An economic iron curtain falls on Russia as companies like McDonald’s cut ties

An elderly Russian woman eats a burger at the then Soviet Union’s first McDonald’s on the day it opened in January 1990.Rudi Blaha | ASSOCIATED PRESS

A crucial chapter in recent Russian history is coming to an end as many of the world’s largest and best-known companies abandon russia after the country invaded Ukraine.

It started in part with BP announcement at the end of last month that he would end his multi-billion dollar relationship with Rosneft, the Russian oil giant.

But what started as a trickle has become a corporate exodus. Just this week, companies ranging from Coca-Cola to Goldman Sachs announced they were cutting ties with Russia.

Perhaps no decision to leave had more symbolic meaning than that made by McDonald’s. This week, it decided to suspend its operations in Russia. The company will temporarily close its restaurants in 850 locations across the country.

Many Russian experts say the exodus does more than reinforce the country’s isolation over its decision to invade Ukraine. This marks a throwback, at least for now, to the days when Russia was part of the Soviet Union and largely excluded from the global economy.

“It really is a shocking reversal,” says Daniel Treisman, a UCLA professor who specializes in Russian politics and economics.

“The Iron Curtain is falling again, or some other type of curtain is falling,” he says. “I think Russians are just horrified to lose connection with this world they’ve lived in for 30 years.”

Russians line up outside a McDonald's fast <a class=food restaurant in Moscow in 1990.”/>
Russians line up outside a McDonald’s fast food restaurant in Moscow in 1990.Anonymous | ASSOCIATED PRESS

It all started with McDonald’s

Many Russians and outside observers have an indelible memory of January 1990, when the first McDonald’s restaurant served its first customers in Moscow, on Pushkin Square.

Russia was still part of the Soviet Union at the time, and it marked one of the first glimpses of a country beginning to open up its economy.

Thousands of curious customers lined up on opening day for Big Macs and fries. It was a show at first, but the restaurant has become something of a landmark.

In the months and years that followed, as the twilight of the Soviet Union gave way to the dawn of a new Russia, nearly every major multinational followed in the footsteps of the fast-food chain.

General Motors manufactured cars in the country, which also became an important market for motorcycle manufacturer Harley-Davidson. Apple sold iPhones there, and in 2007 Starbucks opened its first store in Moscow.

Cars produced by General Motors are displayed during the inauguration ceremony of a GM plant in Shushary, on the outskirts of Saint Petersburg, Russia, June 13, 2006.
Cars produced by General Motors are displayed during the inauguration ceremony of a GM plant in Shushary, on the outskirts of Saint Petersburg, Russia, June 13, 2006.Micha Japaridze | PA

Russia eventually became the 11th largest economy in the world.

According to Treisman, the departure of these companies, in addition to the wide-ranging sanctions imposed by the United States and dozens of its allies, will have a profound effect on the Russian economy.

McDonald’s says it plans to continue paying its 62,000 workers, but other companies have not made the same commitment. Thus, unemployment is likely to increase. In January, before the war, the unemployment rate was 4.3%, according to Russia’s Federal State Statistics Service.

Since the invasion, the value of the country’s currency has fallen over 40% against the US dollar; a ruble is now worth less than a penny.

The Currency Collapse will fuel widespread inflation, which will lead to more hardship.

The Russian economy will be affected in other ways

Russia’s isolation also poses other great challenges to its economy.

“It’s not just the question of the statistics of the economy down a few percentage points or inflation up a few percentage points,” says Chris Miller, a historian at Tufts University’s Flectcher School. . “The rapid de-globalization of the Russian economy that has been building over nearly a third of a century is reversing in just a few weeks.”

Russia has come to rely heavily on imports.

In the third quarter of 2021 ⁠ — the most recent quarter for which data is available, the country imported about $77 billion worth of goods, according to data from the Bank of Russia, its central bank.

People line up to enter the first IKEA store to open just outside Moscow, in this file photo from March 22, 2000.
People line up to enter the first IKEA store to open just outside Moscow, in this file photo from March 22, 2000.Maxime Marmur | ASSOCIATED PRESS

The presence of foreign companies has brought a lot of new technologies and skills, and Russian companies have become tightly integrated into global supply chains.

And just like in Soviet times, the national industry is not advanced enough to develop.

“Russia’s entire industrial economy will face harrowing difficulties as it tries, and in many cases fails, to find alternatives to Western products,” Miller said.

“Russia has gained access to foreign consumer goods, as well as a lot of technology and expertise from Western companies,” he adds. “It was all thrown in a very quick setback.”

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