Back to the future

The FTC is suing Qualcomm, the chip maker, in the first major monopoly case since the Microsoft one all those years ago. In his weekly newsletter, Matt Stoller provides a useful historical comparison to put the case in its context:

Qualcomm is a very important corporation, but one you may not have heard of because it doesn’t do consumer oriented work. The company makes critical components for cell phones, the stuff you don’t see but that goes into the guts of telecom systems. Its technology connects phones to cell networks, and it makes its money by selling chips and by licensing its patents to device makers.

The story of how Qualcomm monopolizes is pretty simple. The corporation does what Bill Gates did to computer manufacturers and what John D. Rockefeller did to railroads, as I wrote a few weeks ago. Rockefeller’s oil was critical to railroads, and Gates’s operating system software was critical to computer makers. Both of them thus forced their dependents to give them a fee not just for every Rockefeller barrel of oil or Microsoft OS license, but a fee for every one of their competitors’ as well. They taxed their competition and made it impossible to compete.

Qualcomm does this as well. As its competitor Intel explained, Qualcomm “refuses to sell [phone makers] any chipsets unless those manufacturers also purchase separate patent licenses that require them to pay exorbitant royalties for every handset they sell, regardless of whether the handset contains a Qualcomm chipset.” In other words, it’s the Gates/Rockefeller playbook. Find an essential chokehold, and use it to control the industry.

Qualcomm uses a few other anti-competitive tactics. It refused to license its patents – essentially standard and necessary for the industry – to competitors. And it cut exclusive deal arrangements with customers to box anyone else out of the market. (You can read the rest of Intel’s amicus brief if you want to hear expensive lawyers accurately whine about being treated unfairly.)

The strange thing is, though, that important sectors of the US government are trying to intervene in the case, effectively opposing the FTC. Their argument is that the suit undermines national security.

The DOJ argument is basically saying, yeah, Qualcomm does all that stuff, but Judge Gorsuch said it’s all legal and efficient, and we don’t want to dissuade the liberty to abuse patents and market power. Two other officials, one at the Department of Defense and another at the Department of Energy, also weighed in. Ellen Lord, a former defense contractor and the Under Secretary of Defense for Acquisition and Sustainment for the DOD, argued that Qualcomm’s position as a monopolist enables it to support national security and help China. A Department of Energy official Max Everett basically said the same thing.

The national security argument is BS, says Stoller, but not for the reason you’d think. He quotes an excerpt from a WSJ OpEd by Michael Chertoff, a former senior Cabinet officer in previous US administrations.

In the technology race against China, the U.S. should prefer to let competition drive innovation rather than support exclusive national champions. Apart from the economic inefficiency, a single-source national champion creates an unacceptable risk to American security—artificially concentrating vulnerability in a single point. The government’s argument in support of Qualcomm isn’t prudent, and if courts accept it, the result would be a self-inflicted wound to U.S. national interests. We need competition and multiple providers, not a potentially vulnerable technological monoculture.

Underpinning this argument is a prevailing denialism about China in the American Deep State. What happens, Stoller says, is that China either hacks US corporations to steal their intellectual property, or acquires it legally when they try to do business in China. So: China innovates at speed by topping up its own (substantial) native ingenuity with the ideas and wisdom of its US competitors, while those same competitors are locked out by monopolisation and patent restrictions from exploiting that same, locally-developed intellectual property in their own country.

End result: China races ahead. Madness on stilts.

Networked totalitarianism: the script

The New York Times’s scoop on the treatment of China’s Uyghur population is an eye-opener, even to those of us who suspected the worst.

The students booked their tickets home at the end of the semester, hoping for a relaxing break after exams and a summer of happy reunions with family in China’s far west.

Instead, they would soon be told that their parents were gone, relatives had vanished and neighbors were missing — all of them locked up in an expanding network of detention camps built to hold Muslim ethnic minorities.

The authorities in the Xinjiang region worried the situation was a powder keg. And so they prepared.

The leadership distributed a classified directive advising local officials to corner returning students as soon as they arrived and keep them quiet. It included a chillingly bureaucratic guide for how to handle their anguished questions, beginning with the most obvious: Where is my family?

Samples:

”They’re in a training school set up by the government”. If pressed, officials were to explain that the parents were not criminals, but were nevertheless not free to leave the “schools”.

The question-and-answer script also included a barely-concealed threat: students were to be told that their behaviour could either shorten or extend the detention of their relatives. “I am sure that you will support them, because this is for their own good”, officials were advised to say, “and also for your own good”.

Lots more in that vein.

So why are Western countries still treating China as a proper member of the international community? (The answer is that one has to play nice with a superpower, I guess.) And what will it take to change things? Answer: probably only a brutal Tienanmen-style suppression of the protests in Hong Kong would have that effect.

On the other hand, it’s not that long ago that the UK had a system of interning people without trial in Northern Ireland. But at least it had the excuse of a genuine emergency. As far as one can see, the Uighurs don’t pose any threat to the Chinese state.

Global risks 2035 update

From the Atlantic Council. Headlines are:

  • The unipolar world of the 1990s, when the United States was the world’s sole superpower, is definitively over and will no longer be a realistic option for any president.
  • An absolute United States’ decline is not inevitable, but an open conflict with China increases those risks considerably.
  • A deep economic reversal in China could trigger a widespread economic meltdown that leads to a worst-case scenario of slower growth and a return to protectionism and political destabilization.

No real surprises, really.

Full report (pdf) here

India is suddenly wary about sharing research with China

Well, well. This from Times Higher Ed Supplement:

Despite rolling out the red carpet for Chinese President Xi Jinping last week, India seems to be pulling away from China when it comes to science and research. Indian universities have been informed that all academic cooperation with China must be approved by the Ministry of Home Affairs and the Ministry of External Affairs, “in addition to other clearances”. Analysts speculate that the growing distance between the countries’ scientific achievements and economic power has made India more tentative about sharing its talent.

Not sure I’d like a government department to be deciding what kind of research I can do and with whom, but this is an interesting straw in the wind.

Surprise, surprise! Little Red App does covert snooping

From the Washington Post:

BEIJING — The Chinese Communist Party appears to have “superuser” access to the entire data on more than 100 million Android-based cellphones through a back door in a propaganda app that the government has been promoting aggressively this year.

An examination of the coding of the app used by phones running the Android operating system shows it enables authorities to retrieve messages and photos from users’ phones, browse their contacts and Internet history, and activate an audio recorder inside the devices.

“The [Chinese Communist Party] essentially has access to over 100 million users’ data,” said Sarah Aoun, director of technology at the Open Technology Fund, an initiative funded by the U.S. government under Radio Free Asia. “That’s coming from the top of a government that is expanding its surveillance into citizens’ day-to-day lives.”

Apple said that, while the app could be downloaded on its devices, this type of “superuser” surveillance could not be conducted on Apple’s operating system.

Apple’s China problem

From ReCode:

Plenty of US companies work in and with countries that require them to make moral compromises. Facebook, for instance, finds itself frequently pulling down videos and posts because they upset Turkey’s censors; Netflix took down an episode of comedian Hasan Minhaj’s Patriot Act in Saudi Arabia because it was critical of Crown Prince Mohammed bin Salman. The standard argument these companies all make is that those countries are better off when they have access to their products.

This is Apple’s argument, too. “We believe our presence in China helps promote greater openness and facilitates the free flow of ideas and information,” Cook told Sen. Ted Cruz (R-TX) and Sen. Patrick Leahy (D-VT) in a December 2017 letter. “We are convinced that Apple can best promote fundamental rights, including the right of free expression, by being engaged even where we may disagree with a particular country’s law.”

Left unsaid in Cook’s letter is that Apple has to do business in China.

Unlike tech companies that haven’t broken into the country or only do minor business in it, Apple is now so deep in China that leaving it could be catastrophic. Even if the company was willing to forgo the $44 billion a year in sales it makes in China, it can’t leave the deep network of suppliers and assemblers that build hundreds of millions of iPhones every year.

Networked totalitarianism

My Observer review of Kai Strittmatter’s remarkable new book.

Kai Strittmatter is a German journalist who writes for Süddeutsche Zeitung and is currently based in Copenhagen. From 1997 until recently, he had been a foreign correspondent in Beijing. Prior to those postings, he had studied sinology and journalism in Munich, Xi’an and Taipei. So he knows China rather well. Having read his remarkable book, it’s reasonable to assume that he will not be passing through any Chinese airport in the foreseeable future. Doing so would not be good for his health, not to mention his freedom.

We Have Been Harmonised is the most accessible and best informed account we have had to date of China’s transition from what scholars such as Rebecca MacKinnon used to call “networked authoritarianism” to what is now a form of networked totalitarianism. The difference is not merely semantic. An authoritarian regime is relatively limited in its objectives: there may be elections, but they are generally carefully managed; individual freedoms are subordinate to the state; there is no constitutional accountability and no rule of law in any meaningful sense.
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Totalitarianism, in contrast, prohibits opposition parties, restricts opposition to the state and exercises an extremely high degree of control over public and private life…

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Chinese cheques

From Technology Review:

The People’s Bank of China is paying close attention to Libra, the digital currency Facebook has created. And it may inspire the bank to accelerate its plans to speed up its own project to develop a digital currency.

The news: The PBOC is paying “high attention” to Libra, according to Wang Xin, director of the bank’s research bureau. Speaking at an academic conference at the University of Peking, Wang expressed concern over how Libra might affect the world’s financial system if it takes off, according to the South China Morning Post: “Would it be able to function like money, and accordingly, have a large influence on monetary policy, financial stability, and the international monetary system?”

One thing China wants to know is what role the US dollar will play in the basket of fiat currencies that will supposedly back Libra coins. If it is most closely associated with the dollar, Wang said, “there would be in essence one boss, that is the US dollar and the United States. If so, it would bring a series of economic, financial, and even international political consequences.”

Why China won’t be democratised any time soon

I’m reading an extraordinary book by Kai Strittmatter, a German journalist who has lived in, and studied, China for many years. It’s a sobering account of how the Chinese Communist Party is making the transition from what Rebecca Mackinnon christened “networked authoritarianism” to networked totalitarianism. Digital technology is their tool of choice for enabling this transition, and the book provides some graphic insights into its potential for such a project.

The recent remarkable demonstrations in Hong Kong — which caused the territory’s Chief Executive to make a humiliating climb-down over a proposed extradition law — have led some people to wonder if this might prompt a reversal of Xi Jinping’s remorseless progress to totalitarian power. Tyler Cowen doesn’t think so, and neither do I. Here’s the money quote from his latest Bloomberg Column:

It’s also worth thinking through exactly what changes Chinese democracy is supposed to bring. China’s urbanization has been so rapid — it has had more urban than rural residents for less than a decade — that a national election might well reflect the preferences of rural voters, which after all most Chinese were until very recently. If you belong to the Chinese upper class or even middle class along the eastern coast, you may end up asking yourself the following question: Who is more likely to protect my basic economic interests, the current Chinese Communist Party, or a democratic representative of Chinese rural interests? China is also growing rich during a time of extreme economic inequality, which may make many Chinese elites think twice about democratization.

Sadly, I think he’s right. Besides, I can’t see Xi having any truck with ‘democracy’.

Xi Jinping’s Little Red App

This morning’s Observer column:

We need to update Marx’s famous aphorism that “history repeats itself, the first time as tragedy, the second time as farce”. Version 2.0 reads: history repeats itself, the first time as tragedy, the second time as an app. Readers with long memories will remember Mao Zedong, the chairman (for life) of the Chinese Communist party who, in 1966, launched his Cultural Revolution to preserve Chinese communism by purging remnants of capitalist and traditional elements from Chinese society and reimposing his ideas (aka Maoism) as the dominant ideology within the party. One propaganda aid devised for this purpose was a little red book, printed in the hundreds of millions, entitled Quotations From Chairman Mao Tse-tung.

The “revolution” unleashed chaos in China: millions of citizens were persecuted, suffering outrageous abuses including public humiliation, arbitrary imprisonment, torture, hard labour, sustained harassment, seizure of property and worse…

Read on