I’m in Asia this week for work and holiday. A few days ago, I spent time some with a group of global investors at a conference in Singapore. There was quite a lot of discussion about the economic and political state of China, and in particular the way in which the Chinese were developing a digital ecosystem to rival that of the US.
Beijing and Shanghai already have higher internet penetration than San Francisco. China is on track to lead the world in 5G wireless technology, spending $400bn to roll out a new nationwide network – that’s about twice what the US is spending on similar technology right now. Despite their reputation for IP theft, the Chinese are also strengthening patent laws and trying to lure investors in areas like biotech and the internet of things, where IP protection has become harder in the US (thanks in part to Big Tech lobbying for laws that favour its own business model).
China has its version of the FAANG companies(as Facebook, Apple, Amazon, Netflix, Google are known) – giants like Alibaba, Baidu, and Tencent. They are just as rich and powerful as the FAANGs. But they seem to fuel the innovation ecosystem in a way that doesn’t feel like a zero-sum game, the way the power of the FAANGs increasingly does in the US.
According to the McKinsey Global Institute, Baidu, Alibaba and Tencent provided 42 per cent of all venture capital investment in China in 2016. Compare that to the 5 per cent contributed by the FAANG companies in the US.
The Chinese players are also – at the behest of the government, of course – building out rural broadband to bring millions of regional merchants and farmers into the digital economy. Easier to force that kind of bargain in an autocracy of course. But that doesn’t change the fact that it’s a smart move in that bringing more people online increases productivity and growth.
After the Chinese Party Congress, Xi Jinping made a show of power by summoning American tech leaders such as Apple’s Tim Cook and Facebook’s Mark Zuckerberg to pay homage in Beijing. Meanwhile, tech titans from Google, Facebook and Twitter were being summoned to Washington for quite a different reason, as they struggled to defend themselves regarding the role they played by Russian interference in the US election, and to dispel (unsuccessfully) worries that they may be a threat to both privacy and economic growth.
All of it made me wonder how the landscape for tech is shifting globally. China and the US have, in different ways, shown that there’s a need for strong government oversight of technology if we are to receive its full benefits. Of course, there’s also a risk that government overreach could kill the golden goose. The question is how to craft a regulatory structure that enriches the larger ecosystem – not just the tech groups alone. That’s a topic I tackle in my column this week.
Meanwhile, here’s what I’m reading:
I found my colleague Janan Ganesh’s piece on threats to our current models of liberal Democratic government fascinating. He argues that the worry isn’t dictatorship or autocracy, but the public’s infatuation with a Facebook model of governance – “Platonic rule-by-genius, or direct democracy.”
The vile examples of Russian ads used to manipulated US election results, which were finally released on the Intelligence Committee website – here is what some of them looked like to 150m Facebook users.
And the NYT survey of 9 experts on how to fix Facebook.
Ed Luce responds
As Rana says, industries don’t voluntarily self-regulate. We in the west need to figure out how to bend the social media titans to democracy’s will. Right now it is the other way round. I have three brief thoughts.
First, as I’ve said before, the demand for fake news is the ultimate problem, rather than the supply. We could force Facebook to disclose every algorithmic secret, reveal every advertising customer, and mandate social media competition, but if people keep believing what they want to believe our democracies may not look very different.
Second, no-one has yet set out a convincing plan to deal with this. Say we broke up Google and had several globally competing search engines. Who is to say that wouldn’t be worse? Conservatives would have their search engine, liberals another, and the one dedicated to fans of kitten listicles would dwarf them all.
Finally, China. The world now has two giants FANGs – as Rana puts it – whose markets are almost entirely separate. They are also radically different to each other. To a western mind, Alibaba’s social credit rating is Orwellian. To many Chinese, however, it is simply an incentive system for good citizenship. Of course, such technology is ready made for Xi Jingping to perpetuate Communist rule.
The problem with our FANGS is quite different. We are only sub-consciously aware of the degree of manipulation to which we are subjected. And most of us, it seems, don’t seem to be very alarmed. It is our lack of alarm that is most alarming. Perhaps China’s FANGs and the west’s are windows into very different warped souls.
A whole generation of bankers (and largely economists) has grown up during declining interest rates. They have been mesmerized by the idea that “productive” investment is sensitive to interest rates. They have lost sight of two things:
First, low rates imply a need for increased saving to meet the needs of a safe retirement. Therefore, there is a current penalty on consumption. So if GDP is measured by consumption low rates won’t help GDP growth. On top of that, political entities tend to downplay the ultimate need to pay the future bills of their choices, so that low rates store up future crises.
Second, low interest rates have only a minor impact on corporate investment decisions, which are based mostly on estimates (guesses?) about the future success of the product. And that is more a function of grounds for optimism than or financial costs. And if rates are held down “because the recovery is fragile”, optimism dies.
The Paradise Papers A massive investigation into 13.4m files leaked from two offshore service providers and the company registries of 19 tax havens reveals how the world’s largest businesses, heads of state and global celebrities (like Bono) and politicians shelter their wealth from the taxman. Like the Panama Papers, there’s a lot in here. Some highlights: Donald Trump’s commerce secretary Wilbur Ross’s business links with Vladimir Putin’s familyand inner circle; the tax havens connected to the wealthy men in Trump’s inner circle (and cabinet); how the Queen’s private estate invested millions offshore; the Kremlin-linked cash behind billionaire Yuri Milner’s investments in Twitter and Facebook; inside the complex offshore web of Canadian PM Justin Trudeau’s senior adviser, Stephen Bronfman; and mining giant Glencore’s secret loan to secure mining rights in the Democratic Republic of the Congo. (ICIJ, Guardian, NYT)
China’s panda diplomacy The black-and-white bears are Beijing’s weapon of choice as cuddly ambassadors. But these pandas, on loan to various countries, come with strings attached. They are used to both praise and punish. This is part two of the FT’s series on China’s soft power. (FT)
Trump’s year of anger, disruption and scandal In the year since Donald Trump’s unexpected victory, he has nursed grudges, relished personal fights, stirred racial tensions, defended white supremacists and his own legitimacy amid the ballooning Russia probe – and he has completely transformed the Republican party and American politics. (Politico)
How Trump’s election changed York, PA forever A look at a small city in Pennsylvania, where “the class resentments, racism, and xenophobia that became flashpoints during the election have hardened, not healed.” (Boston Globe)
For the latest tech news and reviews, follow ft.com