Thursday, October 13, 2016

The government role in shaping the Internet in China and the US

The US government invested $124.5 million in building and demonstrating the feasibility and value of the ARPANet, TCP/IP internetworking protocol and subsequent deployment to education and research organizations with the establishment of NSFNet and the NSF developing nations program. That was a pretty good investment. (Government procurement was also important -- for example, lessons learned and programmers trained in building the SAGE early warning defense system played a key role in the progress of networking and computer science in the US).

Internet development timeline

NSFNet was at first the backbone for the international Internet, but the government stepped back once the initial research and development was completed, phasing out the NSFNet subsidies over a four year period. Private telephone and cable companies with local monopolies or oligopolies became Internet service providers and owners of our Internet infrastructure.

In contrast, the market for Internet applications and services was competitive from the start. Private capital has financed and developed our Internet startups and ecosystems of organizations to support them -- incubators, accelerators, co-working spaces, investors, consultants and hackerspaces. The first startup ecosystems were in the Silicon Valley and along Massachusets Route 128, but many, including my home town, Los Angeles, have followed their lead.

1,113 tech startups in Los Angeles

535 startup support organizations

The Chinese have taken a different approach to Internet infrastructure. They established an academic network in 1987, linked it to Stanford University in 1993 and the following year established a full Internet connection. Like all other nations, they began with a slow link to a small academic network, but within a few years, the Chinese had realized the importance of the Internet and had established competing, government-owned national backbone networks.

Unlike the United States, the Chinese government is also playing an active role in support of Internet application and service companies. In his 2016 Report on the Work of the Government, Chinese premier Li Keqiang stated that
Further progress was made in implementing the strategy of innovation-driven development, the penetration of the Internet into all industries picked up the pace, and emerging industries grew rapidly.
The Chinese are funding startup ecosystem organizations like those created by the private sector in the US. For example, 710 subsidized startups are clustered in the Dream Town district of Hangzhou.

Chinese workers remodeling Dream Town spaces

How has it worked out?

The US had a significant lead over the entire world when a small Chinese academic network joined the Internet. One cannot directly compare the US and China -- there are many confounding differences, but we can compare China with India, a nation with some similarities. India's academic networks joined the Internet a little before China, but they essentially started at the same time. By 2002, the Chinese Internet was significantly more advance than that of India.

The International Telecommunication Union's Information and Communication Technology development index (IDI) provides a recent indicator of Chinese progress. The IDI is a function of eleven indicators measuring ICT access, use and skills in a nation. In 2015, China ranked 82nd on the IDI while India ranked 131st. In 2010, China ranked 87th and India ranked 125th.

While China has done better than India to date, their economy is slowing and their program of support for startups can lead to misallocation of resources and cronyism -- as happened in the Chinese construction industry:

The US started at the top, so our infrastructure had no where to go but down relative to other nations. The US ranks 21st in fiber deployment among the 34 OECD nations and our average Internet connection speed ranks 15th among the 74 nations served by Akamai.

Percent of broadband connections with fiber,
OECD, December 2015

Connection speeds, Akamai, Q1 2016

While the US has faltered in infrastructure deployment, we have retained the lead in Internet applications and services. As shown here, the US had 39 of the most popular 100 Web sites as ranked by Alexa in September 2016 while China had only 10.

These rankings should be taken with a grain of salt – SimilarWeb, an Israeli company, rates the US substantially higher with 40 sites in the top 100 as opposed to 10 for China. Chinese sites also focus heavily on China whereas the US sites generally seek a global audience.

It seems that the US private sector has done well in Internet applications and services and not as well in deploying infrastructure. Private companies seek to maximize corporate profit rather than social goals regarding education, the economy, etc. This has contributed to other nations surpassing our infrastructure in spite of our pioneering role.

These are complex issues and I cannot reach definite, generalizable conclusions (nor can anyone else), but, if I had to guess, I would think that China would be better off cutting back on subsidies for Internet application and service companies and the US would be better off with a more competitive Internet service provider market -- discouraging consolidation and "gentleman's agreements" among companies and encouraging ownership of infrastructure by local governments and customers.

Update 10/16/2016

For teachers or others who might like to present this topic, I have prepared (and used) a nine-slide, one-video annotated PowerPoint presentation.

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