States, firms and the Internet

by Henry on September 26, 2005

David Kopel argues, rightly, that there is something very nasty about the willingness of companies like Google and Yahoo! to knuckle under to authoritarian regimes such as China by banning words from search engines, snitching out democracy activists and so on. He’s also correct when he claims that “the greedy and immoral policies of these corporations directly endanger Americans.” However, his claim that “[p]erhaps only consumer and shareholder pressure can persuade the American companies to change their evil ways” seems to me to be quite mistaken. Consumer and shareholder pressure simply isn’t likely to have much of an impact, when measured against the power of the Chinese government to ban these companies from access to a quite enormous and important marketplace. Nor does it seem likely to me that many large shareholders are likely to raise a fuss in any event. More generally, when firms weigh the power of consumers to use exit and protest against the ability of powerful states to impose heavy sanctions, and completely block access to important markets, they are usually going to do what the state(s) want them to do. The only solution that would have some chance of biting would be if the US passed legislation requiring US-based firms not to cooperate with Chinese government authorities on pain of substantial penalties, and enforced this regulation vigorously, transforming it into a battle between powerful states with big markets.

We’re going to see more and more of these problems cropping up. People used to think that the Internet would empower firms and other private actors against the state, helping the spread of democracy, free markets and all that. What we’re seeing instead is that firms and private actors have an interest in keeping powerful states happy, regardless of the impact on global prosperity, freedom and so on. This has always been the case – but it’s being exacerbated by the Internet. I’ve just written a paper which talks about what this means for international politics (although it doesn’t discuss the particulars of the Yahoo! case).

{ 15 comments }

1

RJT 09.26.05 at 5:02 pm

I was turned down from a pop up traffic generator ( can’t recall what the companys name was ) because my site couldn’t be shown in china, and I believe ( though I have no evidence ) that I was rejected from http://www.findory.com because of the content of my site as well, it is everywhere. EVERYWHERE

2

des von bladet 09.26.05 at 5:05 pm

AFAIUI Micro$oft rely (“relies”) on, amongst other things, automated text scanning for words considered naughty by their democracy-hating overlords. Is it too much to hope that this could engender, amongst other things, a euphemisme arms race?

Censorship is surely — if reprehensibly — the norm rather than the exception throughout the long and frequently reprehensible course of history, and historically most censors have surely been — however limited — slightly more cunning than grep(1).

3

Alex R 09.26.05 at 5:09 pm

We (the US) have done this sort of thing in the past, of course: the example that comes to my mind immediately is the US law forbidding companies from cooperating with the Arab boycott of Israel. I don’t know exactly how this was enforced — proving that the reason that one isn’t doing business in Israel is that one wants to do business in the Arab world seems like a challenge.

A law forbidding companies from cooperating with Chinese censorship might face similar enforcement problems.

4

mpowell 09.26.05 at 5:18 pm

A lot of conservatives will, of course, never favor anything that limits the profit opportunities of large companies. However, I have some hope that this issue may still gain support from both sides. There are certainly conservatives who view issues like this as a power politics issue- notice the rumblings when China was talking about buying Unocal. At the same time many small government types do recognize that the restriction imposed by the Chinese government amount to significant interference in the market. Hopefully, this cause them to recognize the need for a balancing influence by the US.

On the other hand, if you prevent Google and Microsoft from working with the Chinese gov’t, the Chinese may just develop their own domestic solutions. So this is a tricky issue to address.

5

Tim 09.26.05 at 5:19 pm

Do we really want “a battle between powerful states with big markets”?

The fundamental problem here is disagreement with another sovereign nation’s laws. Those laws may well be unjust, put in place by a non-democratic regime, but how much interventionism are we willing to sponsor in order to change them? Do we really want political or economic brinksmanship to be the order of the day, or is there a better way?

How about this: maybe it’s better to have even censored internet access in totalitarian countries?

And, while I’d hope that an American internet company would do as little as possible to reveal the identity of, say, democracy activists in China, isn’t the world a better place for that company’s having been able to provide the internet access in the first place?

Being a dissident under a totalitarian regime sucks. It’s a dangerous proposition on a any account, and my opinion is that you can only expect a foreign company to go so far in protecting people who are doing what is, in fact, illegal.

6

pdf23ds 09.26.05 at 6:52 pm

“People used to think that the Internet would empower firms and other private actors against the state, helping the spread of democracy, free markets and all that. What we’re seeing instead is that firms and private actors have an interest in keeping powerful states happy, regardless of the impact on global prosperity, freedom and so on.”

I don’t think the two options are mutually exclusive. While of course the digital nature of the internet makes possible the ability to easily find people who have expressed illegal views online, it also provides a wide variety of new forums and methods on which to voice one’s possibly illegal views. So it really is not so simple as “since the private sector can cooperate with the public sector, individuals have no chance”. It’s really much closer to an arms race.

Does anyone know whether the civilian use of public key encryption, e.g. PGP or GPG, is illegal in China?

7

Slocum 09.26.05 at 6:59 pm

The only solution that would have some chance of biting would be if the US passed legislation requiring US-based firms not to cooperate with Chinese government authorities on pain of substantial penalties, and enforced this regulation vigorously, transforming it into a battle between powerful states with big markets.

But then, of course, non-US based firms would step in to cooperate with the Chinese government. If EU countries are seriously considering ARMS sales to China, you can bet they wouldn’t hesitate to sell them blog hosting software or search engine software or routers.

8

almostinfamous 09.26.05 at 8:25 pm

everyone needs china to sell their stuff to. eeeeeeeeveryone. i dont see a solution emerging until there is a violent revolution in the ‘People’s’ Republic. or the US. or Burma. somewhere to give people hope that freedom and justice are indeed alive

9

Matt McGrattan 09.26.05 at 8:27 pm

“Does anyone know whether the civilian use of public key encryption, e.g. PGP or GPG, is illegal in China?”

Here in the UK we are ‘free’ to use strong encryption but we are also legally required to provide the government with a key if they ask for one. Furthermore, the burden of proof (in a reversal of centuries of legal tradition) is on the accused to prove that they do not have such a key. It’s also illegal to reveal that such a request has been made and that you have handed over the key.

Strong encryption in the UK can protect you from non-state snoopers but it provides no protection from the state.

10

Tom T. 09.26.05 at 9:02 pm

Slocum’s point in #7 seems borne out by the history of US policy toward Cuba. There’s no reason to think that other Western nations would necessarily act in concert toward China.

11

Tracy W 09.26.05 at 10:44 pm

I think that this is a case where a boycoutt need not be universal to work. There does seem to be very hefty economies of scale involved in websites. E.g. I use Google (and never bother with Yahoo! once its front page got so confusing), and very seldom resort to other search engines. A competing search engine has to be very good indeed to get my attention – Google managed it but it was helped by the big guys pretty much ignoring search and trying to make their websites as overcrowded as possible.

Consequently, if the US bans its companies from cooperating with Chinese authorities, it would be more difficult for companies in other countries to gain market share. (Unlike, e.g. when the US was banning the exportation of encryption technologies and the German companies stepped in). So unless these companies are willing to relocate their head office out of the US to avoid the law, a law would have some effect.

This wouldn’t apply to software or hardware like routers that doesn’t display such strong economics of scale, of course.

12

Brendan 09.27.05 at 5:21 am

my not terribly profound knowledge about these matters is based solely on reading the book ‘The Corporation’. However, one thing occurred to me. According to that book, corporations are legally obliged to maximise profits for their shareholders. Has anyone tried to challenge that legal ruling? Does anybody know?

13

IJ 09.28.05 at 3:34 am

Corporations must operate within the political rules (written and unwritten) of the nation where they operate; otherwise they get penalised. Such is the ‘global’ economy. Audit of the ‘global’ economy is similarly restricted.

14

Nick 09.28.05 at 9:32 am

As was argued on the BBC recently, we’re expecting too much of technology. We want an easy route to freedom in China, and we hoped that the internet would give it to us literally as simply as turning on a few power switches.

While Microsoft (MSN Spaces), Google and Yahoo’s censorship is depressing, the optimistic view is that their simple presence will inspire a want of more freedom of speech and information. Yes, these companies can directly assist in the detention of subverters, but you don’t *need* the internet for revolution; it’s just useful. And you can always use code or encryption.

Restricted speech is tedious and unnatural, and people will question it. What we must hope for and encourage is real-life activism.

Computers are made to make things more efficient – and that includes censoring information and catching people in the wrong places online. Good old physical revolution is as difficult to quash as always, and (fortunately) not in the hands of corporations.

(Out of interest, what’s the status of the not-for-profit Wikipedia inside China?)

15

Kragen Sitaker 09.29.05 at 2:03 am

Henry, Figure 1 is missing on page 20 of 40 of the PDF I downloaded from SSRN. I’m enjoying the paper quite a bit; is there a more finished version somewhere?

Please keep in mind that I’m not at a university.

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