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McDonalds and soft power

September 16th, 2003

This is the first second draft of my long-promised post on McDonalds and American soft power. I’ve had quite a few useful comments and have incorporate some, still digesting others. More comments much appreciated.

It’s hard to go anywhere in the world without running across American fast food chains like McDonalds and Starbucks, American movies and American sitcoms. This fact has led to lots of dubious inferences.

A particularly egregious example was Thomas Friedman’s Golden Arches Theory of Conflict Prevention, which held that no two countries with a McDonalds would ever fight a war. This theory was presented to the world in Friedman’s 2000 February 1999 bestseller The Lexus and the Olive Tree. A few months later, the USAF was bombing Belgrade, a city with seven McDonalds outlets.

More common than this kind of grand theorising are two inferences, one anti-American and one pro-American. More precisely, I should say “critical of/supportive of American economic and social institutions” since many of those who are most “anti-American” in this sense are domestic American social critics.

The anti-American inference is that America is a trashy and decadent society intent on forcing its low-grade way of life on to the rest of the world. One version of this inference is presented in Naomi Klein’s No Logo, though I’ve oversimplifed her message fairly drastically.

The pro-American inference is that the ubiquity of these American icons is evidence of American ‘soft power’ (a term coined by Joseph Nye in Foreign Policy in 1990) and proves that the rest of the world either loves and aspires to the American way of life or is jealous and hypocritically denounces Americanisation while secretly craving it. One version of this inference is presented by Fouad Adjami (link via Geoff Honnor). Again I’ve (over)simplified a complex argument to extract a central theme. Another reader (Ritu) mentions Fareed Zakaria in this context, raising the point that, in the current environment a Muslim-sounding name is probably an asset for someone writing in praise of American soft power.

Economists are generally suspicious of purely cultural accounts of economic outcomes, preferring to focus on technological issues such as factor endowments and on the effects of income and relative prices on demand patterns. This preference isn’t always right – cultural factors, industrial policies and pure chance have an important role to play – but it’s always worth considering the economic basics.

But there’s a standard economic analysis, dating back to the 1950s, that explains a lot about the prevalence of McDonalds without any need for a notion of ‘soft power’. Nicholas Gruen kindly sent me the following extract from one of his pieces, which I assume arose from debates over Australian car industry policy

In 1961, the economist Linder suggested that product specific scale economies and product differentiation combined with local tastes and transport costs to influence the pattern of trade in manufactures (1961: 87ff See also Kravis, I. B., (1956), “Availability and Other Influences on the Commodity Compositioin of Trade, Journal of Political Economy, Volume LXIV). In particular, he suggested that countries domestically manufacture differentiated products which can be manufactured at economic scale because they appeal to majority home market tastes. At the same time they import products to meet minority tastes. Minority tastes cannot be efficiently served from local manufacture because low levels of demand prevent local manufacturers achieving scale economies. Where these products meet majority tastes in other countries, they can be manufactured there at lower cost and then exported back to countries where they meet minority tastes. The resulting pattern of mass marketing at home and niche marketing abroad is well represented in many markets for manufacturers, not least the market for automobiles

Although I obviously picked up the ideas that were being tossed around during the car policy debate, I didn’t read the Kravis and Linder papers or maybe read them and forgot them [insert PJ O'Rourke drug allusion here] The Kravis-Linder model extends neatly to things like movies and McDonald’s franchises.

The most obvious common characteristic of chain restaurant franchises and movies is that of large fixed costs combined with effectively unlimited scale economies. A Hollywood movie can easily cost $100 million to make (the movie Titanic cost far more in real terms than the ship did), but once it’s made the cost of showing it is trivial. Similarly, a huge amount of expenditure goes into the creation of an instantly recognisable franchise like McDonalds or Starbucks, but the marginal cost of adding an extra outlet is relatively small. For brevity we’ll call both movies and franchise outlets “chain services”.

By contrast, the cost structure of an independent supplier, such as a coffee shop, restaurant or live entertainment venue is much flatter, and costs tend to increase beyond a certain size, rather than decreasing. On the other hand, the independent can tailor the product to a local market. The balance between independent local suppliers and chain services will depend on the amount of local variety or, conversely, on the homogeneity of the market as a whole.

It’s easy to see that the best market for which to produce a product of this kind is the biggest and most homogenous one, which, among the developed countries means America. Although America is not a homogenous society it’s at least as homogenous as any European country and about three times as large. So it’s not surprising that chain services have been most successful in America, to the extent that independent suppliers have been largely eliminated in many markets. Obviously, the optimal type and quality of services is that which matches the tastes of the average American consumer in the given market (which may be segmented but must be large).

Now think about similar markets in other countries. Chain services will be slower to develop, and less successful in competition with local independents because the potential market is smaller. This creates a opportunity for entry by American suppliers of chain services, whose fixed costs have already been paid in the American market, and who can therefore sell at lower prices.

An important consequence is that the market position of American chains is not the same in export markets as in America. Being designed for the American market, the product will not meet local tastes in export markets as closely, so it will be perceived as a low-quality, low-price product. This is most obvious with Starbucks, which is routinely used in America as a trope for luxury consumption (“Starbucks + upscale” gets 17600 hits on Google), while being regarded as distinctly second-rate in Australia. But even McDonalds has a noticeably higher status in America than in its overseas markets.

The big American chain service suppliers have tried to address this problem by tailoring their products more to foreign markets. But the more this is done, the less the cost advantages of multinational operation. Most attempts of this kind have been notably unsuccessful.

The same point applies to movies and particularly to TV, where the minimum efficient scale is lower. As soon as a country gets a big enough and rich enough market, and can establish its own TV industry, home-made shows (including local remakes of successful foreign shows) tend to take the top spots, while cheaper imports are used as filler. The US market is so big that the main networks almost invariably prefer a remake to the use of imported material.

What are the costs and benefits of all this. Obviously, Americans , considered as workers and investors, benefit from the fact that their scale economies give them cost advantages in markets for films, franchise production and so on.

This partly comes at the expense of other exporters. In talking about American ‘soft power’, it’s not often noted that, with some important exceptions such as computers, it’s rare nowadays to encounter American manufactured products outside the US. Looking around my house there’s a French car, some German whitegoods, and heaps of things made in Japan, East and Southeast Asia and even Australia. The only items that are obviously American are the Powerbook and its predecessors, and even they were mostly made in Singapore.

The effects on American consumers are ambiguous, but arguably negative on balance. Although they benefit from having films and chain restaurants tailored precisely to their tastes, they have far fewer alternatives than before the rise of the chains, particularly if their tastes differ a bit from the mean.

By contrast, precisely because the chain product is rather less attractive, consumers in markets outside the US tend to keep alternatives in existence. One of the traps for writers on ‘soft power’ is that, observing the proliferation of McDonalds, Starbucks and so on, they imagine that everyone in the countries they visit is a customer of these enterprises. This is, roughly speaking, true in the US, but the market share for these chains is smaller everywhere else.

A closely parallel analysis applies to language (thanks to Jack Strocchi for raising this point). There are big economies of scale and, as the language with the most (income-weighted) native speakers, English has a natural comparative advantage. So the natural outcome is one where English monoglots can make themselves understood almost anywhere, while non-native speakers of English who wish to function in the global economy must be, at a minimum, bilingual. If, as seems likely, bilinguality has cognitive benefits, as well as the obvious cost of learning a second language, the welfare effects have the same sort of ambiguity as McDonalds – the monoglots have lower cost and more convenience but less variety. [An interesting countertrend to all this is the rise of Spanish in the United States itself - to the point where native English speakers like George and Jeb Bush find it useful to be at least partly bilingual]

Even though a purely cost-based analysis works pretty well, it would be silly to dismiss ‘soft power’ altogether. Clearly, American movies and products do better at times and in places where the American way of life is viewed as cool and desirable. But relative prices are probably more important. Korean cars sell like hotcakes in Australia, but that doesn’t mean that the average Australian wants to move there.

Similarly, American movies sell well because economies of size mean they can have big budgets, and therefore, top-quality special effects and cinematography. That doesn’t mean that the average moviegoer or TV-watcher has any particular opinion about American foreign policy or social structure.

Less sophisticated audiences may be led to assume that the average American has the upper-middle class living standard typically presented in these productions. On the other hand, for middle-class consumers in developed countries, exposure to McDonalds and Starbucks leads to the equally misleading inference that American living standards are far below those prevailing in their own countries.

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  1. September 17th, 2003 at 01:16 | #1

    “On the other hand, for middle-class consumers in developed countries, exposure to McDonalds and Starbucks leads to the equally misleading inference that American living standards are far below those prevailing in their own countries.”

    No, just the inference that their coffee standards are lower … :)

  2. September 17th, 2003 at 10:27 | #2

    Make sure you read Michael Jennings blog when you discuss Starbucks – enter the phrase ‘clusterbomb’ in his seach thing, he did a very good essay on how starbucks operates, and the clones of starbucks that also operate on this trend.

  3. September 17th, 2003 at 12:51 | #3

    I generally agree with Pr Q’s conclusion that the US advantage in Cultural Soft Power is declining and it’s advantage in Economic Firm Power is overstated.
    As a consequence it is using it’s Military Hard Power lead to make up the difference.
    (Existence Proof: the large uptick in anti-American sentiment after GW II)

    But even so, it is the case that the US’s overwhelming “soft power” grip on the hearts and minds of the world’s various demographics is slipping.

    First, amongst the less-developed nations there is the rise of fundamentalism, which is consciously opposed to the Great Satans culture.

    Second, amogst the more affluent classes, there is the preference for European-styling and Nippo/Sino-engineering in up-scale goods.

    Third, even amongst the great pro-chain culture global teen demographic, the strongest cultural preference is for soccer, a distinctively un-American sport.

    Fourth, whatever the economic strength of US film, TV and music industries, it is the case that the Napster revolution in multimedia P2P file swapping will reduce it, by reducing their ability to capture revenues.

    Fifth, cheaper digital production costs increases the economic competitiveness of smaller, more local & diverse cultural industries (indy and global cultural producers) which allows them to exploit the increased preference for customisation favouring niche-marketing enterprises

    Sixth, there has been a decline of US dominance in global mass popular cultural formats, since the Golden Age of mass-media, from the 1940s-70s. They just don’t make such good songs, films or stars any more. Where is Hollywood, Tin Pan Alley, CB-GBs, where are the giants of yesteryear, Elvis, Newman, Coppola, Dylan etc

    Finally, there is coffee, much beloved by Pr Q. It is clearly European in cultural valency.
    Coffee is the beverage of post-modernity, just as Coke was the beverage of modernity. Coffee shops have replaced soda shops as the hang-outs of youth.

    Given that the USE tends to use English as a second language, and the PRC will not sell Mandarin as a second language, I cannot see the US losing it’s cultural preeminence in the short to medium term.
    The great advantage the US has in culture is not it’s economic system, great though that is.
    It is the prevalence of English as the lingua franca (should be lingua anglica) of modern commerce and society.
    So long as English has the QWERTY advantage, the US will still have an upper hand in global cultural preeminence.
    In the long term, the ability to implant linguistic translators in peoples brains will allow the resurgence of Babel.

  4. John Quiggin
    September 17th, 2003 at 13:30 | #4

    Of course, the prevalence of English as a language is a prime illustration of the model presented here. Note that the outcome is monolingual English-speakers (with the interesting exception of Spanish in the US) and bilingual or multilingual Europeans and Asians.

  5. Geoff Honnor
    September 17th, 2003 at 14:06 | #5

    I thought that Fouad Ajami’s recent piece in Foreign Policy magazine, on “The Falseness of Anti-Americanism,” gave an interesting perspective on the push/pull effect of Americanisation. http://www.foreignpolicy.com/story/story.php?storyID=13852. I also blogged on it over at Troppo.

  6. Ritu
    September 17th, 2003 at 15:43 | #6

    I am afraid I don’t have any links atm but Fareed Zakaria is one of the people who puts forward a pro-american inference of the ‘soft power’ of the US. I can’t remember any names for the anti-american inference atm [I am assuming you wouldn't be interested in quoting Laden or Mullah Omar].
    I recently came across a statistic which I found rather surprising. BBC world holds that one billion more people watch Bollywood movies than Hollywood movies.

  7. dsquared
    September 17th, 2003 at 17:41 | #7

    A related second-order point is the tendency of (American and non-American) commentators to assume that crappy cultural content must be American because it is crappy. I saw not so long ago a WSJ editorial laughing at the French for being anti-American but “addicted to reality TV shows”, a concept that orignated in the Netherlands, came to the USA via Japan and the USA, and in which “Loft Story” on TF1 was on its third series before the USA had a single one of them.

  8. Don
    September 17th, 2003 at 19:01 | #8

    What a neat explanation! It accounts for both the success of American cultural exports and the low regard they are often held in.

    And I agree, it makes little sense to interpret McDonalds, Starbucks and big budget action movies as manifestations of soft power. It’s like arguing that Australia’s conversion to the metric system makes us less likely to object to French nuclear testing in the Pacific.

    As I understand it Nye’s concept of soft power is about influence over PREFERENCES. Rather than getting people to do what you want with carrots or sticks you find a way of persuading them that what they want is what you want.

    And as far as I can tell there’s no necessary connection between a consumer’s preference for gangsta rap, baggy jeans, and bourbon, and their preferences on political issues. To the extent that there is a connection the causal pathway probably goes from politics to consumer goods rather than the other way around (eg If you hate American foreign policy you are less likely eat a McDonalds).

    I’d love to see someone run a survey with questions about consumption (food, music, movies etc) and political views and then run a factor analysis. Then you could see whether consumption of American products and adherence to ‘American’ political values falls out as a single factor.

  9. September 17th, 2003 at 19:40 | #9

    Ahh, Australia, where we have access to all of Australia’s cultural artifacts without any of the drawbacks of living there.

    Though regarding trashy TV, wasn’t “Candid Camera”, which originated in the US, the first reality TV show?

    If you look at sport, which is as much entertainment as anything else, it’s arguable that Steve Waugh and Sachin Tendulkar are more well-known on a global scale than the likes of Major League baseballers like Sammy Sosa (he’s the only one I could think of), largely due to the vast cricket fanbase in the Subcontinent. Though obviously soccer players like Ronaldo and Beckham would rank at the head; as far as current sportspeople go, probably only golfer Tiger Woods, cyclist Lance Armstrong and tennis players like Agassi, Roddick and the Williams sisters would be the only US sportspeople that register on a global scale.

    Yes, it’d be nice if many of the democratic values that the US prides itself on would catch on fire, but of course it doesn’t seem to be working out that way, maybe they’re using the wrong means of persuasion; China has moved closer to a market economy, but democracy doesn’t seem to be following there.

  10. Dave Ricardo
    September 17th, 2003 at 22:38 | #10

    *This theory was presented to the world in Friedman’s 2000 bestseller The Lexus and the Olive Tree. Less than a year later, the USAF was bombing Belgrade, a city with seven McDonalds outlets.*

    A good point, except that the USAF was bombing Belgrade in 1999.

  11. John
    September 17th, 2003 at 22:57 | #11

    Thanks Dave, I’ve fixed this now. I knew the point was right because I wrote about it at the time, and when I checked Amazon it gave a publication date of 2000, but that must have been the paperback or something.

  12. John
    September 17th, 2003 at 23:09 | #12

    dsquared, it gets even worse. When I read about the Dutch original of Big Brother, I didn’t pay it much attention, but I vaguely thought “how cutting-edge and daring those Dutch are”. By the time it reached Australia via the US, I had absorbed the view that it was all degrading trash. If we had imported it directly from Europe I’m sure I would have had a different reaction, at least until I actually watched it.

  13. September 17th, 2003 at 23:23 | #13

    Much as I hate to blame America, they are guilty of creating “reality Television”. Candid camera and the like aren’t really of that description, but the father of the modern reality television show was MTV’s “The Real World“.

    The Real World was the first show that I know of that had the explicit premise of putting people in a controlled setting and filming their activities for an extended period of time. It first screened in 1992 on MTV. MTV followed it up with “Road Rules” in 1994, and after that came the flood of Reality TV. Yay.

  14. September 18th, 2003 at 01:14 | #14

    An interesting contrast between the US and EU re global culture. 

    the US has:
    racial diversity (Caucasian 70% / Hisp./Afr.30%)
    cultural uniformity (Christian / English)
    the EU has:
    racial uniformity (Caucasian 90% / Non-Cauc 10%)
    cultural diversity (Pagan / Linguistic Multicultural)

    But these ratios are going to change, in an adverse direction as far as economic functionality of the US is concerned.

    The US will become more racially diverse, as Southern Mexican and Latinos are allowed to illegally enter and reside in the southern states.
    Invariably, the illegals are less well educated and less economicly useful than citizens.
    The US will also become more culturaly diverse as Hispanic becomes the first language for a significant minority of it’s population.
    Balkanisation of the US will therefore reduce the domestic economy of scale advantage.

    The EU, OTOH, seems to be undergoing the reverse process. English is becoming a more wide spread second language, which is bringing about EU cultural uniformity.
    Meanwhile, anti-immigration parties are acting to reduce the amount of EU ethnic diversity, which is illiberal, but will result in fewer race riots, which are unproductive.

    Thus I predict that the EU’s soft power will begin to converge on the US’s as:
    the EU coalesces
    the US fractures
    This implies that the EU will begin to launch genericly Euro brand names, somewhat like Airbus,
    which will overtake the US market leaders.
    The big question Pr Q overlooks in cultural power is the lead the US has in Sci-Tech.
    Here the US performs well above the EU average in patents, inventions and the like. And this gap seems to show no indication of narrowing.
    It’s lead is particularly evident in:
    info-tech
    nano-tech
    bio-tech
    This lead in elite science seems to come from the marriage of:
    Protestant work-ethical Yankee engineers
    Asian family-worshipping Nerds
    The EU, by contrast, does not grow or attract the same level of top flight sci-tech talent.

    Thus the competition between the US and the EU will focus on the varying rates at which:
    the EU can make the best of what it has got
    the US can take the best of what the RoW has got, without breaking itself

  15. Mork
    September 18th, 2003 at 09:24 | #15

    John: a couple of comments and quibbles, strocchi-style:

    * overall, I think your thesis is spot-on – most of the manifestations of “American culture” that is supposedly dominating the planet are superficial, and most are readily explained by economics – either directly, as in the chain example or indirectly via the fact that the economies of scale to which you refer have a greater capacity to project cultural icons globally.

    *I think you’re completely correct to point out the fallacy of implying that consumption of these phenomena – or even using them as a cultural reference point – indicates some sort of assimilation to American culture. For the most part, these things are just not capable of bearing that weight. In fact, I think that movies and TV may contribute to more misunderstanding of American culture than they do insight – even relatively sophisticated people I know in this country have wildly inaccurate conceptions of American culture, the dominant influence on which has been American TV and movies.

    * One area of “soft power” that you don’t discuss, though I think it’s at least as strong as the examples you cite is American influence on business methods and management theory, which dominates in pretty much all western economies.

    * I think you’re wrong to say that “Although America is not a homogenous society it’s at least as homogenous as any European country”. I can’t think of any European country in which I could identify nearly as many distinct cultural groups as the U.S., not to mention the fact that there are at least 3 racial groups that comprise over 10% of the population and are dominant in distinct areas of the country.

    *I also disagree with the assertion that “McDonalds has a noticeably higher status in America than in its overseas markets” – in fact, I think precisely the reverse is true, by a small extent in other Western countries, but by a very large extent when you look at developing coutries such as China or India.

  16. John Quiggin
    September 18th, 2003 at 11:06 | #16

    Mork, thanks for your comments. On reflection I agree that I’ve overstated the case on US homogeneity, and will rethink it a bit.

    On the status of McDonalds, I meant my remarks to refer to developed countries, and I’m standing by my assessment as in that respect. In Australia, McDonalds is mainly for teenagers and children. In the US, adults regularly go there for sitdown meals as well as takeaway.

  17. Mork
    September 18th, 2003 at 11:28 | #17

    John – while it’s hardly the crux of your thesis, I must continue to respectfully disagree with your assessment. In fact, I have to question your research methods. I find it very difficult to believe that you have made as many McDonalds visits in either Australia or the U.S. as I have. I find it very difficult to believe that anyone has.

    I think you’re wrong to say that Australian adults don’t eat in when they visit McDonalds (and I’m not just talking about me). I also think you might miss a class distinction in the U.S.: in the cities, at least, McDonalds is much more a poor person’s food than it is here, with commensurately lower standards of restaurant fit-out, cleanliness and service, as well as a range of (even) lower priced food options. There is a growing range of higher-priced “gourmet” chains that provide a fast-food alternative for the middle class.

  18. dsquared
    September 18th, 2003 at 16:30 | #18

    Hmmmmm … I would not class “Real World” as a reality show, mainly because it didn’t use hidden cameras. I’d call it a “docu-soap”, a concept that I am prepared to tentatively attribute precedence to the USA, mainly because I don’t know the date of broadcast of “Sylvania Waters”. But good point.

  19. cs
    September 18th, 2003 at 17:40 | #19

    Good post John, although I’m afraid I have to agree with Mork re comparative status of MacD … my experience in the US is that it is generally a grubby bottom of the barrel food outlet, compared to the Jiff-style Australian outlets at least.

  20. James Farrell
    September 19th, 2003 at 12:17 | #20

    A very interesting essay, John. Sorry to be a bio-chemical reductionist but, as far as food is concerned, there is one other factor you perhaps ought to consider: MacDonald’s may actually have developed a product – involving a particular combination of saturated fats and sugar – that is genuinely addictive. If so they will have followed the formula for success pioneered by the tobacco companies. Uneducated and low-income consumers are the best targets, of course. It is a common observation that weight rather than race is now the best predictor of income in the US, which ties in with what Mork and Chris said about class and food.

  21. September 21st, 2003 at 21:08 | #21

    Take a look at the varying fortunes of Eurodisneyland to see how things worked out. Initially rejected, eventually mass resources gained it a certain presence in France. The interesting thing is, there appeared to be a Disney presence in France already, via “Le Journal de Mickey” (hebdomadaire). I was impressed by it as a child in the Belgian Congo, in part because it was a French reworking pitched at a seriously higher level than the US originals I had become familiar with in Iraq (it slipped in bits of Frecnh history and the classics too, e.g. Mickey in the time of the Frankish kings, or showing Hercules how to stop the Hydra of Lerna).

    On another point, Strocchi is misreading the lure of the USA for innovators. It’s not unique, and it never was a driver as such but rather a multiplier. We can see this in the track record of similar individuals heading for England when it too had a lure – Watt, Brunel pere, Bessemer, Marconi, da Cierva, Uncle Tom Cobley and all. The pace stopped when Britain fell off the wave it had been surfing some eighty odd years ago. Interestingly, Americans heading for the UK didn’t bring anything solid – just department stores, urban railway systems, mechanical business machines etc., none of which were drivers in their period but rather tapped into existing affluence and added to consumer value (unlike the things that ploughed value back in, helping investment).

  22. September 22nd, 2003 at 19:47 | #22

    I find the link between McDonalds, weight and class extremely dubious, and the suggestion that they stumbled across some kind of addictive additive outright laughable.

    I eat the majority of meals at McDonalds or similar fast food vendors (Burger King, Chicken Treat etc), yet am at the ideal weight for my height due to keeping physically active all year round. People like to make all sorts of excuses for being fat, but when it comes down to it, they just eat too much and don’t exercise enough.

  23. August 24th, 2004 at 03:30 | #23

    “The effects on American consumers are ambiguous, but arguably negative on balance. Although they benefit from having films and chain restaurants tailored precisely to their tastes, they have far fewer alternatives than before the rise of the chains, particularly if their tastes differ a bit from the mean.”

    That statement is simply not accurate and demonstrates blissful ignorance of the USA, especially with regard to the specifics of coffee. There were virtually NO independent coffee shops before Starbucks. Period. QED. That is not a disputable fact. Starbucks created an industry. It has of course vastly taken the lead but it has also — to continue with the analogy — broken ground for thousand and thousands of independent coffee houses of various stripes.

  24. burritoboy
    August 24th, 2004 at 10:50 | #24

    Just to confuse things a bit more, an interesting meme in the film criticism community is that the need to make American films “work” in foreign markets has, conversely, made the films (we’re talking big-budget Hollywood productions) less “American”. The argument points to severely limited dialogue (easier to translate), adoption of Hong Kong-originated plotting/cutting/editing/special effects (to better sell movies in East Asian markets) while limiting discussion of specifically American situations, problems and so on.

    Anyway, just wanted to throw that out there.

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