Western Companies Sell Their Souls for the Massive Chinese Market
It was March 2000, dot-com mania was in full swing, and the World Wide Web still seemed destined to bring fabulous wealth to the West and precious freedom to every dark corner of the globe. U.S. President Bill Clinton took the stage at Johns Hopkins University, expounding on the promise of democracy and freedom in the information age. Increased trade, engagement and technology would inevitably help open and democratize authoritarian holdouts like China, he said. The few remaining hard-liners, clinging doggedly to the past, were on the run. "Now there's no question China has been trying to crack down on the INTERNET," Clinton said, pausing to smile at his audience before delivering the triumphalist punch line. "Good luck." Laughter and applause.
Muzzling the Internet might have seemed like an impossibility when Amazon.com was streaking past US$300 a share, but almost six years later John Kamm looks back on the smug naïveté of Clinton's boast with a rueful laugh. "Guess what, Bill: they didn't need luck, they needed something else, and they got it." A former executive with Occidental Chemical Corp. and ex-president of the American Chamber of Commerce in Hong Kong, Kamm has spent the past 16 years working for HUMAN RIGHTS reform in China. He has petitioned Chinese authorities on behalf of close to 1,000 political prisoners, and secured release or leniency for hundreds. But lately, he has watched in disbelief as some of the world's biggest companies meekly complied with China's most audacious crackdown in years.
Today, China employs approximately 30,000 cyber-police to monitor Web traffic and postings from the country's roughly 111 million Internet users. Writing articles "incompatible with the mainstream ideology" is prohibited. Posting messages that "damage the reputation of the state" can get you arrested. And publishing anything deemed to be a state secret can carry the death penalty. The list of banned websites now stands at 500,000 and growing.
Even with the full weight of the Communist regime behind it, the censorship effort would have been futile without equipment and know-how supplied by Western vendors like Cisco Systems Inc., SunMicrosystems Inc. and Nortel Networks Corp. And with the world's three dominant Internet companies - Google, Yahoo! and Microsoft - in a blind rush for a piece of China's spectacular wealth, Beijing has found all the willing accomplices it needs to strip the Internet of its anonymity, its freedom, and to turn it into yet another tool of repression. Google and Microsoft have recently launched Chinese versions of their Internet software that block access to topics that offend China's ruling party, such as democracy and Tibet. Yahoo recently handed over a Chinese journalist to authorities after he posted information critical of the government on an Internet message board.
But the questions of human rights and corporate ethics in China go far beyond a single industry and a handful of companies. China's emergence as an industrial and commercial power represents the biggest economic revolution in a generation, and in the rush to invest, critics say Western business is selling its soul, one ugly compromise at a time. This month, T. Kumar, Amnesty International's advocacy director for the Asia Pacific region, testified before the U.S. congressional human rights caucus, urging lawmakers to rein in big business before any more principles are sacrificed. "In the pursuit of new and lucrative markets, these IT companies are contributing to human rights violations," Kumar said. "Unless strong action is taken, this type of practice will not only increase, but is likely to move into other areas, which will lead to disastrous impacts on the Chinese people."
So far, there's little sign of any of the strong action activists are pleading for. This week, representatives from all three Internet companies as well as Cisco Systems have been summoned before the U.S. congressional subcommittee overseeing global human rights, where they're sure to face a grilling over their actions in China. But it's not clear how far Western lawmakers are willing to go to defend human rights in the world's hottest new market. Critics say it comes down to a fundamental clash between profit and social conscience, being waged across virtually every sector of the economy. But the Internet industry's recent string of capitulations set a new standard of submissiveness.
When Google agreed last month to launch a Chinese version of its Internet search engine that excludes information censored by the Chinese government and blocks access to the company's anonymous Gmail program, it blew a gaping hole in its carefully nurtured "good guy" image. Just a week before Google's bow to China's demands, the company flatly refused to co-operate with a U.S. Justice Department investigation into online pornography. The feds did not seek any information about specific users, only data on the amount of traffic to certain sites over a one-month period, but Google said the request was too intrusive and that it might expose trade secrets. Reporters Without Borders called Google's professed commitment to privacy "the height of hypocrisy in view of its strategy in China." Suddenly, its cheery motto "don't be evil" just seems like another piece of corporate spin.
Google is certainly not alone, however. Microsoft struck a similar deal, banning the use of words like "democracy" and "Dalai Lama" on the Chinese version of its Web publishing software. More recently, it agreed to a Chinese request to shut down an Internet blog belonging to prominent pro-democracy dissident Zhao Jing. But perhaps the most chilling case was that of Shi Tao, a Chinese journalist recently sentenced to 10 years in prison for divulging state secrets over the Net. Tao anonymously posted details of the government's plans to limit coverage of the anniversary of the Tiananmen Square massacre on a pro-democracy website, and Yahoo handed over his identity to Chinese authorities, unleashing a storm of protest around the world.
Chris Smith, the Republican representative from New Jersey who chairs the congressional subcommittee on human rights, has been one of the industry's most ardent critics, and is sponsoring a draft bill that would require Web companies to establish a code of conduct for operating in repressive regimes, prohibiting them from facilitating unreasonable censorship or co-operating in the abuse of human rights. But getting companies to reverse themselves may prove more easily said than done. China's trade deals with Canada, the U.S. and the European Union give it enormous bargaining power whenever talk turns to sanctions and restrictions, and with every year of supercharged economic growth, its clout increases.
Corporate leaders were afraid it would end up like this. As far back as the early 1990s, when China first began reaching out to Western business, debates raged about how to operate effectively in China without getting tangled in a brier patch of ethical dilemmas. In the early days of the Chinese economic miracle, the main issues centred on the appalling working conditions in Chinese sweatshop garment factories and total absence of labour standards. In 1993, Levi Strauss decided to stop doing business in the country because it "could not ensure that its employees, or those working on its behalf, would not be subject to human rights violations." But over the next few years, companies like Nike Inc., Reebok and The Gap, under pressure from shareholders and customers at home, made major strides on labour standards. The controversies gradually faded, and in 1998, Levi's began making jeans in China again. Lori Tansey Martens, executive director of the Washington-based International Business Ethics Institute, says the corporate community gradually decided that bringing capitalism to a totalitarian regime wouldn't be as tricky as some had feared. "These were issues that were talked about in the early '90s, but we never really reached a consensus. And then, we got complacent."
With so much at stake, few paused to ask what moral compromises would be necessary to turn a poverty-stricken backwater into the world's next great industrial titan, in less than a decade. The massive Three Gorges Dam megaproject on the Yangtze River may stand as the most dramatic example of Western business aiding a quantum leap in China's economic development, without much thought for the human toll. Several Canadian companies, including Montreal engineering giant SNC-Lavalin, Acres International, Hydro-Québec and Dominion Bridge Inc., have been involved in various aspects of the Three Gorges endeavour, many of them backed by taxpayer money through Export Development Canada and the Canadian International Development Agency. But, as the project steamed ahead in the mid-1990s, and "Team Canada" trade missions trudged across the Chinese countryside promoting closer ties, few stopped to consider the forced evacuation of roughly two million people living in low-lying areas to be flooded by the dam.
To this day, public criticism of the Three Gorges development is prohibited in China, and the project stands as a black mark on Canada's human rights record abroad, says Patricia Adams, executive director of Probe International, an environmental group based in Toronto. "Three Gorges Dam is a spectacular case because it's so big and has been so notorious. But it's just one of many, many projects, and I think it shows the difficulty of dealing with a dictatorship," she says. "The principle should be, 'do no harm.' You have to be willing to walk away from a project if it violates your principles. China will change and it is changing, but when you're dealing with a government that mistreats its citizens, it's just as likely to mistreat companies as well."
After years of positive movement, it appears the more repressive and authoritarian forces within China are beginning to reassert themselves. Amnesty International reports that tens of thousands of people continue to be arbitrarily imprisoned every year. It estimates that close to 200,000 people are detained in "re-education through labour" camps across the country. One such camp is now home to Mao Hengfeng, who was reportedly sentenced to 18 months of labour last April for persistently petitioning the authorities over a forced abortion she underwent 15 years ago. But nowhere is the crackdown more evident than in the area of free speech, John Kamm says. Even moderate, pro-Communist papers now run the risk of being shut down if they stray from the party line, and hundreds of Internet cafés have been closed in recent months, reportedly for failing to control the surfing habits of their patrons.
Big business acknowledges those problems, but CEOs claim they are not equipped to deal with them. They say only government-to-government intervention can change the course of public policy. For the most part, companies insist that their mere presence in the country is paying dividends in the lifestyle and freedoms of the population, and the recent censorship controversy is no exception.
In the middle of the Google firestorm, company co-founder Sergei Brin told a reporter that a censored site is better than no site at all. "We ultimately made a difficult decision, but we felt that by participating there, and making our services more available, even if not to the 100 per cent that we ideally would like, will be better for Chinese Web users, because ultimately they would get more information, though not quite all of it." Google CEO Eric Schmidt elaborated on that point, insisting that it did not conflict with Google's "don't be evil" ethos. "We actually did an evil scale, and decided that not to serve at all was worse evil," Schmidt said. Yahoo! and Microsoft offer similar justifications, arguing that even if they wanted to fight for greater freedoms on the Web, their hands are tied by local laws. And besides, Bill Gates says repressive rulers are no match for the ingenuity of individual Web surfers. "The ability to really withhold information no longer exists," he said recently, in defense of Microsoft's censorship policy. "If there is a desire by the population to know something, it is going to get out."
None of that holds water with Kamm. In 1999, he founded the Dui Hua Foundation, which means "dialogue" in Chinese. That organization first uncovered evidence that Yahoo handed journalist Shi Tao over to the authorities. As far as Kamm is concerned, the recent Internet crackdown represents an important step backwards, and the role of American companies in it is nothing but a cowardly retreat. "I do not believe that any companies are facing overwhelming pressure from shareholders to engage in censorship and the abuse of human rights. I just don't buy it," Kamm says. "What did we learn at Nuremberg? If a law violates international human rights law, then you're obligated not to follow it. And in China, if it's a regulation that contravenes a law, then it is illegal. When [Yahoo founder] Jerry Yang says we have to respect the laws, regulations and customs of the countries we operate in, well, okay, what are those? Please show me the regulation that says you had to hand over Shi Tao's name."
Kamm says Westerners have a basic misconception that China is just plowing ahead, impervious to the opinions of meddling world leaders. Nothing could be further from the truth, he says. In fact, many in China's ruling elite are hypersensitive to the perception that it is an oppressive, regressive, totalitarian regime. They want to be seen as modern, moderate, and worthy of the superpower status implied by China's size, power and history. Most Westerners also don't realize that article 35 of China's constitution guarantees the right to freedom of speech, and of the press.
If businessmen were to show as much courage in the face of Communist leaders as they do in the boardroom, China would be a far more liberated place than it is today. "Business people are supposed to be able to do this kind of thing, they should be natural at it," Kamm says. "You should be able to sell the guy on something he may not want to hear initially. That's what salesmanship is!" But after more than a decade of cajoling and lobbying high-profile CEOs, Kamm has yet to convince a single one to make the promotion of human rights part of their strategy in China.
That's especially depressing, considering that business leaders have shown in the past they can be agents of profound social change, on those rare occasions when they put their mind to it. In 1971, General Motors Co. invited a black preacher named Leon Sullivan to join its board of directors. Sullivan was a well-known figure in the U.S. civil rights movement, and throughout the 1960s had organized several boycotts of American companies that refused to respect equal rights for blacks. When he joined the board of GM, Sullivan launched a crusade that would change the course of corporate and world events.
At that time, the world's biggest automaker also happened to be the largest employer of blacks in South Africa, where the apartheid regime mandated that companies maintain strict racial segregation in the workplace, and prohibited blacks from holding management positions. For more than 15 years, Sullivan used his position on GM's board to tear away at apartheid's barriers one brick at a time. In 1977, Sullivan drafted a list of six principles advocating equal rights and opportunities for GM's black workers. The company adopted the principles even though they directly contravened South African law, and over the next decade Sullivan convinced more than 100 Western companies to follow suit. Finally, in 1986, he notified the South African government that he would begin encouraging companies to pull out of the country altogether unless apartheid was abandoned. In 1990, when the legal structure of apartheid was officially dismantled, it was due in no small measure to the pressure of the international business community.
Lori Tansey Martens looks back on what Sullivan helped accomplish and wonders where all that courage has gone. Sullivan died in 2001 at the age of 78, and there doesn't seem to be anyone rushing to fill his shoes. "He made it okay for companies to operate in South Africa, essentially by saying, 'We're going to do business here but we're going to be civilly disobedient, because we believe the laws are immoral, irresponsible and unethical.' South Africa needed the foreign investment, so it turned a blind eye and ultimately capitulated. But business is missing the opportunity to do the same thing in China."
John Kamm, though, isn't holding his breath. "China ain't South Africa," he says. "Even when it was an important economy, South Africa never even came close to the level of importance being afforded to China. People were willing to cut off their pinky if necessary with South Africa. But nobody is even willing to contemplate losing the great China market. They're just scared to death they're going to miss out on the great gold mountain that's out there somewhere."
And so, in the absence of a champion among North America's business leaders, the calls for international legal action are growing louder. Human Rights Watch recently began a campaign for a treaty at the Organisation for Economic Co-operation and Development that would make it illegal for companies to be party to human rights abuses anywhere they operate. But others worry that any attempt at an international human rights treaty is bound to fail. Lloyd AXWORTHY was Canada's minister of foreign affairs under Jean Chrétien until he left politics in late 2000, and he learned first-hand just how powerless national governments can be to sanction big business for its actions in foreign countries.
In the late 1990s, Calgary's Talisman Energy formed a partnership with the state oil company in Sudan, and was soon accused of supporting the government's ruthless attacks on civilians and rebel groups in the country's southern regions. Talisman insisted the allegations were false, and repeated the familiar claim that its presence in the country was actually improving conditions. Axworthy became convinced something had to be done. "I had my baptism of fire on this issue," he recalls. "We ran into several problems. First, it was impossible to get any agreement at the UN Security Council on any form of sanctions against Sudan or against companies that were complicit in government bombing and attacks on the people in the south. I went to see what tools were in our arsenal, and we found we couldn't do any sort of domestic action unless it was sanctioned by an international body. So we were in a Catch-22."
With his hands effectively tied, Axworthy asked the federal foreign affairs committee, then chaired by Liberal Bill Graham, to develop legislation that would require Canadian companies to uphold social, environmental and ethical standards when doing business offshore. "That was then cancelled under my successor," he says. "So now we're still in a position that we can't do anything about a Canadian company that wants to act as a rogue in other parts of the world."
To many, it seems Canada and other nations have simply lost the will to fight. If the response to human rights abuses a decade ago was weak, over the past few years it has faded completely, and the case of Sudan is a prime example. Talisman finally pulled out of Sudan under heavy public pressure in 2003, but the legacy of its time there still hangs in the air. Under the U.S. Alien Tort Claims Act, companies can be sued in the U.S. courts for violations of international law, and in 2002 the Presbyterian Church of Sudan, along with several survivors of the vicious civil war, brought a claim against Talisman, alleging that the company's facilities were used as a base for government attacks against civilians. Last year, the Canadian government petitioned the court, asking that the suit be thrown out. "Should the suit proceed, Canadian firms will likely absent themselves from Sudan and therefore not contribute to its economic revitalization out of fear of the U.S. courts," the letter said. "Through the extraterritorial application of the Alien Tort Claims Act, U.S. courts' assumption of jurisdiction creates a 'chilling effect' on Canadian firms engaging in Sudan."
Government officials refused to comment on the letter, which was sent just as the full extent of Sudanese government atrocities in the Darfur region were coming to light. But Axworthy was appalled to learn of it. "That's nonsense. The Alien Tort Act is one of the things the Americans do reasonably well. The fact that our embassy would write a letter like that - I'm repelled."
Axworthy has heard the calls for binding treaties, but he doesn't see much hope for them unless national governments take control of their own companies. "There's lots of talk about global compacts at the UN and voluntary codes of conduct, but we haven't advanced the debate in terms of what does it really mean and how do you get the companies to buy into it?" Tansey Martens agrees - if you can't get companies to stick to their own stated values, and if governments won't bring their own corporate sectors to heel, then treaties are mere words on a page. "Hundreds of global companies have signed on to the UN Global Compact on Human Rights, and nobody knows what it means," she says. "You could drive a truck through the loopholes in some of these statements of principle."
For now, the threat of bad publicity is the only real weapon in the fight to reassert a corporate conscience in the developing world - and there are some reasons for hope. Human Rights Watch claims several top executives have privately lamented the race for the bottom in China, and endorsed the idea of a binding code of conduct at the OECD. This month, Bill Gates suggested the Internet industry needs to get together and agree on a common set of principles to deal with censorship in China and elsewhere. And then there's Representative Chris Smith's proposed bill in the U.S. Congress.
It's a start, Kamm says, but this is a crossroads for East-West relations. Western leaders - both corporate and political - seem ready to let all the gains of the past decade slip away for the sake of a quick profit, and it may soon be too late to stop the slide. "Yahoo's treatment of Shi Tao was a watershed, and now the wraps are coming off," he says. "It appears there was a lot more of this kind of thing than we previously thought. On balance, business has been a force for good. That said, we have enabled and sat back and done nothing about negative things that have been happening. If we allow that to go on, and let the Chinese government believe they are so big and so important that we will not fight for human rights, that will be very dangerous. We are at a critical moment."
Maclean's February 20, 2006