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Herald: Err ...
H: ... a talk would be good, right?
*applause*
Do you want to give a talk?
Toni: Aah, it’s a little early but I’ll try.
Herald: Okay, guys, well, I found someone who’s willing to give a talk!
*laughter and applause*
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?
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*
Toni! *ongoing applause*
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
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
question to ask which for me is: “Does internet censorship reduce economic welfare?”
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.
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
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.
And if we add up everyone’s individual consumer surplus
we get the economic welfare surplus.
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.
Now, a very crude measure that I found is how much does "the Internet economy"
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
online retail, and possibly some other internet-enabled services?
Possibly but not necessarily internet advertisement revenue
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
than in most other countries we look at. And we see that there is
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
on the web are actually free. And most of them are not ad-enabled.
So most of them don’t really have advertisements in the general sense.
So classical economics basically says: “Well, they don’t really create any value.”
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.
So if I’m spending my time doing this online course I’m not spending it
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
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
it would be 5% of GDP for these online courses alone.
Even if we take their more... most conservative model which is $4.18 billion
on average for the years 2008-2011,
that’s still a pretty significant chunk of economic welfare
that’s somehow being created that is not reflected in GDP
because GDP is only stuff that you actually pay money for.
Another example that we might think of is Wikipedia.
Now Wikipedia has a certain cost of operating: obviously the servers and stuff.
But because most people contributing to Wikipedia are actually volunteers
the cost of operating does not really reflect
the true value Wikipedia creates. And one of the…
even if you don’t want to say… even if you don’t agree
that time has opportunity cost, what about the money that you don’t spend
on encyclopedias? How many of you guys have encyclopedias at home?
OK, that’s more than I expected!
How many of you guys have recent encyclopedias at home?
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.
I think it’s from 1985 or something. And before this encyclopedia
we would regularly update an encyclopedia, we would regularly go out and buy
a new encyclopedia because knowledge changed, obviously.
But ever since probably 1990, we just didn’t bother.
So, assuming an encyclopedia might, like a physical book, might cost €100.
And assuming sort of 2/3 of all households in Germany
have had an encyclopedia at one point.
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
of economic welfare, of something that people were willing to spend money for
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.
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
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.
Now email obviously only works if you have internet, so they need
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
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
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
an economic impact?”. And there actually is a study that’s conducted by sort of
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
between freedom and how good the economic impact of internet is.
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
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
impacts the economy in this country?” And then this is the data that they use,
to some degree. So it seemed very… it didn’t really seem like a good, final answer.
So I’m trying to set up my own model. And in my model I have a government
that chooses the type of censorship. And for this type of censorship that it chooses
it pays a cost. Because we all know censorship can be very expensive.
And in my model for now the only type of expenses that I calculate are actual
manpower and technology expenses. I don’t calculate reputation expenses at this point.
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
I’m trying to model. And these industries distinguish themselves by their
information intensity, or what I like to call ‘information intensity’. Basically
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.
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
large-scale, and there’s a lot of technology involved. But if you look at
very traditional agriculture that we still might see happening in some parts
of Africa there usually is very, very little information transmission involved.
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
and other kinds of businesses like this. And in between we have sort of industrial
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,
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.
But once they have them they basically stay the same for a couple of weeks or months.
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…
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.
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
basically changed everytime. So on average there should be…
there should be usable results.
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.
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
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.
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?
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
producers, consumers and also for itself as a producer and as a consumer.
Question: So your criticism is more like you don’t have a good proxy,
using GDP for economic welfare?
Toni: Yes, yes. Okay. Thank you.
Herald: I’m afraid we’re all out of time.
Please give a warm round of applause to Toni!
*applause*
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