Notes on Professor Keyu Jin's Public Lecture titled

I finally got the time to watch this excellent lecture by Professor Keyu Jin from LSE. She talked about techno-nationalism and discuss whether it’s good or bad. Her discssion is quite detailed in that she started with the basic: why the high-tech economy is different.

According to her, these high-tech services has a different cost curve compared to our traditional manufacturing. In a traditional manufacturing firm, the marginal cost of selling one more product is very close to the cost of making a product. For tech giants, once the production is complete, the marginal cost for additional sale is zero. All you need to do is a copy paste, give product key, or give an access to the customer’s account. In other words, you don’t need to make anything else, hence no (or very very little) additional cost. Once the product is ready, the cost of servicing 100 or 10,000 customers is very similar.

Moreover, most tech services inhibit an increasing returns to scale. This returns to scale comes from customers' data (network effect), not physical capital. Therefore, serving more customers is not only cost less, but also leads to more returns. Therefore, burning money to acquire customers can be justified. In fact, that is the main strategy: subsidies users so more come to the network, then monetize it later on.

All of this network effect even extends tech giants' ability to increase their scope. For example, if a tech giant has the ability to track down your purchases, it can learn your income stability and your risk of default. This information, which can be granular, is very important for credit service provider. From ecommerce app, this giant can, in turn, provide credit service. This is already happening in China in the form of super apps.

The implication of zero marginal cost and increasing returns to scale amid network effect is that being big is very important for tech giants. Big firms are more efficient and better for consumers. However, there’s a catch, a room for techno-nationalism: local externalities.

Some tech services requires localization or local twist to it. She gave an example were Didi, the Chinese Uber, is better at localization than Uber. Didi’s Mexico goes so far as to train each of their driver on how to use the app effectively, including how to use it for receive payment and using it to spend. Uber does not do that. They relies on credit card and care less about the local operation. In this sense, it is good to limit the growth of global player and help support local player.

One very interesting for me to learn that she suggests payment is the key to super app. This is one reason why super app is very powerful in China, but not in the United States (US). in the US, credit and debit card is already settled. Practically everyone has the ability to pay using credit card, hence no need for the likes of Amazon or Google to invest in payment platform. This is different with China, where financial institution is not having the same extended reach.

To some extent, I find this fascinating because I can help but feel like Indonesia is very similar. Remember when you has to pay Uber with credit card in Indonesia? Gojek can survive perhaps because of Gopay. Similarly, e-wallet also rises.

Also in the local externalities, I already feel like this applies to entertainment. Many of Indonesian locals are actually enjoy local music (local pop band, dangdut, etc) which may be better or local artists than relying on the likes of Taylor Swift for entertainment. The same goes for influencers and TV shows, I guess. Does that mean we need to limit global entertainer?

Another interesting points from her: who owns data? It matters because this whole “big firm is efficient” ignores non-cost aspect of this whole ruckuss. Who we trust more as a global citizen: US firms or Chinese? western governments care a lot about privacy while the chinese is less so. Big is good in terms of economic efficiency perspective, but possibly not in the moral perspective. In fact, to me, this is the main reason why this whole techno-nationalism is rising in the first place.

Big global firms rise a question: what if a private firm becomes more powerful than a (small?) country?

Here’s the full video if you are interested in this stuff.