Soviet Union, Pepsi production line

The 80s was a period of global uncertainty. With the change in leadership of the second biggest military power in the world, the wind of change started to blow over the world. With this came some radical changes to the once completely isolated Soviet Union as its new leader Gorbachev opened up its borders to a free flow of information through a program he called “Перестро́йка” also known as Perestroika which translates to “openness”. As a result came an influx of western ideas and businesses to the country most notably Pizza Hut, for which Gorbachev did an advert for. Before this history-changing event, most western businesses weren’t allowed behind the Iron Curtain, with the exception of Pepsi which was started with the introduction of Pepsi to Khrushchev in 1959 at the New York exhibition.

Due to this introduction to the Soviet people to cola syrup, it resulted in the creation of a very large market in the states beyond the Iron Curtain. As a result, several years later, in 1972 Pepsi Co. signed a contract with the Soviet Union locking its prime competitor Coca Cola from importing their own product into any Warsaw pact states, therefore securing multiple country-wide monopolies for Pepsi to exploit. They set up multiple factories where their imported syrup could be combined with local water and gas to create Pepsi. This process had to be refined as many said that the first Pepsi’s to come out of the factories “tasted like shoe polish”.

This became a problem when it came to importing the syrup as the Soviet ruble was next to worthless outside of its borders, as well as the USSR government forbidding the extraction of the currency out of the country. To solve this issue the Soviet government and Pepsi Co. reached a bartering deal. For every bottle of cola syrup that Pepsi would send the USSR, an equal amount of Russian vodka had to be returned. This barter worked very well throughout the 70s due to the Russian Stolichnaya vodka being received well among the US market.

This would change after 1979 after which tension between the two nations rose due to the Soviet invasion of Afghanistan. As a result, many us citizens started boycotting any product manufactured in or related to the USSR. This was a massive problem for Pepsi as it was slowly stockpiling large amounts of Stolichnaya vodka that wasn’t selling, meaning that they weren’t making the money they should’ve been from the trade and currency still couldn’t be used as an international payment. This culminated in 1989 when Pepsi looked for something else the Soviet’s could trade in exchange for the cola syrup due to a large slowdown in the vodka market as well as reaching a level of minimal to no profits from the trade.

As a result in the spring of 1989, Pepsi and the Soviet Union signed a deal that will go down in history. Pepsi Co. came into ownership of 17 old Soviet submarines, a frigate, a cruiser, and a destroyer. This for a brief time meant that a company was in the top 10 rankings of the world as a military power, more specifically the 6th most powerful military power in 1989. Provoked the Pepsi CEO Donald M. Kendall to address President Bush’s national security adviser saying that “We’re disarming the Soviet Union faster than you are,”.This wouldn’t last long as they would later sell all of the submarine and ships to a Norwegian scrapping company for them to be scrapped for metal and any other useful resources but the damage was already done. Political turmoil would shortly follow

Overall this 3 billion dollar deal was astonishing. Never has a company in all of world history managed to sell syrup for warships. This deal had a great impact on the political climate at the time as American-Soviet relations became ever strained as the USSR was slowly collapsing. Kendall’s statement reached all corners of America which resulted in many people criticizing the US government for not taking a more severe stance against the USSR, especially after the invasion of Afghanistan, and how embarrassing it was that a company has managed to serve harsher sanctions of the enemy’s military than the government. Even so, the impact of this colossal move would shortly be mitigated as only 3 years later the USSR would formally dissolve, with it going all deals made with Pepsi.

Even so, this move has shown the world that governments aren’t all-powerful and if power is aggregated by a singular entity, such power might outrank many governments. This has proven to be a great danger as when companies get such large political power they use it to abuse the system to increase profits (case study: Central America and the banana trade). We must keep such strong and independent entities in check if we don’t want our children to live in a dystopian oligopoly in the near future.