It has been a rough month for Big Tech. US authorities launched blockbuster antitrust lawsuits against Facebook and Google. The European Commission presented new regulations, including the ability to levy swingeing fines and in extremis break up offending companies in the technology sector.
Until now, Europeans have been clear leaders in regulating tech, tirelessly probing market abuse and enforcing data privacy while Americans fell asleep at the wheel. But the US is catching up. The jury is out on whether Europe’s new laws or the newfound US interest in enforcing existing ones will have the biggest impact.
In any case, the EU has a steeper hill to climb, because its ambitions are more expansive. Depending on who you ask, the main objective of EU tech policy is to rein in the out-of-control behaviour of mostly US tech giants, promote Europe’s own digital industries or entrench the EU’s leadership in global regulation, so the continent can shape the playing field for the digital trade of the future.
There is a good case for pursuing each of these. But it is crucial to see them as separate goals requiring their own dedicated policies, and to understand the ways they interact. Otherwise policymaking risks being confused or, at worst, self-defeating. The Digital Services and Digital Markets acts the commission presented last Tuesday are at best a small step.
There can be no doubt that tech companies need disciplining. Time and again the sector has been exposed for abusing monopolistic power, spying on users and aggressive tax avoidance. That much of this behaviour is perfectly legal only makes reform more urgent.
Brussels’ legislative package certainly provides welcome new tools for regulators to address abuse of market power. But it shies away from fundamentally shaping markets, preferring to specify how businesses should behave within them. For example, digital platforms may not discriminate against third-party vendors, but may still offer their own products. The simpler solution of structural separation — making companies choose between running a marketplace and selling on it — would have demanded fewer resources in monitoring, enforcement and compliance.
The effort to protect users, too, feels halfhearted. There is too little interest in challenging the core of the surveillance economy: personalised advertising. An EU that really wanted to pioneer a different digital economy based on its values would pursue a default ban on personalised digital ads unless users were contractually paid for it.
The desire to act as the effective global regulator could be why Brussels has stayed its hand from more radical measures. The shift in US attitudes, and the as yet undetermined stance of Joe Biden’s incoming administration, create an opportunity to pursue a united approach. But at its moment of maximum potential influence, Europe should not go for a timid approach. The “Brussels effect”, where global companies voluntarily comply with EU rules, depends not on multilateral agreement but on the value of the EU’s market.
There should be no illusion that bringing US companies into line — unilaterally or in concert with Washington — would by itself do anything to strengthen Europe’s own digital industry. It could make it easier for start-ups and bright entrepreneurs to challenge and displace the incumbent behemoths. But why expect the successful challengers to be European?
After all, any market abuse by Big Tech makes things harder for US challengers, too. Two other factors hold back Europe’s digital scene. The first is insufficient risk-taking capital. The EU financial system remains extremely lopsided in favour of bank lending, with far too little of the equity capital that helps risky tech start-ups grow.
The second is fragmented product markets. Will Page, Spotify’s former chief economist, contrasts the simplicity of US licencing rules for a streaming service with Europe’s maze of different royalty sources: a songwriter in the “single” market faces 11,531 possible permutations of country, type of right and digital format.
Such disadvantages are solved with capital market reforms and by harmonising corporate and product market rules, not with tighter tech regulation. If the latter is more onerous for emerging companies than for incumbents, it could even reinforce the first-mover advantage US tech enjoys. Brussels is right to demand more from the biggest companies, and to require them to share their data advantages more broadly, but it should go further in this direction.
It should also — precisely to tilt the playing field in new companies’ favour — be more willing to restructure markets fundamentally and not just try to police how companies respond to flawed market incentives. Above all, EU digital policy has an enormous job to do in areas far beyond tech itself.
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