Our CEOs, Their Foreign Agents

In December 2004, IBM announced the sale of its personal computer division to China's Lenovo. The announcement came as a surprise in Washington but was old news in Beijing. As IBM Chairman Sam Palmisano later told The New York Times, the deal had originated during his July 2003 trip to Beijing to meet not with Lenovo but with top-level Chinese government officials from whom he sought permission to sell to a Chinese company. IBM wanted to support China's industrial strategy (including the upgrading of its technological capacities and know-how), Palmisano told the Times, partly because "if you become ingrained in their agenda and become truly local and help them advance, then your opportunities are enlarged. ... You become part of their strategy." After Beijing approved the proposal, Palmisano proceeded to Lenovo to negotiate the deal that wound up not only with Lenovo taking over IBM's PC division but also with IBM and the Chinese government as co-investors in China's fifth largest company.

IBM had been a major supporter of China's entry into the World Trade Organization, which is founded upon the premise that its members maintain free and open markets. Nevertheless, Palmisano's visit demonstrated that he understood the role of government in the Chinese economy. Conversely, Palmisano did not go to Washington to meet with top U.S. authorities before talking to Lenovo. Nor did he think about becoming part of U.S. economic strategy, chiefly because the United States does not have an economic strategy. Indeed, the U.S. business community has strongly opposed all proposals advocating such a strategy, in accord with the notion that free markets make the best decisions in allocating scarce resources.

The Lenovo deal made nonsense of that assumption. By his own admission, Palmisano was not operating in response to market forces but rather in response to China's industrial policies. In view of that, it is not surprising that IBM's lobbying efforts in Washington have been very favorable to China's interests.

IBM is hardly alone. China requires companies like Google to keep some information off of its China Web site. Were the U.S. government to impose such censorship on Google, the company would no doubt refuse. In China, however, it readily agreed to filter out the BBC, the word "democracy," and anything about freeing Tibet. Yahoo turned over to Chinese authorities the name of a journalist who was using its e-mail in ways unhelpful to the regime. He now languishes in jail. Cisco, e-Bay, and Microsoft all help the Chinese Internet police cleanse the blogosphere either with their technology or their acquiescence in censorship.

The CEOs of global companies often prefer to do business with authoritarian regimes; they can get faster decisions than they can in democracies. But these CEOs also find that they must be more responsive to the desires of the authoritarian regimes than to those of the democracies. Where there are conflicting national interests, the global CEOs are likely to line up on the side of the authoritarians and even to become lobbyists for them within the democracies.

The key problem is the asymmetry of governmental power over corporations in democratic and authoritarian regimes. In Washington, a CEO of a major corporation is an important political player who makes big PAC donations, maintains legions of lawyers and lobbyists, files lawsuits against the government, writes legislation, and influences regulatory decisions. In Beijing, Riyadh, or Moscow, however, the same CEO is a supplicant. He doesn't file lawsuits against these governments; indeed, he needs to maintain favor and keep the bureaucrats and party operatives happy.

Moreover, he will use his influence in Washington to do what is necessary to curry favor in authoritarian capitals. This is why the Business Round Table and U.S. Chamber of Commerce have been telling the Congress not to worry about China's currency-management policies that put U.S.-based producers at a disadvantage. Many in the global business community have effectively become lobbyists for the autocrats.

The standard argument in U.S. economic and foreign-policy circles is that globalization, by making nations richer, will also make them more democratic. In fact, the global corporation acts as a conveyor belt to carry non-democratic values into democratic societies. This is not to say it can't work the other way around, but the power relationships are such that it's more natural for a Google to yield to China's Internet police than to defy them. The CEOs may kowtow in more plush surroundings than other supplicants, but their position is just the same.

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