Yesterday, one of my partners in crime, Kai Pan, wrote a devastating slap down of an Op/Ed written by Nicole Kempton, the director of a “research foundation” whose sole purpose seems to be digging up dirt on the People’s Republic of China.
Everyone needs a hobby, I suppose. To his credit, Kai did not smack around Ms. Kempton simply because of her prejudices. No, his criticisms were limited to her disorganized, rambling screed against the PRC in its treatment of Google. The fact that Kai was able to do so in a completely geeked-out manner (post allusions included Bizarro and Mirror, Mirror — if you have to ask, you are not worthy) made the post an instant china/divide classic.
Because of the high bar set by Kai, I am reluctant to prolong any discussion of this topic. However, I shall in fact run the risk of engaging in a spectacular Kemptonesque ranting failure here for two reasons:
1. Kempton’s article was posted on The Huffington Post, a U.S.-based news/politics site that is left-leaning and generally not supportive of the PRC. As luck would have it, a second anti-China Google piece was posted on HuffPost and, lucky me, it was written by a very smart trade lawyer named Gilbert Kaplan who ended up writing some very stupid things. When opportunity knocks, you gotta blog about it.
2. Even more important, though, I will be a speaker at the 2010 Asia Law Society Symposium this Saturday at the University of Michigan Law School. The conference will cover Corporate Social Responsibility and the Rule of Law and I, you guessed it, will be talking about the Google dispute. So I need to get the creative juices flowing on this subject anyway.
There has been so much written on the Google China kerfuffle since December that pretty much any discussion is bound to include a great deal of restatement and meta-analysis. For my discussion on Saturday, I plan to spend five minutes on background, setting out the timeline and most important facts. For the purposes of this post, let’s assume you all are up to speed on the minutiae of Google’s ongoing dispute with Beijing.
On Saturday, I intend to spend a few minutes on a Powerpoint slide I prepared entitled “Emotions, Myths and Irrationality,” which contains a short list of some of the more batshit crazy statements made by commentators over the past couple of months. This leads us directly to Mr. Kaplan and his somewhat bizarre take on the Google situation.
Keep in mind that Kaplan used to be very high up in the U.S. Department of Commerce. Admittedly, the DOC has a reputation for being rather hit or miss when it comes to talent, at least that’s what people have told me over the years. But I’m nothing if not polite and respectful — let’s assume that Kaplan is sharp as a tack. He is currently practicing international trade law at King & Spalding, a very reputable U.S.-based law firm.
The easiest way to introduce Kaplan’s argument is to give you an excerpt of his first paragraph. This basically says it all:
[I]f we allow market access for the fruits of the great Chinese industrial machine, creating jobs for 100 million Chinese workers (the number of Chinese employed in manufacturing), they need to allow access to our creative enterprises, such as Google.
I will remind you that this is coming from a partner at a large law firm who practices international trade law. If I understand Kaplan correctly, he is suggesting that Google’s situation should be looked at within the context of the overall bilateral trade between China and the U.S. Why is that? No frickin’ clue. Somehow Google is deserving of a “free pass” when it comes to observing Chinese laws because, well, you know, Americans buy a lot of crap from China.
Did I mention that this guy went to Harvard Law School?
But not only is Google being forced out by a series of actions and deliberate inactions of the Chinese government, but Google’s affiliate, YouTube, was never even let into China in the first place. It is perennially blocked by their “great firewall”.
With this, we start moving into the territory of “startlingly ignorant” and “hopelessly inaccurate.” I wonder if Kaplan’s partners at King & Spalding know what he’s putting out there in the public discourse?
1. Google is not, and has never been, forced out of the country. If they drop self-censorship on Google.cn, they are choosing to violate Chinese law; that’s the only “action” going on here. I am unaware of the “inaction” on behalf of the PRC government that is alluded to by Kaplan, unless he thinks they should engage in legal reform, including an overhaul of national security policy, to accommodate Google.
2. YouTube was never allowed into China and is blocked by the GFW? Almost sounds like Mr. Kaplan thinks this “blocking” was the reason why YouTube isn’t here. Bizarre, to say the least.
Look, YouTube could have come here just like anyone else, provided they dealt with foreign investment restrictions, IT licensing requirements, and censorship rules. Is this an industry that is open to foreign companies? Not at all. But so what? There are quite a few industries that still have investment restrictions on them even post-WTO accession. Nothing wrong with that, and Kaplan certainly understands this. Does Kaplan want to go back 10+ years and renegotiate China’s WTO Accession Agreement? Have at it, Hoss.
3. Is YouTube “blocked” by the GFW? Of course it is. It is an offshore site with content deemed unsuitable for all the impressionable folks over here. I assume that the difficulties inherent in screening such content make it impossible to do selective filtering, so the entire domain is blocked. Am I missing something here?
If I didn’t know any better, I’d say that Kaplan wasn’t really a trade lawyer, he just plays one on TV. Consider this:
Many newspaper websites are regularly censored. The Chinese competitive sites that are willing to go along with the censorship and the dictates of the Chinese government, like Baidu and Alibaba, are the dominant players on the Chinese internet.
Yes, Mr. Kaplan, China has censorship. It’s the law. If foreign media companies post sensitive material online, it will be filtered. Local companies must do so according to Chinese law or risk direct penalties. This is all well known and, by the way, completely consistent with WTO law.
Kaplan seems to be skirting very close to the argument that:
1. Foreign companies do not self censor and are filtered by the PRC GFW.
2. PRC companies self censor and are therefore not blocked by the GFW (incorrect, but we’ll let that go for the moment).
3. Therefore local sites get more traffic and are able to build up market share. Foreign companies are, by this entire mechanism, not allowed to fairly compete in the market.
Just in case you thought it couldn’t get any better, Kaplan actually says later on that this sort of system brings up not only questions of free speech, but it also constitutes a trade barrier.
Two inane comments, but I’ll give him freedom of speech for the moment, even though there is no such thing under local law. No, what really leaves my lower jaw flopping in the breeze is Kaplan’s assertion that China’s censorship regime should somehow be seen as a trade barrier. I am shocked. And appalled. Both shocked and appalled. And maybe flabbergasted as well.
Let’s review. Google wants in on the China market. Chinese government says no problem, you just need to follow the law. Google says OK, we’ll do just that. They then go their merry way, building up market share and doing fine.
Fast forward to the present. Google says to government: you know, we decided that those rules you put into place, well, we don’t want to follow them anymore. But we still want to do business here. Government says: you’re welcome here, but you still need to follow those rules we talked about before.
So Google pulls out, Baidu benefits. Now you have the foreign company worse off and the local company eating its lunch.
Kaplan looks at this set of facts and says that it had nothing to do with Google deciding on its own to stop following clearly-stated local law. No, this was all about trade protectionism; Google has been treated unfairly.
Did I mention that this guy is a trade lawyer? You can go to him for trade advice, and he’ll probably charge you USD 600 per hour for his expert opinion. What a racket!
Lawyers get to charge a lot of money because they sound intelligent. Here is Kaplan’s attempt:
If a company cannot access the largest market in the world for its product it loses enormous revenue opportunities. And as a matter of economies of scale and ability to move down the learning curve, it becomes economically disadvantaged versus its competitors going forward.
Some nice econ jargon, but ultimately Kaplan in just engaging in George Will-ish argumentation. Use impressive language and pretend that everything is flowing logically. If you’re lucky, no one will pause to connect the dots, and they’ll just skip to your conclusion.
Yeah, can’t do that in this case, because the logic is absent. I can’t follow the train of thought here because there isn’t any. Sorry to be so pedantic here, but let’s deconstruct this:
1. China Internet is a big market.
2. Google is not/will not be in that market.
3. Google will not enjoy greater economies of scale as a result.
4. Google’s competitors will therefore have the advantage.
Crazy person says what?
OK, first, to reiterate: Google is the one deciding to leave the market. Second, although China is a big market, I think Google enjoys significant economies of scale globally anyway. Third, who are these mysterious competitors who will smack Google around because they got out of China? I hope Kaplan isn’t talking about Baidu, which is a large, but purely local company. Big market, big revenues for Baidu, but they are not a global competitor to Google.
Just because you use the terms “economies of scale” and “learning curve,” it doesn’t prove you’re smart. For God’s sake, after an hour or so staring at a thesaurus (Baby’s First Thesaurus, I recommend it), I was able to insert the word “pedantic” into this post (see above), and my brain can barely handle autonomic functions on any given day, which explains the adult diaper and bib.
Moving on (’cause I can’t stop now).
Now Kaplan just starts whining, which is sad. “Wah! We (the U.S.) lowered tariffs for certain goods and now China sells us computers! Wah! We allowed Lenovo to buy IBM’s laptop unit, and now we have to buy laptops from China! Wah! We could have stopped the IBM deal, but we didn’t! We are such fools to have trusted those Chinese!” (Note: I paraphrased, somewhat loosely.)
Listen, jughead, it’s called free trade. Look it up. It’s in the dictionary right before FUBAR, which is a decent description of your argument. By the way, his legal opinion on stopping the IBM deal via a CFIUS review (he references the Exon-Florio Amendment) is, I suspect, bullshit. Then again, the folks at CNOOC and Huawei might disagree with me.
So why did the U.S. (further) open its markets to China ten years ago?
[W]e believed that as China industrialized and moved along the economic and knowledge highway they would become a great market for those goods where we continue to have an advantage, things like search engines, and streaming video, and innovative web sites.
Yes, when the U.S. was negotiating WTO accession back in the late 90s, everyone’s attention was on streaming video! All that stuff about IP, financial services, and tariffs? Irrelevant.
And China failed to keep its bargain, damn it. All we cared about was that streaming video, and look what happened. Sure, American companies can manufacture practically anything they want in China now, they can distribute product themselves, and they can make piles of money in even tightly-restricted industries like financial services.
But all that pales in comparison to what everyone really cared about: streaming video, where all the smart money was in 1997.
Kaplan ends (yeah, finally!) on a low note. He says that Google represents the best, maybe last chance, for the U.S. to make some decent scratch in this competitive global environment. If Google can’t make it in China, then essentially the U.S. is screwed.
The fact that Google is pulling out suggests to Kaplan that the fix is in. It must be protectionism, or a conspiracy between the Illuminati and the 1985 Chicago Bears to destroy the U.S. economy, because Google is simply too good to lose this fight.
Just for shits and giggles, Kaplan finishes up with this non sequitur:
Reciprocity is what the trade agreements of the world are about. We let you sell in our market the goods you can make more efficiently and more creatively. You let us sell in your market the goods and services we produce. If China shuts out our internet companies, we need to shut out their hardware that the internet runs on.
Perfect. A respected (I assume) trade lawyer is suggesting that if Google voluntarily withdraws from China, the U.S. should support a trade action against China that is WTO inconsistent on its face. I don’t know where Kaplan is licensed, but my Bar Association certainly frowns on that sort of thing.
Although I’ll never have enough time this Saturday to really get into the craziness that is Kaplan’s Op/Ed, it and the piece ripped apart by Kai yesterday (see right) perfectly represent the irrationality that has surrounded the Google dispute.
Just to wrap this up, I will be speaking mostly on CSR and Rule of Law this weekend. Since this post has run on longer than a James Cameron epic, and with no dancing smurfs or waterlogged babes to liven it up, I’m going to hold off on those topics until I get back from Michigan. Perhaps at that point, after reflecting upon the conference proceedings, I will be able to write a cogent analysis that is somewhat more discliplined than this word salad.