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Only Nextel Could Go to China

July 1st, 2009 · 3 Comments

My friend Michelle Minton argues that high tech firms trying to do business in censorious China ought to take their ball and go home in principled protest against the Green Dam Youth Escort program. It seems extraordinarily unlikely that any of them will do so, which is good, because it strikes me as a pretty bad idea. There’s a good case to make for coordinated, principled pushback on particular points—and that’s a lot of what the Global Network Initiative is about—but a a robust and growing new media market, even one hobbled by the government, seems like a much more plausible accelerant of democratic change than playing chicken with the CPC. And a lot of the specific points here seem especially  off-base:

If they really want to protect their ability to make long-term profits, they should stand on principle and demand the Chinese government respect their right to be the sole decision maker on how they operate and serve their consumers. They should demand that in every country and every instance it becomes an issue.

If they had held fast to that principle from the beginning, businesses would have never entered the Chinese market. Alas, the size of that market was too tempting for the short-sighted, and in pinning their success to China they bound themselves to an irrational and inconsistent regime and enslaved their business to the whim of a dictator.

If we take this literally, nobody does any business anywhere, because no government literally lets businesses be the “sole decision maker on how they operate.”  Also, tempted as I am to pass over this with a “forget it, she’s rolling,” I think it’s hard to argue that power is sufficiently concentrated in the presidency in China to qualify it as a “dictatorship” (Mao’s fondness for the term notwithstanding).

Signatories in the letter to the Premier complain that the green dam-youth mandate will hurt their ability to profit in China. In reality, they are done for whether the mandate goes into effect or not. If it does, a black market offering customers what they want will spring up and severely undercut the profit of those companies that choose to comply with the mandate. If it is shelved, businesses might continue to make a profit in China, but not for long. It’s only a matter of time before the unpredictable government comes up with another plan that interferes with their ability to compete in the market.

So, details matter. The mandate requires that computers come with filtering software installed; it doesn’t actually require people to make use of it. Even if it did, it seems wildly implausible that you’d get a separate black market in separate filter-free devices rather than just seeing instructions (or, if necessary, uninstall software) circulate that allows people to disable the filters. At most, you might see a second-hand market in “unlocked” devices, but there’s no reason to expect this to actually involve  separate manufacturers. Unlike, say, a bag of pot, a computer is something you generally expect to have and use for a while, and which may well require some kind of extended relationship with the manufacturer, which makes black market production signally unattractive. As for the next mandate down the road, it’s always possible that any government will impose some new and more onerous regulation. But for the argument here to work, you have to believe that the government is not only likely to impose stricter requirements in the future than they’re contemplating now, but that they’ll be less deterred ten years down the line when those foreign companies are still more integrated into the economy and the daily life of Chinese Internet users. The historical trajectory generally seems to be the other way. Empirically, what we know so far is that plenty of U.S. companies are not only enjoying abundant profit in the Chinese market, but once there they form an organized lobbying constituency. Certainly it’s possible that future impositions will, despite this, be so crushing that firms’ dramatic losses will swamp their gains up to that point—it’s possible that a meteor will wipe out all the foreign-owned factories in China too—but I don’t see why this should be considered likely.  If anything, a more heavily regulated market should be more attractive to incumbents, because it’s less likely that your product or business model will be rendered obsolete by some spry innovator, which is probably a more pressing danger for many firms than anything the government is doing.

Tags: Economics



3 responses so far ↓

  • 1 RickRussellTX // Jul 2, 2009 at 5:55 pm

    “The mandate requires that computers come with filtering software installed; it doesn’t actually require people to make use of it. Even if it did, it seems wildly implausible that you’d get a separate black market in separate filter-free devices”

    Give the original author credit. She’s trying to look ahead; today the Green Dam software “must be installed to protect children”. Tomorrow it “must be activated”, and the day after that it “must apply government policy to your Web browsing”. Maybe the day after that, all network traffic not routed through Green Dam is killed at the router.

    Don’t laugh. There are criminals doing this with malicious software *today*, for reasons that are probably less pernicious.


    Sure, none of this is explicit yet, but it’s pretty easy to see where it is going. The Chinese government realizes that they’ve lost the battle at the Great Firewall, there are just too many ways to disguise traffic, so now they are taking the battle to the consumer endpoints.

    Computer security is like layers of an onion; every layer has its deficiencies and strengths. The more layers the government can get its fingers into, the harder it will be for rank-and-file Chinese citizens to circumvent it.

    The trump card comes when the government uses Green Dam (or something like it) to tag all data packets with a digital signature indicating that the packet was created on an appropriately set-up computer with a government approved application and routed through government-controlled hardware. Cisco already sells systems like this for internal corporate use (Cisco Network Access Control) specifically designed to prevent the use of non-approved systems and applications on corporate networks.

    What is to prevent China from doing the same thing?


  • 2 RickRussellTX // Jul 2, 2009 at 5:56 pm

    “What is to prevent China from doing the same thing?”

    Let me answer my own question: Nothing. Unless the companies involved refuse to help them develop the technology.

    Which won’t happen, of course.

  • 3 Julian Sanchez // Jul 2, 2009 at 7:34 pm

    All possible, but again, assuming the government did try to mandate all this, the result would be a “black market” in *the modification of those computing devices* to remove the filters—or perhaps in the overseas versions of those same devices. The point is, there’s no reason to think the compliant companies are going to find themselves ruined by competition with black market noncompliants—the black market devices will be *their same devices*.

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