Tag Archives: Big Mac Index

McDonalds and De-Globalization

The only three McDonald’s restaurants in Iceland became the latest victims of the global economic crisis. According to an AP report, all three restaurants will close next week due to rising costs. The three franchise operations are required, according to their franchise agreement, to purchase and import all of their supplies from Germany. But the financial meltdown in Iceland—and the dramatic decline in the value of the krona, Iceland’s currency—combined with high tariffs on imports have led to a spike in operating costs for the restaurants. Indeed, according to the restaurants’ managing director, Magnus Odmudsson, operating costs have doubled over the past year, making it impossible for the restaurants to remain competitive.

According to the Big Mac index, Iceland already has the third most expensive Big Mac in the world, retailing for 650 krona ($5.29), falling behind Norway ($5.79) and Switzerland ($5.60). To meet the higher operating costs, Odmudsson said prices would have to increase to 780 krona ($6.36), a level which would make the restaurants uncompetitive.

The decision to close operations in Iceland represents a reversal of McDonald’s trend of increasing international operations. McDonalds currently operates in 119 countries on six continents. But the expansion has been controversial. In France, McDonald’s has been the target of protestors who claim that the chain restaurant undermines French cuisine, while in India, it faced lawsuits for allegedly using beef fat in the production of French fries. And earlier it was forced to trim operations in countries like Bolivia, where operations were not profitable.

The current global downturn presents new challenges for McDonald’s and other multinational corporations. Currency instability, a rise in protectionism, and an increasing preference for locally produced goods. This shift hardly represents a dramatic shift away from the process of globalization that has defined the global political economy since the end of World War II. But it does present, in a clear way, the challenges transnational operations face in an increasingly interconnected global economy.

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Can I Have a Big Mac, Fries, and a Coke With That?

Assessing political stability and comparing levels of economic development has always been a tricky business.   Take, for example, the use of gross domestic product as a proxy for levels of economic prosperity.  Everyone uses it—World Bank programs cite it, academics use it, and so on.  But no one ever really seems truly happy with it.  And with good reason.  As a measure of economic development, GDP leaves a lot out.  But if we want to look at levels of economic development, we really don’t have any good alternatives…or do we?

Last week NPR carried a story from the Africa correspondent for the Economist, Jonathan Ledgard.  (You can listen to the segment on the Day to Day website).  Ledgard argues that Coca Cola sales are a key indicator of political and economic stability across the African continent.  Why?  Well, Coke is widely available, relatively cheap, and almost always produced locally.  When Coke runs out, as in the case of Somalia, Eritrea, or Kenya, a crisis is usually brewing.  According to Legdard, Coke is

a pan-African product. It’s found in almost every African country… Even in the sort-of sub-villages, some guy on a bicycle will be taking five or six cases of Coke to a shack in the Congolese jungle or in the backwaters of Ethiopia. And it’s kind of amazing that that product can penetrate that far… A drop in the sales of Coke will be reflected in political, cultural, ethnic disturbances.

So it looks like we can add the Coca Cola index of political stability to the Economist’s Big Mac Index, which measures purchasing power parity, and Thomas Friedman’s Golden Arches theory—a restatement of Kant’s liberal peace—which asserts that no two countries with McDonald’s have ever gone to war with one another…almost true, except for the conflict in the former Yugoslavia and the recent war between Israel and Lebanon.

So does globalization mean peace and prosperity?  I’m not sure, but at least you can have  a Big Mac and a Coke with that.