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33c3 pre-roll music
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Herald: Err ...
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H: ... a talk would be good, right?
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applause
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Do you want to give a talk?
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Toni: Aah, it’s a little early
but I’ll try.
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Herald: Okay, guys, well, I found someone
who’s willing to give a talk!
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laughter and applause
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That is most excellent.
So, if you ever asked yourself,
-
I’ve got this big regime and
I’m rolling out internet censorship,
-
what does my economy do?
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There are people in here
asking that question, right?
-
There’s always someone at Congress
who’s asking some question.
-
Well, you came to the right place,
and as part of her PhD thesis work
-
Toni is going answer that question,
hopefully, to a satisfactory point.
-
Please give a warm round of applause!
applause
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Toni!
ongoing applause
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Toni: Okay, thanks everyone for being
here, I hope you can all hear me
-
correctly. And I’m glad to be here
and to be presenting
-
some part of my thesis to day.
Now, this is ongoing work
-
so I’m really grateful for any kind of feedback
that you guys would have
-
and I’m really only presenting this
as kind of a first try,
-
because when I looked at the topic
of internet censorship
-
and what that could mean for an economy,
I really didn’t find anything academic
-
and I was quite surprised: it seemed
like a very obvious question to me,
-
because I was looking mostly
at China at the beginning.
-
And I read a lot of newspaper articles
and I talked to a lot of businessmen
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who told me: “Well, doing business
in China is very difficult”
-
and I think China is really
holding itself back by having
-
this big censorship thing going.
-
But no one really looked into
how it is holding itself back
-
or if it is even holding itself back.
-
So there is really
very, very little research.
-
And we don’t even have an agreement among
economists or business studies people
-
about what impact the internet has
on the economy. So if you want to ask:
-
“So what does internet censorship do
to an economy?” it seems pretty obvious
-
to first ask: “What does the internet do to
an economy?” and we don’t even know that.
-
That was quite surprising to me and I’m
going to be talking about the reasons
-
for that a little bit later on. But in
general, I was thinking of a research
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question to ask which for me is: “Does
internet censorship reduce economic welfare?”
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Now, not all of you are economists,
so some of you might think of welfare
-
more as the transfer payments
that a state gives to its poorer people.
-
But for economists, economic welfare
is defined as the consumer
-
and producer surplus. So basically, the
difference between what something costs
-
and what you can sell it for
is the producer surplus.
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The difference between
what you would be willing to pay
-
and what you’re actually paying
is your consumer surplus.
-
Now let’s assume I have a laptop
and I bought this.
-
And I would have been willing to pay
€ 1500 for this laptop because
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I think it’s a very good product,
it’s by Lenovo that makes good laptops.
-
But actually I got it for like €800
or €900. That would mean
-
my personal consumer surplus
is something like €600 or €700.
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And if we add up everyone’s
individual consumer surplus
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we get the economic welfare surplus.
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So first, I was trying to figure out
what does the internet mean
-
for the economy. And I’ve said that there
is really no good agreement on that.
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Now, a very crude measure that I found is
how much does "the Internet economy"
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contribute to GDP?
Now, what is "the internet economy"?
-
It wasn’t very clear in the research
that I’ve read. It seems to be sort of
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online retail, and possibly some other
internet-enabled services?
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Possibly but not necessarily
internet advertisement revenue
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is reflected in this. But because it was
BCG, which is a big consulting agency
-
that basically published this research
they weren’t very diligent about
-
their methods, basically.
So we can see, well it seems that the UK
-
has a pretty big part of internet economy
as part of GDP.
-
That’s probably mostly because of
online retail which is bigger in the UK
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than in most other countries we look at.
And we see that there is
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a small difference between
developed and developing market averages
-
when looking only at the G20 countries.
But this seems like a very
-
dissatisfactory answer because first
of all, I don’t know the methods,
-
so I can’t really say
whether this is actually good.
-
And secondly, GDP is actually
not a good measure
-
for what we are trying to measure because
a lot of the stuff that the internet creates,
-
a lot of the value the internet creates
isn’t captured by GDP at all.
-
One example is free online courses.
Most of the online courses you can take
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on the web are actually free.
And most of them are not ad-enabled.
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So most of them don’t really have
advertisements in the general sense.
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So classical economics basically says:
“Well, they don’t really create any value.”
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But if you’ve ever taken
one of these online courses,
-
and maybe you’ve been lucky
and took a good one
-
you would actually… I would say that
some of the courses I took,
-
they created some value for me.
So one of the ways to look at this
-
is actually to think about time as
something that has opportunity cost.
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So if I’m spending my time doing this
online course I’m not spending it
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e.g. earning money. I’m also not
spending it doing something leisurely
-
that is fun for me.
And these guys, Brynjolfsson
-
– I’m sorry I don’t know
how to pronounce it exactly,
-
he sounds Swedish, possibly –
and ohh, in 2012
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they tried to get an idea of
how much consumer surplus
-
these online courses actually create.
Which isn’t at all
-
reflected in the GDP.
And you see that in some models
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it would be 5% of GDP
for these online courses alone.
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Even if we take their more... most conservative
model which is $4.18 billion
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on average for the years 2008-2011,
-
that’s still a pretty significant chunk
of economic welfare
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that’s somehow being created
that is not reflected in GDP
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because GDP is only stuff
that you actually pay money for.
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Another example that we
might think of is Wikipedia.
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Now Wikipedia has a certain cost of
operating: obviously the servers and stuff.
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But because most people contributing
to Wikipedia are actually volunteers
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the cost of operating
does not really reflect
-
the true value Wikipedia creates.
And one of the…
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even if you don’t want to say…
even if you don’t agree
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that time has opportunity cost, what
about the money that you don’t spend
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on encyclopedias? How many of you guys
have encyclopedias at home?
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OK, that’s more than I expected!
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How many of you guys have
recent encyclopedias at home?
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That’s a little less, this is kind of more
what I was expecting.
-
And now, my family also… we also have
an encyclopedia at home.
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I think it’s from 1985 or something.
And before this encyclopedia
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we would regularly update an encyclopedia,
we would regularly go out and buy
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a new encyclopedia because
knowledge changed, obviously.
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But ever since probably 1990,
we just didn’t bother.
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So, assuming an encyclopedia might,
like a physical book, might cost €100.
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And assuming sort of 2/3
of all households in Germany
-
have had an encyclopedia at one point.
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We’re looking at 13 million households
at this point.
-
Now you don’t buy an encyclopedia
every year but you might buy it
-
every ten years. So in order to simplify
this we can say, every year
-
1.3 million households buy
an encyclopedia on average.
-
1.3 million times €100,
so we’re at €130 million
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of economic welfare, of something that
people were willing to spend money for
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that they’re not spending money for anymore
because of Wikipedia, because now that
-
we have Wikipedia most of the encyclopedias
aren’t actually useful for us anymore
-
because the knowledge that we have,
the knowledge that they would have
-
would be outdated very, very soon and
Wikipedia tends to be more up to date.
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Well, that was from the consumer’s side.
But what about the business side?
-
There’s a lot of research on whether the
internet actually increases productivity
-
for businesses or not. Well, I don’t really
want to go into that debate because
-
it’s a really long tedious debate that is
kind of focused on “Well, you did this
-
method wrong”, or “You did this wrong”,
and “Well, I don’t think your argument
-
makes sense”. So it’s very… I don’t like
this kind of debate. I really like to go
-
deeper in things. But one of the things
that I found was that a lot of businesses
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do rely on the internet by now. Now
we can see on this graph that most firms,
-
overall about 70% of firms actually
use the email to communicate.
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Now email obviously only works
if you have internet, so they need
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some sort of access to internet in order
for their current business model to work.
-
Now this was just some short ideas on
sort of what can the internet mean for
-
the economy. And now I want to talk about
Internet censorship, just a little bit.
-
Now, I’m not a censorship expert. I’m just
someone who read a lot of papers about it,
-
and who was very interested in what kind
of effects this has beyond sort of
-
the obvious “people don’t have access
to political information”.
-
So first a definition. ‘Internet censorship’
is the controller suppression
-
of what can be accessed, published
or viewed on the Internet
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enacted by regulators or on their own
initiative. Now, in trying to conceptualize
-
internet censorship, for me, personally,
there’s two dimensions that are
-
very important. One is how targeted
is this internet censorship?
-
Now, you could, in theory, basically
have internet censorship
-
that is very, very targeted,
which you see in some cases.
-
Or you can have censorship
that isn’t targeted at all, like in Egypt.
-
They just decided to close the internet
down, basically, for a day.
-
That isn’t very targeted censorship,
obviously. The other thing to look at
-
is how widespread is it? So if you are
a business or if you’re a normal consumer
-
how probable is it that you would come (?)
something that’s censored?
-
Now, obviously, if you’re in China it’s
a lot more probable that you would
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try to access something that’s censored
than if you’re in Germany. Even though
-
Germany also does some censorship.
And the way I like to conceptualize it is
-
to be kind of on a continuum. So I don’t
look… I don’t say “Well, either
-
there’s censorship or there isn’t
censorship”. What I’m trying to say is
-
“Censorship has a big spectrum
of things that can happen”.
-
These are some types of Internet censorship
that have different sort of implications.
-
I don’t want to go through them in detail
because I think we’ve heard some really
-
interesting talks on Internet censorship
already. But this is kind of
-
interesting or important for the model
that I’m trying to build.
-
But before trying to build my model,
first some more motivation.
-
I was trying to look at “is there any
evidence that it would have
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an economic impact?”. And there actually
is a study that’s conducted by sort of
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lobbying organizations, so obviously
should be taken with a grain of salt.
-
But it is quite interesting, and it shows
that there seems to be a correlation
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between freedom and how good
the economic impact of internet is.
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This is just a simple correlation. You can
see that there’s a really good line
-
going through it. They did do some
controlling for GDP per capita, so
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for development level. But it still seems
quite rudimentary, to be honest.
-
The data that they use is quite bad
because it is very, very…
-
it’s just not finally granular enough, and
a lot of it is kind of… someone rating…
-
so “How do you think the economic…”,
“How do you think Internet
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impacts the economy in this country?”
And then this is the data that they use,
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to some degree. So it seemed very…
it didn’t really seem like a good, final answer.
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So I’m trying to set up my own model.
And in my model I have a government
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that chooses the type of censorship. And
for this type of censorship that it chooses
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it pays a cost. Because we all know
censorship can be very expensive.
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And in my model for now the only type of
expenses that I calculate are actual
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manpower and technology expenses. I don’t
calculate reputation expenses at this point.
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There is… there are firms in n industries.
Now this n is kind of not a fixed number
-
but instead is a number that can fluctuate
depending on the kind of country
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I’m trying to model. And these industries
distinguish themselves by their
-
information intensity, or what I like
to call ‘information intensity’. Basically
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I look at information as a commodity.
And what I’m trying to decide, or
-
the way I distinguish different kinds of
industry is how important is information
-
as a commodity, as opposed to other kinds
of commodities that are important
-
for this industry. So let’s look at
information intensity equals Zero.
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Like if we don’t really… if information
as a commodity really isn’t important,
-
especially sort of conveyed information,
transmitted information. We can
-
think of traditional agriculture. Now
I know today’s agriculture tends to be
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large-scale, and there’s a lot of
technology involved. But if you look at
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very traditional agriculture that we
still might see happening in some parts
-
of Africa there usually is very, very
little information transmission involved.
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And most of the information transmission
that is involved is actually mostly through
-
word of mouth. So that would be a case of
information intensity of very close to Zero.
-
And then if we look at information intensity
of 1 where basically the internet is
-
the most… or information is the most
important commodity. Internet businesses
-
themselves would… obviously qualify here,
– sorry – like, let’s look at Facebook
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and other kinds of businesses like this.
And in between we have sort of industrial
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companies in the modern world.
Now if we’re closer to the Zero end
-
of the spectrum we might be
at 0.2 .. 0.3, something like this,
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we might be in traditional garment
factories. They do have information needs,
-
they get their cuts and stuff from the
Internet by now, or by email.
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But once they have them they basically stay
the same for a couple of weeks or months.
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So there’s a very low information
requirement. On the other side,
-
closer to 0.8 or something
like that we have high-tech,
-
especially software manufacturing,
so to speak. Information and being able
-
to transmit this information is very
important. Now, in between we might look
-
at traditional industrial companies
like automobile manufacturing
-
that might be somewhere in between.
And before the game, or before…
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or at the first run of the model
‘service level’ and ‘globalization level’
-
are randomly distributed. The information
intensity of industries is also kind of
-
randomly distributed, but not in a true
random fashion. Because when looking
-
in the wild, sort of what kind of
economies exist, most of them…
-
the information intensity of one
industry is kind of correlated with
-
information intensities of other industries
in this country. Like in Germany
-
we’re very known for a certain type
of industry that we have quite a lot of,
-
which is manufacturing, very high-technology
manufacturing. So we have more industries
-
in this area but we have less traditional
agriculture, for example.
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So having a true random distribution
wouldn’t work. In addition the service level
-
and the globalization level are randomly
distributed as kind of external variables.
-
Obviously, this is a simplification because
I can’t really start at the beginning like
-
I can’t say: “Oh well, I’ll start,
I don’t know, 2000 BC
-
with a very blank economy, and then
something happens and something happens
-
and something happens”. That’s just not
realistic. So in order to get a better idea
-
of what happens with different types of
economies, what I’m doing is I’m running
-
this game or this model again and again.
And having these random parameters
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basically changed everytime.
So on average there should be…
-
there should be usable results.
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Now what this is actually missing
is the consumer as a labourer.
-
So I don’t really have ‘labour’ reflected
in here. A more complete model would have
-
that reflected. But it’s not the most
interesting aspect of my model, so
-
I’m not presenting this here, basically.
-
Now, let’s look at what this would
mean for firms. In my model
-
what kind of things would I expect
thinking through it logically which is
-
always the first step when trying to model
something. First of all if we have
-
an information intensity of something
greater than Zero but smaller than One.
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Because the information intensity being
close to One is kind of a special case
-
that I’ll be talking about later on.
Internet censorship increases the cost
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and uncertainty of information.
And of course that is more important
-
the more important information is
for this certain industry.
-
So for a traditional garment factory
internet censorship might be a lot
-
less important than for a semiconductor
factory that has to receive
-
new blueprints every day or every month
or something. The second thing is
-
the more globalized the economy as a whole
is the more costly internet censorship
-
will be. Similar reasoning.
-
And another thing for firms is the
less focused the censorship
-
the higher the cost. Now this assumes that
the censorship or the goal of censorship
-
usually isn’t to turn down firms or to
make sure that firms don’t succeed.
-
So if censorship is very focused
firms tend to be affected less
-
which makes their associated cost less.
Now of course we can argue, well,
-
firms can circumvent censorship, and they
can do that for sure. But it is expensive
-
to do that. If you’ve ever tried a VPN
in China e.g., first, buying the VPN
-
is expensive. Then, having someone sort of
make sure that the VPN works is expensive,
-
every couple of months you need to change
it because the Chinese Government decides,
-
well, this VPN shouldn’t work anymore. So
it’s a very expensive and uncertain thing,
-
really. For firms in
‘information intensity = 1’
-
it obviously also increases the cost
of operating. Some of these firms actually
-
carry out some censorship for governments.
We have seen that happening more recently.
-
But there might actually be some firms
that have a relative advantage, especially
-
domestic firms often have a relative
advantage due to the censorship because
-
they know the regulators better, they know
how to deal with it, they might have
-
less need to circumvent, actually.
And even if they do need to circumvent
-
it’s easier for them because
they speak the language etc.
-
This is actually a special case that I’ll
be talking about a little bit later as well.
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For the government – I’ve said
that censorship is costly. But moreover,
-
the more targeted and accurate censorship
is the more manpower and technology intensive
-
it actually is. This is a finding by
Leberknight et al. in a research paper.
-
I think they’re electrical engineers, and
they calculated through different types
-
of censorships and how expensive it would
be to scale them up. So that is actually
-
a really interesting finding because
it shows that for governments
-
having sort of less targeted censorship
is less costly. But this is the kind of
-
censorship that is actually most affecting
in a negative way to firms,
-
in an economy. So that’s kind of not
a result that we would really want
-
because the incentives don’t line up in
that way. And economists love to talk
-
about incentives, obviously. Now for
consumers, they would obviously get
-
less benefits through the internet, the
benefits that I’ve talked about before.
-
And also businesses often pass on the cost
to consumers.
-
Now however, some countries
still benefit from internet censorship.
-
I’ve talked mostly
about why it’s costly to do it,
-
and I think it is costly in most cases.
-
But developing countries that start out at
low service and low globalization levels
-
usually have… in these kind of situations
internet censorship has less of an impact,
-
less of a negative impact.
And censorship can actually act
-
as protectionism. In information intensive
industries governments can use this kind
-
of censorship to push domestic industries
and enable catch-up growth. Now there
-
are a couple of further prerequisites.
First of all, the country needs to be
-
large enough so that these
information intensive industries
-
have a domestic market as well.
-
Obviously. And then also only
targeted censorship can serve as
-
protectionism. The only other way would be
if you decided on a domestic intranet and
-
basically closed your entire intranet off
to the world. Which is kind of difficult.
-
But what about the long-term effects
of that? Would they still be positive
-
for the government? Now, I’m using
‘positive’ in a very… sort of something
-
that should be taken with a grain of salt,
obviously. And what I did is I looked
-
at China. Obviously, I’m a China watcher.
So I’m really interested in China. And
-
this is kind of where my interest started.
And I’m really trying to find a framework
-
where China isn’t the exception but
instead China kind of fits into the model.
-
What we see is the Chinese government has
outsourced much if its censorship to these
-
internet companies. Baidu, Sina weibo,
Tencent probably would not exist by now,
-
actually, if the censorship didn’t exist.
And what we actually see now is that
-
WeChat e.g. is going global. It has
more functionality than Whatsapp
-
and they’re trying to get out. But as I’ll
be talking about later on a little bit
-
the censorship is starting to be a problem
for these companies that used to benefit.
-
There’s some things about Chinese… about
the character of Chinese Internet censorship
-
that is relevant here. But what about
the future? Now first it’s difficult to
-
innovate with this kind of censorship. And
this kind of insular education that we see
-
also makes innovation, real innovation,
very difficult. In China e.g. Github
-
is blocked most of the time. That makes
kind of collaborating, especially in
-
coding environments, very, very hard.
-
Second, we see more global internet enabled
-
supply chains in the world. So if we have
these global Internet-enabled supply chains
-
having internet censorship turns out to be
more of a disadvantage the more globalized
-
these supply chains actually become. And
information becomes the most important
-
commodity all throughout China. Now this
of course also makes Internet censorship
-
more costly for the economy. What about
possible positives? So what could work
-
in the Chinese government’s favour? First,
the Chinese intranet is actually pretty
-
attractive to most people. Most people
don’t try to go outside, even like
-
they don’t even know that they can’t. They
just don’t want to do it. Second, the IoT,
-
where machines communicate with each other
doesn’t need to be affected because
-
most of the censorship that we see
happening could be reworked in a way
-
that doesn’t affect machine-to-machine
communication. And that wouldn’t be
-
a problem for what the censorship intends
to do which is sort of suppress political
-
opposition. And a third, the government
wants an economy more focused on domestic
-
consumption. So if they want to do this
then censorship might actually be good
-
for that. Now, for me, what I found out
when doing this research is first,
-
standard economic models really aren’t
suited for this kind of question. Because
-
they tend to use GDP, and I’ve told you
why GDP really is not a good measure
-
for that. Second, the next step that
I’ll be doing is agent-based modeling.
-
But I would really like to feed my models
with some reliable data. And I can’t
-
really find any of that. I can find some
data going back a couple of years
-
on, like, is there censorship, is there
no censorship. But I can’t really find any
-
good data that distinguishes between
different types of censorship, which would
-
be really important for the kind of
research that I really want to carry out
-
in the future. Thank you, guys. If you
have questions you can ask now or
-
you can come to me later, you can
of course also send me an e-mail.
-
I’m always happy to talk about this topic.
-
applause
-
Herald: Thank you very much for this talk.
We have six microphones at the floor level
-
here, so if you have questions we have
a very brief amount of time.
-
Please line up at the microphones.
We have microphone no. 2 over here.
-
Question: I want to mention one thing.
Always when talking about China censorship
-
this censorship applies to China main
land. So it’s not Hong Kong and not Taiwan.
-
Toni: Yes.
-
Question: And my question I want
to ask is:
-
What do you think about productivity
of work?
-
So e.g. if you shut down Facebook do you
think this would increase working
-
productivity?
Toni laughs
-
applause
Toni: That’s a really interesting question,
-
and something that I haven’t seen anywhere
in literature. There is a big literature
-
discussion about what the internet as such
means for productivity, and that’s
-
kind of both ways. Now, one of the things
to look at is that just because you
-
shut down Facebook doesn’t mean you
shut down any sort of social network.
-
And I do think that if people use Facebook
and suddenly aren’t able to use it anymore
-
they would probably spend their resources
trying to find new ways to access Facebook
-
which would probably not exactly
improve their productivity.
-
Herald: Next question
from microphone no. 2.
-
Question: Would it make sense to have
a model where firms use information
-
as an input to a production function and
then model censorship as a kind of tax
-
on that. That will seem like standard new
classical micro-econ one-on-one stuff?
-
Toni: That would make sense. I’ve actually
looked at this. One of the problems with
-
doing that is that information
as a commodity
-
is very difficult to be used in this new
classical way because you usually assume
-
that everything is kind of friction-less.
And if things are friction-less then
-
information can’t really be a commodity
because you assume that information
-
basically gets transferred immediately,
and without any sort of censorship. So
-
we can talk about this a little bit later.
Maybe you have some ideas that
-
I haven’t found yet.
It would be interesting.
-
Herald: And the next question,
as well, from microphone no. 2.
-
Question: So, going the same direction:
for GDP is rather defined what is
-
the optimization problem for a government.
For your further approaches what would be
-
the optimization that a government like
China does then. If you say e.g. Wikipedia
-
which leaks out to all over the world but
what is the government optimizing then?
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Toni: What I’m looking at is economic welfare
as defined as producer and consumer surplus.
-
And I assume that the government’s goal
is to optimize economic welfare for both
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producers, consumers and also for itself
as a producer and as a consumer.
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Question: So your criticism is more like
you don’t have a good proxy,
-
using GDP for economic welfare?
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Toni: Yes, yes.
Okay. Thank you.
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Herald: I’m afraid we’re all out of time.
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Please give a warm round
of applause to Toni!
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applause
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post-roll music
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