Is China Beating the U.S. at Innovation?

A tale of two Chinas, the country leapfrogs the US in tech adoption when activists use blockchain to undermine the “Great Firewall of China”

 

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China’s old reputation when it came to tech was that of being the premier global manufacturer of knockoffs, not a site for innovative development. But China today is adopting new tech at truly incredible rates that surpasses most other countries. Rather than just talking about drone delivery, companies like JD are actually doing it. More people in China use mobile payments and participate in one-stop-shop digital ecosystems than almost the entire population of the US and Europe combined.

On the other hand, while the technology economy in China is thriving, the political economy remains restrictive. Google had its secret plans to cooperate in the “Great Firewall of China” internet censorship scheme leaked. However, Chinese activists have used the blockchain to get around official media blackouts on vaccine scares and sexual assault scandals

What is WeChat? Do we view ourselves as the leader of technological advances? What is leap-frogging? Is our established infrastructure getting in the way of our own ability to innovate? Does China represent the new “right way to do things”? What is Google’s Dragonfly Project?

Further Reading:

How E-Commerce Is Transforming Rural China, written by Jiayang Fan

Letter from Shenzhen, written by Xiaowei R. Wang

Chinese Citizens Are Using Blockchain to Warn Each Other of Unsafe Vaccines, written by Kristin Houser

North Korea’s Hidden Revolution: How the Information Underground Is Transforming a Closed Society, written by Jieun Baek

The Art of Escaping Censorship, written by Jessica Loudis

The employee backlash over Google’s censored search engine for China, explained by Alexia Fernández Campbell

Related Content:

Fifty Years after the Cultural Revolution, written by David Boaz

Innovative Maintenance, Maintaining Innovation, written by Pamela J. Hobart

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00:05 Paul Matzko: Welcome to Building Tomorrow, a show exploring the ways that tech innovation and entrepreneurship are creating a freer, wealthier, and more peaceful world. As always, I’m your host, Paul Matzko and with me in the studio today are Aaron Powell who’s the editor and director for libertarianism.org and Will Duffield who’s research assistant and editor of Prototype. Today, we’re talking about China because that’s a manageable topic for a 40-minute conversation. Doing all of China, guys. You ready? But more specifically, we’re gonna look at the ways in which China is technologically leapfrogging the US and Europe. In the US, we’ve long had a superiority complex, what with Silicon Valley and Al Gore inventing the Internet. But while we’ve been resting on our laurels, China’s been adopting new tech at much faster rates than we have here. So, Will, why don’t you kick us off with a description of the company, WeChat, and how that it functions in Chinese society and the economy.

01:05 Will Duffield: So it’s a social media app and effectively, an everything app. It’s a description from one of the articles we’ll be discussing, a Logic Mag piece, with the author speaking to someone saying, “I use WeChat to message a friend while standing in the middle of a rice paddy, to pay for snacks and water in a remote village, to buy train tickets, book hotel rooms, order taxis, get takeout, send my aunt photos, if I wanted to I could also use it to pay electricity bills, tap up my mobile phone account, make hospital appointments, and check the weather. For most of us, doing that would go through the entire front page of our phone’s app line-up and in many cases, it’d be difficult to find an app to do some of these things. So both the simplicity, the holistic nature of this and its accessibility seems really tremendous, especially given that I as an American or a Westerner usually view myself as at the forefront of technological development.

02:22 Paul Matzko: Well, and it’s a billion users use WeChat’s holistic system which, for sake of comparison, that’s almost, not quite, but almost the population of the United States and Europe combined. When we talk about mass adoption rates, that’s pretty impressive.

02:40 Aaron Ross Powell: I know that we like to point to something like this as like, this is so cool and this is the future, and as you framed it, this is ahead of where we are in the US. Like as you said, Will, that for us to do that, we would have to use all of the apps on our phone. But I guess I will be the guy who throws cold water on it and wonders, “So what? Why is this so much neater than what we have now?” So everything, everything we just listed pay for snacks and water, you can do that. There’s all sorts of payment. You can use Apple Pay has accepted tons and tons of merchants and other… There are alternatives to that. We can send videos, we can send pictures, we can book hotel rooms, we can order taxis, we can get takeout, we can send photos, we can’t necessarily do the making hospital appointments but people don’t tend to… We don’t make a lot of hospital appointments anyway.

03:45 Aaron Ross Powell: So, yes, these are currently spread across in apps, but bundling them all in, in a single app which ends up looking like a web browser, that’s ultimately what this turns into is you have a web browser except it looks like chat rooms and you pull up your chat room with your hospital or your taxi and send them text as opposed to popping open the Uber app and clicking send me a cab. But the other thing, and this I think is a theme for the discussion of technology in China, is I am made really uncomfortable at the notion of all of that data going through a single app that is almost certainly sharing all sorts of data with the Chinese government. Why is bundled more high tech than decoupled in this area? I mean, one thing if like you have…

04:33 Will Duffield: Well, you originally asked why it’s neater and it is because it’s neater, it’s neat, it’s tidy, you don’t need to manage a host of accounts across different platforms and when it comes to, say the purported Ubiquiti of Apple Pay it isn’t really Ubiquiti. There are many who accept Apple Pay. There are many who only accept some other form of niche mobile payment and realizing when you’re in the checkout line that you’ve decided or fallen into frequenting a store that uses an alternative system trying to download the app then and there, and make yourself ready for this discreet shopping experience isn’t very pleasant. On the data collection side, while, in a sense, this looks much more centralized, I think many aspects of our data collection and advertising experience are far more cohesive and centralized on the back-end more so than we give them credit for. If you look to something like Verizon’s Oath system, the number of websites which participate in that, well, it might not be immediately apparent to the end user, it’s very far reaching. And when you bring in the layer of data brokers behind, I’m not sure whether you end up with an infoscape that’s ultimately all that different.

06:18 Paul Matzko: And something I would add which would be to say that adoption rate matters even if the tech isn’t any different than tech that we currently use though with some exceptions, like it is hard to use an app right now to schedule a hospital appointment, you can do it. Actually, our provider here at the Cato health insurance provider, they do have an app that you can use to do appointments. But that’s the first time ever where I had that in my life. Very few Americans actually do it that way. But again, it’s just the sheer adoption rate matters too. So for any of these individual services, yes, we have that option here in the US, but what percentage of Americans with smartphones use Apple Pay or a similar service as a large percentage of their transactions? I don’t know the exact number, I would guess single digits. Even those of us who do have that capability, a minority of my purchases are done using that technology. I still use a credit card or cash.

07:31 Aaron Ross Powell: Is that the other thing that’s going on then here too, is that part of the reason that you don’t use Apple Pay much and I don’t use Apple Pay much, and that the US hasn’t consolidated, the merchants haven’t all consolidated around a single one, and so you see the little sticker saying use Android Pay and Google Pay ‘cause Google seems to have multiple competing standards of everything that it does and Apple Pay, and all these other things is because as a society, everyone has access to debit cards. We’ve had these things forever, they’re ubiquitous, they’re easy to use, they’re actually not that much more difficult than pulling out your phone would be, or in the case of WeChat scanning a QR code, like sticking the thing and hoping that the chip gets red is not too much of a problem. And so we have kind of good enough tech. Whereas, rural China or other third world places, didn’t have access to credit or bank accounts on plastic. And so this, this is the technology they embraced.

08:31 Will Duffield: I think that’s quite true. A line from Jack Ma saying people happily shop online because they haven’t seen Walmarts everywhere. If you don’t have that prior experience, on the downside you haven’t had that. And the Ubiquiti of Walmart has been great for millions of Americans but at the same time, those norms hold you back to some extent. And in China, they didn’t exist.

09:02 Paul Matzko: Yeah, there’s the technical term for this is leapfrogging. I put that in the intro on purpose, which is this idea that when you have an older established infrastructure, that there’s a lot of sunk costs in that, a lot of investment, and so that can actually lead a more developed society to be slower on the uptake than the less advanced society when it comes to the next generation of tech. The classic example of this is how big swathes of Sub-Saharan Africa had higher smartphone adoption rates than the US did for quite a while. We actually had to catch up with them when it came to using payment systems like Payza and some very smartphone services because they didn’t have land line phones, they didn’t have a wired Internet structure so basically, they’re going from nothing to cell phone towers and skipping over the wired stage.

10:00 Paul Matzko: And so I think you see some of that same thing going on here in China where they… Because rural China… I mean, the striking juxtaposition in the description that Will gave from one of the stories, it’s that combination of pigs running around in rice fields, like the pre-modern and then bam! Drone deliveries. And that’s actually in that description, but elsewhere you talk about a rural village in China and along comes a drone delivery that drops a package with seven packages for local members of the village on a target spot in the center of town. Even those of us who are plugged in to the tech world, we can’t do that here. There, it’s not just a matter of adoption rate, they’re doing stuff that we’re only thinking about doing in the next couple of years.

10:51 Aaron Ross Powell: But again, I wonder how much of the kind of gee-whiz factor of it is simply that this is different from the way that we do things. So let’s take drone deliveries in rural China, the idea being that a drone can come in to the village with three to five packages packed into a bin under it, it gets dropped off, and then someone can take those to the other people. So the cool part about that is, it’s a drone. And drones are neat and they’re loud, and they look cool and they’re robots and they come in and they land on a little thing and it’s very cyberpunk but the only reason that they’re doing that is because they lack the infrastructure that we have. That similar setup would be a terribly inefficient way to deliver packages in the US because you can only take a handful of these things and stick them in this drone. Whereas, we’ve got roads and trucks that can drive on those roads that can carry much, much more and get it to you faster and more efficiently. So are we kind of almost fetishizing the very fact that these things are different than the way that we do things when in fact they still haven’t caught up to our last gen tech in terms of their actual efficacy.

12:07 Will Duffield: But our last gen tech was pretty expensive to implement. All of those highways being built, the car production, cost of fuels for the trucks, etcetera. And the idea that you can get there or good enough by jumping immediately to drones seems revolutionary.

12:30 Paul Matzko: I suppose the question is, like you have to compare apples to oranges, which is from a base state, so from the state of nature. The question is, is delivery via FedEx superior to delivery by drone starting from nothing? And I think the answer as being shown in this jump from pre-modern to modern going on in rural China is that it is more efficient starting from zero to go immediately to drone delivery, which means that they can save on… I mean, the amount of capital investment that had to go into building all that road and vehicular transport is massive and so they’re able to save that. China as a nation is able to save that capital and spend it towards other things, thus increasing national prosperity over the long term. So that’s how I would say it, which is that you’re right, but we’re not comparing state of nature to state of nature, we’re comparing this built infrastructure.

13:30 Paul Matzko: At the same time though, if those technologies are… They have the potential. I mean, there’s a reason why Amazon’s interested in drone delivery here. They think that even with our built up capital expenditure infrastructure system, drone deliveries might still be a more efficient way of delivering at some point in the future. But since they’re there first, they’re gonna reap the benefits of that system more quickly than we are and arguably, have a bigger role in developing it and reap more literal profit from that technology than we currently do. They’re gonna have the founder effect in other words, that we have had with the Internet here in the US. So I think it does matter, I mean it’s a good caution. It’s a good caution though that it’s easy to get so caught up in, “Wow! Drones are cool, wouldn’t that be neat if a drone dropped off stuff in my yard?” When it’s actually kind of cool that FedEx can drop off things too. It’s new, therefore we assume it’s better. And I think that’s a…

14:30 Will Duffield: And an interesting element of this that stuck out in the New Yorker article was the extent to which much of this infrastructure that JD or Jingdong delivery infrastructure seemed less formal, particularly in rural areas and more able to make it self-compatible with human rhythms in a way that perhaps the delivery driver in the US used to do. But that today particularly thinking about some of the ways apps have moved into this on the delivery back-end side, geolocation, tagging delivery times, etcetera, that that system has become very inflexible. Here, we see the delivery driver in a rural Chinese village saying people phoned to ask him to drop off a package at the local market or post office or even medical clinic, real-time shifting the drop-off location in a way that if I try to do that with Amazon now, it just doesn’t work. There’s no one I can contact and let alone to shift the drop-off point.

16:03 Aaron Ross Powell: But how much of that is a factor of, they can get away with it ‘cause they’re not doing that many deliveries? Like, part of the reason that it will be hard for Amazon to allow you to switch up where you are delivering or change the time in the Washington, DC Metro Area is because they’re doing such an extraordinary number of deliveries all day that scheduling is very important, route design is very important. If we had only a handful of people, if it was just a rural, that kind of relaxed pace works when you don’t have scaling issues, when you’re dealing with small numbers. But when you’re dealing with large numbers, it’s quite difficult.

16:44 Will Duffield: But even when you’re doing Amazon deliveries in rural America, you don’t get that.

16:50 Aaron Ross Powell: So that can be a factor of, [A] there’s not much demand for it? Or, [B] that it would be more difficult to implement this in a piecemeal way, like to say, “Well, we’re gonna only implement it in rural America and not the rest of America than to have the same system across the board.” But again, I think this also gets to, you can do all sorts of cool stuff on a bespoke level when you’re not doing much of it, but when we’re doing…

17:19 Will Duffield: I don’t know where you’re getting the lack of scale here from.

17:24 Aaron Ross Powell: Also, the articles that we read for today discussed you have it, you have a single delivery driver whose job is to bring stuff to people in a small town and he covers that small town and he’s doing a handful of deliveries a day versus the… I don’t know how many deliveries the average UPS guy does in the DC Metro Area, but I feel safe in assuming it’s a lot more.

17:49 Paul Matzko: Though perhaps a better way to think of that driver is that… I mean, they talk about in there, like when we’re talking about the transformation of rural China, we’re still talking about… They’re expecting the market to double or triple in size over the next two years, and there’s still hundreds and millions. There’s more than the entire population of the US that’s still in the rural hinterlands that are only recently being reached by something that’s now taken for granted in the more urban regions. So these delivery guys they might even… I thought of them as I read the articles as lost leaders. They’re like brand ambassadors who are building up the reputation and laying the foundation for more volume and more profitability. That’s how I thought of them. I imagine the cities, things like JD and WeChat system, they all looks a whole lot more like it would than say, here in Washington, DC when it comes to Amazon deliveries.

18:53 Will Duffield: And maybe labor costs play a role in this as well, in terms of the number of rural delivery men you can employ in this sort of system. What the other available alternatives in terms of work for them would be… But at the same time, I do… I don’t know, maybe the way the pieces are written, but there seemed to be a comforting lack of formality that suffused a large part of this, which I often don’t see in American tech-mediated interactions.

19:33 Paul Matzko: There was an element… So there was a point at which, as they were describing the kind of close-knit role… Almost a sense of tribe of extended family, where everyone knows what everyone is doing, they have to pull together and really just to feed themselves in the village, and that space is now being penetrated by this new network. And so right now there’s this blend of a kind of pre-modern community organized a sub-cultural system where everyone knows each other, where there’s this sense of strong neighborhood and local identity meeting a new bourgeois way of thinking, kind of the global middle class way of consumer capitalism. And right now they’re co-existing with various degrees of comfort, but like…

[overlapping conversation]

20:37 Paul Matzko: Right, but like…

20:38 Will Duffield: But one is replacing the other.

20:41 Paul Matzko: Right. Yes, so one’s replacing other. So that sense of like there’s the grandma who runs the corner store and there’s the… All that intimate… The intimacy of that situation could be on the way out. It’s like here in the US, we don’t know our delivery drivers, we don’t know who makes our stuff, and we’re fine with that because we’ve had the cultural alienation and atomization that goes with being middle-class Americans that we take for granted. So that sense of what we’re picking up here on with the delivery drivers, knowing people, knowing local conditions, this is kind of an intermediary stage, and obviously all tech comes with cultural implications, but that is an aspect of that that doesn’t really get delved into and all that much depth in these articles, I don’t think. You can see in the background, but it’s not really a major category of analysis.

21:36 Paul Matzko: Something else here, so we’ve been talking about a lot of tech and transportation. I thought as libertarians, we’d be interested in this, which is the social organization aspect of this where one of the major towns that’s featured in the logic piece is Shenzhen, which is, it was a new city essentially established in the ’80s by the Chinese government. They recently said, “Look, we don’t wanna end up like Soviet Union, we’re gonna allow some capitalist experimentation in these free zones,” like the area around Hong Kong, inland from Hong Kong, and places like Shenzhen. So the town grows from 30,00 to 12 million in under three decades.

22:24 Will Duffield: That kind of early startup city.

22:26 Paul Matzko: Yeah, exactly. That’s what reminded me of, was like everyone talks about free cities, charter cities, even sea-steading. We actually have real world examples of that in communist China, which is a fastening juxtaposition, which I think raises a question. So this is an old chestnut for libertarians to chew on, but the distinction between… We like to think of ourselves, the United States as ostensibly a free market economy, right, and China is a communist country. And so in the level of rhetoric, our rhetoric’s very different, but when you get down in… When you actually get into the weeds, places like Shenzhen actually seem like a lot easier and freer place to run a business in significant ways than it would be in the United States. That kind of entrepreneurial spirit that’s on on view there was quite striking to me. So, what do you guys think of that idea? Should we views Shenzhen and the regional district of free economic zones in China as a fulfillment of that kind of charter city idea?

23:35 Will Duffield: I mean their market economies. I like Tyler Cowen’s comment on this in Bloomberg. He has a “China Proves Marx Right” piece, arguing that while China was previously maliced and elevated the peasant, it is now a properly Marxist society in that it is understood that you must move through industrial capitalism in order to get anywhere really, and whether what comes out of that on the other end down the road is something that could be described as communism, doesn’t matter all that much. It’s simply that in order to go from an agricultural, pastoral, pseudo-feudal society to something beyond that, you do need industrial capitalism.

24:27 Aaron Ross Powell: I think that it is awfully easy to slide into thinking that China represents the new right way to do things or a way that ought to be emulated, or that their apparent economic dynamism is something that we should strive for, because I think there’s a lot of other stuff going on behind the scenes here. So yes, these companies can make all this stuff, and yes, we see all this tremendous growth, but there’s lots of stuff being made in the US, and on the tech side, there’s an extraordinary amount of innovation going on, whereas in China, a lot of the innovation seems to be… We’re manufacturing products that were designed in America, or we’re building products that were originally innovated. We take a knock-off version of something that was built in America, and then we innovate on top of it, and all of this is happening with a lot of non-freedom, too, right?

25:34 Aaron Ross Powell: So these big companies in China all are basically cowering under the Communist Party. The Communist Party can shut them down at any time. We have the head of this JD.com gave a speech where he he says explicitly that in the glorious future, all of these companies will be state-run. And he’s doing that because that’s what the Communist Party wants to hear. And the examples of CEOs of these companies, you do something that steps out of line and all of a sudden you are prosecuted for kind of nebulous crimes and everything’s taken from you.

26:17 Aaron Ross Powell: So yes, we can take away that if you let people start businesses, people will start businesses and cool things will happen, but we don’t need to learn that message from China. We’ve known that. And there are other places that that has happened and we can watch that happening in the US. But I think that the concern is that, and this is like… Thomas Friedman has written things about this, like China is going to overtake us and that the reason is because they got the strong government, they can make things happen. I think he did this in talking about renewable energy or green industry or something like that. And the history of that stuff ultimately failing of command and control or over-strong government ultimately killing the golden goose is long.

27:01 Aaron Ross Powell: There’s no reason to think it won’t happen here. The huge growth in China is, to a great extent, a product of the fact that they started way, way behind where we were, and that that early growth is much easier than the sustained stuff. So I think that we need to be careful about lionizing this, and I think that we need to be wary of seeing, the numbers are very big, there’s a billion people using WeChat. But there’s a lot of people in China. They simply have a much larger population. And so how much we get kind of dazzled by big numbers when what’s actually happening is not terribly exciting outside of the big numbers.

27:47 Will Duffield: But that matters as much as, or in my mind, more so than the sort of Friedman… The large state, keeping everyone in line or giving national direction allows this to happen. Size produces a agglomeration effects there that we couldn’t imagine occurring in the United States. And when we look at the positive side, not necessarily of governance per se, or state governance, but the expectation there of in the face of its breach or lack, you have a great deal of unregulated development perhaps not intentionally occurring, not provided for by state policy, but happening in an un-governed liminal space between expectations of state control and the reality on the ground that provides in many ways, a freer regulatory environment than you have in the United States. If you want to build a new coal-fired power plant, you just go and do it. And now, certainly, some people have been whacked for doing so, but for everyone who gets in trouble, there are three others still just doing it.

29:11 Paul Matzko: You said Thomas Friedman has the wrong takeaway from what’s happening in China, right? It’s not the large state that’s the key to success, the command economy massive state investment in solar panels production, etcetera. I think what’s happening in China is viable because it’s a reminder that we have to look more and granularly than these big picture rhetorical arguments, like trying to compare the US as one giant system versus China as a giant system misses all the really interesting stuff happening on the local or more granular level. So that Shenzhen’s success as a free market city, essentially a free city, a charter city, that can tell us something. That’s a tree that gets lost in the forest when you look at China as a whole, just as people often make the comparison that Sweden, despite having a larger welfare state and ostensibly often the socialist government, actually has freer trade and freer markets in significant ways than the United States does. Same kind of thing.

30:16 Will Duffield: I’m looking to Shenzhen in particular, one of the things we see coming out of it is this Shenzhy culture, or which is originally a word used to derivatively describe knock-offs.

30:29 Paul Matzko: Louis Vuitton bags. Yeah.

30:31 Will Duffield: But more broadly, speaks to a sort of copyright-free, mix-and-match, open-source culture that goes far beyond software. And in the United States, most of our experience with open source comes on the software side, or somewhat ironically with certain products that were originally developed by the government, you look to say the AR-15 platform and because it was public domain from the get-go, you see a very vibrant marketplace there for add-ons, alterations, small parts manufacturers to get in on the game. So there, in a sort of instance discreet fashion, I think it does provide a valuable lesson, certainly for copyright skeptics in the United States or the West. However, more broadly, I think a lot of what I’m seeing in China at the moment reminds me of the West in the 19th century, and the sense of dynamism and opportunity you saw there, particularly looking at the experience of Chiang Kai, this white glove delivery driver who went from working in the fields in his hometown, went off and did some years in the Army where he crucially learned to drive, and now goes around in his car with a suit, white gloves with possibility. He talks about holding gold bars, delivering them as gifts essentially, for a hedge fund, being mistaken for a lawyer, and he frankly sounds like a character in a Victorian novel, that life story and the opportunity inherent in it.

32:27 Paul Matzko: Yeah, he says in the story that his teachers told him that to succeed, you need to know… Well, preferably all three, but at least one of the three skills: How to speak English, English fluency, computer programming skills, and how the drive. He wasn’t good at the first two, but he knew how to drive, therefore, he got this job as a delivery man. But as I was reading that, and this moment presented to you by a history nerd, it reminded me of… There’s actually a book by a historian named Tom, he’s actually, I think American studies literature guy, but Thomas Augst called “The Clerk’s Tale”, which is about 19th century, this new class of white-collar clerks who staffed all the offices popping up around America that were running the kind of industrialization of the United States. And it’s all of that class of dynamic, entrepreneurially-minded clerks who were obsessed as young men with improving their rhetoric… Essentially, their English fluency that they already ostensibly knew English, but their base literacy, they’re obsessed with that, going to Chautauqua lectures and the 19th century version of TED Talks.

33:39 Paul Matzko: They were hustlers trying to get ahead, trying to find their angle. It’s all of that class of clerks, of this new white-collar class that you get Andrew Carnegie, that you get a number of major titans of industry a generation later that played a massive role in the development and the kind of incredible prosperity of America in the early 20th century. And that’s why I was reminded of, when I read the story of Shane, that what’s going on there right now is something that we saw take place in our American society in the mid-19th century that led to massive gains and productivity a generation later. So I thought that was actually quite interesting that you have all these… They’re learning skills that will help them in the global economy in the future. And who knows, who knows what that looks like? Who knows which one is the next one that’s gonna be the head of WeChat or the new JD, who were themselves basically hustlers, like what we’re describing.

34:41 Paul Matzko: We should probably transition here at the end. So, if Aaron’s been on a bit more bearish about some of the prospects here, while Will and I have been more bullish, here’s something I think all of us would share concerns about, we’re all gonna be bearish on the topic of Chinese state censorship and surveillance, though there are some intriguing… There are some intriguing pushback against the state use of technology to keep tabs on citizens. But first, let’s look at the revelation of that Google has a new project they call the Dragonfly Project, which is not quite sinister as Octopus, I suppose, but Dragonfly itself like the Global Octopus and its tentacles reaching into every part of society. What is the Google Dragonfly Project, Will?

35:27 Will Duffield: So this is a search engine that they were developing under wraps in order to enter the Chinese search market. And I, for my part, just can’t understand why they would go there, what they really seek to gain by stepping into this market.

35:50 Paul Matzko: A billion people. [chuckle]

35:51 Will Duffield: But they won’t. The Chinese state is very protectionist. They aren’t going to allow a western search engine to come in and win. So that just seems off the table from the get-go. So the idea of Google shedding legitimacy in other places, particularly places in which they’re coming under newfound regulatory threat for a snowball’s chance in hell at this market, I’m not calling them dumb, but I can’t understand what they’re going for.

36:27 Aaron Ross Powell: When I saw the story broke, when I saw the story break, and I saw Google was willing to put together a heavily censored version of their search engine, and not just… I mean you could think of censoring that’s kind of just irritating, like we’re not gonna show access to certain Western movies or we’re gonna block access to certain Western sites, but this was as ideologically censoring. You’re not gonna be to look up stuff on freedom of expression and important human rights issues that the Chinese government tends not be a fan of. My first thought was Google has come a long way from its “Don’t be evil” days. But also… Yes, this seems a little bit odd, and it seems like… Yeah, I think you’re right that they’re not… Even if they do this, they’re not gonna give us substantial portion of the market.

[overlapping conversation]

37:14 Will Duffield: [37:14]  in India, just concentrate there.

37:19 Aaron Ross Powell: But the real concern is, if Google’s willing to do this, what else are they willing to do at the behest of the Chinese government when their phones are… We started this off by talking about how ubiquitous smartphones are and how everyone is doing everything in their lives on smartphones, and Google is a big part of the smartphone market, especially in poorer countries.

37:44 Aaron Ross Powell: Android far outstrips iOS. So what sorts of Chinese government-requested features are gonna be baked into Android, baked into other Google platforms like Gmail, that we might not know about, or that are substantially more troubling than Chinese people not having access to certain webpages? That was where the really troubling aspect of it was to me. And that stuff… All of this circumvention stuff that we talk about, like you can install VPNs, you can use encrypted chat stuff, that’s all well and good, but if there are… If the hardware or the OS is compromised in some way, then none of that matters. Right? And so, that’s where my concern is, is if Google’s willing to back down on principle here, where else are they willing to back down?

38:40 Will Duffield: Not just for the Chinese government, because you would think that institutionally, Google would be more skeptical of Chinese government demands than perhaps those made by the governments of the United States or Great Britain. But at the same time, if they’re willing to do this for China, what are they willing to do for our state? And that leads you to potentially some very scary conclusions as well, along all of those axes you’ve just described.

39:10 Paul Matzko: Yeah, I mean I suppose… You’re right, Aaron. It’s not surprising that… We would expect that whatever search company is going to be allowed to operate in China on a major basis is of course going to have to play by the rules set up by the Chinese Communist Party. Whether it’s Google or whether it’s Alibaba, I think the current dominant chat search, that’s to be expected. So it’s not surprising that that happened, but the implications for those of us who do rely on Google in the United States, it is a little more disconcerting. I do think it’s quite understandable why they’re doing it. I mean I disagree with them. I do think the Google brand should take a hit over here because of their willingness to compromise their…

39:54 Will Duffield: But why do you think they’re doing it?

39:56 Paul Matzko: Well I think they’re doing it because of money. So, again, Google has what percentage of the, what… 380 million people in the United States depend on Google solely for their Gmail and Google for their search and various Google products for their daily life, a very large percentage. What percentage of Chinese internet users would you have to have to reach that same number, a much smaller percentage? They will have to be market-dominant in China to make some serious money, especially given the level of usage, I mean the level of…

40:29 Will Duffield: Why don’t you just focus on India, especially given expected future geopolitical tensions between the two states who had imagined that there would be trade-offs in terms of market access between the two at some point in the future, and there are more people to come online in India than China as a percentage of the population? Now, China… India is only what, 1.3 billion versus China’s 1.7. But you’re still talking about tremendous gains to be made there rather than trying to step into this new market.

41:00 Paul Matzko: Well, Google doesn’t wanna have to choose. I mean the CEO, Sundar Pichai, his quote is, “I care about servicing users globally in every corner,” which is an unfortunate, I think, [chuckle] choice of words. So…

41:11 Will Duffield: On the military, they serve as targets.

41:14 Paul Matzko: Google is for everyone. Yeah, right, but I don’t know if he’s got to choose between India or China. They’re gonna make plays everywhere. It’s one of the largest companies in the world, number two, number one [41:24] Alphabet is right now. So that is disconcerting for those of us. I mean, I rely on Gmail. It’s a dominant part of my workflow and is for many Americans. There was something else encouraging coming out of China where you see a citizen resistance to state surveillance and attempts at censorship. This is the story about using the Ethereum blockchain to disseminate information that Chinese government censors wanted squelch, so there was a major drug manufacturer in China that sold some fake vaccines. The state… There is press reporting on these fake vaccines. Chinese people were angry. And so the state censor system, their internet monitor bureaucrats shut down the official press and social media coverage. So [42:19] the citizen decided to add the story to the Ethereum blockchain, it costs them 0.001 ether, which at the time of the story was about 47 cents US, and that can’t be censored, it’s on the blockchain, so anyone who can access the Ethereum blockchain can read this account of fake vaccines being pedaled by a party-approved major drug manufacturer.

42:43 Will Duffield: I always wonder, and particularly thinking about China here where you have a state, which has the capacity to be very heavy-handed, seeks to be somewhat responsive to the concerns of its citizenry for legitimacy reasons. Whether when you see both a censored internet and then some with access or in this case, paying a little bit of money to access this story, whether that’s used as a signal by the state, people are frustrated enough about, in this case, this fake vaccine firm that they’re willing to pay money to discover the truth here, we’d better crack down on them hard. And to what extent that could be used in order to provide more effective or responsive governance just because here you have the sort of baked in costing of preferences?

43:38 Paul Matzko: That’s interesting thought. I mean I…

43:42 Aaron Ross Powell: Well, I mean, just to clarify, the 47 cents is the amount that it costs to put it on the blockchain. It’s free to read it.

43:47 Will Duffield: Oh okay.

43:48 Paul Matzko: I thought that was a sort of [43:49].

[overlapping conversation]

43:51 Aaron Ross Powell: It was worth 47 cents to one person, which doesn’t tell us a lot.

43:55 Paul Matzko: No.

43:56 Will Duffield: But even in terms of circumventing censorship more broadly, there’s a risk there, which sends a signal that it’s meaningful to someone, and while the connections of the vaccine manufacturer to some state entity, they have their own value at some point, countervailing signals are or ought to be taken into account. I’m not sure how it all shakes out there, but it does seem like an interesting demonstration of preference.

44:35 Paul Matzko: And there’s value in… Essentially, what we’re talking about is lowering the cost of entering a black market for information. And I won’t belabor the comparison, but during the 1980s, there was this thriving black market for cultural artifacts from the west movies and music circulating in the eastern block, Soviet-dominated eastern block. It was the cost of getting that information widely accessible was quite high; you had to actually smuggle the original copy, make copies of American DVD, and then make… Potentially find ways around blocks on DVD players for western… It was a whole expensive black market industry and distribution process but if you can put that information on a blockchain for 47 cents, it’s that much easier to escape censorship. Again, these new technological forums, I think have the possibility to accelerate and expand the ability to descend even in a more controlling kind of state.

45:43 Will Duffield: You’re talking about very different forms of information there though.

45:47 Paul Matzko: Sure, sure.

45:49 Will Duffield: Looking back to the eastern block, for the most part, we’re talking about entertainment goods, like consumption goods. When it comes to China today, Hollywood tries to sell their entertainment there, it doesn’t tend to do very well. They really struggle to market it, even though folks have access, and the information that people are paying to gain access to has a far greater influence on health questions, political questions, etcetera, but it’s operationalized very differently.

46:27 Paul Matzko: So there is a difference between specific goods. So we could go into more discussion on that, but I think we’re out of time for today. So until next week, thank you for listening to Building Tomorrow, and be well.

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46:42 S4: Building Tomorrow is produced by Tess Terrible. If you enjoy our show, please rate, review and subscribe to us on iTunes, or wherever you get your podcasts. To learn about Building Tomorrow, or to discover other great podcasts, visit us on the web at libertarianism.org.