The Internet, Competition, and Censorship-Becker

Invention of the telegraph and telephone in the nineteenth century had revolutionary impacts on the speed of communications among individuals separated sometimes by vast distances. The Internet and wireless transmission has not only vastly extended the ease of communicating quickly, but also provides quick access to information on a scale far surpassing anything available before.

 

“Googling” is a new word not only in English but in many other languages as well that means using Internet search engines to discover information on an endless number of subjects. These  include finding the cheapest online price for tennis rackets, cars, hotels, and many other goods and services, finding a time series on GDP per capita for the United States, China, and other countries, discovering when a famous phrase was first used, finding out what is contained in the House of Representatives’ and the Senate’s versions of the health “reform” bills, reading criticisms of government policies, getting email addresses for particular individuals, and tens of thousands of other purposes. I would find it virtually impossible to fit posting on our blog into a busy teaching, research, and speaking schedule without quick access through the Internet to generally reliable information.

 

Although newspapers have frequently been subject to various forms of censorship, Internet access is affected by hackers as well as by censors. We were forced to change our website address and the technical manager of this blog because the old website was hacked so much that posting of commentary became impossible (we do not know who was doing this). Of course, various governments try to deny their citizens access to websites that they consider too critical of government policies. A few weeks ago I received an email from someone in China complaining that he and his friends no longer could access our website because it was being blocked by the government. I was surprised by the claim, and yet a little flattered that we were considered important enough to be blocked. I suggested he try our new website address, and he discovered it was available with no problems. Access was prevented by hackers on our old website rather than by the government.

 

Google recently complained about Chinese censorship, and claimed that hackers from China gained access to gmail accounts of some persons critical of government policies. As a result, Google threatened to shut down its Chinese website. It is difficult to determine when the censorship goes so far that the benefits of making the Google search engine (or other online facilities) available to the Chinese population is no longer worth accepting the censorship. My own view is that censorship has to be very extensive and destructive before the benefits of withdrawing Google exceed the costs to the population of losing access to an important information search engine.

 

This weighing of benefits and costs is especially pertinent since many Chinese Internet users, and presumably also those in other countries with extensive censorship of the Internet, have learned how to “scale the wall”. That is, they discovered ways to get around Internet restrictions by using proxies, virtual private networks, and other tools that allow computers to access the Internet through remote servers located outside China.

 

The strong efforts of some countries to try to block Internet access to articles and discussions that their governments do not want their citizens to see indicates the scope of the knowledge and information the Internet makes available that was unavailable in the past. This leads me to conclude that generally Google and other companies experiencing censorship should stick it out. However, perhaps they should fund research on finding additional ways to “scale the wall”.

 

During this financial crisis, various financial markets have been criticized, some of them justifiably, as being much less efficient than had been claimed. Nevertheless, search engines, social networks over the Internet, like Face Book and Twitter, apps, and other electronic forms of communication, have greatly improved the efficiency of many markets, including financial markets. For example, the open outcry system on stock and futures exchanges to buy and sell securities, like the New York Stock Exchange or the Chicago Mercantile Exchange (CME), was made obsolete by much faster and more efficient electronic communication (see Leo Melamed’s book, “For Crying Out Loud” for a fascinating discussion of the battles to get the CME to go electronic). Retail and other companies continue to expand their online presence and websites in recognition of the growing share of their business and sales that is conducted online. Persons in small towns with only a few stores often now have access to the same variety of goods and to the price competition that used to be available only to residents of large cities, where many stores competed for their business.

 

Many persons lament the decline of newspapers and magazines due to the migration of help wanted ads and other advertisements to the Internet. Some politicians and public intellectuals have even proposed greater subsidies to newspapers in order to slow down their decline. Clearly, top papers like the New York Times, Wall Street Journal, Financial Times, and Washington Post often have in depth reporting on various subjects seldom found on television or radio. However, the Internet has a greater variety of news presentations and articles on specialized subjects, and much more up to date reporting, than is available even in the best newspapers. The Internet has been remarkable in being able to tap into the desire of people from all walks of life to write, through blogs, social networks, and other ways. Hundreds of economists have blogs, although many are not very good, and the same is true for other fields. Some blogs compile the scholarly citations of other individuals who are blogging, in order to give readers at least one measure of their authority and reliability.

 

I am old fashioned enough to read three newspapers in hard copy each day, but the overwhelming majority of young people seldom read any major newspapers. This difference between the young and old in their reading habits predicts a continuing further decline in newspaper circulation, and a further migration of news reporting and opinion pieces to the Internet. On the whole, this is a good development from the point of view of increasing competition among news and opinion sources, although it is sad to see the decline of an industry that has been so crucial historically in providing information and preserving political freedoms.

 

 

 

 

 

 

Comments

[Patrick Lyons]

I grew up scanning the front pages of most sections of the Washington Post. I like to read the newspaper occasionally, and maybe when I enter the real world I'll actually get a newspaper daily, and read more of it. In college it's a little more difficult to do. There is something nice about having a solid newspaper to hold onto.

[Banu]

I totally agree that internet has increased competiton in every industry ,the only exception is financial industry where technology is used extensively to increase internal efficiency but unfortunately that has not translated to incrrease in competition or decrease in margins of the players in the financial industry .

[Brian Davis, Austin, TX]

Prof. Becker, I'd posit that the Chinese govt is OK with just about anything Google wants to do as long as it's confined to promoting and selling "stuff" - i.e., e-commerce. But the govt also holds that the privilege of doing profitable commerce in China comes with an affirmative obligation to strip the medium of socially and politically-offensive speech. Few nations on the planet have a First Amendment free speech analog. The Chinese govt's involvement in or support of the hacking events was a shot across the bow of Google and other western interests eager to capitalize on the Chinese consumer/citizen/subject. Yahoo and Microsoft have understood; Google was a little naive. Permanent harm done? Macro, highly unlikely. Google alone, it remains to be seen. The Chinese govt will want more than empty words.

[Robert]

I'm in China right now and am glad the B-P blog is accessible again. I also hoped you two would write on this topic.

Two things:

1. I don't see why you think Google should stick it out. I don't disagree. I just don't think that point was elaborated very well.

2. I think it's important to highlight that the Chinese government might be censoring Google a lot to promote their own companies. I frequently try to access a lot of things on Google from China that are easily accessed from other search engines. YouTube(which is owned by Google) is not accessible here, but the Chinese version YouKu is widely used. I think of it as an export-led growth tactic for a technological industry.

Assuming the Chinese government contributed to the theft of Google's intellectual property rights(which Google likely believes), it could be considered a form of economic warfare. In which case Google has resorted to some sort of a containment strategy. Hopefully Google has a solid decision tree mapped out for how this spat can be win-win for everyone, and is not simply acting out of resentment - which is certainly understandable.

[Alan Han]

Prof. Becker,

I am curious to the three hard copy newspaper read by you. Could you tell us which three you read regularly?

I am also in China now. Youtube is blocked but Chiina-based Youku can be used. Yet the contents of Youku are subject to strict censorship of the government. I think Youtube is blocked just because Chiina's gov can not regulate Youtube directly.

Many entries of Wikipedia(esp. Chinese edition) are blocked by China's government. I am very thankful to wikipedia which teachs me a lot about the history which has been systematically distorted and expurgated by Chiina's gov. Yet I have to say the loss of google would do much more harm to me than the loss of wikipedia. Google was once blocked by Chiina's gov years ago for a long period. However now people's lives depend much more on search engines than ever.

As to the fate of newspaper, one of the major drawbacks of online news providers are the visual fatigue caused by LED screen. Considering the speed of technology innovation, advantages of hard copy in the protection of eyes will be undermined quickly. And the fate of traditional newspapers may be even gloomier.

However, the most important issue is not the decline of newspaper industry. Instead, it may be the future of business models of written news report provider industry. Newspaper industry is not only defined by the hard copy newspapers, but also defined by the forms of producing and disseminating news, and the rules of interaction between news providers and the readers.

At last, I hope that Prof. Becker and Prof. Posner consider copy the archives of the old blog to this new blog. Since we in China could not visit the old blog, the valuable materials there are not acessible.

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[tamara]

Profesor, not only are newspaper sales will be declining with the pass of time but many other things that population over 40 years old consider regular. Listening to radio stations with all that advertising(thats such a waste of time)is going out of style because mp3 players allow you to listen to what you want. Many small business will also see declining income if they dont update. The adult population still sees with doubtful eyes internet exchanges but younger population consider this pretty normal,my mother will have never bought anything online but I just got some puzzles and computer accesories with no problem.
Economics doesnt change just the goods and services that is trying to explain.
Have a great day :)

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I agree that newspaper sales, and the print industry in general, is on a rapidly declining trend. As for Google, I think it's a good decision instead of international public relations but not necessarily the best business decision to have made.

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Google won't leave China. these two guys are just a happy couple in a fight.

[Obadiah Shoher]

Sir,

I would like to point out an often-ignored aspect of Internet media: it is generally free to readers. You would agree, perhaps, that newspapers such as the NYT are cheap consumer goods. Their reporting is inadequate, heavily tilted toward opinion pieces. In media, as in other sectors, luxury goods are expensive, thus the high cost of the magazines from Jane's to the Dissent. Niche political groups and bright analysts could not feasibly maintain their own media channels. Internet makes the niche and luxury information free.

But the problem of Internet censorship is not as simply technically as you suggest. Sites are easily shut down on the provider level, and many uncomfortable political views have a hard time finding a web hosting company, especially after many countries introduced hate speech laws.

[Willi Yuan]

Profesor
I'm a Chinese student who is studying antitrust law in Germangy. I could not more agree with your opinion that "google" is very important for people's life. But there is a little different between American and Chinese. Because google as a American company met big problems last years when it try to supply internet searching service in Chinese. Google had not understood Chineses words and characters very well. So in China most people use "baidu" (www.baidu.com) to search for information. We could get the most information in Chinese through baidu more quickly and exactly.

So the market share of google in China was years lang low and behind baidu with a huge distance. They could not earn enough money to make a subsidiary(google.cn) besed in China profitable. That's exactly the first reason for the quit of google.cn.

I don't know if you would think that your old website was attacked by Chinese hacker or government. But I could hard to believe they would do it.

I have to admit that censorship exists in China. But it's not so extremely as American think. The gmail accounts were attacked by hackers only because they used this to plan terroristic attack in China. The American government, or any other government will do and are doing the same thing.

Actually I won't try to persuade you to believe that many information you get from the medias in your country are insufficient and unilateral. But I think it's not a bad idea to supply you and other people the other side of news.

Please forgive me for being frank.

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