Good Honest Dollar $$

(Google Headquarters in Beijing - Image provided by M Weitzel via Wikipedia)

Given the complexity of the moral, ethical and business-case considerations involved, there are no easy or straightforward answers to the dilemma confronting Google with regard to the future of its Chinese operations.

But given the recent security breaches, the pendulum has swung a long way, and the case for leaving China - from both ethical and business case viewpoints – has surely grown much stronger in recent weeks.

 
Google’s announcement to review it’s Chinese Operations
As most of you will already be aware, Google released an announcement on January 12 to the effect that the company’s operations in China are under review, following: (a) the discovery of a highly sophisticated and targeted cyber attack on the firm’s corporate infrastructure, with the primary goal of accessing the accounts of dozens of human rights activists in China and elsewhere; and (b) a decision that the company is no longer willing to censor search engine results in China.

Although not saying anything to pre-empt the outcome, the announcement does make it clear that partial or complete withdrawal from the country is a serious prospect.

 
Previously, the company’s operations in China were OK …
Prior to the discovery of the attacks, Google’s approach toward China appeared to be sensible and pragmatic.

To be sure, the censorship of search engine results to which the company agreed in 2006 did go against one of the basic fundamental principles of the online world (freedom of expression and information flow).

But it was necessary. Without agreeing to censorship, operating effectively in China would have been virtually impossible (prior to the agreement, Google’s uncensored engine, Google.com, had apparently been blocked by the Chinese government on an intermittent basis – refer article), and any stand made by the company regarding censorship would almost certainly have cost it the chance to properly exploit opportunities within the country – a price which surely would have been too high given the size and potential of China as a market.

And from the viewpoint of Chinese netcitizens, any Google service, albeit a censored one, was better than none at all prior to the censorship agreement when the service was so frequently blocked.

 
… but the security breaches change everything
But recent events have shifted the pendulum a long way, and both the ethical and business cases for leaving have become much stronger.

Even now, ethical considerations are a long way from clear cut. Any withdrawal on the grounds of censorship would hurt Google’s Chinese staff and customers much more than it would the Chinese government. And even despite the recent attacks, human rights activists in China would almost certainly be safer using online services from Google than those provided by domestic Chinese firms.

Still, the company does now have to think long and hard about whether or not it can be confident about the secure provision of some services, especially in light of the apparent sophistication of the attacks. Given this, along with ongoing reservations about censorship, the moral case for withdrawal has grown stronger.

So too has the business case. Most obvious is the risk of backlash in rich world markets. Already significant given the contention surrounding the censorship issue, the risk to Google of backlash associated with the continuance of operations in China is bound to intensify, especially if netcitizens remain unconvinced about its ability to provide Chinese services without jeapoardising the security of human rights activists.

This matters. China represents only a tiny portion of Google’s worldwide operations (see below), and the effect of the company’s strong moral pulse as a source of competitive advantage in western markets should not be underestimated.

(Google’s Chinese operations derive about $300 million in revenue, compared to an aggregate figure $22 billion for its global  operations – refer article)

Besides, Google’s experience in China has always been problematic. The company’s market share in its core search business is languishing at fifteen percent (refer article), and outside of search, many of its other businesses continue to experience problems relating to government censorship (at present, You Tube, Picasa and Blogger are all blocked – refer article).

Add all this up and there might just be a fair case for withdrawal anyway – even if it weren’t for ethical considerations.

 
Conclusion
There are no straightforward answers to the questions facing Google over the future of its Chinese operations.

But for now, the pendulum has swung in favor of an exit – whether partial or complete.

Factories within the Kaesong Industrial Complex (image via Wikipedia)

It’s probably not all that usual for a business ethics blogger to argue against a significant wage increase for full time workers in poor countries whose monthly salary is a paltry seventy five American dollars per month.

But when the majority of the increase (which would take the monthly wage to $300) would flow not to the worker but to one of the most repressive governments on earth, this is certainly one increase which I would could certainly not support at all.

 
About the increase
The increase relates to workers at the Kaesong Industrial Complex (shown above), an industrial park in North Korea located approximately six kilometers north of the border between North Korea and South Korea. The park represents a specially designated area whereby South Korean companies are allowed to operate within North Korean territory, utilizing the plentiful supply of low-cost labor from the North.

On a tour a few weeks ago to the DMZ, a heavily fortified and controlled area representing the border between South Korea and North Korea, our tour guide was telling us that North Korean workers employed at the park currently earn the equivalent of USD$75 per month.

However, in a somewhat extreme measure, the North Korean government is now demanding a four hundred per cent increase in this amount, to take the monthly wage up to $300.

 
Problem is, it’s all going to government coffers
Under normal circumstances, I would fully support wage increases for those who are poorly paid.

Those workers who perform an honest day’s work should be entitled to receive a fair and equitable level of financial reward for their effort. I have absolutely no idea what would be considered a good level of income by North Korean standards, but even if the workers got to keep the majority of their earnings, I could not imagine that earnings of $75 per month would represent a fair level of compensation compared to the value of the services which the workers provide.

Just one problem – little, or any of the increase will actually go to the workers.

Of the seventy-five American dollars per month that workers at the complex earn now, our tour guide informed us that the North Korean government takes seventy dollars, leaving just five dollars – yes, that’s right, just five American dollars per month, to be kept by the worker.

The workers keep only a tiny portion of what they earn now and it is highly unlikely that they will keep much of the benefit from any ‘wage increase.’

Instead, the vast majority of this increase, if it does indeed occur, will flow through to the coffers of the North Korean government - helping to finance a regime which appears to be hell-bent on the development of weapons of mass destruction and whose human rights record is not a great deal better than Sudan, Zimbabwe or Myanmar.

This cannot be supported under any circumstances. Wage rises which flow through into genuine benefits for workers and their families in poor countries can easily be supported on social grounds. But not ‘wage rises’ which merely mean more money for bomb making oppressive governments, and I certainly hope that the North does not receive its demands in this regard.

(Refer article for further information on this topic)

Few investors who entrust their money to fund managers of any form would want to see their funds directed toward companies which are complicit in terms of mass genocide in countries in which they operate.

In this regard, a March 26 announcement by TIAA-CREF, a large investment firm in America, that it is stepping up efforts to combat genocide in Darfur, represents a positive initiative which should be welcomed within the investment community.

 
The announcement 
Targeting five specific companies in which it holds stock, TIAA-CREF has demanded that the companies concerned:

(a) engage in constructive dialogue with the TIAA-CREF, in which the investment firm will encourage them to take proactive and meaningful steps toward the objective of eliminating genocide and suffering within the Darfur region; and

(b) demonstrate an acceptable level of achievement on an ongoing basis with respect to the above goal.

According to the announcement, the fund manager intends to divest itself of holdings in any of the target companies whose response is not satisfactory with respect to either step.

(The five firms being targeted are PetroChina, CPNC Hong Kong, Oil and Natural Gas Corporation, Sinopec and PETRONAS)

TIAA-CREF is not demanding that the firms in question necessary discontinue their operations in Sudan, although that is one option available for target firms that wish to avoid divestment.  As an alternative, target firms that wish to continue operations in the country can still avoid divestment by undertaking reasonable steps to ease the suffering of the Sudanese people.

 
Do companies take these requests seriously?
Apparently so.

Since 2006, TIAA-CREF has engaged twenty-two firms in discussions in order to encourage them to avoid any form of complicit support with respect to the genocidal Sudanese government.

These discussions have produced results - ten of the companies involved have since either ceased operations in Sudan or committed to appropriate humanitarian initiatives.

As a (nearly) $400billion financial services company, it appears that TIAA-CREF has quite an impact, and that its investee firms sit up and take notice when it makes demands about social responsibility.

 
Shouldn’t funds pressure companies to leave Sudan altogether?
I don’t think so, although there is a fair case for it.

On one hand, by continuing to operate in Sudan, and thus paying taxes (and no doubt bribes) to the Sudanese government, companies are effectively helping to fund a regime that sponsors genocide and other human rights abuses on an unbelievably massive scale.

By discontinuing operations, the companies concerned would no longer contribute funding to such an appalling regime.

On the other hand, it is difficult to see how leaving Sudan would help ease human suffering. After all, the regime is hardly likely to stop genocide just because a few companies discontinue operations, not to mention the plight of workers, who would suffer from loss of employment (admittedly a highly exploitative employment arrangement).

Rather than leaving the region, I would have thought that by undertaking humanitarian initiatives within the region, companies would have a more positive impact upon the lives of those who suffer from the appalling situation there. It is easy to see how programs to help improve education, health and water supplies have a direct positive impact upon the lives of people in Darfur.

In contrast, any benefit which the people of Darfur would derive from companies divesting in Sudan is less clear.

 
Summary
TIAA-CREF’s announcement represents a positive initiative in terms of the contribution of the global investment community toward the goal of eliminating genocide and suffering in Darfur, and should be warmly welcomed by the global investment community?

 
Over to you
Do you think fund managers should pressure companies in which they invest to cease operations in Sudan altogether? Or is requiring such firms to contribute toward humanitarian initiatives an even better idea?

Given the extent of harm which the illicit drugs industry has not only upon those individuals which suffer from addiction, but also upon broader society as a whole, calls to legalize the business may seem absurd.

But as long as drugs are taken by an estimated two hundred million people worldwide (refer article), calls for new approaches, including legalization, will continue to be made and should be given due consideration.

Last week’s call by The Economist magazine, where they ran a cover feature calling for the legalization of the entire industry, is just the latest example of these.

 
The Economist’s plan 
In brief, the magazine argues that governments should adopt the following approach:

(a) legalize both consumption and production of illicit drugs;
(b) tax and regulate the trade, with differing levels of taxation being applied according to the relative harm of each drug;
(c) redirect funding saved from enforcement efforts toward public education and treatment programs; and
(d) continue to ban the sale of drugs to minors.

Naturally, it is possible to legalize the act of consumption of illicit drugs without legalizing their production or trafficking, and indeed this is the approach which I would support (see below).

But for now, lets consider legalization of the entire trade – production, distribution and consumption.

 
Arguments for legalization of the trade
Proponents of a liberal approach would argue that legalization of the drug trade would help to:

(1) stimulate the creation of a somewhat legitimate industry, which in turn may reduce the extent to which the trade is controlled by organized crime gangs, thus helping to reduce the level of flow on crime, such as murder and thuggery, which is often associated with the trade;

(2) (assuming the legitimate industry referred to above could be created) reduce the extent to which otherwise law abiding users stand at the mercy of those who feed their addiction;

(3) (again assuming the creation of a legitimate industry) rid the trade of it’s ‘pot luck’ nature, where users cannot be certain about exactly what is contained within the substance with which they are taking or where it is coming from;

(4) reduce the degree of reluctance on behalf of drug users to seek help for their addition;

(5)  allow the creation of safe injecting houses, which would eliminate the risks associated with use of dirty needles and enable easy access to emergency services if required;

(6) take away part of the ‘thrill factor’ which is commonly associated with experimentation of an illegal product;

(7) allow resources currently spent on law enforcement to be reallocated toward programs aimed at treating addition as well as public education programs about drug use; and

(8) reduce the extent of injury and death on the part of law enforcement officers involved in efforts to crack down on producers and distribution chains; and

(9) eliminate the need to slap a criminal record on otherwise law abiding citizens, particularly those who only experiment with ‘soft’ drugs, such as marijuana.

With respect to the last point, criminal records can make it difficult to secure employment and other opportunities, and can lead to a nasty spiral. Not to mention the lessons to which young people are exposed in a prison environment.

 
Arguments against legalization
In response, critics of legalization may argue that it:

(1) sends the wrong message with respect to the seriousness of either drug use or any form of involvement with the drug trade;

(2) may encourage additional consumption if the extra supply from legalized producers lead to a fall in street price;

(3) takes away the ability of law enforcement to confiscate large stashes and prevent them from hitting the street; and

(4) does not in any way guarantee the creation of a (relatively) legitimate industry, and even if such an industry did develop, the prospect of gangsters being driven from the industry completely is highly unlikely.

 
My view
In terms of the consumption side of the equation, I feel that the benefits of allowing users to seek help without fear of prosecution and to use safe injecting houses outweighs the costs of any message which legalized consumption may send.

Those with a drug problem should receive help, not criminal records or jail time.

In terms of the supply side, I can appreciate the benefits associated with trade out of the hands of criminal gangs if that could be achieved. Nevertheless, given well justified concerns about the genuine legitimacy of any new producers that emerge, I just can’t bring myself to support any proposal under which the production and trafficking of substances which cause so much harm is deemed to be a legitimate, legal business activity.

What do you think?

In last week’s post, I outlined two common objections toward the concept of allowing workers the right to form unions and bargain on a collective basis.

Today, I would like to outline the reasons why I feel that workers should have the right to form unions.

 
The employer-employee relationship is a special case
In last week’s discussion, I asked why employees should be granted special rights, such as the right to bargain on a collective basis, which are not granted to other economic participants.

My answer - the employer/employee relationship is a special case.

As a result of the degree to which the majority of workers are financially dependent upon a singular employer, employees are considerably more susceptible than other economic participants toward abuses of their rights. In light of this, it is reasonable to expect there should be some respects where employees are given different treatment under the law to that of other economic participants.

(Whilst sensible employers will always honor the rights of their staff, we must nevertheless accept the unfortunate reality that some attempts to exploit workers do occur from unscrupulous employers.)

 
The case for unions
There is, in my view, a strong case for allowing workers to form a representative body and bargain on a collective basis:

 
• A powerful deterrent to abuse of worker rights.

Fear of confrontation with powerful unions can, on one hand, result in employers accepting unreasonable demands.

On the other hand, such a fear provides a powerful deterrent to the abuse of worker rights.

Whilst primary responsibility for worker protection should rest with the government, the unfortunate reality is that government actions are not always sufficient to prevent exploitation of workers in every country.

In any case, even in countries where governments do adopt proactive measures toward the protection of worker rights, the fear of confrontation with unions (in addition to the prospect of legal penalties) still acts as a powerful deterrent toward the abuse of such rights.

 
• Affordable legal advice and representation.

Legal action never should be considered in terms of the resolution of workplace disputes until all other possible approaches have been exhausted.

Nevertheless, in cases of genuine rights abuses from unscrupulous and unrepentant employers, it is imperative that aggrieved workers not be disadvantaged in the legal system from either: (a) a lack of financial capacity to pursue legal remedies; or (b) any lack of understanding of their legal rights.

This is one area where a union can play a pivotal role – by providing its members legal advice and representation.

Furthermore, in many cases, a visit from union representatives (along with the associated message that the employee concerned has a powerful organization standing right behind him or her) is sufficient to pull unscrupulous employers into line.

 
An Internationally Recognized Right
The right to join the union is specifically recognized in the Universal Declaration on Human Rights (article 23, sub-section 4), along with the right of refusal to do so (refer article 20, sub-section 2).

Human rights must have a global baseline standard, beyond which any breaches are considered to be human rights abuses.

Whilst the declaration is not perfect, it is the best we have in terms of internationally agreed standards. Any attempt by any government (or any other party) to prevent citizens from acting upon their rights as specified under the declaration, including the right to belong to a union, should be considered a human rights abuse.

 
The strongest argument – common sense
In some cases, collective bargaining through unions would appear to be a matter of simple common sense.

This is particularly the case where firms employ large numbers of workers and/or the tasks performed by a significant portion of an organization’s staff are largely homogeneous in nature.

In such cases, attempting to negotiate wages and conditions on an individual basis, with each and every individual worker, would be pointless, impractical and inefficient. Equally ineffective is the practice whereby employers simply offer employment conditions on a take it or leave it basis without any form of negotiation. Such an approach provides no mechanism for worker input, nor any opportunity for sensible discussion as to how the agreement can be structured to best suit the requirements of both parties.

The most sensible option in these types of cases is for staff to elect representatives to negotiate workplace agreements on their behalf. This approach is not only efficient, but it provides an effective mechanism to enable the agreement to be structured in the best possible way in order to meet the requirements of both parties.

 
The right not to join a union
Whilst the right to belong to a union has international recognition, so to does the right of refusal to do so, and under no circumstances should union membership ever be mandatory, compulsory, or a condition of any form of employment.