‘…allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step.’
The quote above comes from the founding document of China’s Social Credit System (CSCS), which was written in 2014, and set out plans for comprehensive rollout by 2020. China is way behind schedule, but the progress they’ve made shows the importance of moral accounting’s twin aspirations for accountability systems: to improve moral performance (not just any performance), and to do so in a moral way.
This post will serve as the foundation for a case discussion in my Executive MBA course on managerial reporting. Discussion questions are in this font. Before getting into the case itself, I want to emphasize the key ground rules of moral accounting engagements: we are evaluating whether systems of accountability live up to moral accounting’s aspirations. We are not evaluating anyone’s character–not the character of those who are governed, those who govern, or a nation. Don’t make it personal!
With that in mind, let’s start with this recent news story:
Ryan Pan, a manager with Haidilao Hot Pot in Vancouver confirmed that over 60 surveillance cameras have been installed in the restaurant at the request of the Haidilao corporation, as part of the social credit system in China. He said that the Vancouver location has 30 tables with two cameras assigned to each table.
When asked specifically why Haidilao required so many cameras to monitor staff and patrons, Ryan Pan said that the cameras were installed to “punish” staff if they didn’t adhere to corporate standards and to “people track”. Pan also said that the video is sent back to China but declined to say why this was, other than to say the reason for this was “secret.”
Right off the bat, we are confronted with a matter of Subsidiarity. The MAP offers seven principles for governing in a moral way. The Subsidiarity Principles answers the question “who should govern?” by giving that power to whoever can live up to the other six principles most effectively. So answering the following question requires us to look at all of the principles:
Should China be governing restaurant workers and patrons in Vancouver?
And it’s not just Vancouver. The article continues:
Will the behaviours and actions taken by individuals working in Canada for Chinese companies impact the score of relatives or other employees inside China? It’s not inconceivable that a person protesting in Canada about human rights abuses in China, may not be hired by a Chinese owned company because they have been blacklisted by China’s social credit system, even if they live in Canada. What about the impact of China’s social credit system on Canadian employment laws, privacy, and human rights laws?
We know that China has already started to move forward with the creation of an English language corporate social credit system version by Xinhua Credit for non-Chinese firms.
International brands are already punished if they step out of line in and out of China. They must either stay silent or actively support China’s policies if they want future access to the Chinese market. We saw the NBA’s Houston Rockets general manager Daryl Morey tweeted in support of the Hong Kong protests and ultimately was forced to apologize. More recently, the boycott of H&M and other Western brands in China after they spoke out against forced labour in the cotton industry in the Xinjiang region of China. There is already a punishment-based system for corporations that don’t comply with the CCP regime regardless of compliance with China’s CSCS.
With Subsidiarity in mind, let’s look at how China’s Social Credit System operates. First, it’s not changing any laws, merely enforcing them more effectively:
Despite its name, Social Credit is more similar to a criminal record system than to a credit report of any kind: It adds secondary penalties and enforcement mechanisms against those who have violated laws or failed to perform legal obligations, rather than directly imposing new obligations.
That said, its scope of enforcement is very broad. In English, creditworthiness typically means “ability to pay back loans”. But “In social credit, this term (诚信) is used almost exclusively to refer to a moral assessment component“, and is also used to mean “integrity”, one of China’s 12 Core Socialist Values.
That’s why “drunk driving can take you down“:
Launched in 2014, the system focuses on ‘honesty in government affairs’, ‘commercial integrity’, ‘societal integrity’ and ‘judicial credibility’. The government sees the system as a way to regulate the economy and as a tool of governance to steer the behaviour of citizens. According to the State Council’s founding document, the scheme should ‘allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step’. As of 2020, the plan to have an initial phase of the system in place nationwide seems to have largely been successful….
Operated by the deputy director of the Rongcheng Social Credit management office and seven other employees, the system works as follows: 1,000 points are assigned to each of the city’s 740,000 adult residents at the outset. If you get a traffic ticket, you lose 5 points. If, on the other hand, you earn a city-level award for a ‘heroic act’, run a good business, or help your family in difficult circumstances, you get 30 points. A department-level award gets you 5 points. You can also earn points by volunteering in city programmes or giving to charity. Anything that affects your score must be backed up by official documents.
Depending on your score, you get a rating from A+++ to D. (Some offences can hurt your rating badly. Drunk driving could cause your rating to drop to a C.) An A+++ rating makes you eligible to rent public bikes without a deposit, receive a $50 heating discount in winter, and get bank loans on good terms. Companies, too, are subject to the system. They can gain points for paying taxes on time but lose them for selling substandard or unsanitary products. Businesses with higher scores benefit from more favourable loan conditions and pass through fewer hoops in winning public tenders.
The scope of China’s Social Credit System is broad in another way: if you breach one agency’s regulation, others enforce it as well:
The primary mechanism of the ‘Social Credit System’ is one of administrative regulation: government agencies sign targeted ‘joint enforcement’ MOUs agreeing to take limited ‘joint enforcement’ action against organizations and individuals ‘blacklisted’ (or ‘redlisted’ [rewarded–RJB]) by certain other agencies.
For example, if someone is blacklisted by the Food and Drug Administration for a major health violation at their snack food factory, the agency for securities regulation might use this as a basis to reject their application to operate a securities company.
Now, before getting too critical about CSCS, let’s recognize that China was already concerned they were falling short on the Effectiveness Principle–the need to be effective in improving moral behavior:
In 2014, the central government published the first major announcement about the social credit system. Can you give a short review of it, the main idea?
It just highlighted why China needs a credit system because there is a problem. If people cannot trust each other anymore, as lack of trust in the society. And also the necessity that in the future, that if they want to be a credit society where, for example, you can use credit cards and all this, you need to build a common sense of trust. And in order to have that trust, they want to have this social credit system where everything can be rated so everybody can have a better understanding. If you want to borrow money, if you want to lend money. And also if you want to have certain trust of certain brand or certain company, then there is always a system that you can refer to. So the whole point is to increase the level of trust in Chinese society.
CSCS still has it’s share of Effectiveness issues. For one thing, the system is still rather haphazard. From the same article:
What is the implementation on the municipal level?
On the municipal level, the thing is that not every city has the social protection system set up yet. You have several pilot cities and they have the system set up. But some of them, like majority of the cities in China right now, don’t have a system like this criticism in place. So it’s very difficult to say the overall implementations. And in some cities, for example, even though they have a credit system, the citizens are not aware of them or they don’t use it. So it’s very varied right now in the implementation.
And China is still finding their way around the balance between effective governance and governing in a moral way. From the same article:
How are the different state, commissions and local authorities influenced by the definition of “credit”?
…in general, the central government would like to have the credit system in place. And they’ve been making it as a big project and the focus of the work of the central government. Then different state commissions and also local authorities, they would like to appear, as you know, that they are doing their job well and they’re basically answering the calls from the central government — so they want to perform well, so they will come up with different ideas and they will come up with different regulations. That seems like, OK, they are working really hard on this project. So then sometimes they go too far and they include certain daily activities, for example, jaywalking across the red lights into the system, and it became a bit too big. Or it’s even not tolerated by the media or by the Chinese people anymore, so it kind of gets stretched, and also the law, the central authority realized that. That’s why also in the new regulations published at the end of last year, they also emphasized this problem that says, OK, we really need to define what is credit and what is a violation of certain credit and to have overall legal frameworks for that. And China right now, it doesn’t have an overall legal framework for social credit. And that’s also the problem, why local authorities or different state commissions are entitled to stretch the definition of credit. So that’s one of the most serious problems that they have to address.
To evaluate CSCS, we also need to live up to the Judgment Principle ourselves, which means doing our homework to understand it. And part of that homework is to understand what CSCS is not. It’s not like the accountability systems in the dystopic episodes of Black Mirror or The Orville (links below go to short, entertaining video clips that convey the basics).
Black Mirror’s Nosedive episode has a social credit system, and like CSCS, social credit is linked to controls that make it harder to buy a condo, or travel, and so on. It sure makes everyone friendly and polite, because they know everyone can hold them accountable with a swipe on their phone, destroying their lives in an instant. But unlike the CSCS, the Nosedive system is put mostly in the hands of citizens, in the form of upvotes and downvotes. Orville’s Majority Rule episode also gives governance power to ordinary citizens, but in a different way: if you get too many downvotes, you go on an apology tour. Then everyone gets to vote on whether your apology is sincere. If so, you’re ok. If not, you are effectively lobotomized (“corrected”).
So now we run into yet more questions. First, what MAP principles are being violated in the systems in Nosedive and Majority Rule? Second, how about a middle ground between governance by government and governance by social media: give the power to private organizations. If a Social Credit System were instituted in your country, would you rather it be handled by the government or private corporations?
Of course, governance by private corporations is already underway–not just in the normal way, because almost every action by a large corporation shapes a lot of behavior, and thus constitutes governance, but through artificial intelligence. And governments don’t like it much at all:
LONDON — Using artificial intelligence software for mass surveillance and ranking social behavior could soon be outlawed in Europe, according to draft legislation that has been shared online.
The 81-page document, which was first reported by Politico, says “indiscriminate surveillance of natural persons should be prohibited when applied in a generalized manner to all persons without differentiation.”
And the problem with AI isn’t just surveillance; it’s also just bad governance. Which principles of the MAP is Facebook’s algorithm violating in this story?
Facebook is withholding certain job ads from women because of their gender, according to the latest audit of its ad service.
The audit, conducted by independent researchers at the University of Southern California (USC), reveals that Facebook’s ad-delivery system shows different job ads to women and men even though the jobs require the same qualifications. This is considered sex-based discrimination under US equal employment opportunity law, which bans ad targeting based on protected characteristics. The findings come despite years of advocacy and lawsuits, and after promises from Facebook to overhaul how it delivers ads.
The researchers registered as an advertiser on Facebook and bought pairs of ads for jobs with identical qualifications but different real-world demographics. They advertised for two delivery driver jobs, for example: one for Domino’s (pizza delivery) and one for Instacart (grocery delivery). There are currently more men than women who drive for Domino’s, and vice versa for Instacart.
Though no audience was specified on the basis of demographic information, a feature Facebook disabled for housing, credit, and job ads in March of 2019 after settling several lawsuits, algorithms still showed the ads to statistically distinct demographic groups. The Domino’s ad was shown to more men than women, and the Instacart ad was shown to more women than men.
The researchers found the same pattern with ads for two other pairs of jobs: software engineers for Nvidia (skewed male) and Netflix (skewed female), and sales associates for cars (skewed male) and jewelry (skewed female).
It’s easy to be concerned about social credit systems, whoever runs them. But before getting to critical of any particular accountability system used for governance, we need to remember: the alternative to governance is not no governance, it’s bad governance.
One last question to ponder: What questions haven’t I asked that you want to discuss in class?