Googling in China

Last week a congressional committee questioned representatives of Google, Yahoo, Microsoft, and Cisco concerning Chinese censorship and surveillance of Internet services (and in the case of Cisco, equipment) provided by these companies. Google, for example, has acknowledged that it does not offer email, chat rooms, or blogs in China, but only Web search, image search, local search, and Google news and that it censors these programs so that Chinese customers cannot search for "democracy," "Falun Gong," and other topics that China wants to shield its people from. Yahoo apparently provided information about one of its Chinese customers that led to his arrest and a 10-year prison sentence for political activity that would be legal in the United States. Cisco is said to have sold equipment to the Chinese police that assists them in monitoring dissidents. Members of Congress are incensed and are threatening legislation that might forbid U.S. companies to knuckle under to political restrictions imposed by China as a condition of permitting our Internet companies to do business there.

In general, U.S. companies, including Internet companies, are required to comply with the laws of every country in which they operate. Thus, for example, they have agreed to block access, in France and Germany, to Nazi Web sites, pursuant to those countries' laws against Nazi advocacy. They have agreed in a number of countries including the United States to block access to sites that infringe copyright. Like other companies that possess information that is not considered the "property"`of the people who furnished it (and this is generally the case with respect to information voluntarily provided to an online vendor), the Internet companies often respond to informal government requests for information, and they are also subject to having such information subpoenaed.

Of course there is a difference between foreign laws that we regard as defensible, including some laws, such as those forbidding Nazi advocacy, that would be unconstitutional in the United States (which has by international standards an extravagant conception of freedom of speech), and laws that we regard as contrary to fundamental human rights, which is an accurate description of Chinese laws designed to suppress political freedom and, in the case of persecution of the Falun Gong and of some Christian sects, of religion as well; there are also forced-labor camps in China, torture, and other human rights violations.

If China were a small, poor country, its violations of human rights might induce international sanctions, such as were imposed on Rhodesia and South Africa before the fall of their racist regimes. But because China is an enormous country, rapidly developing, soon to be--perhaps already--the second largest economy in the world, and very much open to investment by foreign, including U.S., companies, sanctions are out of the question as a practical matter.

A separate question is the effects of sanctions. The theory of cartels is useful in illuminating that issue. When competing firms get together and agree to raise price (and thus limit output, since increased price will cause some customers to switch to other products) in order to increase their profits above the competitive level, they face two problems. First, each member of the cartel will have an incentive to cheat because by charging a price slightly below the cartel price it will have proportionately greater sales and its net revenue will rise. Second, firms outside the cartel will have an incentive to increase their output by selling slightly below the cartel price, for the same reason that impels cheating. The harder it is to cheat, and the smaller the fringe of competing firms outside the cartel, the more effective the cartel will be.

A sanctions regime is similar. Each country that has agreed not to buy from or sell to the sanctions target will have an incentive to cheat, and countries that have not agreed to the imposition of sanctions will have an incentive to increase their trade in the embargoed goods. So our Internet companies, were they under political or public relations pressure, or were compelled by U.S. law, not to agree to conditions imposed by China would have an incentive to try to circumvent the ban; and Internet companies in countries that did not impose such a ban would have an incentive to enter the Chinese Internet market.

But it is not clear to me how effective such incentives would be. The U.S. Internet companies would be reluctant to violate, or perhaps even to circumvent, U.S. law, since they are taking a big public relations hit from the revelations of their complicity with Chinese repression. And in the short run at any rate it does not appear that foreign Internet companies can provide close substitutes for the services that our companies provide. Of course in the long run an exclusion of our Internet companies from the vast Chinese market would stimulate the growth of foreign companies offering close substitutes for our companies' products. This assumes that faced with abolishing censorship of the Internet or losing Google search and other Internet services that U.S. companies uniquely provide, China would choose to lose the services. This seems, however, by far the likelier outcome given the perceived threat to the regime that political and religious freedoms pose. If so, then the only effect of the sanctions regime would be to slow Chinese economic growth slightly by reducing the Chinese people's access to Internet services that promote economic efficiency. One reason to think the effect will be slight is that China does have its own Internet providers, such as Baidu, which provides a Google-like search service, although not as good a one as Google.

The deeper question is whether it is in the U.S. national interest either to promote Chinese democracy, religious freedom, etc. or to impede Chinese economic growth by inducing it to curtail its people's access to the Internet beyond the current censorship. The answer probably is "no." Lifting the repression lid from Chinese society might, for all I know at any rate, have destabilizing effects that might result in a worse government (from our standpoint) than the present one. Slowing Chinese economic growth might also be destabilizing, and would harm the world economy as a whole, and probably the U.S. economy. Then too, although there are inherent tensions between the United States and China, owing in part to the American military and political presence on the periphery of China, China is not an enemy and we don't want to make one by imposing sanctions on it. Although the behavior of our companies may be offensive and their claim to be altruistically motivated is ludicrous, it is unlikely that efforts to prevent the companies from complying with ugly Chinese laws will help either the Chinese people or the American people.

A possible intermediate solution, however, would be to forbid U.S. economies (or for them to agree under pressure of American public opinion) to assist the Chinese government in surveillance of their customers. There is a difference between censorship and surveillance. Most governments engage in some censorship, including our own (child pornography, national security secrets, copyright violations, defamation, false advertising, criminal solicitations, etc.). But for our companies actively to assist a foreign, repressive regime to persecute its political and religious dissidents is a step beyond. It is unlikely that the Chinese government would bar our Internet companies merely because they did not provide active assistance to Chinese police.