rapidly grew from 3 to 37 outlets by heavily plagiarizing the American company’s expansion strategy.62 However, it never seriously mounted a challenge to McDonald’s: Russkoe Bistro was mismanaged and scandal-prone, hit hard by the 1998 financial crisis (more on that in a moment), and eventually introduced hard alcohol on the menu in an effort to attract customers, which veered it away from McDonald’s family-friendly vibe. It was sold in 2005.

The carefully constructed balance of local and foreign interests that had defined McDonald’s foray into the Soviet market was tipped heavily in favor of the latter in the mid-to-late 1990s. When the post-Soviet Russian civil code was written in 1994, the joint venture ceased to exist as a legal category and the rule that stipulated foreign partners were limited to a 49% share was eliminated. This, combined with the ongoing process of privatization, paved the path for McDonalds to become the majority shareholder in its Russian venture and for it to transform into a foreign subsidiary. Under Russia’s 1992 privatization law, the 51% controlling share that the Moscow city government held should have been sold at a discounted rate to its workforce or non-voting shares could have been

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allocated to them without charge; McDonalds allegedly kept this information secret and shares were not offered to a majority of its Russian workforce.63 When workers found out, the deadline to make these claims had already passed, and one worker was allegedly fired for making a fuss about it.64 In February 1996, McDonalds bought 31% of the Moscow city government’s shares in the enterprise, bringing its share up to 80%.65 Some of the government’s profits from the sale of its shares were allegedly invested into the failing Russkoe Bistro venture.66

The 1998 financial crisis, which saw the collapse of the ruble, also saw many foreign companies pull out of the Russian market. McDonalds stayed in, though traffic in its stores slowed dramatically. The crisis raised the issue of whether or not it should raise its prices to account for inflation or if it should reduce staff, as many remaining foreign businesses did. Cohon chose not to raise prices and chose not to lay off employees. He also chose not to raise wages, whose real value was in freefall. If McDonald’s earliest Russian employees were thrilled by relatively high and regularly paid wages that were pegged to the dollar, by 1998, inflation had undermined the real value of those wages and only management’s wages were now pegged to the dollar.67 Some workers at the Makkompleks began clamoring for a union, not only because of their wage grievances but also out of workplace safety concerns; this unionization drive was allegedly met with aggressive union-busting tactics, documented at length by Tony Royle.68 (Cohon, like McDonald’s more generally, is extremely anti-union, arguing that a union “would answer no need and would only complicate things. It would be a fifth wheel.”69) In spite of criticisms of McDonald’s aggressive expansionary strategy and post-Soviet maneuvers in Russia, George Cohon was awarded the country’s Order of Friendship, the highest honor bestowed upon a foreign who has worked to improve Russia’s relations with the outside world, by Yeltsin in 1998. Conclusion

McDonald’s partnership with the Moscow city soviet was undoubtedly the most successful example of a joint venture, involving a substantial investment of resources, technology and knowledge transfer, and a relatively proportionate balance of interests, at least at the very beginning. McDonald’s was, furthermore, able to succeed in the late Soviet economy due to a combination of Cohon’s persistence; the company’s ability to be patient as it waited for profits to arrive (a strategy it would continue to deploy after 1991, notably during the 1998 financial crisis); and the strong relationships with local actors that it cultivated. Within just a few years, McDonald’s executive staff consisted mostly of Russian citizens and many, like Khazbulatov, are still with the company thirty years later. But that original partnership was ultimately based upon a gamble, that the forces of perestroika would continue to liberalize the Soviet economy at the very least or, even better, communism would be declared unworkable and would be dismantled in Russia. One has to wonder what would have happened to the joint venture, and how long McDonald’s would have waited for its gamble to pay off, had the latter scenario not been so swiftly realized.

McDonald’s also continues to be a symbol of Russia’s fraught relationship to the West and specifically to United States (despite the nominally Canadian identity of the first McDonald’s). This has run it into trouble with Russian authorities on more than one occasion of late. In July 2014, Russia’s consumer protection agency Rospotrebnadzor threatened to close down McDonald’s for alleged violations of the country’s nutritional and safety codes—a move that was widely interpreted in the West as retaliation against sanctions imposed on Russia for its annexation of Crimea earlier that year. The iconic first McDonald’s in Moscow was shuttered for 90 days, along with several others; they reopened when Rospotrebnadzor, which claimed its sanctions had nothing to do with the ongoing conflict, declared that its concerns were addressed.70 After passing a law mostly targeted at journalists, international news outlets, and NGOs who receive foreign funding requiring them to register as “foreign agents” in 2017, one Russian lawmaker argued that it should apply equally to

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foreign fast-food chains including McDonald’s, whose advertising, he claimed, misled Russians into believing their products were healthy and contributed to the decline of Russia’s national cuisine.71 These allegations came despite McDonald’s long-running campaign to portray itself as a local actor, including investing in local charities, sourcing local ingredients, and repeatedly describing its food as “ours” (nash) in its advertising campaigns, as Caldwell has noted.72 In sum, these developments are a reminder that McDonald’s still serves as a shibboleth for Russian grievances, both vis-à-vis the West and about its traumatic post-Soviet economic transition.

Despite being the frequent target of such criticisms, McDonald’s Russia remains a lucrative part of the company’s global empire. For one thing, its first mover advantage set it up well to expand into the property development game, which constitutes a substantial part of its business there to the present day. After the first store opened and it began to make ‘trapped’ ruble profits, McDonalds reinvested these in farmlands and in real estate, including an office tower just a few blocks away from the Kremlin, which opened in 1993. McDonald’s owns outright, rather than leases, most of its properties in Russia, commanding a “real estate empire” in land-scarce Moscow conservatively estimated to be worth $115 million USD as of 2005, and probably worth much more today.73 McDonalds is sometimes accused of being less a restaurant than a real estate enterprise, collecting more money from rent checks than from hamburger sales.74 In January 2020, the company celebrated its thirtieth anniversary in Russia and, later that year, despite the global COVID-19 pandemic that continues to ravage the country, announced it would soon open its 800th restaurant in the country’s Far East.75 As of this very moment, there are 810 McDonald’s across Russia, serving an estimated 1.8 million guests per day.76

1 As Constantin Boym notes: “Images of the local crowds, policemen in uniform, and the statue of Pushkin with the triumphant big M in the background became an obligatory part of any Western reportage about Russia in transition. See: Constantin Boym, “My McDonalds,” Gastronomica Reader, ed. Darra Goldstein (Berkeley: University of California Press, 2010), 200. 2 See, for example: Oleg Vihanski and Sheila Puffer, “Management Education and Employee Twining at Moscow McDonald’s,” European Management Journal, Vol. 11, No. 1 (1993): 102-103. 3 Marshall I. Goldman, The Piratization of Russia: Russian Reform Goes Awry (London: Routledge, 2003), 203, 218-221. 4 Melissa L. Caldwell, “Domesticating the French Fry: McDonald’s and Consumerism in Moscow,” Journal of Consumer Culture, Vol. 4, No. 1 (2004): 5-26. 5 On McDonald’s as an example of cultural imperialism, see: Joe L. Kincheloe, The Sign of the Burger: McDonald’s and the Culture of Power (Philadelphia: Temple University Press, 2002). McDonald’s is sometimes described as a prime example of “glocalization,” or “brand[ing] globally, but think[ing] locally.” See: Alice Crawford, Sarah A. Humphries, and Margaret M. Geddy, “McDonald’s: A Case Study in Glocalization,” Journal of Global Business Issues, Vol. 9, No. 1 (2015): 11–18. 6 Goldman, 2018. 7 George Cohon with David Macfarlane, To Russia with Fries (Toronto: M & S, 1999), 12-16. 8 Cohon, 21. 9 Cohon, 20. 10 Christopher Shulgan, The Soviet Ambassador: The Making of the Radical behind Perestroika (Toronto: McClelland & Stewart, 2008), 138. 11 Shulgan, 204. 12 Ibid. 13 Aleksandr Yakovlev, Omut pamiati (Moskva: Vagrius, 2001), 209. 14 Ibid. 15 On the first canteens, see: François-Xavier Nérard, “The Sisyphean Opening of the First Soviet Canteens in the Urals: Successes and Failures (1918–1925), Quaestio Rossica, Vol. 5, № 4 (2017): 1063-1072. 16 Jukka Gronow, Caviar with Champagne: Common Luxury and the Ideals of the Good Life in Stalin’s Russia (New York: Berg, 2003), 74. 17 Aaron Hale-Dorrell, “Industrial Farming, Industrial Food: Transnational Influences on Soviet Convenience Food in the Khrushchev Era,” Soviet and Post-Soviet Review, Vol. 42, No. 42 (2015): 175-176. 18 Ksenia Zubacheva, “How Did Pepsi Become the First American Brand to take Root in the Soviet Union?” Russia Beyond the Headlines, February 12, 2018. Online: https://www.rbth.com/business/327568-pepsi-first-russia

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19 Shulgan, 231. 20 Cohon, 24. 21 Cohon, 28. 22 Cohon, 31. 23 Yakovlev, 209. 24 Cohon, 63. 25 Cohon, 131-132. 26 Oscar Sanchez-Sibony, Red Globalization: The Political Eonomy of the Soviet Cold War from Stalin to Khrushchev (New York: Cambridge University Press, 2014), 4. 27 Yurii Goland, “A Missed Opportunity: On Attracting Foreign Capital,” Europe-Asia Studies, Vol. 55, No. 2 (2003): 213-214. 28 On the deal with Fiat, see: Lewis H. Siegelbaum, Cars for Comrades: The Life of the Soviet Automobile (Ithaca: Cornell University Press, 2011), 80-124. 29 Cohon, 119-120. 30 “O voprosakh, sviazannykh s sozdaniem na territorii SSSR i deiatel’nost’iu sovmestnykh predpriatii, mezhdunarodnykh ob”edinenii i organizatsii s uchastiem sovetskykh i inostrannykh organizatsii, firm i organov upravleniia,” Vedomosti verkhovnogo soveta sovetskikh sotsialisticheskikh respublik, No. 2 (January 14, 1987): 35. 31 “O poriadke sozdaniia na territorii SSSR i deiatel’nosti sovmestnikh predpriatii, mezhdunarodnykh ob”edinenii i organizatsii SSSR i drugikh stran—chlenov SEV,” January 13, 1987. Online https://docs.cntd.ru/document/9026949 32 On the Soviet submarine deal, see: Paul Musgrave, “The Doomed Voyage of Pepsi’s Soviet Navy,” Foreign Affairs, November 27, 2021. Online: https://foreignpolicy.com/2021/11/27/pepsi-navy-soviet-ussr/ 33 F. Luk’ianov, “Sovmestnye predpriatia—god 1988,” Izvestiia, May 4, 1988, 5. 34 Jeffrey M. Hertzfeld, “Joint Ventures: Saving the Soviets from Perestroika,” Harvard Business Review (January-February 1991). Online: https://hbr.org/1991/01/joint-ventures-saving-the-soviets-from-perestroika 35 Keith A. Rosten, “Soviet-U.S. Joint Ventures: Problems, Challenges, and Opportunities,” in The Emerging Russian Bear: Integrating the Soviet Union into the World Economy, eds. Josef C. Brada and Michael P. Claudon (New York: New York University Press, 1991), 95. 36 Rosten, 89. 37 Of 140 US-Soviet joint ventures listed in 1991, fewer than 40 actually made it into operation. See: Rosten, 91. 38 Cohon, 141. 39 Ann Imse, “Scrounging for Soviet Food, McDonald’s Starts at the Farm With AM-Soviet Economy,” Associated Press, January 29, 1990. Online: https://apnews.com/article/cbdd5773c1bbe89f6bc3ce69bce707fe 40 “‘Doing it all for You’ at Moscow McDonald’s; An Interview with Glen Steeves, Restaurant Manager, Moscow McDonald’s by Oleg S. Vihanskii,” in The Russian Management Revolution: Preparing Managers for the Market Economy, ed. Sheila M. Puffer (Armonk: M. E. Sharpe, 1992), 276-277. 41 Cohon placed a high premium on loyalty among his employees, especially executives: “It’s a question of friendship, of loyalty. It’s almost family. So if someone leaves McDonald’s and stays in the same business—if they go to work for a competitor—I just write them off. In my books, they’re gone.” See: Cohon, 48. One way McDonald’s inculcated loyalty among employees was through upward advancement. Glenn Steeves, the first foreign manager who was sent to Moscow to train staff on the ground, described this as follows: “We like to say we inject ketchup into their veins… we McDonaldize them.” See: “‘Doing it all for You’ at Moscow McDonald’s,” 278. 42 “Big mak pozhaluista?” Sovetskaia kultura, November 2, 1989, 7. 43 Cohon, 195. 44 Vihanski and Puffer, 103. 45 Cohon, 125. 46 This was consistent with Cohon’s and McDonald’s emphasis on children’s causes. 47 “‘Doing it all for You’ at Moscow McDonald’s,” 275. 48 Cohon, ii. 49 Leigh Sarty, “A Rivalry Transformed: Canadian-Soviet Relations to the 1990s,” in Canada and the Soviet Experiment: Essays on Canadian Encounters with Russia and the Soviet Union, 1900-1991, ed. David Davies (Toronto: Centre for Russian and East European Studies, University of Toronto, 1994), 160 50 Rosten, 90. 51 “‘Big Mak’ podorozhal v dvoe,” Izvestiia, October 2, 1990, 2. 52 Mikhail Gorbachev, “Personal Message from President Mikhail S. Gorbachev to Heads of State or Government Attending the G7 Meeting in London, July 12, 1991,” G-7 Research Group. Online: http://www.g7.utoronto.ca/summit/1991london/personal.html

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53 On Gorbachev’s battle against powerful vested interest groups in the Soviet economy, see: Chris Miller, The Struggle to Save the Soviet Economy (Chapel Hill: The University of North Carolina Press, 2017), 55-56. 54 Brian Mulroney, Memoirs (Toronto: McClelland & Stewart, 2007), 863. 55 Anatolii Stasovskii, “Tol’ko za rubli!” Krasnaia Zvezda, June 2, 1993. 56 Mitya Kushelevich, “Taste of Freedom: What the Closure of the First Moscow McDonald’s Means for Russia Today,” Calvert Journal, September 1, 2014. Online: https://www.calvertjournal.com/articles/show/3046/mcdonalds-moscow-closure-russia-martin-parr 57 Aleksandr Rutskoi, “Prichastie u ‘Makdonal’dsa,’” Izvestiia, January 31, 1992, 3. 58 Aleksandr Levintov, Zhratva: sotsial’no-povarennaia kniga (Minsk: Elaida, 1997), 91. 59 Vil’iam Pokhlebkin, Kukhniia veka, chast’ 1 (Moskva: Polifalt, 2000), 383-384. During the late Soviet period, Pokhlebkin was a leader in the “national cuisines movement” which prized “dishes that grew out of accumulated wisdom” instead of mass-produced processed foods, and which allowed individuals to protect the traditions of the past. See: Adrianne Jacobs, “Love, Marry, Cook: Gendering the Home Kitchen in Late Soviet Russia,” in Seasoned Socialism: Gender, Food, and Late Soviet Everyday Life, eds. Anastasia Lakhtikova, Angela Brintlinger, and Irina Glushchenko (Bloomington: Indiana University Press), 40. 60 According to Boym, this “culture of restoration” was much “more critical of the West and more patriotic and, at the same time, much more engaged with global language and commercial culture.” See: Svetlana Boym, The Future of Nostalgia (New York: Basic Books, 2001), 66. 61 Vilhelm Konnander, “Russkoe Bistro vs. McDonald's,” Politics & Security in Russia Blog, July 23, 2006. Online: http://vilhelmkonnander.blogspot.com/2006/07/russkoe-bistro-vs-mcdonalds.html 62 Ibid. Konnander argues that: “With Russkoe Bistro, Russia had a potential McDonald’s on their hands, but lost it due to lack of vision and sound management.” 63 Tony Royle, “The Union Recognition Dispute at McDonald’s Moscow Food-Processing Factory,” Industrial Relations Journal, Vol. 36, No. 4 (2005): 224-225. 64 Royle, 225. 65 Tatiana Plotnikova, “‘Big Mak” stanet na 80 protsentov kanadskim,” Kommersant, №47, March 22, 1996, 9. 66 Ibid. 67 Royle, 225. Wage arrears were extremely common during perestroika and well into the 1990s. 68 Royle, 325-330. 69 Cohon, 257. 70 Maria Vasilyeva, “Moscow’s first McDonald’s reopens after 90-day closure,” Reuters, November 19, 2014. Online: https://www.reuters.com/article/russia-mcdonalds-reopening-idUSL6N0T954P20141119 71 “Russian Lawmaker Wants to Label McDonald’s a ‘Foreign Agent’,” The Moscow Times, November 24, 2017. Online: https://www.themoscowtimes.com/2017/11/24/russia-lawmaker-label-brand-mc-donalds-a-foreign-agent-a59689. 72 Melissa L. Caldwell, “The Taste of Nationalism: Food Politics in Postsocialist Moscow,” Ethnos, Vol. 67, No. 3 (2002), 305, 312. 73 Erin E. Arvedlund, “McDonald’s Commands a Real Estate Empire in Russia,” New York Times, March 17, 2005, Section C, Page 4. 74 Jayson Derrick, “Is McDonald’s A Restaurant—Or A Real Estate Empire?” Yahoo Finance, November 11, 2020. Online: https://finance.yahoo.com/news/mcdonalds-restaurant-real-estate-empire-132050045.html 75 “McDonald’s to open restaurants in Russia’s far east in expansion drive,” Reuters, September 14, 2020. Online: https://www.reuters.com/article/us-mcdonalds-russia-idCAKBN26518K 76 McDonalds Russia. Online: https://mcdonalds.ru/page/mcdonalds_in_russia/