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Published On: Mar 16, 2007 11:12 AM
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Published On: Mar 16, 2007 11:12 AM
Mon - January 29, 2007
Understanding Risk
Against the Gods: The
Remarkable Story of Risk, by Peter
L. Bernstein, Wiley, 1998, 383 pages,
This is one of those books that I put on my
Amazon wish list something like five years ago, ordered about two years ago, and
finally got a chance to get through it thanks to some abnormally regular travel
over the last couple of months. Picking up a book about the world of finance is
not something I normally do, if for no other reason than I buy books to learn
about stuff rather than as a homeopathic cure for insomnia.
But author Peter Bernstein, a lifelong "quant" with superb credentials, rises above both his profession and the subject matter with the grace of a historian-storyteller, and makes the history of risk and risk management so powerfully engaging I found myself searching online for the back stories of some of his characters. In fact, at one point, I told Gizmo that as a result of the book, for the first time in my life I was interested in mathematics beyond simple spreadsheet functions.
Against the Gods is that good, and a command of the meaning of "risk" is probably no more important anywhere in the world than right here in China, where we live with uncertainty every day, regardless of your profession. Reading through the book and occasionally staring out my hotel room window at Mt. Fuji in the distance late in December, I realized that in China we are so accustomed to doing business amid great uncertainty that we come to take it for granted.
Which, I guess, is fine if you're simply turning up the "squelch" knob on your mental radio to drown out the ongoing static and to keep yourself sane. Unfortunately, if you keep drowning out that static you wind up numbed to how bloody risky it is to do business of any kind here. That's not good, especially if you're putting your money into China, and arguably even more so if you've been charged to watch somebody else's. Read Tim Clissold's Mr. China, and you get what I mean.
Meantime, I've developed a taste for books about the history of the finance industry, and my order to Amazon last night included a couple of titles along those lines.
But author Peter Bernstein, a lifelong "quant" with superb credentials, rises above both his profession and the subject matter with the grace of a historian-storyteller, and makes the history of risk and risk management so powerfully engaging I found myself searching online for the back stories of some of his characters. In fact, at one point, I told Gizmo that as a result of the book, for the first time in my life I was interested in mathematics beyond simple spreadsheet functions.
Against the Gods is that good, and a command of the meaning of "risk" is probably no more important anywhere in the world than right here in China, where we live with uncertainty every day, regardless of your profession. Reading through the book and occasionally staring out my hotel room window at Mt. Fuji in the distance late in December, I realized that in China we are so accustomed to doing business amid great uncertainty that we come to take it for granted.
Which, I guess, is fine if you're simply turning up the "squelch" knob on your mental radio to drown out the ongoing static and to keep yourself sane. Unfortunately, if you keep drowning out that static you wind up numbed to how bloody risky it is to do business of any kind here. That's not good, especially if you're putting your money into China, and arguably even more so if you've been charged to watch somebody else's. Read Tim Clissold's Mr. China, and you get what I mean.
Meantime, I've developed a taste for books about the history of the finance industry, and my order to Amazon last night included a couple of titles along those lines.
Posted at 09:00 PM
Mon - October 9, 2006
Childhood's End
China Dawn: The Story of a
Technology and Business Revolution
by David Sheff, Collins, New York, March 2002
In these heady days of high-speed
telecommunications development in China, all eyes are looking forward.
But sometimes it's worth taking a look back.
China Dawn is a chronicle of the early days of the Internet and broadband boom in China. While there are similarities with the Boom/Bust in the west, there are distinct differences, and David Scheff covers the early days with the wide-eyed, breathless hyperbole that is almost endearing.
A friend and San Francisco area neighbor of youthful venture capitalist Bo Feng, Sheff became a fly-on-the-wall for the emergence and growth of companies like AsiaInfo, Sina.com, and China Netcom (the latter in its original incarnation) and the creation of Chengwei, a venture fund focused on China tech startups and run by Feng and partner Eric Li.
Sheff takes us on a journey that has its cast of characters bouncing back and forth between China and California so much that my biggest problem in reading this book is sympathetic jet lag. What is most striking about the book are three issues that Scheff overlooks, but that come out in the narrative.
First, it is a sad statement about China that people like Feng and Li had to live on two sides of the world to do get capital into Chinese startups. In a country with trillions of dollars in savings and hundreds of billions in foreign reserves, two guys who wanted to start a venture capital fund had to go to San Francisco, New York, New Haven, and points between to pull together a comparatively paltry $60 million. It should have been possible to tap global financial markets from Shanghai, but the minimal importance institutional investors attached to China and the PRC's lack of decent financial infrastructure made necessary a process that is maddening in its wastefulness of time and money and in the personal toll it took on investors.
Of course, less than a decade later, it's all changed - there is now so much money coming into China that your average entrepreneur trips over it.
Second, one gets the feeling that China's powers-that-be treated Edward Tian a bit shoddily. That someone like Tian with some pretty obvious business and management skills was largely sidelined when China Telecom and China Netcom were restructured confirm power, not money, drive the decisions around China's telecom sector.
Caveat investor.
Finally, raising money on China's infobahn was never quite the walkover it was in the States. Bo, Li, and many of the entrepreneurs they backed (including Tian in his AsiaInfo days) didn't just write business plans and wait for the dumb foreigners to dump cash on them. Most of the characters we meet in the course of the book were living on almost no sleep, no family life, and jetlag, all while silently praying that Wu Jichuan didn't do something to bring the whole show down on their heads. Plenty of dumb business got funded, but you can't help but feel Web 1.0 in China was far more the product of sweat and blood than its American counterpart.
The unique perspective of the fly-on-the wall that Sheff brings to this story ensures that many other important stories are not told. There was far more to the growth in the Internet in China than what Bo Feng and Eric Li dealt with. But for this book, that's almost beside the point. His point of view may deny Sheff journalistic detachment, but it provides us with the closest thing to an "I was there" viewpoint available in the English language today.
But sometimes it's worth taking a look back.
China Dawn is a chronicle of the early days of the Internet and broadband boom in China. While there are similarities with the Boom/Bust in the west, there are distinct differences, and David Scheff covers the early days with the wide-eyed, breathless hyperbole that is almost endearing.
A friend and San Francisco area neighbor of youthful venture capitalist Bo Feng, Sheff became a fly-on-the-wall for the emergence and growth of companies like AsiaInfo, Sina.com, and China Netcom (the latter in its original incarnation) and the creation of Chengwei, a venture fund focused on China tech startups and run by Feng and partner Eric Li.
Sheff takes us on a journey that has its cast of characters bouncing back and forth between China and California so much that my biggest problem in reading this book is sympathetic jet lag. What is most striking about the book are three issues that Scheff overlooks, but that come out in the narrative.
First, it is a sad statement about China that people like Feng and Li had to live on two sides of the world to do get capital into Chinese startups. In a country with trillions of dollars in savings and hundreds of billions in foreign reserves, two guys who wanted to start a venture capital fund had to go to San Francisco, New York, New Haven, and points between to pull together a comparatively paltry $60 million. It should have been possible to tap global financial markets from Shanghai, but the minimal importance institutional investors attached to China and the PRC's lack of decent financial infrastructure made necessary a process that is maddening in its wastefulness of time and money and in the personal toll it took on investors.
Of course, less than a decade later, it's all changed - there is now so much money coming into China that your average entrepreneur trips over it.
Second, one gets the feeling that China's powers-that-be treated Edward Tian a bit shoddily. That someone like Tian with some pretty obvious business and management skills was largely sidelined when China Telecom and China Netcom were restructured confirm power, not money, drive the decisions around China's telecom sector.
Caveat investor.
Finally, raising money on China's infobahn was never quite the walkover it was in the States. Bo, Li, and many of the entrepreneurs they backed (including Tian in his AsiaInfo days) didn't just write business plans and wait for the dumb foreigners to dump cash on them. Most of the characters we meet in the course of the book were living on almost no sleep, no family life, and jetlag, all while silently praying that Wu Jichuan didn't do something to bring the whole show down on their heads. Plenty of dumb business got funded, but you can't help but feel Web 1.0 in China was far more the product of sweat and blood than its American counterpart.
The unique perspective of the fly-on-the wall that Sheff brings to this story ensures that many other important stories are not told. There was far more to the growth in the Internet in China than what Bo Feng and Eric Li dealt with. But for this book, that's almost beside the point. His point of view may deny Sheff journalistic detachment, but it provides us with the closest thing to an "I was there" viewpoint available in the English language today.
Posted at 11:27 PM
Mon - August 14, 2006
To Have a Lever Long Enough...
Race to the Bottom: Corporate
Complicity in Chinese Internet
Censorship by Rebecca MacKinnon,
Human Rights Watch vol. 18, no. 8(C), August 2006
An Articulate
Case
If nothing else, Rebecca MacKinnon has done a superlative job in pulling together into a single volume a treatment of the issue of Internet censorship in China as allegedly assisted by major U.S. companies, specifically Yahoo!, Microsoft, Google, and Skype. And for that, all of us should be grateful, because it provides us all with an opportunity to evaluate the position taken by activists working to change the behavior of these companies.
If for no other reason, this is a work that must be read and considered by everyone with an interest in the issues. Ms. MacKinnon is never bashful about stating her position or that of the publisher of the report, and there is no attempt to balance the discussion, but frankly I wouldn't expect that. This is an advocacy document, not a piece of journalism, and it's a damned good piece of advocacy.
To her credit, the report is a good read, and she articulates the positions more clearly than most have in the past. Frankly, I'm in general agreement with part of her premise - that there is more companies can and should be doing about this issue. After that, however, I'm afraid we part ways.
I have two major issues with the report that I think draw from its credibility and need to be addressed.
Simple Recommendations. Or, Not.
First is the contention made in the executive summary that;
"Human Rights Watch does not believe that the choice for companies is to either continue current practices or to leave China. Rather, we believe companies can and should make ethical choices about what specific products and services they will provide to the Chinese people––and the manner in which they are provided––without playing a pro-active role in censorship or collaborating in repression."
In the cases of none of the four companies singled out in the report are specific recommendations made about which "specific products and services" should or should not be offered. What is provided at the end of the report is a series of seven recommendations to Internet companies operating in China, which boil down to:
1. Lobby the Chinese government to end censorship of the Internet. (See my next point below)
2. Refuse to participate in or facilitate infringements of the right to free expression, information, privacy, association, or internationally recognized human rights.
3. Never turn over personal user information if it could be used to prosecute a user. To ensure this happens, pull your servers with this data out of China.
4. Never censor any material unless required to do so in writing. Stop any proactive effort immediately.
5. Use all legal means to resist demands for censorship.
6. Document all censorship cases
7. Encrypt all email.
All of which sounds perfectly reasonable. What never happens in the course of the report is an analysis of whether or not it is possible to follow these practices and be allowed to operate in China. With all of the resources available to her, Ms. MacKinnon and her assistants never take the time to analyze with the kind of microscope an investment analyst would use is whether or not it is actually possible for Microsoft, Google, Yahoo! and Skype to do business in China under these requirements.
So We Lose a Few Internet Companies. We Have More.
The implication is "of course a company can do business under these requirements."
Yet elsewhere in the report Ms. MacKinnon notes:
"The display of politically objectionable content can result in reprimands to company management and employees from the MII, the State Council Information Office, the
Communist Party’s Propaganda Department, and/or various state security organs, accompanied by warnings that insufficient controls will result in revocation of the company’s license."
A somewhat knowledgeable reader can see the issue quite clearly - HRW requires that Internet companies refuse to "participate in or facilitate" infringements on free speech. And yet the report itself acknowledges that this kind of behavior could result in the revocation of a business license.
The question, of course, is whether the government would actually shut down these companies. Unfortunately the only way to test that is to have one or more companies step up and actually operate according to HRW's recommendations. Since nobody wants to be the sacrificial chicken, Ms. MacKinnon proposes the modern equivalent of Russia's political kommissars standing behind ranks of soldiers ordered into battle with orders to shoot if they try to retreat. She proposes legislation to force companies to challenge the will of the Chinese government.
(Worse, she suggests that U.S. companies would only be able to hand over user data to the Chinese government in cases determined acceptable by the U.S. Department of Justice. Under no circumstances would the Chinese government find this acceptable - it is redolent of the sort of extra-territoriality provisions forced on the Chinese during the period of unequal treaties and would invite an unequivocal response.)
Here is the question: how long would any Internet company, Chinese or foreign, be allowed to operate in China if it encrypted all email, refused to turn over personal information, moved its servers offshore, and demanded a writ each time it had to block a site or filter a word?
Does anyone with experience running a real business in the PRC, Chinese or foreign, doubt that taking such actions would be perceived by the Chinese government as the electronic equivalent of aiding, abetting, and harboring criminals? Is there any question that such actions would likely irritate some fairly senior people in government? Because in a land where rule of law is in its infancy, it would not require a court order to shut the doors of even the largest Internet company. All it would take is for a small number of well-placed regulators or police officials to lose their patience with a company and the axe would fall.
Something, again, that Ms. MacKinnon does not deny. She merely implies "HRW believes" it to be possible to act according to their requirements and still operate in China.
Fair enough. I "believe" she and HRW are wrong. And nether of us will be proven right or wrong until somebody does it. Any volunteers?
Moving the Immovable
My second objection to the report is the document's implicit conviction that if U.S. companies make a principled stand, somehow they will change the nature of the Chinese government. From the recommendations:
"Lobby and attempt to convince the Chinese government and its officials to end political censorship of the Internet."
Perhaps it is something in our psyche as Americans that believes that we can change anything if we work hard enough. I was raised to believe that this is an admirable trait. I have come to realize that there is a fine line between conviction and hubris.
With all of the government relations activity that companies engage in, the single most important aspect of that activity is developing an understanding of the broader policy agenda. Despite the misperception that MNC public affairs staffs, agencies, and industry associations actually help form policy in China (suggesting that Beijing operates the same way Capitol Hill does,) the reality is quite different. The only occasions on which companies are able to influence policy is when they are able to align themselves with or help direct politically powerful local interests in their lobbying efforts.
Despite the considerable aggregate value of foreign investment in China, the marginal value of any one company to the nation's future in 2006 is in decline, and its political power with it. No longer do the nations leaders spend considerable parts of their schedules meeting with CEOs. The nation is awash in foreign cash. It boasts an economy that is growing beyond the most optimistic projections of its reformers. And it is coming to grips with a sobering reality - it has arrived at this place by selling off its best assets, it has created powerful competitors for its own nascent companies, and it still faces intractable economic issues.
Against such a background, the traditional levers wielded by foreign firms in their relationship with the government - the carrot of more investment, greater employment, and technology transfer vs. the stick of taking it all to India or Southeast Asia - are proving too short to move policy. What is worse, the element within government that sees foreigners as increasingly unwelcome interlopers and opportunists is growing. While it is unlikely that such sentiment will spill over into an outburst of anti-neocolonialism, it means that until rule of law is firmly established in China, companies operate in the PRC on the good graces of the government, and whatever levers remain to companies are used sparingly and in the interest of survival.
Can Companies Incite Social Change? Do We Even Want Them To?
This is by no means an issue unique to China or to this moment in history. In his book Empires of Profit: Commerce, Conquest, and Corporate Responsibility, Daniel Litvin debunks the myth that "Multinationals....ruthlessly [manipulate] governments and entire countries in the single-minded quest for profits."
The myth dies hard, given that it is one of the Great Beliefs of our generation. But in a well-researched, carefully documented analysis that touches on ten cases, Litvin makes a cogent case that corporate influence even in the most corrupt of governance is more illusory than real, a misperception best banished from either NGO analysis or corporate strategy to someplace where it can do some good - pulp fiction.
Litvin's primary conclusion is that compelling companies to become instruments of social change in the countries in which they operate vastly overestimates the abilities of these companies to bring about change. Social change is not brought about by brute force, whether it is the arms and armaments of the United States armed forces, the petrodollars of Shell Nigeria, or the vast media empire and soft power of News Corporation.
If China must change its ways in censorship, leaving it to the companies would be at best ineffectual, and at worst precipitate unintended consequences that would redound to the detriment of all - conceivably including a backlash against any foreigners and the Internet as a whole.
The burden of proof, as it were, appears now to lie with Ms. MacKinnon and HRW. Before embarking on a campaign to compel companies to change their ways, she is at least obliged to proffer some level of proof that the effort (and likely significant attendant commercial costs) have some chance for success.
To do any less would be disingenuous, as at present in the historical record as well as in the minds of the well-intentioned leaders and shareholders of the four companies she discusses, the likely end result of following her recommendations would be to force U.S. Internet companies out of China. I will give her the benefit of the doubt and assume that this is not her end goal.
Alternative Recommendations
It would be disingenuous of me to conclude without offering up my own solution to the situation. As such, I offer my own preliminary set of recommendations.
I. Companies
A. I agree that every company should operate under a clear code of conduct - what I dispute is a universal code. While there must be common values that underlie all codes of conduct, any code of conduct must be specific to its business, reflecting the fact that every business is unique and each faces its own unique ethical challenges and traps.
B. Companies need to be absolutely transparent with all of their audiences about the ethical challenges they face in China, and should be upfront about how they plan on addressing them. This means being upfront with investors, customers, regulators, and the community at large. At the same time, a company is obliged to be honest about the nature of the challenges it faces in China so that all of its publics are clear about what the company cannot change, what it can, and what it would cost the company to make those changes.
C. Seek coalitions with Chinese companies and entities who for their own reasons share the goals of limiting censorship.
II. Investors - Investors are the most critical force to guide company behavior. Investment in a firm doing business in China cannot be passive - it must be active and all of the hard questions need to be asked. If a company does not behave according to its own code of ethics, an investor is obliged to do all in his power, up to and including divestiture - to convince a company to act according to its own broader interests.
III. Activists and NGOs - Add capable business people to teams developing recommendations to companies to ensure that recommended courses of action are commercially practical as well as ethically correct.
IV. Foundations and Think Tanks - Study ways for the full range of groups and entities to build comfort among policy makers in China with the idea of a free and open Internet.
V. Users, including users in China - Make it clear to the company exactly how much the company's policies really affect you.
VI. Governments - Provide companies with every opportunity to govern themselves in these matters, stepping in with legislation only when self-governance has failed. When stepping in, ensure that the companies that have made a good faith effort are not penalized along with those who have not.
VII. Business Associations - Provide companies with assistance in establishing codes of conduct, and in supporting the development of independent bodies to assess corporate behavior and compliance.
VIII. In addition, there are recommendations in the HRW report that are worth following, so.
A. Investors should press for ethical company practices and respect for users' human rights, and should ensure that the company is doing all that is practical to ensure this.
B. Investors should press for a code of conduct and for companies to comply to it.
C. International organizations should study - and monitor - the ways in which non-transparent censorship in China contributes to the lack of a level business playing field and the extent to which censorship should be considered a barrier to trade.
D. Activists should work in concert with socially responsible businesses to develop technologies that will maximize privacy, ensure anonymity, and enable Internet users around the globe to circumvent Internet censorship, filtering, and blocking.
E. NGOs should conduct independent research and documentation of the ways in which companies are or are not complying with legislation and/or codes of conduct.
F. Foundations and NGOs should provide clearing houses of information through which users can better inform themselves about the ways in which the products and services they use may be limiting their universally recognized right to free speech and privacy
The Last Word
Creating a free Internet in China will not happen overnight, and in the end will not be driven by forces from outside of China. Foreigners have but an opportunistic, supporting role to play in the process, a process that is yet unfolding as the domestic news media becomes more assertive in its relationship with the government.
But the first indication that the drive to a free and open Internet is driven by forces outside of China will throw the issue into the laps of the state security apparatus, an event that will destroy the progress made to this point and thrust us back into the dark ages of the early 1990s.
Ms. MacKinnon and HRW should be commended on their report for giving their point of view an articulate outlet, and for keeping this issue on the corporate agenda. Now that they have done so, it is time for the debate over solutions to begin.
If nothing else, Rebecca MacKinnon has done a superlative job in pulling together into a single volume a treatment of the issue of Internet censorship in China as allegedly assisted by major U.S. companies, specifically Yahoo!, Microsoft, Google, and Skype. And for that, all of us should be grateful, because it provides us all with an opportunity to evaluate the position taken by activists working to change the behavior of these companies.
If for no other reason, this is a work that must be read and considered by everyone with an interest in the issues. Ms. MacKinnon is never bashful about stating her position or that of the publisher of the report, and there is no attempt to balance the discussion, but frankly I wouldn't expect that. This is an advocacy document, not a piece of journalism, and it's a damned good piece of advocacy.
To her credit, the report is a good read, and she articulates the positions more clearly than most have in the past. Frankly, I'm in general agreement with part of her premise - that there is more companies can and should be doing about this issue. After that, however, I'm afraid we part ways.
I have two major issues with the report that I think draw from its credibility and need to be addressed.
Simple Recommendations. Or, Not.
First is the contention made in the executive summary that;
"Human Rights Watch does not believe that the choice for companies is to either continue current practices or to leave China. Rather, we believe companies can and should make ethical choices about what specific products and services they will provide to the Chinese people––and the manner in which they are provided––without playing a pro-active role in censorship or collaborating in repression."
In the cases of none of the four companies singled out in the report are specific recommendations made about which "specific products and services" should or should not be offered. What is provided at the end of the report is a series of seven recommendations to Internet companies operating in China, which boil down to:
1. Lobby the Chinese government to end censorship of the Internet. (See my next point below)
2. Refuse to participate in or facilitate infringements of the right to free expression, information, privacy, association, or internationally recognized human rights.
3. Never turn over personal user information if it could be used to prosecute a user. To ensure this happens, pull your servers with this data out of China.
4. Never censor any material unless required to do so in writing. Stop any proactive effort immediately.
5. Use all legal means to resist demands for censorship.
6. Document all censorship cases
7. Encrypt all email.
All of which sounds perfectly reasonable. What never happens in the course of the report is an analysis of whether or not it is possible to follow these practices and be allowed to operate in China. With all of the resources available to her, Ms. MacKinnon and her assistants never take the time to analyze with the kind of microscope an investment analyst would use is whether or not it is actually possible for Microsoft, Google, Yahoo! and Skype to do business in China under these requirements.
So We Lose a Few Internet Companies. We Have More.
The implication is "of course a company can do business under these requirements."
Yet elsewhere in the report Ms. MacKinnon notes:
"The display of politically objectionable content can result in reprimands to company management and employees from the MII, the State Council Information Office, the
Communist Party’s Propaganda Department, and/or various state security organs, accompanied by warnings that insufficient controls will result in revocation of the company’s license."
A somewhat knowledgeable reader can see the issue quite clearly - HRW requires that Internet companies refuse to "participate in or facilitate" infringements on free speech. And yet the report itself acknowledges that this kind of behavior could result in the revocation of a business license.
The question, of course, is whether the government would actually shut down these companies. Unfortunately the only way to test that is to have one or more companies step up and actually operate according to HRW's recommendations. Since nobody wants to be the sacrificial chicken, Ms. MacKinnon proposes the modern equivalent of Russia's political kommissars standing behind ranks of soldiers ordered into battle with orders to shoot if they try to retreat. She proposes legislation to force companies to challenge the will of the Chinese government.
(Worse, she suggests that U.S. companies would only be able to hand over user data to the Chinese government in cases determined acceptable by the U.S. Department of Justice. Under no circumstances would the Chinese government find this acceptable - it is redolent of the sort of extra-territoriality provisions forced on the Chinese during the period of unequal treaties and would invite an unequivocal response.)
Here is the question: how long would any Internet company, Chinese or foreign, be allowed to operate in China if it encrypted all email, refused to turn over personal information, moved its servers offshore, and demanded a writ each time it had to block a site or filter a word?
Does anyone with experience running a real business in the PRC, Chinese or foreign, doubt that taking such actions would be perceived by the Chinese government as the electronic equivalent of aiding, abetting, and harboring criminals? Is there any question that such actions would likely irritate some fairly senior people in government? Because in a land where rule of law is in its infancy, it would not require a court order to shut the doors of even the largest Internet company. All it would take is for a small number of well-placed regulators or police officials to lose their patience with a company and the axe would fall.
Something, again, that Ms. MacKinnon does not deny. She merely implies "HRW believes" it to be possible to act according to their requirements and still operate in China.
Fair enough. I "believe" she and HRW are wrong. And nether of us will be proven right or wrong until somebody does it. Any volunteers?
Moving the Immovable
My second objection to the report is the document's implicit conviction that if U.S. companies make a principled stand, somehow they will change the nature of the Chinese government. From the recommendations:
"Lobby and attempt to convince the Chinese government and its officials to end political censorship of the Internet."
Perhaps it is something in our psyche as Americans that believes that we can change anything if we work hard enough. I was raised to believe that this is an admirable trait. I have come to realize that there is a fine line between conviction and hubris.
With all of the government relations activity that companies engage in, the single most important aspect of that activity is developing an understanding of the broader policy agenda. Despite the misperception that MNC public affairs staffs, agencies, and industry associations actually help form policy in China (suggesting that Beijing operates the same way Capitol Hill does,) the reality is quite different. The only occasions on which companies are able to influence policy is when they are able to align themselves with or help direct politically powerful local interests in their lobbying efforts.
Despite the considerable aggregate value of foreign investment in China, the marginal value of any one company to the nation's future in 2006 is in decline, and its political power with it. No longer do the nations leaders spend considerable parts of their schedules meeting with CEOs. The nation is awash in foreign cash. It boasts an economy that is growing beyond the most optimistic projections of its reformers. And it is coming to grips with a sobering reality - it has arrived at this place by selling off its best assets, it has created powerful competitors for its own nascent companies, and it still faces intractable economic issues.
Against such a background, the traditional levers wielded by foreign firms in their relationship with the government - the carrot of more investment, greater employment, and technology transfer vs. the stick of taking it all to India or Southeast Asia - are proving too short to move policy. What is worse, the element within government that sees foreigners as increasingly unwelcome interlopers and opportunists is growing. While it is unlikely that such sentiment will spill over into an outburst of anti-neocolonialism, it means that until rule of law is firmly established in China, companies operate in the PRC on the good graces of the government, and whatever levers remain to companies are used sparingly and in the interest of survival.
Can Companies Incite Social Change? Do We Even Want Them To?
This is by no means an issue unique to China or to this moment in history. In his book Empires of Profit: Commerce, Conquest, and Corporate Responsibility, Daniel Litvin debunks the myth that "Multinationals....ruthlessly [manipulate] governments and entire countries in the single-minded quest for profits."
The myth dies hard, given that it is one of the Great Beliefs of our generation. But in a well-researched, carefully documented analysis that touches on ten cases, Litvin makes a cogent case that corporate influence even in the most corrupt of governance is more illusory than real, a misperception best banished from either NGO analysis or corporate strategy to someplace where it can do some good - pulp fiction.
Litvin's primary conclusion is that compelling companies to become instruments of social change in the countries in which they operate vastly overestimates the abilities of these companies to bring about change. Social change is not brought about by brute force, whether it is the arms and armaments of the United States armed forces, the petrodollars of Shell Nigeria, or the vast media empire and soft power of News Corporation.
If China must change its ways in censorship, leaving it to the companies would be at best ineffectual, and at worst precipitate unintended consequences that would redound to the detriment of all - conceivably including a backlash against any foreigners and the Internet as a whole.
The burden of proof, as it were, appears now to lie with Ms. MacKinnon and HRW. Before embarking on a campaign to compel companies to change their ways, she is at least obliged to proffer some level of proof that the effort (and likely significant attendant commercial costs) have some chance for success.
To do any less would be disingenuous, as at present in the historical record as well as in the minds of the well-intentioned leaders and shareholders of the four companies she discusses, the likely end result of following her recommendations would be to force U.S. Internet companies out of China. I will give her the benefit of the doubt and assume that this is not her end goal.
Alternative Recommendations
It would be disingenuous of me to conclude without offering up my own solution to the situation. As such, I offer my own preliminary set of recommendations.
I. Companies
A. I agree that every company should operate under a clear code of conduct - what I dispute is a universal code. While there must be common values that underlie all codes of conduct, any code of conduct must be specific to its business, reflecting the fact that every business is unique and each faces its own unique ethical challenges and traps.
B. Companies need to be absolutely transparent with all of their audiences about the ethical challenges they face in China, and should be upfront about how they plan on addressing them. This means being upfront with investors, customers, regulators, and the community at large. At the same time, a company is obliged to be honest about the nature of the challenges it faces in China so that all of its publics are clear about what the company cannot change, what it can, and what it would cost the company to make those changes.
C. Seek coalitions with Chinese companies and entities who for their own reasons share the goals of limiting censorship.
II. Investors - Investors are the most critical force to guide company behavior. Investment in a firm doing business in China cannot be passive - it must be active and all of the hard questions need to be asked. If a company does not behave according to its own code of ethics, an investor is obliged to do all in his power, up to and including divestiture - to convince a company to act according to its own broader interests.
III. Activists and NGOs - Add capable business people to teams developing recommendations to companies to ensure that recommended courses of action are commercially practical as well as ethically correct.
IV. Foundations and Think Tanks - Study ways for the full range of groups and entities to build comfort among policy makers in China with the idea of a free and open Internet.
V. Users, including users in China - Make it clear to the company exactly how much the company's policies really affect you.
VI. Governments - Provide companies with every opportunity to govern themselves in these matters, stepping in with legislation only when self-governance has failed. When stepping in, ensure that the companies that have made a good faith effort are not penalized along with those who have not.
VII. Business Associations - Provide companies with assistance in establishing codes of conduct, and in supporting the development of independent bodies to assess corporate behavior and compliance.
VIII. In addition, there are recommendations in the HRW report that are worth following, so.
A. Investors should press for ethical company practices and respect for users' human rights, and should ensure that the company is doing all that is practical to ensure this.
B. Investors should press for a code of conduct and for companies to comply to it.
C. International organizations should study - and monitor - the ways in which non-transparent censorship in China contributes to the lack of a level business playing field and the extent to which censorship should be considered a barrier to trade.
D. Activists should work in concert with socially responsible businesses to develop technologies that will maximize privacy, ensure anonymity, and enable Internet users around the globe to circumvent Internet censorship, filtering, and blocking.
E. NGOs should conduct independent research and documentation of the ways in which companies are or are not complying with legislation and/or codes of conduct.
F. Foundations and NGOs should provide clearing houses of information through which users can better inform themselves about the ways in which the products and services they use may be limiting their universally recognized right to free speech and privacy
The Last Word
Creating a free Internet in China will not happen overnight, and in the end will not be driven by forces from outside of China. Foreigners have but an opportunistic, supporting role to play in the process, a process that is yet unfolding as the domestic news media becomes more assertive in its relationship with the government.
But the first indication that the drive to a free and open Internet is driven by forces outside of China will throw the issue into the laps of the state security apparatus, an event that will destroy the progress made to this point and thrust us back into the dark ages of the early 1990s.
Ms. MacKinnon and HRW should be commended on their report for giving their point of view an articulate outlet, and for keeping this issue on the corporate agenda. Now that they have done so, it is time for the debate over solutions to begin.
Posted at 08:14 PM