Google’s decision to re-evaluate its business operations in China after a sizeable digital attack on its corporate infrastructure is welcome news. There is now hope that policymakers and technology elites around the world will undertake a badly needed re-evaluation of the nature of the regime in Beijing.

It’s important to note that Google doesn’t just write computer code, but self-consciously tries to live by a series of moral codes. The firm’s motto—“Do no evil"—made it an uneasy partner with some of the world’s worst human rights violators. But Google, like many firms at the technology frontier, has also long had faith in the transformational power of digital technology. And so it believed engagement with China would be worth any risks it might assume.

So certain was Google that engagement was the right course of action that it even sacrificed a core principle and agreed to bow to Chinese censors and corrupt its flagship product—Internet search. This decision ran afoul of the firm’s official mission: “to organize the world’s information and make it universally accessible and useful".

Photo: Vincent Thian/AP

Several voices warned the Silicon Valley firm at the time it entered the Chinese market in 2006 that it was being naïve. Beijing’s party leaders were interested in technology-led economic growth, to be sure, but they were interested above all in maintaining power. Further, they were violently hostile to any freedoms that threatened their grip.

Google knows better now. It is not that Google suddenly realized just how evil the Chinese regime is. It’s that the Chinese government’s actions threaten a very lucrative franchise by compromising Google’s ability to protect data about its users. It mattered little that Google entered China in good faith—the interests of the ruling elite were always going to trump the openness and free enterprise that have helped make Google successful.

There are larger lessons here for multinationals doing business in China and for leaders in national capitals across the globe.

For starters, it’s time for the business and technology world to hedge its bets. China’s economy will no doubt continue its upward rise. But most of that rise has been and will continue to be by playing catch-up with the rest of the developed world. It is increasingly clear that China has no hope of being a major innovator country under its current regime. The technology frontier belongs to those nations with a culture that values the free exchange of ideas and that respects property rights, including intellectual property.

To that end, India’s future just got much brighter. Entrepreneurial innovators will continue to find a welcome home in Asia, but it will more likely be in China’s neighbour to the south, as well as in other free market embracing countries in Asia.

Everything we know from development economics tells us that the institutional mix—laws, norms, customs—will determine the long-run bounds of a country’s technological and economic success. China’s leaders have laid down a marker—they value tight-fisted political control over the lawful chaos of the market and individual freedom.

As a result, this century is more likely to belong to India than to China. India still has much reforming of its own to do, but its openness and tolerance of dissent constitute significant comparative advantages.

And there are lessons for Western policymakers, particularly the Obama administration. Google’s faith in the transformational power of technology has been like the Obama administration’s faith in the transformational power of diplomacy. Engagement, dialogue and partnership are seen as unambiguous goods, and the potential to make incremental progress outweighs any “discomfort" one might have with a regime’s treatment of its citizens or aggression against its neighbours.

Now is a good time to rethink this approach. Clearly, there are some regimes, and China’s is one, whose very nature makes good faith diplomacy impossible.

The US must double down its bet on its natural ally India—as well as Asia-Pacific allies Korea, Taiwan, Japan and Australia. China is set to overtake Japan this year as the second largest economy on the planet, but the combined gross domestic products of the US’ democratic friends in the region will continue to dwarf China’s for a long time. There is little reason for Asia-Pacific democracies to let China dictate the course of events in the region.

And the US, India and other democracies must push harder to knock down China’s information firewall. They can start by supporting groups such as the Global Internet Freedom Consortium that deploy anti-censorship technologies against oppressive regimes. An aphorism of the information age is “information wants to be free". China’s Communist Party doesn’t. It’s past time for technology and political leaders to adapt accordingly.

Nick Schulz is DeWitt Wallace fellow at the Washington, DC-based American Enterprise Institute and editor of The American. He is co-author of From Poverty to Prosperity (Encounter, 2009). Comment at