On Tuesday, I ended my post with this:
At the moment, and that as a consequence of having written all of this out, this is where I find myself:
https://atomic-temporary-112243906.wpcomstaging.com/2021/07/27/the-three-article-problem/
China is optimizing for power, and is willing to give up on innovation in the consumer internet space. America is optimizing for innovation in the consumer internet space, and is willing to cede power to big tech in terms of shaping up what society looks like in the near future.
Have I framed this correctly? If yes, what are the potential ramifications in China, the US and the rest of the world? What ought to be the follow-up questions? Why? Who else should I be following and reading to learn more about these issues?
How might I have been wrong? V Ananta Nageswaran and Nitin Pai wrote posts recently that helped me learn about some answers to at least the first of my questions above.
Let’s find out how I might have been wrong!
Noah Smith had hypothesized that the tech crackdown is because China’s goals are about asserting its power internationally. And not soft power, but the tanks and boots on the ground type power.
China may simply see things differently. It’s possible that the Chinese government has decided that the profits of companies like Alibaba and Tencent come more from rents than from actual value added — that they’re simply squatting on unproductive digital land, by exploiting first-mover advantage to capture strong network effects, or that the IP system is biased to favor these companies, or something like that. There are certainly those in America who believe that Facebook and Google produce little of value relative to the profit they rake in; maybe China’s leaders, for reasons that will remain forever opaque to us, have simply reached the same conclusion.
https://noahpinion.substack.com/p/why-is-china-smashing-its-tech-industry
Nitin Pai disagrees:
Now, it’s unclear if the opportunity costs of talent are so stark in China that the government must crack down on consumer internet companies in order to incentivise people to get into hardware. But Smith’s explanation is consistent with the popular view that China’s leaders are astute and inscrutable strategists who think really long term.
https://www.nitinpai.in/2021/07/27/why-china-is-attacking-its-consumer-internet-companies
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My answer is simple: it’s about political power. In fact, if we frame the question differently, the answer becomes readily apparent: “Why is the autocratic leader of the Chinese Communist Party attacking media companies that directly reach almost everyone in the country?” Because size, reach and control of consumer data gives them narrative power comparable to what the Party has. Further, the ability to tap foreign capital gives them more freedom, albeit of the kind with Chinese characteristics. The Party doesn’t like that. And Xi likes it even less. That is why he moved aggressively to pre-empt a challenge to the Party’s narrative dominance and preserve its monopoly on power.
Another way to think about it: it is about soft power, but the soft power that the CCP would like to project to its own people. There is only one storyteller that shapes the societal narrative in China, and anybody else who wants to play is going to be cut down to size. Ruthlessly.
(Of course, it is not just about soft power being projected to its own people. But nobody in China is crazy enough to want to play the hard power game with the CCP. That’s a well established monopoly. But Nitin is saying that the CCP wants all aspects of power to be within its complete control, soft and hard.)
As he puts it towards the end of his post:
It’s consistent with what it has been doing since Mao Zedong’s time: ruthlessly cutting down challenges to its hold on Chinese minds.
https://www.nitinpai.in/2021/07/27/why-china-is-attacking-its-consumer-internet-companies
That’s it, folks. Nothing more to see here.
Ananta Nageswaran also blogged about this yesterday:
In the meantime, a blog post by Noah Smith, an economics teacher and a (former?) columnist for Bloomberg wrote that China’s crackdown on consumer-internet companies was to ensure that China’s financial and intellectual resources were not diverted for creating low value addition. It did not strike him that such an explanation – if it were true – did not do any credit to China. It reeks of central planning and omniscience. Two, even if it were true and even if it was meant to be a benign explanation, malign explanations cannot be ruled and need not be ruled out.
https://thegoldstandardsite.wordpress.com/2021/07/28/fintech-edtech-and-china/
Mutually exclusive explanations help keep the narrative simple and, two, it helps make the narrator appear smart because he/she has figured out the ultimate explanation. More often that not, reality is grey. Or, it has many shades.
In other words, he’s saying that even if what Noah is saying makes sense, there is more to it than that. It’s not just the opportunity cost of having some of the best minds in China work on consumer tech. What else might it be? Ananta Nageswaran finds himself in agreement with Nitin Pai:
I agree. It is political power and the interpretation (of Xi and correctly so) that information (Nitin calls it mindshare) about people’s behaviour that these companies have give them the ability (and the chance) to set the narrative later, in Xi’s thinking, seizing it from the CCP.
https://thegoldstandardsite.wordpress.com/2021/07/28/fintech-edtech-and-china/
A minor point I would like to make here: I don’t think information and mindshare are the same thing, though they certainly are related. The information that tech firms have allows them to shape (sometimes in entirely unexpected ways!) the narrative, and therefore influence mindshare. Information is the tool and mindshare is the outcome – or at least, that is how I see it.
Please read Sanjay Anandram’s quotes from that blogpost too. I learnt about (and am going to shamelessly borrow) the RFRE principle.
So is it Noah’s story, or Nitin and Ananta Nageswaran’s? Regular readers know what’s coming next: the truth lies somewhere in the middle! Or at least, that’s my take, and it seems to be Ananta Nageswaran’s as well:
Of the three explanations that have been on offer, Noah Smith’s is the least persuasive. In some respects, Nitin and Sanjay are aligned and they diverge in some other aspects.
https://thegoldstandardsite.wordpress.com/2021/07/28/fintech-edtech-and-china/
As always, the real motivation behind some of the recent decisions of the government in China will have elements of all three and more.
To a student reading this: spectrum based thinking is a gift. Reasonable people can and should argue about where the truth lies, but always think intervals, never point estimates.
And having read all of the pieces that I have linked to across these two posts, I find myself in the same space on the spectrum as Ananta Nageswaran. That is, it’s not just the Noah Smith/Dan Wang argument at play (regarding which, Noah has updates. Scroll to the bottom of the post where he links to pieces that bolster his argument). But it is more about the CCP asserting its power.
Ananta Nagewaran ends with a Bruno Maçães quote: “the main players compete not under a common set of rules but in order to define what the rules are”.
It is a weird coincidence, but I just introduced some students to Frederich List yesterday. The more things change…
EconForEverybody 