 A talk would be good, right? Do you want to give a talk? A little early, but I'll try. Okay, guys, well, I found someone who's willing to give a talk. That is most excellent. So if you ever ask 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, Tony is going to answer that question, hopefully, to a satisfactory point. Please give a warm round of applause. Tony. 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 today. 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 euros for this laptop because I think it's a very good product. It's by Lenovo that makes good laptops. But I actually got it for like 800 or 900 euros. That would mean my personal consumer surplus is something like 600 or 700 euros. 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're 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 for example earning money. I'm also not spending it doing something leisurely that is fun for me. And these guys, Brünn Dröfsen, I'm sorry I don't know how to pronounce it exactly he sounds Swedish possibly and oh 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 most conservative model which is 4.18 billion dollars on average for the years 2008 to 2011 that's still a pretty significant chunk of economic welfare that 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 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? Okay 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 a hundred euros and assuming sort of two-thirds 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 10 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 a hundred euros so we're at 130 million euros 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 isn't 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 the definition internet censorship is the controller suppression of what can be accessed published or viewed on the internet and acted by regulators or on their own initiative now when 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 there's 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 your center either their censorship or there isn't censorship what I'm trying to say is censorship has a big spectrum of things that can happen now 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 what I was I was trying to look at well is there any evidence that it would have an economic impact and there actually is a study that's conducted by a sort of lobbying organization so obviously should be taking with a bit of 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 the economic impact of internet is this is just a simple correlation you can see that there's a pretty 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 finely granular enough and a lot of it is kind of someone say 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 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 what 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 one 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 the garment in traditional garment factories they do have information needs they get their cuts and stuff from the internet by now or from 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 were 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 before Christ 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 every time so on average there should be a reusable there should be usable results now what this is actually missing is the consumer as a laborer so I don't really have labor 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 traditional for a traditional garment factory internet censorship might be a lot less important than for a microconductor or semiconductor factory that has to receive new blueprints every day or every month or something like that 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 cost their associated cost less now of course we can argue while 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 for example 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 now for firms in information intensity one it obviously also increases the cost of operating now 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 and so on this is actually a special case that I'll be talking about a little bit later as well for the government I've talked 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 labor night and all it all 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 internet and basically closed your entire internet 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 interests 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 of 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 for example is going global it has more functionality than WhatsApp and they're trying to get out but the censorship 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 how 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 for example Github is blocked most of the time that makes kind of collaborating especially encoding 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 favor first the Chinese internet 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 internet of things 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 suppressed political opposition and 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 model 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 email I'm always happy to talk about this topic 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 number two over here I want to mention one thing I've always been talking about China censorship and the censorship applies to China mainland so it's not Hong Kong and not Taiwan and one question I want to ask is what do you think about productivity of work so for example if you shut down Facebook do you think this would increase working productivity really interesting question and something that I haven't seen anywhere in literature there is a big literature discussion about what internet what the internet is such means for productivity and there'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 you 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 you know not exactly improve their productivity next question from microphone number two would it make sense to 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 would seem like standard neoclassical microecon 101 stuff 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 neoclassical way because you usually assume that everything is kind of frictionless and if things are frictionless 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 and the next question as well from microphone number two so going the same direction for GDP is 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 for example wikipedia which leaks out to all over the world what is the government optimizing then 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 so your criticism is more like you don't have a good proxy using gdp for economic welfare yes thank you i'm afraid we're all out of time please give a warm round of applause to tony