Code Red: Responding to the Moral Hazards Facing U.S. Information Technology Companies in China

Abstract

This paper surveys the nature and extent of China’s control over the Internet, the problems it creates for U.S. Information Technology (“IT”) companies doing business in the country, and various proposals on how to deal with them. It focuses on several controversial developments among major U.S. IT companies with ties to China, including Google’s announcement that it would launch a censored version of its popular search engine for Chinese Internet users, Microsoft’s decision to remove a controversial blog from the Chinese version of its MSN Spaces, and Yahoo!’s involvement in the identification and imprisonment of Chinese journalist Shi Tao, who used the company’s email service to send politically sensitive documents abroad. It tentatively concludes that Chinese Internet users would be worse off, on the whole, if U.S. IT companies were prohibited from doing business in China and considers various forms a regulatory regime might take to prevent some of the more egregious examples of collaboration. After considering the prospects of both self-regulation and legislation, it comes out in favor of a hybrid approach involving the development of an industry-wide code of conduct propped up by legislation designed to deter noncompliance. Significant attention is devoted in the process to demonstrating the theoretical advantages of this hybrid approach within the conceptual space afforded by contemporary views of the natures of both the State and the corporation. Noting the limits to this approach as a model for the regulation of transnational business, it ends by suggesting the need for the development of something like a stakeholder theory of the modern State.