Tag: schumpeter

The Three Article Problem

I’ve been mulling over three separate columns/posts/interviews over the past few days. Today’s post was supposed to be me reflecting on my thoughts about all of them together, but as it turns out, I have more questions than I do thoughts.

Worse (or if you think like I do, better) I don’t even have a framework to go through these questions in my own head. That is to say, I do not have a mental model that helps me think about which questions to ask first, and which later, and why.

So this is not me copping out from writing today’s post. This is me asking all of you for help. What framework should I be using to think about these three pieces of content together?

All three posts revolve around technology, and two are about the Chinese tech crackdown. Two are about innovation in tech and America. And one of the three is, obviously, the intersection set.

The first is a write-up from Noah Smith’s Substack (which you should read, and if you can afford it, pay for. Note that I am well over my budget for subscribing to content for this year, so I don’t. But based on what I have read of his free posts, I have no hesitation in recommending it to you.)

In other words, the crackdown on China’s internet industry seems to be part of the country’s emerging national industrial policy. Instead of simply letting local governments throw resources at whatever they think will produce rapid growth (the strategy in the 90s and early 00s), China’s top leaders are now trying to direct the country’s industrial mix toward what they think will serve the nation as a whole.
And what do they think will serve the nation as a whole? My guess is: Power. Geopolitical and military power for the People’s Republic of China, relative to its rival nations.
If you’re going to fight a cold war or a hot war against the U.S. or Japan or India or whoever, you need a bunch of military hardware. That means you need materials, engines, fuel, engineering and design, and so on. You also need chips to run that hardware, because military tech is increasingly software-driven. And of course you need firmware as well. You’ll also need surveillance capability, for keeping an eye on your opponents, for any attempts you make to destabilize them, and for maintaining social control in case they try to destabilize you.

https://noahpinion.substack.com/p/why-is-china-smashing-its-tech-industry

As always, read the whole thing. But in particular, read his excerpts from Dan Wang’s letters from 2019 and 2020. It goes without saying that you should subscribe to Dan Wang’s annual letters (here are past EFE posts that mention Dan Wang). As Noah Smith says, China is optimizing for power, and is willing to pay for it by sacrificing, at least in part, the “consumer internet”.

That makes sense, in the sense that I understand the argument.

The second is an excellent column in the Economist, from its business section. Schumpeter is a column worth reading almost always, but this edition in particular was really thought-provoking. The column starts off by comparing how China and the United States of America are dealing with the influence of “big” technology firms.

As the column says, when it comes to the following:

  1. The speed with which China has dealt with the problem
  2. The scope of its tech crackdown
  3. The harshness of the punishments (fines is just one part of the Chinese government’s arsenal)

… China has America beat hollow. As Noah Smith argues, China is optimizing for power, and has done so for ages. As he mentions elsewhere in his essay, “in classic CCP fashion, it was time to smash”. Well, they have.

But the concluding paragraph of the Schumpeter column is worth savoring in full, and over multiple mugs of coffee:

But autarky carries its own risks. Already, Chinese tech darlings are cancelling plans to issue shares in America, derailing a gravy train that allowed Chinese firms listed there to reach a market value of nearly $2trn. The techlash also risks stifling the animal spirits that make China a hotbed of innovation. Ironically, at just the moment China is applying water torture to its tech giants, both it and America are seeing a flurry of digital competition, as incumbents invade each other’s turf and are taken on by new challengers. It is a time for encouragement, not crackdowns. Instead of tearing down the tech giants, American trustbusters should strengthen what has always served the country best: free markets, rule of law and due process. That is the one lesson America can teach China. It is the most important lesson of all.

https://www.economist.com/business/2021/07/24/china-offers-a-masterclass-in-how-to-humble-big-tech-right

This makes sense, in the sense that I understand the argument being made. Given what little I understand of economics and how the world works, I am in complete agreement with the idea being espoused.

The third is an interview of Mark Zuckerberg by Casey Newton of the Verge.

It is a difficult interview to read, and it is also a great argument for why we should all read more science fiction (note that the title of today’s post is a little bit meta, and that in more ways than one). Read books by Neal Stephenson. Listen to his conversation with Tyler Cowen. Read these essays by Matthew Ball.

Towards the end of the interview, Casey Newton asks Mark Zuckerberg about the role of the government, and the importance of public spaces, in the metaverse. Don’t worry right now if the concept of the metaverse seems a little abstract. Twenty years ago, driverless cars and small devices that could stream for you all of the world’s content (ever produced) also seemed a little abstract. Techno-optimism is great, I heavily recommend it to you.

Here is Mark Zuckerberg’s answer:

I certainly think that there should be public spaces. I think that’s important for having healthy communities and a healthy sphere. And I think that those spaces range from things that are government-built or administered, to nonprofits, which I guess are technically private, but are operating in the public interest without a profit goal. So you think about things like Wikipedia, which I think is really like a public good, even though it’s run by a nonprofit, not a government.
One of the things that I’ve been thinking about a lot is: there are a set of big technology problems today that, it’s almost like 50 years ago the government, I guess I’m talking about the US government here specifically, would have invested a ton in building out these things. But now in this country, that’s not quite how it’s working. Instead, you have a number of Big Tech companies or big companies that are investing in building out this infrastructure. And I don’t know, maybe that’s the right way for it to work. When 5G is rolled out, it’s tough for a startup to really go fund the tens of billions of dollars of infrastructure to go do that. So, you have Verizon and AT&T and T-Mobile do it, and that’s pretty good, I guess.
But there are a bunch of big technology problems, [like] defining augmented and virtual reality in this overall metaverse vision. I think that that’s going to be a problem that is going to require tens of billions of dollars of research, but should unlock hundreds of billions of dollars of value or more. I think that there are things like self-driving cars, which seems like it’s turning out to be pretty close to AI-complete; needing to almost solve a lot of different aspects of AI to really fully solve that. So that’s just a massive problem in terms of investment. And some of the aspects around space exploration. Disease research is still one that our government does a lot in.
But I do wonder, especially when we look at China, for example, which does invest a lot directly in these spaces, how that is kind of setting this up to go over time. But look, in the absence of that, yeah, I do think having public spaces is a healthy part of communities. And you’re going to have creators and developers with all different motivations, even on the mobile internet and internet today, you have a lot of people who are interested in doing public-good work. Even if they’re not directly funded by the government to do that. And I think that certainly, you’re going to have a lot of that here as well.
But yeah, I do think that there is this long-term question where, as a society, we should want a very large amount of capital and our most talented technical people working on these futuristic problems, to lead and innovate in these spaces. And I think that there probably is a little bit more of a balance of space, where some of this could come from government, but I think startups and the open-source community and the creator economy is going to fill in a huge amount of this as well.

https://www.theverge.com/22588022/mark-zuckerberg-facebook-ceo-metaverse-interview

I think he’s saying that the truth lies somewhere in the middle, and god knows I’m sympathetic to that argument. But who decides where in the middle? Who determines the breadth of this spectrum, governments or businesses? With what objective, over what time horizon, and with what opportunity costs?

At the moment, and that as a consequence of having written all of this out, this is where I find myself:

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?

I don’t have the answers to these questions, and would appreciate the help.

Thank you!

Links for 15th May, 2019

  1. “Our science is past its childhood, but has not reached its manhood yet. On the one hand, our patience is still being tried by the phraseology of “schools ” and “-isms,” and there is still plenty of scope and shelter for the products of bad workmanship passing themselves off as new departures; but, on the other hand, the really living part of our science shows hopeful signs of, if I may say so, that convergence of effort, which is the necessary and sufficient condition of serious achievement. Those economists who really count do not differ so much as most people believe; they start from much the same premises; problems present themselves to them in much the same light; they attack them with much the same tools; and, although some of them have a way of laying more stress on points of difference than of points of agreement, their results mostly point towards common goals. This is not only true of fundamentals of fact and machinery, but also of what is going on within the precincts of every one of our time-honoured problems.”
    ..
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    Professor DeLong treats us to an extended excerpt from Joseph Schumpeter on business cycles, and while the extract isn’t light reading for anybody, I found the “isms” quoted above to be of interest.
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  2. “Oh, for sure. I’ve had three or four people tell me they called him on it on the first hole. He kicks the ball so much that caddies call him Pelé [a reference to the famous Brazilian soccer player]. He throws it out of bunkers, he retakes shots, he throws other people’s balls into the water.But every time people call him on it, he has the same answer, which is, “Oh, the guys I play with, you’ve got to do this just to keep it fair.” It’s the Lance Armstrong defense: Everybody’s doing it, so I have to do it just to keep up, otherwise I’m getting cheated. It’s the default rationalization of a cheater.

    But in reality, the National Golf Foundation says 90 percent of people don’t cheat when they play. But this guy cheats like a mafia accountant.”
    ..
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    Guess the sport, the person being spoken about, and most important, the reason for including this article in today’s set (hint:it’s not the obvious answer). I’ll write down the answer after the fifth link today.
    ..
    ..

  3. “This assessment of BRI should not be taken to mean we can be complacent about other things that China does, some of which are most likely part of a conscious strategy. It’s just that we need to assess trends on their merits and not be led purely by conspiracy theories and our availability biases or preconceived notions.”
    ..
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    Urbanomics shares a useful set of links to do with BRI, China and how there may well be a simpler set of explanations than a grand over-arching theory that is mostly about a conspiracy.
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  4. “I think that what will take people by surprise will be:the failure of monetary policy to be adequately stimulative in the next downturn while

    there is so much polarity and conflict both within countries and between countries.

    I think that these things will be surprising to people because they’ve never happened before in their lifetimes though they’ve happened many times before in history. I suggest that you study the cause-effect relationships in the 1930s to see the mechanics that led to the outcomes of that period.”
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    Ray Dalio does an AMA, and all of the answers are worth reading (the one on time, for example, while being a bit obvious, is still an excellent one)
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  5. “When it had its premiere in 2011, “Now on My Way to Meet You” was a tear-jerking reunion program featuring families separated by the Korean War, but before the show had a chance to reunite anyone, it underwent a transformation. The way the producers tell it, in their scramble to recruit separated families, they kept running into a new generation of defectors. So they made the rather canny decision to reorient their show around appealing young women, whom they took to calling “defector beauties.” The show’s on-location backdrops of humble homes and noodle restaurants gave way to a glitzy game-show-type set, and estranged septuagenarians were replaced with girlish defectors. Pretty soon, the only thing left of the original program was its name and the desire for reunion.”
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    Since I chanced upon this via MR, I’ll use the phrase “interesting throughout” – and for a variety of reasons!

    What does that article teach us about how to judge ourselves?