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Comment by eob | Hacker News Reader

Speaking entirely divorced from my opinion on China politically (as someone with strong US and TW ties, FWIW), I think the Great Firewall has been a brilliant economic move in retrospect. While it may have been an accidental side-effect, blocking so many foreign sites has enabled a flourishing of domestic internet companies of the likes that nobody but the US has seen unless I'm mistaken.

And for a "middle class" of blocked sites, while not technically blocked, the packet delay is so great most people (except a dedicated few) will just shrug and figure that cross-continent internet connections must be too slow to be practical. Accessible, but only if you're willing to wait a minute. A brilliant political play, because it's hard to pin a charge oppression on anyone, since the information is technically there, but so slow nobody will access it.

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The side-effect was definitely not accidental. China has blocked the major company in every internet industry (social networks, search engines, video streaming, etc.), and as a result domestic products are booming. Now these domestic products are starting to expand internationally with the revenue they get from the artificial Chinese market.

Korea did something something similar with its Chaebols' (Hyundai, Samsung, or other large Korean companies in countless industries) in the 80s. It had protectionist policies that let the Korean companies charge outrageous prices domestically, and used that revenue to become very competitive internationally. And it worked.

"Bad Samaritans" by Ha-Joon Chang, a South Korean economist now at Cambridge University, is a good light read fleshing out these ideas.

When the companies in question are google, facebook, twitter, etc., it's a lot more difficult to make the normal "utility calculus" arguments that are the way most economists understand the cost of protectionism to domestic consumers.

When you look at the cost per vehicle paid by consumers in scenario A vs scenario B, there's a clear argument to be made. With services, it's more speculative. Is the average haircut in China better or worse than Malaysia's? With web services, it's near impossible to measure consumption or consumer surplus. The underlying economics driving normal goods and services industries (economies of scale, price competitions, marginal costs of production) aren't there. That makes the economics we can measure in goods industries and theorize in services industries very shaky.

Economists generally do have a sense that choice is good and protectionism is bad, but it's hard to formalize or measure when the products are newspapers, search engines, social networks and dating apps.

Google never got much market share before it was more seriously blocked. ICQ too failed compared to QQ despite not being blocked. I think the bigger reason is foreign companies just don't provide what Chinese people want - ie Chinese language and millions of flashing banner ads.

I think your theory might be chicken-and-egg. Without access to the website easily, companies don't have a real reason to invest in Chinese language versions of their service.

Both Google and ICQ had almost two decades before they were blocked.

Actually, all the major economic powers got there by means of protectionism. Economic liberalism is nice when you're already at the top.

Yes, this is true, going back all the way through history.

Is that true? I got the impression the US and UK mostly became major economic powers by being ahead on tech in their day and China mostly by undercutting everyone on price through low wages and low environmental protection. OK China is protectionist but iPhones are made there because it costs less, not because of restrictions on importing phones to China. Dunno if you've got a source? I'll give you protectionism seems to have worked for S Korea though I'm not sure I'd call it a major economic power. Also what I'd think of as the most similar competitor in the area, Taiwan, has a higher gdp/captita without all the Chaebol protecting stuff.

The US became an economic power in large part because of slavery [1]. And I don't mean to say that in a snarky or condescending manner. The US is hardly the only country to give itself advantages. As you say, China's taking advantage of the environment. Protectionism is extremely active (subsidies and import tariffs). Wages are kept low.

Comfort and suffering seem to go hand in hand. Subsidized rice creates a surplus, which floods the market, which [seemingly paradoxically, but not really] results in famine in Haiti.

[1] - http://www.salon.com/2014/09/07/we_still_lie_about_slavery_h...

I can believe you on the slavery thing but that's not really protectionism. Without being moralistic about anything I'm still skeptical that protectionism, as in restricting imports, works particularly well for a country as a whole.

Well, let's do the standard mathematical thing and take the extreme case. Imagine that some country sucks so much that all its industries are less efficient than those in other countries. Since capital is free to move between countries nowadays, Ricardian comparative advantage doesn't apply, and the end result is that no one ever invests in the country's industries, so it just stays poor forever. You might try to use government investment to prop up domestic industries, but the government doesn't have too much money because the country is poor to begin with.

It seems like protectionism would help in this case, by creating a market that can only be satisfied by domestic industries. And since there's a spectrum from this case to more realistic cases, there's also a spectrum of usefulness for protectionism. Does that make sense?

I suppose the real thorny bit is what happens after that. You've used protectionism to raise a number of national industries that have incubated in a shielded market. At some point, they need to be exposed to the world.

I'd imagine, if they provide something unique, they can succeed. However, if it's (for example) a commodity industry, they're unlikely to have faced the same pressure to become efficient that their new competitors have.

Although, on the flip side, that timeline sounds excellent for growing a monopoly-busting competitor. (E.g. what my understanding is that the French do from time-to-time)

Ricardian comparative advantage always applies’s simply because domestic land/workers are going to be doing something. The economy might end up being based around running internet scam's or gold farming in MMO’s, but compared to substance farming that's still a step up.

> Since capital is free to move between countries nowadays, Ricardian comparative advantage doesn't apply

Ricardian comparative advantage always applies when ignoring transaction costs; reducing transaction costs for any given set of transactions (e.g., by eliminating formal restrictions on capital movement) increases (rather than reduces) the likelihood that Ricardian comparative advantage applies.

(If you want an extreme case in which Ricardian comparative advantage to fails to apply, you need to assume extreme transaction costs -- one of the canonical hypothetical examples where this is argued to the case is an interstellar civilization without FTL travel.)

I don't see how that's true. Let's run through the standard example from Wikipedia.

1) England can produce a unit of cloth for 100 units of labor, and a unit of wine for 120 units of labor. Portugal can produce a unit of cloth for 90 units of labor, and a unit of wine for 80 units of labor. Portugal has absolute advantage in both goods, but England has a comparative advantage in cloth. By the standard Ricardian argument, we get lots of trade and happiness.

2) Now let's change the situation slightly. Replace all occurrences of "units of labor" with "units of capital", and assume that capital can move freely between countries. We've lost the key component of comparative advantage, the idea that producing a good forces you to "forgo" producing some other good. Everyone just produces everything in Portugal, and England dies. Whoops!

3) Now allow England to set up protectionism, so that all wine consumed in England must be locally produced. This way it can survive. Not very nicely, but between (2) and (3) I'd choose (3) every time.

Am I missing something?

You are missing that for capital in England to move to Portugal, something has to move the other way.

If you look at actual neoliberal trade, a lot of production of goods (and even services, to the extent that they can be provided remotely) moves to the peripheries, but the core's comparative advantage becomes in renting out surplus capital (which produces even more surplus capital to rent out). That is, the developed world in actual neoliberal trade with free capital movement are the countries that are like England in your example.

> You are missing that for capital in England to move to Portugal, something has to move the other way.

Why? Because nature abhors a vacuum? :-)

As far as I can tell, production doesn't really move to the poorest countries like the one in my example. It seems that it moves to countries that have an absolute (not just comparative) advantage in manufacturing costs.

> Why? Because nature abhors a vacuum?

Well, because "England" and "Portugal", on the level that Ricardian comparative advantage really works, aren't really countries, but sets of people (and, really, the comparative advantage really exists on the individual level, its existence between sets of people is simply an aggregate of its individual existence.)

Absent an external actor using force to compel an involuntary transfer, productive capital moving from person E to person P requires some item(s) of value moving to E such that the value to E justifies surrendering the capital.

Protectionism works like this. People in business worried that they're not making enough dough convinces fellow citizens that the way for the nation to prosper is by wasting additional money to produce those goods and services on one side of a line instead of on another. These local businessmen makes extra cash, tout their high-visibility success. Individuals and families who pay for this and spend less on other things (harming every other sector of the economy) are conveniently ignored.

I don't think slavery really explains much. The Southern States' economy was dwarfed by the North. Did slavery benefit the US economy? Of course.

I would argue the US' protection from the ravages of WW1 and WW2 led to its economic power. Before WW1 the US wasn't a major player on the international stage.

Slavery is not actually very economically efficient. This is one of the main reasons the north had a much better developed economy. The problem is it’s limited to steady state production but you miss out on the increases in efficiency that drives compound economic growth.

EX: The first cotton gin was patented in 1793 which is 68 years before the American civil war. But, with cheap labor there is little pressure to improve it. http://en.wikipedia.org/wiki/Cotton_gin Sadly, it ended up increasing slavery in the south by making it more profitable, where a modern farm uses far less labor the south simply doubled down on cheap labor.

PS: There is actually a fair amount of evidence that Slavery significantly reduced US economic growth over time. Paid workers keep more of their output which is a non-issue from an overall economic standpoint, but they need far less supervision which is a large boon. There also more mobile and easier to fire and higher as needs change.

The recorded fact was that the new land was useless without the labor to support it. Herman Merivale spoke at length about the economic realities of slavery America: "No economical cause can be assigned on which we may rely for the extinction of slavery."

So ya, maybe by the mid-1800, additional forces were established. But the only reason that was a possibility was because, from the 1500s onward, people wanted to (and did) exploited the fertile soil. It's like taking a snapshot of 1979 and saying Michael Corleone was a legitimate business man.

Also, there was other crappy stuff going on beyond slavery (but slavery-like). The building of the transcontinental railroad. Taxes on non-US citizens (with restrictions on what races could become US-citizens).

There where a small number of people that profited greatly from slavery. However, economic growth is more than just what happens to rich people. As much hoopla as surrounded slavery in the US they always maintained a small portion of the total population and per capita generated less goods and services than the average american.

>Is that true? I got the impression the US and UK mostly became major economic powers by being ahead on tech in their day

The US did that after several centuries of economony building with huge protectionism and slavery. And remained there by using their army to ensure cheap resources, favorable contracts, lackeys in place in subservient countries, etc. The environment to create the "advanced tech" comes from that.

Similarly the UK and France become major economic powers by enslaving half the globe with their military. Their great "tech" and such come after the colonies, not before.

> Similarly the UK and France become major economic powers by enslaving half the globe with their military. Their great "tech" and such come after the colonies, not before.

It was technological advantages that enabled them to enslave half the globe with their military.

>It was technological advantages that enabled them to enslave half the globe with their military.

Nothing to write home about, tech wise.

No, the European colonial powers had enormous technological advantages over the societies they subjugated. Just because both colonizer and colonized seem primitive to us doesn't mean that there wasn't an enormous gap between them.

It is very hard to generalize US economic history, but in general before the civil war the Southern states were in favor of free trade and the Northern states were protectionist. The North won. Like many countries that have developed recently, the US depended on lots of foreign investment for canals and then railroads.

I am not sure if the US had, on average, higher tariffs while it was developing than other countries. The US really became passionate politically about free trade after the great depression. Many economists felt that the depression was made much worse by protectionism that undermined world trade.

http://en.wikipedia.org/wiki/Ha-Joon_Chang#Writing

A Chinese insider here.

Most China Internet companies are more successful not because their foreign competitors are blocked, but they are more agile to move and adapt products/services to local market.

There are lots of examples. Alibaba beat eBay(never blocked) badly. JD is much popular than Amazon.com China which is continuously operating in China for long time. Tencent becomes an Internet empire via QQ, an instant messaging service which AOL, Yahoo, Microsoft all can not find reasonable monetization ways.

Maybe the best counter-example is Baidu with Google nearly blocked fully. But before that, after several years operating, Google' market share is below 30%.

Note the wording here: agile, adapt. So you develop a copy of a "western" product/service, then block the original from the west and "market locally". Great, genius. To me this is the totalitarian equivalent of import tax.

How can you be so sure it was not accidental?

Seems to me, the need to be in control is enough motivation for these acts... without ever thinking that someone will have to build a Chinese amazon

You're making a bad assumption - that because protectionism resulted in a flourishing Internet economy, that it wouldn't have happened without protectionism. Imagine what kind of Internet economy we'd have in China without this dumb firewall and protectionist policies in place - Baidu might actually be a global rival to Google instead of the piece of crap it is :) Global consumers might be happily buying from Taobao instead of the piece of crap that Amazon is :)

Yes. They're not blocking because of protectionism. It's because they can't censor the content to meet the local rules. China is not alone in this but they are at the thick end of the censorship wedge.

I completely agree with you. On a related note: The Great Firewall is rather easy to get around, but that's the point. That tiny inconvenience sates the nonconformists while making the vast majority of people simply give up.[1] The same goes for jailbreaking one's phone or switching operating systems. Heck, many people can't even be bothered to check "organ donor" on their drivers license.

1. http://lesswrong.com/lw/f1/beware_trivial_inconveniences/

The great firewall is not "rather easy" to get around. It can be a giant pain in the ass. Source: I live in Beijing

When I was in Hangzhou, it was quite easy. I guess our anecdotes cancel each other out?

I am in Shanghai and I find it pretty difficult...

Without paying (a VPN), of course...

I think you guys are arguing about the definition of "difficult." $20 and 10 minutes is harder than free and instant, but...

you're right. VPN is a good solution in this case

It has become substantially more difficult over the last year or so, in my experience, with periodic blockages and slowdowns.

Easy for hacker news, should be the clarification.

But there's no point in using facebook if all your friends aren't on facebook.

I close websites if I hit a paywall. Would I really go through the effort to hit a VPN? ....nah.

Buying VPN services from companies isn't extremely reliable because once they're found out, they're blocked, and they also just may not have enough bandwidth. I just run my own virtual server in Japan or Hong Kong. Since I'm the only one using it, they aren't going to care.

It's easy to get around, but it's still a huge drag. eg, yeah I can dialup my vpn and get Facebook, but then there's the endless times the vpn doesn't conevt, the connection is slow, when you're on mobile and want to access something blocked. Today I spent twenty minutes sending a QQ contact an address I had in gmail. I have about as many "no VPN frustration" days as Beijing has blue sky days :)

Before anyone asks, I live in Fujian and I use a government licensed VPN.

Although I was able to get around the Great Firewall while living in Shenzhen and Beijing, connection speed/quality was bad enough that more than tripling my rent to live in HK was easily worth it for Internet alone.

Quality of service matters, not just existence of service. There's a reason why lots of engineering effort goes into reducing latency. When the user is in China and the website is hosted outside, the Great Firewall negates all that effort.

I'm pretty sure the language barrier and a massive internal market do most of the heavy lifting here. Look at Yandex.

The Great Firewall is a wash at best. It protects local companies from international competition but it's part of a policy that makes foreigners trust Chinese products much less and will hurt their adoption.

While we may pay lip service to the web as "open" and "international", it's pretty western and particularly US dominated. From basic infrastructure like core domain names, to standards bodies like the W3C and IEEE, to the big companies like Google, Facebook, Ebay, PayPal, Anazon, Apple and co.

Even sites like Wikipedia, supposedly available to anyone to edit, are pretty much dominated by specific points of view and ideas (even if sometimes those who held those like to think that those ideas are or should be universal and/or neutral).

Neither economically, nor culturally does it make sense for a nation the size of China (or even for EU, but I digres) to participate in such a web. They are not some pushover country that was created a century ago. They have their own, millenia old, civilization. It's not like they are isolated by doing the firewall thing either. They get all the good (and the crap) we get in large does anyway, from the Kardasians to Jackson Pollock.

Think experiment: if the internet was mostly run and dominated by USSR, including a "neutral" Commipedia full of USSR points of view and material, would the US adopt it? Or would they build their own counterpart?

I don't think a brilliant move, even economically, can be called in this case. When the upper class/inner circle saw the money in this field, it's the first thing they were willing to do. If this kind of action can be called that way. We can easily find mountain-high pile of cases that we can call brilliant in the ruling party's history. Yes, economically grabbing people ruled by it. Take any amount when it wants to.

"I think the Great Firewall has been a brilliant economic move in retrospect. "

In the short term yes, but as China is "opened up" more to the western world, this separation and state sponsorship will hurt international growth for domestic Chinese companies.

Many in the "middle" ground will operate as they always did, but if you're a big Chinese tech company looking to expand around the world- this will hurt potential partnerships and foreign investment.

> blocking so many foreign sites has enabled a flourishing of domestic internet companies of the likes that nobody but the US has seen

I'm not sure I follow. It's not like there's a huge demand to do business with local Chinese nationals. There's opportunity, sure, there's always opportunity, but don't confuse that with demand. Unfortunately, very few businesses outside of China could even compete with domestic companies anyways. They're literally working for pennies on the dollar. That's also ignoring the cultural and language barriers, not to mention governmental red-tape you would have to go through.

It would be like me trying to set up an customer service business here in Maine and trying to sell my services to a lower-middle sized company in India. I wouldn't be able to compete with local Indian companies since their overhead and costs are significantly less than mine. Obviously there are exceptions depending on the industry, but they are just that, exceptions.

All biz are not labour intensive, in India GMail, Facebook and Twitter rule, in China the local counterparts.

Facebook wouldn't incur any additional costs operating in China except for the cost of additional server infrastructure, which would be the same for a Chinese company. Their engineering costs are sunk costs. They wouldn't be competing against Chinese engineers for pennies on the dollar (if you could even find Chinese engineers of the same skill set).

Most definitely not an accident. China throttles every successful foreign internet startup. They prefer the economic benefit confers to Chinese, and political control remains in China - for obvious reasons.

Of course there are many factors in North Korea's status as a failed state, but if protectionism is such the brilliant move, then why isn't North Korea more successful.

I wonder if someone might challenge China on this at the WTO. It could perhaps be seen as a backhanded tariff. As you say it's acted like one for their domestic internet businesses.

I think that, from the economic perspective, it's just a form of protectionism. You help local producers at the expense of consumers. Few benefit at the expense of many.

While I'm quite sure it's true, but I'm also sure it's a side effect.

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