The End of Democratic Capitalism?


China’s One Belt One Road initiative (image)

In bowing to China, Apple forces us to contemplate the true role of business in society

“China is likely to emerge in the next few years as the world’s largest supplier of capital.” — Brookings Institute, Jan. 2017

A clash of fundamentally competing economic philosophies broke into the mainstream news this weekend, with the fate of democratic capitalism hanging in the balance. And while it’s likely too early to call a winner, the trends are certainly not looking good for democracy as we understand it in the west.*

First, the news. Bowing to Chinese law, Apple will be storing the keys to its Chinese customers’ data inside China — subjecting that information to Chinese legal oversight, a system which, as Yonatan Zunger points out, is markedly distinct from that of the United States, where Apple had heretofore protected its Chinese customers.

Why does this matter? Certainly it’s a blow for the individual privacy of Apple’s Chinese customers, but then again, to presume one company — even one as powerful as Apple — could force its policies on the Chinese state is beyond naive. No, to my mind this matters because it creates a precedent for an approach to capitalism that puts profit before principle, regardless of externalities or long term consequence. And that should concern us all.

It’s now inarguable that the most muscular version of capitalism worldwide is the brand currently practiced by the Chinese state. Let’s call it autocratic capitalism — for it is a market-driven economic system where the market is controlled by an autocratic state. This brand of capitalism is founded on fundamentally different political frameworks from the democratic capitalism we celebrate in the United States. And for any number of reasons, including the current US retreat from globalism, autocratic capitalism is advancing at a breakneck pace, funding massive investments in AI and other technologies, key resources and commodities, and geopolitically strategic regions. China is by far the largest current investor in Latin America, Pakistan, and Africa, for example. And while the US fails to invest in its own infrastructure, China is already a year into a trillion-dollar “new silk road” that promises to cement that country’s influence over more than half the world.

As the US retreats from its globalist stance, US-based corporations, the pride of our economic system, have not. And why would they? Growth is capitalism’s most sacred goal, and the Chinese know it.

Which brings us to Apple.

China is Apple’s most important growth market. Because it was mostly a hardware business, the company has escaped the kind of government scrutiny that have thwarted access to the Chinese market for information-driven companies like Google or Facebook. But as Apple’s service and iCloud businesses have grown to become a critical new driver of profit, Apple found itself at a crossroads. Would it maintain its principles of democratic capitalism, which at the very least balances the individual’s rights with those of the state? Apple did just that with its stance in the San Bernadino shooter’s iPhone case several years ago. Or would it bow to the constraints of China’s autocratic capitalism — which places the interests of the state above that of the individual?

This past weekend we got our answer. Yes, nearly every global corporation has had to live in the gray when it comes to doing business in China. But most could argue that selling laundry detergent, automobiles, or sneakers was essentially an apolitical act. But engaging in the business of providing an autocratic state access to your customers’ most sensitive personal data? That’s a line most data-driven Valley companies were unwilling (or unable) to cross.

No more. Now that Apple has put its own growth and profit over its previous principles, those principles — stand ins for democratic capitalism — have been seriously weakened. The precedent is significant, and I expect more dominoes to fall. Might, in ten years time, every major technology company — including Google and Facebook — play by Chinese rules? And if so, what impact might that have on our own society’s principles? I shudder to imagine.

*I’ve spent the morning in a Club de Madrid roundtable discussion with former world leaders, academics, and policy makers. The conversations have not made me feel any more sanguine about the future of democratic republics. For more, follow the #ShiftForum and #NGDAmerica hashtags.

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