Tuesday, 26 October 2010

Welcoming our Googly overlords

Folks in New Zealand have been beating up on Google a bit lately. And it makes me sad. Google gives so very very much and asks so little. Can't we just enjoy our surplus and stop the whinging?

First, there was the Google Street View cars that sniffed out wireless modems as it went. Know what? Anybody can do that. They've been able to do that since wireless routers first came around. If you don't have minimal wireless security on your router, which you ought to have given how terribly low the Kiwi data caps are (I'm on a 20GB traffic plan, and that's pretty high as far as NZ goes), then you're basically inviting anybody walking by with a decent cell phone to listen in on all of your internet traffic and maybe to start downloading movies on your bandwidth. You might want to fix that instead of whining about Google.

Second, the tax thing. Bernard Hickey in particular has been rabid on this one. Google earns advertising revenue in New Zealand but pays little tax here. A quotable Hickey quote:
Google is a tapeworm in the Internet that is destroying local media and widening our trade deficit.
He later suggested that Google's underpayment of tax relative to its NZ advertising revenues could drive future generations offshore. I confess confusion here: it sounds like "Step 1: Punish Google. Step 2: ???? Step 3: Your kids don't migrate overseas to higher paying jobs."

New Zealand's biggest problem isn't a Google-related tax shortfall: it's fixed costs and the absence of agglomeration effects. Even if we set tax and every other policy perfectly, I'd call even odds that we'd still be falling behind other countries because we're tiny and separated from even our closest neighbour by a 3 hour flight. Our biggest city has about a million people. If agglomeration matters as much as we're starting to think it matters, then our best policy move may well be a large and sustained increase in immigration. Given that current policy kicks people out of the country whenever there's a recession, it seems unlikely that we'll get any substantial increase in immigration in the medium term.

Fixed costs kill us. And guess what? Google works to kill fixed costs. Kiwis can share their videos with the world, for free, on Google's YouTube, can blog for free on Google's Blogger platform, can chat with the world on Google Voice (ok, this one's mostly inframarginal given Skype). I'm running some collaborative projects using Google Docs. I find New Zealand suppliers of goods and services using Google. How many international tourists come here because Google has made it so much simpler to plan an international vacation? Before, you'd have had to have gone to a travel agent. Now, a combination of Google Maps and Google searches lets you do it yourself at lower cost and greater confidence in the quality of your results. Google brings New Zealand closer to the rest of the world. And folks want to complain about that they're paying less in tax than they could be? We ought to be giving Google a medal for giving us all so many free services. Would any reasonable estimate of the aggregate consumer surplus created by Google in New Zealand come up with a figure less than hundreds of dollars per capita?

If anything's going to be driving future New Zealanders overseas, it's the opportunity to benefit from the reduction of fixed costs in larger markets. And I think Google's working to lessen that, although the general equilibrium results could be tough to parse out: while it's making New Zealand better, it's also making New York better. If it's making New York better faster than it's making New Zealand better, then the net effect works against us. But that certainly doesn't make the case for policies punishing Google for being active in New Zealand.

I, for one, continue to welcome our Google overlords. And I thank them for hosting this blog, without charge and without advertising, for the last year and a half.


  1. Just as I was had finished typing a long comment that basically said 'convinced', Blogger ate my comment.

    I'm back to hating on Google.

  2. I'm with BK. Convinced (though not hating Google).

  3. I'm not so sure. I get a little uncomfortable about any organisation that has to keep reminding itself not to be evil.