Google is right to pull out of China

Allister Heath
GOOD on Google. The tech giant now seems almost certain to pull out of China in an astonishing blaze of publicity. It takes real guts to thumb one’s nose at a country of 1.3bn potential consumers; it is even more courageous to accuse the Chinese state of hacking into the e-mail accounts of human rights activists.

This is not a general argument against Western firms operating in, or trading with, China. Quite the contrary: ordinary Chinese folk have gained immeasurably from free trade and the huge investments made by Western firms in their country. China’s economic boom, which began when it opened up and started embracing property rights, has taken more people out of poverty more quickly than anything any other country has ever achieved. The wages paid to Chinese workers by multinationals are almost invariably much higher than the local going rate.

But in a few cases Western companies should resist dealing with China, which remains a totalitarian and aggressive state with no regard for the rights or liberties of its citizens. No foreign firm should ever use slave labour, for example, engage in corruption or actively help the government to persecute dissidents. It is hard to know exactly where to draw the line – but the compromises Google has been forced to make have become increasingly difficult to justify ethically.

Of course, Google’s likely move is not devoid of self-interest or even especially costly: its revenues from China are trivial and its operations there probably loss-making. It only had a third of the Chinese market, and was likely to enjoy sales of no more than $600m there in 2010. The PR gains from a withdrawal would be huge and far outweigh these costs. But in the real world it doesn’t always matter why one takes a good decision. Google deserves all the praise it is getting.

So there you have it. Germany, Europe’s industrial powerhouse, now looks as if it performed even worse than Britain last year, even though we are so much more reliant on financial services. The official statistical agency says that Germany’s GDP appears to have shrunk by five per cent; the National Institute of Economic and Social Research here in the UK believes we contracted by 4.8 per cent.

Those who believe that the only way for us to avoid another bitter boom and bust is for the government to encourage manufacturing have clearly got it all wrong. We need good, viable factories here in the UK; but upmarket services remain where our competitive advantage truly lies.

The fact that Germany has done even worse than us is no reason for complacency, however. Wherever one looks, the UK figures are record-breakingly bad. Business investment collapsed by 22 per cent over the six quarters during which we were in recession; it is down 27 per cent from its peak, figures from Citigroup demonstrate. This is much worse than at the same stage of the three other big post-war recessions: business investment rose 11 per cent in the first six quarters of the mid-70s recession and fell 11 per cent in the first six quarters of the recessions of the early 1980s and early 90s.

Even with the rise in public spending, total investment will drop 16-17 per cent in 2009, the sharpest drop outside wartime for over 100 years. By contrast, the worst drop in the 1930s was 12-13 per cent in 1932. Truly horrible.