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Brooks Wilson's Economics Blog: China: Limited Access Order and Google

Monday, March 15, 2010

China: Limited Access Order and Google

In "Violence and Social Orders," North, Wallis, and Weingast argue that economists have under appreciated the importance of controlling violence in establishing social order in which economic activity occurs.  They describe three types of social orders from most to least violent: primitive, limited access, and open access.  China is a limited access order.  The government creates a governing coalition by trading economic favors to groups who will in turn refrain from violence or help control violence. 

Limited access orders not only limit economic rights of the majority of its citizens but are also careful about granting economic entry into their countries by foreign interests.  This lack of freedom limits economic innovation and growth.  China has been growing rapidly by opening access to both domestic and foreign interests, but its growth may ebb if it fails to evolve into an open access order.

China's governing coalition's dealings with Google may signal the limits to the growth of access to its economy.  Recent cyber attacks on Google which may have been initiated by a university with close ties to the Chinese military ("Chinese schools deny Google cyber-attack links").  Those attacks and demands for censorship by the Chinese government may force Google to close shop in China ("Google’s China Advertising Clients Urged to Defect (Update1)").  This will be good for Baidu Inc., China's main Internet company, which will increase its market share, but it will be bad for consumers and technological advance ("CORRECT: Baidu Shares Rise On Reports Google Near Closing China Site".
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