Monday, March 22, 2010

The Meaning of Google's Exit from China

Google announced today it will close its China-based search engine, redirect users to an uncensored site based in Hong Kong, and pull out its flagship business in response to cyber attacks by China-based hackers. Even though Google will shut down its local search engine, it will maintain some businesses in China. I have been thinking about the significance of this episode. I think it has implications at least for Google, China, and the international system. Here are few thoughts on each.

I have two themes to convey:

1. Openness is critical to economic development and global influence. My view here based on hundreds interviews I have conducted over the past six years in East Asia as part of an ongoing research project on the future of Asia.

2. We will increasingly see a future of convergence and negotiation in the international system as power gaps between states shrink. My view is based on an event series I have been running at Carnegie Council that started at the Nixon Center in 2007 that we call the "Rise of the Rest" after Fareed Zakaria's expression to describe what I see as biggest question in international relations of our time: What does the rise of China and other emerging countries mean for international norms and power?

1. What it means for Google and other companies

Google has opened up the range of options for companies operating in morally questionable environments.

From Google's perspective, being in China was a trade off. It was a question of doing some evil in order to do some good and make some money. They put it on a scale and decided that the amount of good it could do in China was worth it. That is no longer the case. During my trip to China last winter, everyone, including Chinese, complained about corruption, arrogance, fakery, and a lack of trust in that society. The common global business question about China (how do we get in?) has now been turned upside down (is China worth it?). Google's move has expanded the debate. Meanwhile, U.S. Chamber of Commerce's Myron Brilliant said this week that the "wolves can no longer be kept at bay:" U.S. companies will begin to push for retaliation against mercantilist industrial policies in China. It is no longer a given that you have to be in China to succeed. Companies and people can take into account ethical implications of their actions.

Google founder Sergey Brin has been the moral compass of Google. Drawing from his experience growing up in the Soviet Union, he has never been comfortable with censorship. He recently said that to him it wasn’t so much important whether the Chinese government was involved with the cyber attacks on Google. His point was that the Chinese government and the PLA have tens of millions of people in it. So even if there were a Chinese government agent behind this, it might represent "a fragment of policy." China's government is so big, you can't hang it on the government. But that is a problem: who is accountable? Are there rogues in the government? If so, can other countries safely trust this country?

Brin has said in a recent public speech "We from the outside provided notification when the local laws prevented us from showing information, and the local competitors followed suit in that respect. So I feel like our entry made a big difference. But things started going downhill, especially after the Olympics. And there's been a lot more blocking going on since then. Also our other sites, YouTube and whatnot, have been blocked. And so the situation really took a turn for the worse."

Brin and co-founder Larry Page have touted Google's ability to spread democracy through access to information. "At its best, Google is data-driven with an ethical trump card," says Larry Brilliant, who headed Google's philanthropy. Brin gives credit to Northrop Grumman, whose data were stolen about the F-35 fighter, for coming forward and helping with Google's investigation. He encouraged more companies to come forward.

My point is Google's mission and culture go beyond profits.

No one knows precisely how extensive the cyber attacks were but the FBI, Pentagon, and just about every single serious China watcher has been talking about China's cyber attacks for a long time. The nature of US-China relations and vulnerabilities is changing; it makes previous flare ups, for example over Hainan island, look quaint. The gravity has grown over the past year and culminated in December when more than 20 companies were attacked. It is very serious. Human rights organizations have used Gmail to communicate with people in China. If Gmail were compromised it would literally put people's lives in jeopardy.

2. What it means for China

This story shows a bad turn for China in terms of moral leadership in the world and economic development at home.

Can the Chinese government censor information and foster growth? Fareed Zakaria calls that the trillion-dollar question. So far China has been successful at embracing markets while maintaining a controlled political system. I share his view that that this system cannot last. China is still in the early stages of modernization. But it is it's difficult to imagine China being "a truly innovative country at the cutting edge of the information age, of global economics, if it has all these constraints on information, all this political control on human-to-human contact, which is what the next wave of the information age is all about."

Can China be a world leader that is admired, imitated and that shapes the global system and global values? Again I agree with Zakaria's doubts that "an insular, inward-looking China that maintains tight political control over information and human contact will end up being the country that becomes the model for the world."

In essence, China's stability right now depends on an ultimately self-defeating strategy. Both for its own advancement and for its soft power and influence in the world, China will eventually need to open up, which will create a new set of risks. Ma Yuanye, a 55-year-old biologist in Kunming in southwest China, was quoted by Washington Post as saying, "Without Google, our academic research will be seriously affected. If Google is blocked, we will see nothing but darkness."

According to the interviews I conducted last winter in China, one freedom is seen as the most crucial to economic development. That's freedom of speech. It is the only way Chinese society, companies, government, etc. can tackle its rampant corruption problem, which will impede the advancement of China. It is essential for the efficient use of capital, scientific development, effective market functions, fair trade, sound diplomatic relations, and intellectual property protection. Without freedoms or the provision of public goods, the China brand will remain weak.

Some may argue that information censorship keeps political unrest under control. To the contrary, without representational democracy, Chinese society is searching for some kind of valve to release its pressure and frustrations—over corruption, jobs, deadly product and building safety problems, pollution, and land rights. Right now without freedom of speech, the balloon is being squeezed into Wild West internet forums in which people spread rumors and gossip. The country would benefit from a professionalized media sector with incentives to break stories freely. We are seeing the emergence of citizen, online justice: So called human-flesh hunting, cyber-posses exacting justice on their own.

Comparing China today to Soviet-era Eastern Europe, Rebecca MacKinnon put it, "China's censored environment makes it easier for the Chinese government to lie to its people, steal from them, turn a blind eye when they are poisoned with tainted foodstuffs, and cover up their children's deaths due to substandard building codes."

One of the biggest questions of our time will be how we make the inevitable compromises in global business and international affairs. I see a convergence of ideas and moral values. The Chinese are taking some of what is good from the West and rejecting other things. The West might be able to take some things that are good in China. We have to assess the merit and ethics of all decisions and stick to what we believe is right because what is right is also a practical matter. In the long run, I feel China will come to that conclusion as well. It is a business concern, too. Another release valve in Chinese society can be people's relationship and connection with companies. Visits to China have suggested to me that building an ethical, trusted brand in the Chinese market would be a huge opportunity. Worldwide, people admire China, but it is shallow compared to the admiration they feel for the United States and its institutions, rule of law, openness, etc.

I would like to propose something provocative. It's not a precise analogy but without free speech, will China suffer the stagnation of the USSR? Bad information, drying up of cheap labor, and decreasing marginal productivity gains led to USSR economic stagnation in the 1980s. Can China's market make right choices without a free press? We already see non-performing loans, a potential property bubble, and labor shortages and wage rises. Similarities in China and USSR include: Drying up surplus labor, centrally planned/managed economies, farming to urban industrialization, lack of innovation, and poor information. Side effects of censorship include wasted resources (as Natan Sharansky has argued), limited market power (inefficient capital use, corruption, etc), squeezed discourse into "human flesh hunters," and rumor. Without free press and open society, limitations abound.

3. What it means for the international system?

Some have described today's world as multi-polar or comprising a West and a Rest or two "worlds." I prefer Zakaria's "the rise of the rest." Given that global manufacturing is centered in China, the country will have more opportunities to build up its technology control capacity. It is also using industrial policy to encourage home-grown technology, pushing out opportunities for foreign companies. One question in my mind is whether we will see an increasing gap between two "worlds" with competing norms—between emerging markets or and rich countries or between state capitalist countries and free market democracies.

China scholar Harry Harding sees the world as an embryonic global community with two metaphorical political parties. One led by the United States as the elitist reform party that promotes democracy and self determination. The other led by China as the populist conservative party that promotes stability, harmony, and order in domestic systems. One wants democracy at the national level and hegemony at the international level while the other wants democracy at the international level and hegemony at the national level.

I see the Google story illustrating what I see as the likeliest resolution of these tensions in international affairs between these two worlds: a convergence of norms, governance, and practices. After two months of negotiations, Google will maintain some business in China, and other American companies such as Bing and Twitter will seek to gain market share in China. Similarly, we will see convergence and negotiation rather than dictates on issues like climate change, UNSC, Iran's nuclear program, corporate governance, and World Bank and IMF governance. This week, the Japanese government conceded to give technological data to Chinese government purchases of Japanese high tech products in a compromise. Cooperation will come from this process and an acknowledgment of shared interests. Looking at China's refusal to budge on censorship, what's certain is China won't be lectured to or bossed around--sometimes to its own detriment.

As for the United States, its strength over competitors remains its openness. Thomas Friedman on Saturday wrote about the 2010 Intel Science Talent Search, which honors the top math and science high school students in America. Most finalists hailed from immigrant families, largely from Asia. Alice Wei Zhao of a Wisconsin high school, who served as a spokeswoman of the finalists told the audience: “Don’t sweat about the problems our generation will have to deal with. Believe me, our future is in good hands.” (As long as we remain open.)


book said...
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Leanne Ogasawara said...

Excellent article.

I am a translator, working in Japan, and not all that long ago was translating, it seemed, speech after speech by company executives here who kept repeating the same mantra that there are many ways to be a capitalist and that the Japanse did not necessarily want to follow "American style" business practices. In particular, it was short-vision/short-term quarterly bottom line that they wanted to move away from in order to aim for greater employment stability and corporate social contribution--values stressed in those particular companies that I was doing work for as indeed the companies do a tremendous amount of social contribution and it is noteworthy that the managers, bosses and employees get out there to plant trees or pick up trash in addition to the more high profile sponsorship activities. Anyway, when the news of google first came out, I read the two articles by Evgeny Morozov who took a far more cynical view then you have regarding google's action. He questioned--cyncically? realistically?-- whether google was trying to take the moral high ground.... or if this wasn't just a move to garner more profitability via media and investor relations.

I think "fair" globalization ought include some kind of stage whereby different systems can co-exist; that is globalization should not equal Americanization or something similar.

And I also wonder how google's withdraw will affect things on the ground in China itself-- will it affect pressure on the gov't in China or will it only affect the people like the scientist you mentioned in your piece...

However, having said that, your article, I thought really brought home (for me) the way that American companies have in the past, and should always continue to represent the values of their major investors. I mean, when companies pulled out of Aparthaid South Africa and some out of Myanmar, isn't that for the good (or health) of the company itself? Rather than as a symptom of a worldwide convergence of norms and values, I see it more as a very valid expression of one culture's (American google) way of doing things. And I like it.

Devin Stewart said...

Leanne, thanks for the great comment.

I do feel that Google's move was a moral stand for several reasons. Two of which came up in my talk yesterday. First, Google founder Sergey Brin grew up in the Soviet Union and has been said to be the moral compass of Google. His story seems to parallel stories of others I have encountered who experienced oppressive regimes. Outsiders may applaud the "success" of regimes to keep order or deliver growth, but I feel that is somewhat condescending. People who live in these environments often report a different story--stifled expression, wrongful imprisonment, denied rights, etc. Second, unlike most of the reporting on this story, I simply cannot accept the proposition that "Google doesn't need the China market." I would argue rather the question is: Is China worth it? But to say that a company can ignore one-sixth of humanity in the fastest growing economy on Earth, it simply absurd. From a narrow business perspective Google could easily loose out. But Google's move is clever in that redirecting its China site to its Hong Kong site, it might be able to affect positive change in China more effectively--at least among the elites.

Sure, all countries have the right to their own systems. But two points: 1. oppression is wrong anywhere; 2. We have seen oppressive regimes deliver growth during the "take-off" periods (Rostow) of economic growth, tapping into cheap labor or commodities. But we have not seen oppressive regimes deliver growth past the middle income stage of growth. There are no economies today that are both oppressive and highly innovative/technologically advanced. My assertion is that China will eventually have to decide whether to open its society or possibly forfeit innovative growth.

Devin Stewart said...

Just got back from meeting up with one of my Chinese friends in NYC. She agreed with a lot of my points in this blog post, especially that Chinese elite often think about the trade offs between openness and stability in Chinese society. She made a very good point that Chinese social media is not only opening Chinese society up, it is serving as a kind of civil society, policing corruption, scandals, etc.

We also talked about Google's move as being "political" as it is often portrayed by the Chinese government. I asked my friend what that meant. Her answer was fascinating: 1. a big US foreign policy goal is to promote freedom (OK, I was with her there); 2. the US government can use US companies as instruments of US foreign policy (I was willing to go along with this idea for the sake of argument); 3. Google pulling out of China is therefore advancing US foreign policy goals... But how? She said that if Google leaves China it can influence other technology companies to follow suit and leave China as well, potentially destroying the Great Fire Wall (Golden Shield) of Internet control. This was a fascinating comment since it seemed to support my feeling that Google does indeed have a lot of influence and can set a standard in global business practices.

Leanne Ogasawara said...

Interesting, and it is certainly viewed less "politically" in the US. Don't you agree? In fact, much of the earlier US-based commentary seemed to have been speaking against this political stance-- insisting that the US government should not get too involved in this issue --which in the end is just a google-China issue and not one of American policy....

Reading your comment I was thinking how it seems since the time of Herodotus this has been viewed in terms of stability versus liberty/freedom tradeoffs... Did you ever read the classic essay on Theropylae by William Golding? Hot Gates? Will post links elsewhere for you.

Devin Stewart said...

CUNY radio has posted its coverage of my panel here: