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Americans Held Hostage – Incorporated in America but Commanded by China

On December 2, 2015 a terrorist attack took place on a training event of the Department of Public Health at the Inland Regional Center of San Bernardino, California. Of the eighty people attending, fourteen were killed and twenty two were seriously injured.

As chance would have it, the shooters dropped an iPhone which was picked up by investigating police. In their efforts to catch the shooters and break up any terrorist ring of which they may have been members, the police asked Apple Corporation at its headquarters in Cupertino, California to open the phone and search it for any information related to the attack and to possible other terrorist activity. Apple refused saying it would not obey a federal judge’s order to open encrypted information on the phone because to do so would betray its obligation to provide secure communications to its customers.

Eventually an outside security firm cracked the phone’s codes and got the information the FBI wanted. For its part, Apple not only refused to cooperate with the FBI. It also sued the firm the outside firm assisting it.

Apple CEO Tim Cook, argued that Apple’s first obligation was to its customers, not to the FBI and the U.S. government. Of course, one can argue the merits of Cook’s position, but it is at least one that freedom loving people can understand.

Now, fast forward four years to the fall of 2019. Students are demonstrating for democracy in the streets of Hong Kong. They have been having great success at avoiding the police by choosing to demonstrate at locations where the police are absent. How were they doing this? Well, there was an app in the Apple app store called Hong Kong Map Live which made it possible to view Hong Kong in real time. Using it, the students could see where the police were and then proceed to demonstrate in places where the police were not. This strategy was succeeding brilliantly. Indeed, too brilliantly. Not only were the Hong Kong police getting upset, in Beijing, none other than Chinese Communist Party top dog and President of China Xi Jinping was beyond upset. The Chinese press began attacking Apple. The People’s Daily newspaper said “Apple is aiding thugs in Hong Kong.” Within two days, the app was deleted from the Apple app store. Obviously, the People’s Daily and the Communist Party of China have influence over Tim Cook and Apple of which the U.S. government can only dream.

WHENCE APPLE

Although it trades places with the likes of Amazon, Tesla, Google, and Saudi Aramco as the world’s most valuable company, Apple’s image is that of perhaps the most quintessentially American of corporations. Founded by loner genius Steve Jobs, it is known as perhaps the most innovative, ground-breaking, and individualistic of corporations. It is not part of the gray crowd of big corporations. Rather, it seems always to be at the cutting edge of technology, socio-political issues, and style.

While there is much truth in these perceptions, they are not the whole truth. Technologically, Apple has never been a technology ground breaker. Virtually everything it makes had its beginnings in the Defense Advanced Research Projects Agency of the U.S. Defense Department and/or in the laboratories of the Zerox Corporation. In addition to U.S. government R&D dollars, Apple had a lot of help in getting into foreign markets from the U.S. Department of Commerce. I know this because I was the lead U.S. negotiator for opening the Japanese market to early Apple products.

In the 1980s and ‘90s, Apple manufactured its products in the United States, especially in California where it paid good wages and abided strictly by U.S. environmental, labor, and financial laws. However, with the arrival of Tim Cook in 1998, Apple began a great migration. Cook had had experience with off-shoring the production of other manufacturers to China, and he convinced Jobs that Apple should move its factories to China where wages were a small fraction of U.S. wages and where labor unions, environmental rules, and customer rights were non-existent. On top of that, the Chinese government would subsidize the training of workers, provide utilities at a reduced cost for several years, provide free or inexpensive land, and levy no or reduced taxes for an extended period. Eventually, Apple moved virtually all of its production activities to China so that while it remained legally an American corporation, it became enormously dependent upon China, the Chinese government, and the Chinese Communist Party.

CORPORATE POWER, RULE OF LAW, AND COERCION

In the United States, corporations are legally considered to be American citizens with all the rights and privileges attached to such citizenship. Most importantly, this means that corporations like Apple can make political donations, lobby political leaders, make and display political advertising, and participate in the choosing of political candidates. Of course, it also means that they can petition the congress and testify before it. In short, corporations like Apple have all the rights and benefits of American citizens.

Like ordinary citizens they also are under and have the benefit of the rule of law that governs the United States. Thus, Apple can refuse an FBI request for unlocking its phones and defend that decision before American courts. The corporation, like any ordinary citizen, has rights that the government may not infringe even if the purpose of the infringement is righteous in intent. Unlike ordinary citizens, however, a major corporation like Apple has enormous political power by dint of the amount of money it can spend on lobbying and on election campaigns. Such corporations have instant entre into the White House, the major congressional leaders, and, of course, they can buy full page ads in all the leading newspapers and on all the major TV channels. They employ legions of lobbyists and lawyers to gain influence in Washington and in all the capitals of the individual states of the United States. They thus have enormous ability to gain the passage of laws and regulations and the adoption of policies favorable to themselves.

The biggest difference between China and the United States is in the meaning of law and its application. Like America, China has laws made and enforced by the government. Unlike in America, however, the government of China cannot be challenged in its interpretation and application of the law. This means that corporations (including foreign corporations like Apple) in China do not refuse to open phones for the Chinese police and do not launch lawsuits aimed at halting Chinese government actions. Indeed, the entire legal/political landscape is quite the opposite of that of the United States. The Chinese government can and does coerce corporations and threaten their well-being without challenge.

Apple, for example, filed a suit to prevent the FBI from forcing it to open the San Bernardino shooter’s phone. But in the Hong Kong case, not only did it not file any suits against the Chinese government, it immediately bowed to Beijing’s wishes.

HOSTAGES OF AND LOBBYISTS FOR CHINA

I have used Apple as an example here because it is both well known and an excellent example. But it is far from alone. Others like it include General Electric, Fedex, and GM. Indeed, the bulk of the members of the Business Roundtable, the U.S. Chamber of Commerce, and the U.S.-China Business Council could be included. Effectively, in the case of matters dealing with China, these organizations are more often representing Chinese rather than American interests. They may be representing what they think are the interests of their member corporations, but those are not necessarily American interests . It must be understood that just because the corporations are chartered in the United States does not mean that their interests are the same as those of the majority of the citizens of the United States. Indeed, they are often quite contrary to those interests.

The United States does have legislation that requires the representatives of foreign corporations to declare themselves as such when testifying before the U.S. Congress and other official bodies. This requirement should be extended to representatives of U.S. corporations with large dependence on China. Thus, Apple’s CEO Tim Cook, and others like him, should be required to declare himself a foreign agent when testifying before the U.S. Congress and other official bodies.

REDUCE TOTAL CORPORATE INFLUENCE

Indeed, the issue goes far beyond the question of how to deal properly with China. In Canada, only a real person, may make financial donations for political causes. Corporations are not considered real persons in Canada and thus are not allowed to donate to political causes. The courts of the United States have defined corporations as political citizens. But, in fact, because they never die and are usually much richer than real individual people, they are effectively super citizens.

America would do well in this case to copy Canada. At the very least, U.S. corporations like Apple that are effectively hostages of Beijing should be required to identify themselves as such.

BLOG DISCLOSURE: This website blog is published and provided for informational and entertainment purposes only.  The information in the blog constitutes the content creator or guest blogger’s own and it should not be regarded as a description of services provided by Sowell Management. The opinions expressed in the blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry.  The views reflected in the commentary are subject to change at any time without notice.

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