Google's row with China is significant not as a sign that Beijing wants to exert control over the internet, but as proof that it can.

The announcement that the search engine will end its voluntary implementation of Chinese censorship law is not purely an assertion of principle. It is a recognition of an important commercial reality: the web is not exempt from the laws of global politics. If you want to do business with bullying states, prepare to be bullied.

Google has not said it is definitely pulling out, only that it will not continue to operate in China as a collaborator with political oppression. That pretty much amounts to an intention to withdraw. This does not mean that Google is cynically presenting commercial retreat as free-speech martyrdom. By all accounts, the company's top executives genuinely agonised over the decision in 2006 to accept Chinese censorship as a condition of market access.

Google takes seriously its founding principle – "Don't be evil" – even if outsiders are sceptical. The 2006 decision was informed, or at least justified, by a theoretical belief in the power of the web to shrug off efforts at state control. This was not just the Google view. Most media companies seeking access to the Chinese market have wrapped their business interests in a moral argument about information as a liberalising force. The idea was that even a limited taste of western-style media would create an appetite for openness that oppressive states would be unable to contain. Information technology was supposed to be the Trojan horse inside brutal regimes. The belief was that freedom was programmed into the digital age. Individual expression was meant to be unstoppable.

That optimism was invoked when camera phones were used in 2007 to expose Burma's junta crushing pro-democracy protests; or last year, when Iranian demonstrators posted their anti-regime activism on Twitter.

For a company such as Google, the cult of web freedom synched neatly with neo-liberal economics, which was orthodoxy for US business until the financial crisis began in 2008. This posited, among other things, that free markets and repressive government are mutually exclusive. The theory was that capitalist reform generates a wealthy middle class that then demands political reform in order to protect its assets.

Property rights lead to human rights. So it is OK to invest in repressive countries because the act of investment is a kind of lobbying for freedom. But this idealistic theory has been disproved by the two biggest case studies: Russia and China. In both, the growth of capitalism and the penetration of new digital technologies have coincided with a consolidation of authoritarian government. Moscow and Beijing have proved that a newly rich, digitally equipped middle class will accept political repression as the price for economic security and social stability.

Meanwhile, despite mobile phones, Burma is still under military rule. And if the Iranian opposition topples the mullahs, social networking sites will get, at most, a passing nod of appreciation for their role. Technology is only ever a tool. Its relationship with power is morally neutral. It can be used to subvert repressive authority or to reinforce it. For every heroic blogger who defies a despot, there is a state hacker bringing down servers or stealing secrets from human rights activists.

Freedom is not hard-wired into the net. That is the lesson that Google has learned and it comes as a shock to the whole digital culture. This is the web's Berlin Wall moment. For all that it seems cruel and, in the long term, self-defeating, if the Chinese government really wants to cut its people off from the free web, it can. It will. Whatever the aspiration not to "be evil", Google, in this game, is just a search engine.