Posted 3.29.13Weatherhead School of Management professor Steven Feldman's new book discusses ethics and corruption in Chinese-American business relations
Steven Feldman, PhD, is a Youngstown native who focuses on business ethics as a professor of marketing and policy studies. He spent time teaching in Shanghai while conducting research for a new book, Trouble in the Middle: American-Chinese Business Relations, Culture, Conflict, and Ethics. Use the discount code: GDC72 when you order your book. When he’s not teaching, Feldman can often be found enjoying a long bike ride. He also loves travelling and is headed to Japan this summer. Meanwhile, he is getting the word out about his latest book.
W: Ethics are at the heart of your research and teaching and of your new book. What are some of the ethical issues at play in Chinese-American business relationships?
SF: According to the Federal Corrupt Practices Act, American companies cannot pay bribes. So what some companies do is to sell their products to Chinese middlemen so that they no longer own the product. And then the middleman sells the product to the end user and pays the bribes. Or middlemen just pay the bribes without taking ownership. This was a bit surprising to me. A lot of executives I spoke with took the legal position that they’re not breaking any law because they’re not paying the bribes. They didn’t see an ethical problem with it.
W: Can a U.S. company work within the Chinese system but not participate in the corruption?
SF: Well, you can say, “We will not pay bribes.” But it’s difficult. How many are using middlemen who pay bribes? I don’t know. One interviewee thought it was 40 to 50 percent of foreign companies. Now the Obama administration is prosecuting bribery more aggressively worldwide, and the fines are huge. So is the negative effect on a company’s reputation. They have also started going after companies associated with middlemen or partners who pay bribes.
W: What is one difference you observed between doing business in the U.S. and doing business in China?
SF: Americans have long-term plans. They come to China with strategic plans and say, “Here’s our yearly goals, five-year goals, and so on.” They say to the Chinese company, “What are your long-term goals?” And the Chinese businesspeople will say something like, “We want to be number one in the industry.” The Americans say, “OK, but what are your goals? What’s the plan? How are you going to do that?” But the Chinese don’t tend to look long term.
W: Why not?
SF: Probably the biggest reason is the way Chinese society functions. You have to realize, the government is huge. It calls the shots. So if you’re a private businessperson, you want to make as much money as you can, as fast as you can, in case things change. In case new people get into the government, or they shut down free enterprise. One executive told me, “We’ll be OK as long as they don’t start calling us ‘capitalists.’”
W: And even with all of that, this is the biggest economy in the world?
SF: It’s the second-biggest economy right now, but growing at 7.5 percent.
W: But it’s still nominally a Communist country, right? What is the legacy of Communism in the Chinese version of free enterprise?
SF: A lot of marketization has gone on, but I would not call China a capitalist country. 30 to 35 percent of industry is state-owned--a big chunk--and what’s more important is that these are the key industries: transportation, energy, telecommunications, and most importantly of all, banking. They call these sectors the “command economy”--the term comes from Lenin, actually, so there you have the Communist legacy. The four giant banks are state-owned, so often it’s very hard for a private firm to get a loan. Much of the money goes to state-owned enterprises, and a lot of government officials get very wealthy through this arrangement.
One of my chapters on business-government corruption starts out with an interview with a Chinese entrepreneur. He’s a middleman, very successful, very smart. So I asked him, “Well, tell me about corruption. Do you run into much corruption?” First he just looks at me. He doesn’t say anything for about a minute. Then he asks me to tell him about corruption. I say, “Well, I hear it’s bad in customs.” He stares at me again for a long time. Then he replies: “A man says he’s against prostitution. But he comes home and they have put a prostitute in his bed. He has no choice but to have sex with her.” This was his response to a question about government corruption! I asked him, “What does that mean?” He would say no more.
Some say it will take a generation to clean up the corruption. Maybe that won’t be long enough. But they have to do something about it, because there is a huge wealth gap, and corruption is a big part of it. Some say there are more than a hundred thousand protests in China every year, some involving more than a thousand people, some violent, and corruption is one of the issues they are complaining about.
W: There have been recent exposes of big companies like Foxconn that operate factories in China with terrible working conditions. Foxconn has apparently been improving. What’s your take on that?
SF: They are under a lot of pressure. And to the best of my knowledge, they have raised salaries, and the government has passed a lot of laws about overtime, dormitories, safety...but a lot of these laws are not enforced. I think progress is very slow.
W: Do these workers need unions?
SF: They’re not going to get unions anytime soon. Well, there is a union, a big one, but it’s run by the Communist party and represents the interests of the party.
So what’s going to change all that? You’ve got so many poor people who need jobs, and the government doesn’t want unemployment to continually go up, because it’ll lead to more protests. They’re in this transition, and in some ways the party has done a marvelous job managing it. But there’s also the pollution. China went for economic growth and said, “We don’t care about pollution.” So a lot of people have died. There are ‘cancer villages’ where just about everybody has something wrong with them, where the death rate and the rate of birth defects for people who work in factories is very, very high.
And in China you don’t have a democracy, so the people who’re being hurt have no voice. But it’s complicated, because nobody is forcing people to work in these factories. A lot of people live in very bad conditions out in the western provinces, so they’re happy to come into these factories where it’s dangerous, where they’re underpaid, where they’re overworked, where they’re not treated well, because it’s better than the other option: staying in their villages where they could starve. Every year, more than a hundred million people go home to their villages for the holidays, and they come back, voluntarily. It’s the biggest migration in history.
Steven Feldman’s book, Trouble in the Middle: American-Chinese Business Relations, Culture, Conflict, and Ethics, is out now from Routledge. Use the discount code: GDC72 when you order your book.
Weatherhead School of Management at Case Western Reserve University cultivates creativity, innovation, and purpose-driven leadership to design a better world.