On Tuesday of this week, Congress hammered Yahoo top executives over the company's cooperation with Chinese officials in the jailing of a pro-democracy journalist.

 

Rep. Chris Smith, R-N.J., renewed a call for Yahoo to endorse his bill banning such cooperation. Smith said he remained "absolutely bewildered and angered" that the beleaguered Internet portal had not pledged to stop the practice.

 

On Wednesday, Yahoo declined to endorse the bill. Repeating a statement Callahan made to the committee, company spokeswoman Kelley Benander said Yahoo "looks forward to working with the committee on constructive solutions to this complex issue."

Smith said Yahoo's support for his Global Online Freedom bill could spur other Internet companies to endorse it, too. "They would send a message to the other Internet and IT companies that there is a minimum standard — minimal corporate standards for online freedom," he said.

Smith's bill would ban companies from disclosing to governments such as China information identifying individual Internet users. Exceptions would be allowed when the U.S. Justice Department says such a disclosure is for a "legitimate law enforcement purpose."

The bill also would prohibit U.S. Internet service providers from blocking online content of U.S. government-financed sites and services. And it would mandate that companies disclose to a new State Department office any websites they block from foreign users. The bill calls for civil penalties as high as $2 million for businesses and $100,000 for individuals.

Tao is serving a 10-year prison sentence after Yahoo's now-defunct China arm turned over information about his online activities at the Chinese government's request. He was imprisoned for disclosing "state secrets," a charge often used against political opponents.

Callahan originally spoke to committee members in February 2006, when they were investigating the role of Yahoo and other Internet firms cooperating with repressive governments. He said Yahoo didn't know the facts of the case when it gave the information. But the committee staff found Yahoo employees did know the nature of the case, even if Callahan did not.

At the heart of this issue is the continuing globalization of the internet.  What is most amazing is that when CEO Jerry Yang was asked by a committee member what he would do if China said they would revoke Yahoo’s license to do business in China if he would not give them access to potentially sensitive U.S. information, Yang didn’t say he would refuse the request and suffer the loss of his Chinese business.  This issue points to the intense competition in global businesses.  Left unsaid by Yang was that if he didn’t comply, some other company would step in and comply.  This is putting business above the social good, and it is one more reason why regulations must be enacted  that limit what business can do when the social costs are high.

 

The real answer is provided by Robert Reich in his new book “Supercapitalism.” In it, Reich investigates what has happened to social morality, or the “corporate statesman.”  What he found is that we, yes we, are the unwitting culprits.  As new technologies have evolved, barriers to entry have lowered and competition has intensified.  There have been two beneficiaries of this intense competition:  The consumer and the investor.  This “supercapitalism” has driven companies to seek the lowest cost.  Those that accomplish this have a competitive advantage.   This drive toward lower costs often involves seeking the lowest labor markets, and an avoidance of concerns such as what effect the processes or actions have on the environment.  Yet, we as consumers flock to those companies that can give us the bargain prices.  At the other end, just about all of us are investors, whether it be through direct investment in the stock market, or through mutual funds or 401(k)s.  We want the highest returns from our investments.  And we benefit financially from those concerns.  This drive toward the highest returns has also intensified the effort on the part of companies to show their investors that they can provide the highest returns.  As a consequence, companies are more concerned about taking actions that improve their stock prices and dividends than they are in taking socially responsible positions. They can’t afford to, because if other companies offer higher returns, our fund managers will move our investments to other companies.  Or as individual investors we’ll sell the stock and move it somewhere that offers higher returns.  The focus is the short term.

So we need to examine ourselves.  We are schizophrenic.  We want these lower prices or higher returns, but another side of us is concerned about the negative social and environmental impacts. Even those companies that try to act more socially responsible (usually in specific areas and for limited times) often find themselves experiencing lower returns and thus lower stock prices, or higher costs.  There are numerous examples of companies who for years acted more socially responsible, and who eventually were acquired by other companies that took advantage of the lower value that resulted from their “social” conscience.   

A third issue is the time and money that lobbyists spend serving companies by trying to influence our laws.  These actions are primarily in response to the companies trying to get laws passed or prevent laws from being passed that may effect their  competitive position.  This is a result of the same intense competition.  So with their contributions to political campaigns, they get access to the congressmen and their staffs.  They dominate the discourse with our legislators.  They drown out the individuals and groups that represent the social good.  This results in the vast dissatisfaction the public has with congress.

As the final paragraphs in Reich’s book state:

“ The triumph of supercapitalism has led, indirectly and unwittingly to the decline of democracy.  But that is not inevitable.  We can have a vibrant democracy as well as a vibrant capitalism.  To accomplish this, the two spheres must be kept distinct.  The purpose of capitalism is to get great deals for consumers and investors.  The purpose of democracy is to accomplish ends we cannot achieve as individuals.  The border between the two is breached when companies appear to take on social responsibilities or when they utilize politics to advance or maintain their competitive standing. 

            We are all consumers and most of us are investors, and in those roles we try to get the best deals we possibly can.  That is how we participate in a market economy and enjoy the benefits of supercapitalism.  But those private benefits often come with social costs. We are also citizens who have a right and a responsibility to participate in a democracy.  We thus have it in our power to reduce those social costs, thereby making the true price of the goods and services we purchase as low as possible.  Yet we can accomplish this larger feat only if we take our responsibilities as citizens seriously and protect our democracy.  The first step, which is often the hardest, is to get our thinking straight.”[1]

So what do we do?  First, we need to pass campaign reform so that political campaigns are financed by the public.  This includes TV time being given equally to all candidates at no cost.  Next, we need laws that regulate how far companies can go in increasing the social costs resulting from their actions.    Only by having laws that all companies have to meet can we level the playing field, maintain fair competition, and assure we know what the true costs are to our citizens.    

Now that we have celebrated labor day, it is fitting that we reflect on the fact the United States laborer: Skilled, unskilled, professional and small business owner, is the hardest working laborer on the planet. Not only that, they are close to being the least rewarded for benefits and vacation time. One of the background issues in Inventions is corporate greed, or making money at all costs.  I won’t go into the details of how this issue plays into the plot, because I want you to read the book and see for yourself.   However, this issue is even more of an issue today than during the setting of the book.  More and more corporate executives have been caught modifying the books, back dating stock options and committing other corporate sins.  Of course Enron represents the poster child for this corporate mentality.  Even today, we see the greed on the part of mortgage lenders and junk bond companies that has led to the problems in the sub-prime market.  It is estimated that 358 individuals own more financial wealth than half the world’s population collectively owns. About one billion people earn less than one dollar a day.  We see China ignoring the problems of millions of people while the elite of China amass wealth.  The middle class in the U.S. is fighting to survive. We see the world’s natural resources being plundered to the point that we will be unable to sustain human life without some drastic measures being taken.  We are told that globalization is a good thing and that it is here to stay. But one must ask what has happened to our corporate morality?  This is also one of the subjects in a non-fiction book that I am currently working on.  What are your thoughts?

Paul

I hope you enjoy my new novel.  Post your blogs here.
Paul L. Woodring