Representative in the US Congress are considering whether to compel companies to refuse to abide by laws restricting access to information in repressive regimes such as China. To certain extent, I understand their frustration. There's a reason why repressive regimes try to keep the local population ignorant of the wider world. It enables them to paint a frightening picture of life outside and a flattering picture of themselves. Whether it's a hermetically sealed North Korea with a population too terrified and hungry to care about outside information, or an Iran where religious police knock down satellite dishes (though if you look at pictures of modern-day Tehran, they have a long way to go), or a Russia under Putin that pressures opposition media into non-existence, the process of creating skewed information is the same.
On the other hand, history does have its lessons. South Korea and Taiwan were extremely poor nations in the 1950s, and both had military dictatorships. Both nations, however, allowed relatively high degrees of freedom in the economic realm. This lead to the growth of the economy, and when both nations reached a certain economic threshold, the pressure to become more open and democratic became so great that the government - of necessity a minority in a country - could no longer resist.
The process is fairly understandable. Freedom in the economic realm habituates people to making choices that affect their lives. Little wonder that the longest lived dictatorships are the ones that minimize that choice-making capacity to such an extent that even simple choices - such as where to work - are controlled by the state. Likewise, when your days are occupied worrying about how to get food for your family, you have less time to care about the people hundreds of miles distant who live in fancy houses and nominally rule your country. Affluence, relatively speaking, breeds the leisure time to care about such matters.
That's why I'm less convinced about the power of information to change a regime. America ran the "Radio Free Europe" station for decades, aiming its broadcasts at the Soviet Union and its Warsaw bloc satellites. Few would suggest, though, that Radio Free Europe was the reason the Soviet empire collapsed (it certainly hasn't worked in Cuba). Furthermore, both Taiwan and South Korea shifted to democracy in the late 80s, long before the internet was a normal means to gather information about the outside world.
Yahoo spokeswoman Osaka had a decent point when she said the following:
"We balance legal requirements against our strong belief that our long-term involvement in China contributes to the continued modernization of the country through the advancement of communications, commerce as well as access to information created by our products and services."
Foreign companies bring foreigners, and foreign ways of doing things. Likewise, governments can only control so much. For all the efforts of the Chinese government, piracy of western media is rampant. That media is literally dripping with western ways of doing things, not to mention favorable depictions of that lifestyle. So long as it is possible to smuggle information across borders on hard drives, information will still get into the country.
In the meantime, let western companies help these countries develop economically. That is likely to have more effect on the future of freedom than access to every news article discussing democracy on the Internet.
That being said, there is a middle ground. For instance, I don't think it's a good idea to hand over information that will get people put in jail, as allegedly occured when Yahoo handed over personal emails related to Chinese journalist Shi Tao. To boost their collective ability to resist, companies should band together to pressure the Chinese government, as Sonia Arrison of the Pacific Research Institute suggested. Disable China's ability to use divide and conquer tactics against its sources of technology investment, and you will prevent the more egregious expressions of government repression.
So, to conclude, give ground in areas that don't matter very much, and stand strong on the matters that do. Hard lines are rarely rational foreign policy (but who ever said the US Congress was rational). Remember that economic development is the best proven effector of change.