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Europe’s timid embrace of the digital economy

The EU’s task is to learn more and guard against special interests

WT24 Desk

S pend too long in Brussels or Strasbourg and you might diagnose Europe with chronic technophobia. Every digital innovation from across the Atlantic seems to provoke political ire. A dozen years ago it was Microsoft; now policy makers’ sights have fixed upon “Gafa” — the acronym used to denote Google, Apple, Facebook and Amazon, Financial Times reports.

But if Europe is a sanctuary for technophobes, its citizens have a strange way of showing it. Over 280m of them log on to Facebook every month — more than own a car. Use of Google outstrips that in the US and the appetite for new services such as Airbnb or Uber can approach Californian levels. Europe’s capitals everywhere have sprouted tech neighbourhoods desperate to emulate Silicon Valley.

On closer examination Europe’s policy makers treat technology less as a threat than a dilemma. They understand that digital services invigorate the economy. But there are two sides to creative destruction, and it is often those made worse off that have the loudest voice. Europe has recently felt itself to be more on the losing side; however measured, the world’s largest internet companies contain none that are European.

One response is that this does not matter. Global trade means no country needs to create what it consumes. This applies to social media and internet search just as it does to grain, steel or oil. Thanks to Germany, Europe enjoys a hefty trade surplus with the US, proof that the traffic is not all one way.

Such complacency is not felt in the European Commission, from which a draft strategy for the “digital single market” has recently leaked. It acknowledges Europe’s failure to make the most of the digital economy. Much of what it calls for is uncontentious. Insofar as a lack of competitiveness reflects the still-fragmented single market, the commission suggests useful harmonising measures. Postal tariffs, VAT rates and copyright rules still trip up those venturing across EU borders; the continent cannot expect to catch up with the US while its member states are so ill-knit together.

The knottier problem is how to address platforms: the search engines, stores and websites that constitute the metaphorical high street of the digital economy. What drives their business models are economies of scale in the business of gathering information. “Network effects” result in more customers rendering the service ever more compelling — making it increasingly difficult to leave. Such a concentration of data, as well as touching on a deeply felt European concern with privacy, can lead to abuses of market power: over customers, rivals, or through the relentless encroachment into other markets linked to the platform.

For now the commission is limiting itself to what it calls “a comprehensive assessment of the role of platforms”. Bluntly, it does not know enough to opine with confidence on the knowledge economy, where discerning or even defining unacceptable conduct is tricky. When a company is responsible for creating the market that it dominates, the point at which a fair reward for innovation blends into market abuse is not obvious.

Moreover, as a business minister once observed, when dabbling with industry the problem is not so much the government picking winners as the losers picking the government. The commission’s call for evidence must therefore be conducted in an open-minded spirit, not just to reflect the protean subject matter but also to avoid falling prey to domestic lobbying. Its task should be to prepare Europe for the digital future, not to try to stop it happening.

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