“David Kopel”:http://www.insidedenver.com/drmn/news_columnists/article/0,1299,DRMN_86_4105129,00.html 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”:http://www.volokh.com/archives/archive_2005_09_25-2005_10_01.shtml#1127700874 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”:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=799269 which talks about what this means for international politics (although it doesn’t discuss the particulars of the Yahoo! case).