Business code for China needed

By Jim Hoagland Published:

By Jim Hoagland

WASHINGTON -- Repression pays. Until that reality is acknowledged by American companies operating in China, they will have little influence over social and political change in the Middle Kingdom or even over their own operations there.

That holds true for members of Congress who are abruptly chastising Chinas Leninist rulers for cheating on trade and currency pegs, and for an ambivalent Bush White House, which will host Chinas president next month with a mix of verbal bouquets and velvet brickbats -- without ever mentioning the driving force in Chinas astonishing 15-year economic rise.

That force is a low-wage unfair labor system held in place by Communist Party control and military might. Take away that system and replace it with one that has collective bargaining and freely chosen union representatives and all the rest will change, dramatically, and for the better.

What has happened in China since June 1989 remakes in spectacular fashion a point established in South Africa in the early 1960s and elsewhere at other times. Put simply, predictability and low costs are what matters for foreign investors. Political repression can help bring both -- for a while.

After white police shot down anti-apartheid black demonstrators in what became known as the Sharpeville massacre in 1960, foreign investors bailed out of South Africa and a massive capital flight cut the countrys foreign reserves in half. But that pattern reversed as repression intensified and the regime held. A two-decade economic boom was built on foreign investment and justified by the theory that foreign corporate involvement would bring reform on its own.

A similar process happened in China after the Tiananmen Square upheavals. The first President Bush dispatched Brent Scowcroft to reassure the Chinese (and indirectly U.S. investors) that Washington would not let the gunning down of peaceful protesters and a suffocating crackdown on civil liberties affect business as usual. The Clinton administration went even further in forgetting and forgiving by making China a strategic partner.

Remember also the context of the 1989 decision to use brutal force to clear Chinas streets and squares of millions of demonstrators: At the same time, Mikhail Gorbachev was deciding not to use force in East Germany or at home to protect the discredited Soviet system. Unpredictability and a relative lack of foreign investment have marched hand in hand in the former Soviet empire since then.

I cite South Africas experience because it is a case which I know well and because it has direct bearing on what American companies and political leaders should be doing now to protect their reputations as good corporate citizens and their long-term interests.

A turning point in the struggle against apartheid came in 1977, when the Rev. Leon Sullivan persuaded U.S. companies to adopt a set of principles to guide their commercial involvement in South Africa. This code of conduct centered on equal opportunity for blacks who worked for these companies and for local firms with significant institutional ties to U.S. companies. The Sullivan Principles shifted the discussion from self-justifying theories about business advancing social change to the practical steps of what happened every day in the work place.

This sign of outside support encouraged black South Africans to re-engage and renew a political process that had been crushed. And it provided significant pressure points for anti-apartheid activists abroad. A combination of sanctions and domestic political activity brought economic pressures that helped end apartheid a little more than a decade ago.

China is not South Africa; racial discrimination is not at the heart of repression there. Neither the original code of conduct nor the more general Global Sullivan Principles announced at the United Nations in 1999 fit the situation exactly. That is why U.S. firms need to develop a similar code of business conduct with Chinese characteristics.

Hauled before Congress last month for helping the Chinese government spy on dissidents, executives from Yahoo, Google and Cisco sounded as if they had just emerged from the South Africa of four decades ago. Out came the theory that their commercial presence was liberalizing Chinas society and eroding repression.

That is hypocritical, self-defeating justification of decisions taken on dollars-and-cents criteria. Worse, it wills the evolution of change to be left entirely in the control of the government rather than giving Chinese workers and consumers some say in that evolution.

It is true that materially much has changed for the better since 1989 and that China cannot be isolated today. But China can be spoken to with candor and determination about what must change before it can be a true partner for democratic nations and U.S. business.

2006, Washington Post Writers Group

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