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The University of Google: Was the decision to exit China ideological or business as usual?

March 30, 2010 Leave a comment

After years of unease about the Chinese government’s censorship policies, Google announced this month that it would be shutting down its Internet search service in Mainland China, citing the recent cyber attacks on its systems, widely believed to have been orchestrated by the Chinese government, as “the straw that broke the camel’s back.” Instead of selling off their existing Chinese operations to the highest bidder and leaving town, Google pursued the more risky strategy of rerouting searches through its Hong Kong servers, which remain free from government censors.

Speculation surrounding Google’s motives seems to have generated as much media attention as the business implications of the fallout. While watching the story develop during the past week, I came up with three general perspectives on why Google really left China:

1) Google is making a principled stand against the Chinese government’s censorship and repression of free speech at the cost of its bottom-line;

2) Google is pursuing a strategy that appears costly in the near term but will benefit its business model in the long run;

3) Google was tired of being pushed around by what it saw as an increasingly hostile foreign government.

While it may be tempting to dismiss the first account as overly naïve, I think we would be remiss to discount the possibility that Google’s ideology was central to its decision. There are two reasons that I can think of to support this claim. The first is that Google has been upfront from the beginning that its decision had a major ideological component. In an interview with the Wall Street Journal, Google co-founder Sergey Brin invoked his personal experience with totalitarianism to characterize the decision as a principled stand against Internet censorship and government surveillance.

The second reason is that, despite its status as a Fortune 500 company, Google is among a growing group of powerful corporations closely aligned with the left. Based on my estimates, Google’s employees are the fourth most liberal of any U.S. corporation, behind Genentech, Apple Inc. and Starbucks (See figure above or click here to view in table format). A table with the  To put this in perspective, consider that during the 2008 election cycle, Google employees raised $20,800 for John McCain and $55,451 for Ron Paul; compared to $89,300 for Hillary Clinton and an astounding $803,436 for Barack Obama. In fact, in terms of political contributions, the employees at these firms more closely resemble faculty at liberal universities than traditional Fortune 500 corporations. In some ways, this makes sense. With the exception of Starbucks, each of the most liberal firms, in large part, deals in research and innovation, and each has a reputation of actively recruiting Ph.Ds.

This is the where I would usually caution against putting too much stock into what the ideology of employees reveal about a corporation’s decision-making, because it is the board of directors that ultimately decides issues of this magnitude. However, Google’s board of directors also appears to be decidedly liberal.

In total, seven members of Google’s board have contribution records that can be used to gauge their ideology. Two of the board’s members, Eric Schmidt (-0.71; view records) and John Doerr (-0.72;  view records) are major fundraisers for the Democratic Party and act as advisors to the Obama Administration. Ram Shriram (-1.78; view records) and Princeton University President Shirley Tilghman (-1.43; view records) are less active contributors but have contributed exclusively to Democrats. The only political contributions made at the federal level by Google co-founders Sergey Brin (view records) and Larry Page (view records) have been to Google’s corporate PAC. However, each has contributed heavily to California ballot initiatives. Although their ideological estimates cannot be directly compared to estimates recovered from FEC data, an ideological mapping of contributions in California places Brin and Page to the left of the average Democratic candidate for the California State Assembly. Lastly, Intel CEO Paul Otellini (0.02; view records) has given in roughly equal proportions to both parties.

Ideology aside, there is a case to be made that Google’s business model thrives on free, open and democratic societies, which is one of the arguments Google has used to justify its exit from China. It has even gone so far as to suggest to Congress that the U.S. should consider withholding development aid to counties that restrict access to certain websites. This has some merit, but it sounds suspiciously like a post-hoc rationale. While censorship is harmful to Google’s business objectives—especially the wholesale blocking of YouTube and Blogger—it is difficult to see how such laws are of a different nature than the types of regulation imposed on other industries. When faced with unfavorable regulation, as long as their operations remain profitable, corporations usually respond either by meeting the minimal requirements for compliance and lobbying for reform, or when feasible, moving their operations out of state or off-shores, which is essentially what Google ended up doing.

In the end, Google’s decision to leave China was likely a mixture of ideological and business considerations; which I think makes it much more likely that Google could actually begin exerting influence over U.S. foreign policy. A corporation’s efforts to influence policy are often most potent when its ideology and profit motives align. Perhaps the best example of this during the past century was the United Fruit Co., whose distaste for leftist regimes was matched only by its profit motive. It is the United Fruit Co. and its infamous history of involvement in Latin American politics to which we owe the term banana republic. The more idealistic view is that as Google expands, it will leave a handful of liberated Google republics in its wake. This is not the first time Google has openly defied a foreign regime. Last summer, Google rushed its Farsi translation tool to market in response to the pro-democracy protests. Then again, unlike the Chinese case, Google had little to lose by angering the Iranian government. It is an admirable thought, but making enemies of governments, foreign or domestic, has not yet proven viable as a long-term business strategy—and even Google is unlikely to change that.

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