Morals vs profits, a tug of war for business in China

By Alan Wheatley, China Economics Editor - Analysis

BEIJING (Reuters) - Beyond being good corporate citizens, do international firms operating in China have a moral duty to advance democracy and human rights?

Executives roll their eyes at the question: the typical answer is that companies know they must set an example in upholding labor laws or face the wrath of consumers and the threat of stiffer regulation; but no, multinationals have no business meddling in Chinese politics.

Michael Santoro, a professor of business ethics at Rutgers Business School in New Jersey, challenges that conventional view, arguing that foreign business can and should do more in the coming decade to shape social and political change in China.

In a new book, "China 2020," Santoro says it is in the economic interest of Western firms to abandon their "complacent partnership" with the Chinese government.

He wants them to stick their necks out and press for things such as an independent judiciary and Internet freedom -- topical in light of fears that China's order that all new personal computers must carry anti-pornography filtering software was a cloaked way of tightening censorship.

Multinationals think it would be foolish and culturally insensitive to wade into such deep waters, but in fact they run a bigger risk if they do not get involved, Santoro says.

"Foreign investment in China will never truly be secure unless it is embedded in a society where rights, including economic rights, are respected, where the government bureaucracy is effective in enforcing market regulations, and where a strong and independent rule of law protects the rights and economic interests of its citizens," Santoro writes.

NOT REALISTIC

The publication of the book coincides with the twentieth anniversary of the killings of hundreds around Beijing's Tiananmen Square after weeks of protests against corruption and a lack of freedom of speech.

That does not make foreign executives that Santoro is seeking to stir into action any more receptive to his arguments.

Joerg Wuttke, president of the European Union Chamber of Commerce in China, said foreign firms should not have to justify themselves by showing that they are working toward the ideal of democratic institutions.

"In the real world, their influence on local governments is minimal," Wuttke said. "Moreover, multinationals are unlikely to exercise whatever influence they might actually have if this adversely affects the efficiency and profitability of their normal business operations."

On the ground, international companies were making a practical difference in China under the broad banner of corporate social responsibility (CSR), he said.

They might not fight for freedom of speech, but firms were raising workplace standards, investing in skills and setting quantifiable energy and environmental protection targets.

Wuttke said manufacturing firms put weight on CSR even though the investment was often seen as a direct threat to profitability because domestic competitors ignored baseline norms that Western firms took for granted.