Google created a stir yesterday in announcing that if they can’t come to an acceptable agreement with the Chinese government to provide unfiltered search results and stop hacker attacks on their systems, they’re, in short, outta there.
What plays out next should tell us quite a bit about how much American private enterprise might be able to create positive change in China.
According to today’s New York Times story from Andrew Jacobs:
Google linked its decision to sophisticated cyberattacks on its computer systems that it suspected originated in China and that were aimed, at least in part, at the Gmail user accounts of Chinese human rights activists.
Those attacks, which Google said took place last week, were directed at some 34 companies or entities, most of them in Silicon Valley, California, according to people with knowledge of Google’s investigation into the matter. The attackers may have succeeded in penetrating elaborate computer security systems and obtaining crucial corporate data and software source codes, though Google said it did not itself suffer losses of that kind.
So that’s the ‘what’ – but the broader context is even more interesting. Google has long been admired for their "Don’t be evil" corporate mantra, using a social responsibility filter alongside growth and profitability filters in deciding which products/markets to go at next. And to be sure...
Google executives have privately fretted for years that the company’s decision to censor the search results on google.cn, to filter out topics banned by Chinese censors, was out of sync with the company’s official motto, "Don’t be evil."
"We have decided we are no longer willing to continue censoring our results on google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all," David Drummond, senior vice president for corporate development and the chief legal officer, said in a statement.
In China, search requests that include words like "Tiananmen Square massacre" or "Dalai Lama" come up blank. In recent months, the government has also blocked YouTube, Google’s video-sharing service.
At the risk of overstating what might just be a high-stakes game of negotiating chicken, the consequences of this decision could be enormous. Google is essentially calling out China for two particularly nefarious elements of their political/social environment, that relate directly back to their terrible record on human rights
- China’s lack of protection for property rights (including intellectual property)
- China’s lack of open & accessible information
These are not new complaints – we have heard them from human rights activists for years. What’s new is that for the first time, a market-leading company is citing them not as obstacles to work around in doing business in China, but as reasons to stay out altogether.
Certainly, Google is taking substantial risk in making this call. Even though they and their founders (and parking lot attendants for that matter) have made more money than any of us can comprehend, what’s even more important are their expected growth opportunities: as much money as Google has made, most of their value comes from money shareholders expect them to make in the future. China is a huge component of that growth; taking China out of their plans is about as much "money where your mouth is" as you could hope from a high-profile company like this.
On the other side, things are risky for the Chinese government here as well. For years (certainly the five-plus that I’ve been in management consulting), China has been IT for American business – it’s where revenue growth lies, where low-cost manufacturing can be found, and where most American companies are looking to lead the recovery. Certainly many companies have had their problems there – ask any auto manufacturer about what it’s like protecting their IP in a Chinese factory – but no one, to this point, had simply said "Fuck it" and pulled up their stakes. While this isn’t going to set of a raft of imitators, and may just empower a search-engine rival to go cozy up to the Chinese government, I think the significance of a leading American brand eschewing China can’t be understated and would fundamentally change the China dialogue from "how" to "whether."
Threats to Foreign Direct Investment (FDI) are taken seriously by the Chinese government – the inflow of overseas investment plays a critical role in helping their regime keep the currency artificially low, which in turn helps sustain their manufacturing cost advantage and keep the export sector humming along. More importantly, FDI has brought with it immense quantities of knowledge transfer, allowing China to scale a hundred years of economic growth in twenty by quickly adopting proven manufacturing and management techniques brought by outsiders. The threat of this gravy train starting to come off the rails might be enough to nudge the Chinese government in directions that our own previous administrations just haven't been able to achieve, and start allowing some wider search results, greater online privacy, more IP protection, etc.
It may not. The Chinese government has proven capable of astounding obstinacy in the past. But I think this is a win-win: either China blinks, or Google shows the world that it’s OK not to go there in search of yet more profits.
Either way, this is good news.