Monday, January 23, 2006 - The Progress & Freedom Foundation Blog

A Friendly Conversation about Corporate High-Tech Engagement with China

(I recently engaged my former Cato Institute colleague Jim Harper in a dialog about the effectiveness of U.S. engagement with China in terms of broadening human rights and speech rights in particular. I've been doing some soul-searching about this recently and asked Jim to help me think through the issue (and the "engagement is good" theory) again. What follows is the transcript of our e-mail exchange. A condensed version of this exchange also appaers on CNET today. - - Adam Thierer)

THIERER: Jim, I must admit, in recent months I have really been struggling with the issue of U.S. corporate engagement / investment in China. In particular, I have been wondering if my long-held assumption is correct: that greater engagement by U.S. companies in China will really help achieve meaningful reforms for its repressed citizenry. I have always argued that investment by U.S. companies - - and technology companies in particular - - could help break down some of the legal barriers to greater economic and social / cultural freedom.

In recent years, however, the reports from the front have not been good. It does not seem the U.S. corporate engagement / investment has really done much to effectuate positive reforms in the post-Tiananmen era. It seems that the Chinese are just as repressive as ever, especially on the political / cultural front. Worse yet, we know that many large American corporate technology leaders have actually assisted the efforts of Chinese officials when they sought to repress speech and dissent. (Microsoft, for example, has made news recently by shutting down a journalist's blog because of material that might be offensive to Chinese authorities. And Yahoo and Google are coming under fire for playing ball with Chinese officials too.)

Tell me my fellow libertarian friend, are you not also troubled by these developments? Are you still comfortable with our traditional position on the issue?

HARPER: I recall, a few years ago, being very concerned when I heard that Google had come to an agreement with the Chinese government so that their service would not be blocked there. I had a natural sense of revulsion at the thought that any company, much less one of the technology companies that are doing so much to improve life around the world, would get in bed with censors and despots. Google has never been as forthcoming about what exactly they do to appease the Chinese as I would like them to be, so I suppose I am still uncomfortable with it.

But I have come to believe that the best option for a company faced with this dilemma is to accept the ugly conditions some governments put on doing business in their countries. This is for a couple of reasons: There is strong evidence that refusing trade doesn't help anybody. The U.S. trade embargo toward Cuba has been a dismal failure. We've had some level of trade restrictions with Cuba for more than 40 years and, if anything, it has helped Castro by pauperizing the Cubans, demoralizing them, and shielding them from knowledge about the benefits of freedom. Heck, if we had had trade with Cuba the last 40 years, a steady diet of fast food probably would have killed off Fidel by now...

Just as importantly, if you give them the communications tools that these companies provide, the Chinese people will evade government controls and get done what we want them to get done, censorship or no censorship. You don't have to use words like "falun gong" or "Taiwan" or "free speech" to communicate about liberty and public issues. Before Vaclac Havel was the first President of a free Czechoslovakia, he was a playwright. His plays weren't political polemics that tweaked the nose of the government and invited censorship (though he got in plenty of trouble). They were subtle critiques of life under the regime. Everybody knew what he was talking about. Freedom had been in the hearts of the Czechs for years when the Velvet Revolution officially delivered it. Technology and communications are enabling this on a broader scale in China. It's working. You'll see.

THIERER: You make many good points here that I can agree with. Specifically: "There is strong evidence that refusing trade doesn't help anybody." I think that is definitely true. And, at least in theory, I also generally agree with your statement that: "if you give them the communications tools that these companies provide, the Chinese people will evade government controls and get done what we want them to get done, censorship or no censorship."

Nonetheless, at least from the ongoing press reports I've been following, this change is coming about much slower than one would have hoped. After all, there's a lot of investment and a lot of computers in China these days, and yet expression and political dissent are still regularly prosecuted. That being said, in the long run, I think you are probably correct. The cumulative effect of all this investment and dissemination of digital technologies should be greater liberalization on the political side of things to match the economic breakthroughs we have already seen.

But what I'm much more concerned about in the short term is that there are factors at work that could continue to hold back or slow this progress toward greater political freedom. For example, we know that many of the high-tech companies who already do business in China have a number of concerns they want to see the Chinese government address to make the business environment more hospitable. Greater intellectual property protection is often at the top of that list. While I can certain sympathize with calls for greater copyright and patent protection, I'm a little worried that a silent quid pro quo may be at work here. The firms want promises of stepped-up government enforcement against IP piracy while the government makes no secret about its desire to crack down on dissent by the citizenry. So, an implicit deal is crafted over time which sees Chinese law enforcement officials making some selective busts of IP piracy rings while, on occasion, U.S. companies hand over the names of certain website operators or journalists to Chinese officials. I'm not saying this sort of thing is rampant, but it certainly seems reasonable to assume that a little of this may be taking place already today.

I could elaborate more on this point, but let me get your take on this issue. Is this a valid concern, or is it overblown?

HARPER: That's a very interesting and relevant idea: that there may be a conscious or subconscious quid pro quo between Microsoft and China. Is Microsoft doing a little extra to prop up the regime in exchange for a little more copyright help out of the Chinese government? That would explain the rumor - and so far as I know it's only a rumor - that MSFT actively went to the Chinese and said "Hey, what about this guy?"

Which brings me to an important weakness in my support of engagement even under ugly conditions. The last thing I want companies to do is be effective in their efforts. In labor relations, there's a form of protest the labor side sometimes uses called "work-to-rule." Employees punch in exactly on time and leave exactly on time. They follow every safety rule. They take their full allotted coffee breaks. They drive the speed limit. They do everything exactly by the book. And productivity goes through the floor.

I'd like to be confident that the companies engaging with despotic governments are working to rule, doing the absolute minimum. But I'm not. How do we find out? Probably, one of the conditions of this kind of engagement is to not publicize what is going on. Consider Google's perpetual reticence about what they do. This is some ugly deal-making and my confidence in my position wavers the more I think about it.

That's why I think objecting to this stuff, as Reporters Without Borders has done, is appropriate. Companies like Microsoft, Google, Cisco, and Yahoo! should be called out and take a PR and profit hit in countries like the U.S. when they do this. People who feel strongly that companies should disengage ought to make a stink about it and do their best to hurt the companies that do it in the marketplace. If they can convince other consumers on the merits of their argument, and organize enough people into an effective boycott, they win the day and disengagement will become the rule.

THIERER: But as you know, Reporters Without Borders has gone a step further and proposed regulation by U.S. lawmakers to address what they call "the ethical lapses displayed by certain Internet sector companies when operating in repressive countries." They have been applying exactly the sort of pressure that you suggest is needed on CEOs and shareholders of major high-tech and Internet corporation, but they say nothing has changed. So, they now propose that Congress and the Department of State push a code of conduct on high-tech companies doing business in repressive states that would encourage them not to play ball with the bad guys in China and elsewhere.

If that doesn't work, Reporters Without Borders suggests that legislation be implemented disallowing U.S. companies from hosting services and e-mail services in those countries and forbid them from selling surveillance software or other software to those countries which could be used to censor dissenting views. And there's more to their proposal which can be found here.

It strikes me that, despite the best of intentions, this would be extremely difficult to enforce and, worse yet, would just result in a mass exodus of American high-tech companies from many foreign markets. And I don't think that's the best solution here. But let me hear your thoughts on this proposal.

HARPER: Reporters Without Borders' proposal for regulation of Internet and technology businesses is shot through with ironies.

Everyone supports their goal, of course, which is freedom. But this proposal shows that their goal isn't total freedom: It's just press freedom. They would reduce the freedom of Internet businesses in the United States in order to advance a strategy for press freedom in certain other countries (one which I think doesn't work).

Taking economic freedoms from some folks in the hopes of advancing other freedoms for other folks? That's just interest-group politics--very appealing interests, to be sure, but special interests just the same.

I don't think freedom should be a zero-sum game like that. I want more freedom for everybody, which is part of why I come down on the side of the engagement strategy.

Reporters Without Borders' doesn't say much about democracy on their Web site and perhaps that's for good reason. They have a democratic way of achieving their goals and they have a coercive way. By calling for regulation, they're choosing the coercive way. They could organize a boycott if they could motivate people to apply their dollars where their values are. That's true democracy, where the people rule - directly! - with the carrots and sticks of their spending. But Reporters Without Borders seem inclined to short-circuit consumer market processes and go to lawmakers to advance their goal.

You mentioned the point that engagement with China is an arguable ethical lapse. Do you agree? For us libertarians, this is about as appealing a case for corporate social responsibility as there can be. But Milton Friedman said in 1970 that the social responsibility of the firm is to increase profits. Should technology companies rein in the profits they return to shareholders, the employment they give to workers, and the products they make available to the Chinese people (and, alas, their government) as an expression of ethics or social responsibility?

THIERER: I certainly agree with you (or Milton Friedman, I guess) on the corporate social responsibility point. A corporation's first duty is to maximize its value for shareholders by achieving profitability. I certainly do not agree with all the things that some Lefties and lawmakers say corporations have a "duty" to provide - - whether it's health care, a "fair wage", donations to popular charities, or whatever else. If firms want to do so, fine. But they shouldn't forced, or even expected, to do so.

But isn't there a case to be made that there certain issues exist which rise to a different level of concern? Allow me to use what I will admit is an extreme hypothetical example. Let's say that a certain company manufactures sarin gas for good purposes (I don't know what those good purposes would be, but just go with it for a minute). Suddenly, that company gets a big order for sarin from a repressive regime with no explanation of what they need it for and the traditional legitimate use of sarin is not likely in that country. Moreover, the company knows that the repressive regime in question is currently engaged in what many believe is a genocide campaign against certain indigenous populations. There's even been a few reports of camps where people are being rounded-up and tortured. So, the very real threat exists that they might use that sarin gas against those groups in some way.

Knowing this, the company would hopefully refuse to sell the gas to the repressive regime. But what if they went ahead and sold the gas anyway? Should the U.S. government, or perhaps even the U.N., intervene in some way to prevent the sale? Of course, this is not entirely hypothetical. This became an issue after World War II regarding companies that sold various chemicals, munitions and other things to the Nazis. And the U.S. even has a law, the Foreign Corrupt Practices Act, which makes the lesser offense of bribery of foreign officials by a U.S. corporation a federal crime. As far as I know, no other country has such a law for its companies doing business overseas.

Again, I do not want to equate the sale of computer software / hardware with the sale of deadly chemicals. But where would you draw the line? I assume you would agree that the sale of potential deadly items (dare I call them "weapons of mass destruction"?!) would qualify for special consideration / regulation. But I take it you would never support anything beyond that? What if the company has a long track record of marketing speech-restricting tools to repressive regimes across the globe? Would that make any difference?

HARPER: Wow. That is quite an example--and probably not a very good one because I don't think sarin gas is even a dual-use technology. But I guess you've asked me to assume that it is...

First, I think a country can regulate or ban domestic companies' trade in munitions with other countries because the geopolitical interests of nation-states trump the economic interests of companies and people. Alas, that's going to hold true until we get back to the Garden of Eden, or vomit up that apple, or whatever. (Is that allusion too Christianity-specific?...)

Dual-use technologies are a closer call. The concept generally refers to technologies and products with both peaceful and military uses. Maybe your hypothetically useful sarin gas is such a thing. Our topic here, though, is technology and services that have both beneficial-communicative and harmful-censorial uses, but no obvious military uses (beyond what any computing technology has). So I think that the interest of the U.S. government in banning trade is at a pretty low ebb. The interests of the U.S. are not at stake, just the interest of a faction in directing the U.S. government to advance its aims.

Too many people are in the habit of looking to the government to solve their problems. There is way too much armchair consumerism and not enough angry letters and consumer boycotts. Reporters Without Borders has a good argument on the merits--one that I weakly disagree with--but they are wrong on the tactic.

We talked about the possibility that Microsoft is working with the Chinese government to advance its intellectual property agenda in that country. It's certainly also possible that Reporters Without Borders and other critics are singling out Microsoft because of its intellectual property agenda worldwide. There's a loose analogy (in all this speculation) between MSFT working with the Chinese government to limit one freedom and RWB/RSF working with the U.S. government to limit another.

Capturing and using government power is far too easy and far too appealing to too many. It's better for people who object to corporate practices to use their own influence to affect it. No company lives in a bubble. They buy inputs of all kinds: transportation, power, paper, advertising, courier services, hardware, software. The list goes on and on. If a company can't be persuaded directly to stop an objectionable practice through boycott and similar pressure, their suppliers can probably be pressured to stop providing the inputs.

Some interests are using these techniques today, for example, by pressuring stores not to carry certain products and pressuring media not to carry certain advertisements. Now, I don't agree with the substantive aims of the groups doing this--they tend to have religious or moralistic aims--but I respect their use of market pressure rather than coercion. If they are using the persuasion of their dollars rather than government force to shape society the way they want it, more power to 'em. I can buy my explicit-lyrics CDs someplace else. There's room for all of us if we're all committed to this being a free country.

I fully respect anyone who disagrees with me on the substance of my argument--that trade in technology has net benefits for the Chinese people even if some traders collaborate in censorship--IF they advance their argument through persuasion rather than government force. People have plenty of power to persuade others and to persuade companies like Microsoft. The test of their commitment is whether they are willing to do the work that it takes to bring others to adopt their view and share their mission.

THIERER: Well, in conclusion, I guess after all this I would still classify myself as being in the "engagement is good" camp, but I continue to have some uneasy feelings about it. You argue that "The interests of the U.S. are not at stake, just the interest of a faction in directing the U.S. government to advance its aims." Yet, isn't spreading democracy and freedom of expression a U.S. interest? If some of our most respected technology companies are countering that goal by facilitating the repression of dissent and speech in general, then doesn't that counter our national interest?

You've already answered these questions quite nicely, of course, but I'm still doing some soul-searching on my end. My hope is that American technology companies start to play a little hard ball with some of these repressive regimes and not give in to their demands. I know that puts these companies in a very difficult position--and I will continue to oppose efforts to legally force them to do this--but I hope they will consider taking a different approach to engagement with China and other repressive regimes in coming years.

Enjoyed our conversation.

posted by Adam Thierer @ 1:11 PM | Free Speech , Internet Governance