Europe’s Tech Regulation is Not An Economic Policy


While the European Union’s groundbreaking Digital Markets Act was a positive step, simply applying outdated and ineffective competition rules to the tech sector will not drive economic progress. To spur innovation, Europe should leverage antitrust to champion broader social and economic goals.

BRUSSELS – “How have you managed to tame Big Tech?” US Senator Elizabeth Warren asked on a recent visit to the European Parliament. Amid a flurry of papers, conferences, and workshops heralding the dawn of a new era in tech enforcement, the “Brussels effect” is being trotted out again.

But while it is remarkable that Europe has enacted landmark legislation to moderate online content and bolster antitrust enforcement in record time – a democratic milestone – what can these measures deliver? And what role will they play in the economic policy agendas on offer to voters in the 2024 European Parliament elections?

No one has articulated what success will look like for the flagship Digital Markets Act (DMA). The mantra of “fairness and contestability” has spawned numerous academic papers with no actual impact. “I would be happy just to get the process right,” one senior competition official told me. But what is the end goal of this “process”? For all of the European Union’s efforts to become the world’s digital police, the dividend remains nebulous. Beyond policymakers’ giddy proclamations of “taming” Big Tech, the DMA faces at least four major obstacles.

First, the rules reproduce categories of backward-looking EU competition law that have proven ineffective, as they failed to address underlying business models and incentives. The problem with monopolies tends to lie in rent extraction and in their anti-democratic implications. We have over a decade’s worth of failed self-preferencing cases in Europe that have not brought about meaningful change, and framing new rules in terms of legacy (failed) antitrust cases will steer effort in the wrong direction. Grandfathering narrow competition-law precedent into the DMA is likely to generate narrow payoffs.

Second, even if the DMA can provide smaller companies and new entrants with some access to previously closed vertical structures, it will not alter tech platforms’ foundational “infrastructure” or disperse the economic power of entrenched incumbents. It is instructive that even telecom regulation, lauded as a major achievement in Europe, facilitated only retail-level competition because it left quasi-monopolistic infrastructures intact. And, as MIT’s Daron Acemoglu has noted, regulatory efforts that preserve business models and infrastructures also leave control over the trajectory of innovation in the hands of incumbents.

Third, the campaign to “tame” Big Tech will invariably lead to a series of court appeals and private lawsuits that will likely take a decade to play out. While there might be an indirect “DMA effect,” owing to executive fatigue and the shift of technological and commercial focus toward artificial intelligence and virtual and augmented reality, the direct impact may be limited.

Lastly, Europe’s main problem in tech remains the lack of indigenous innovation and domestic investment. While some hope that stricter regulation will unleash competition and catalyze tech investments, the prospects for this are slim. This is especially true if we continue to regard efficiency and consumer welfare as objectives. The United States, concerned about China, seeks to achieve broader objectives, including economic resilience and strategic autonomy. How will digital regulation help Europe escape its current predicament?

Amid today’s polycrisis, economic policies are being fundamentally rethought. US President Joe Biden’s administration rejected efficiency and consumer welfare as the central tenets of economic regulation and is reinvigorating industrial policy and managed trade. As Harvard economist Dani Rodrik has noted, the growing recognition that 30 years of hyper-globalization emphasized “the interests of politically connected big businesses” while keeping labor “trapped behind borders” has prompted a paradigm shift. As a result, economists are also rethinking industrial policy, viewing it not as “inward-looking and protectionist,” but as “outward-oriented” – not limited to “the classic instrument of subsidies” but involving “iterative collaboration” between governments and firms to combat “deindustrialization.”

As Biden’s national security adviser, Jake Sullivan, explained earlier this year, “The game is not the same.” The administration is now focused on building resilience, fostering innovation, and enhancing economic opportunities and worker mobility.

The reinvigoration of antitrust policy has been at the heart of this strategy. In June, US Trade Representative Katherine Tai said that “prioritizing and pursuing the consumer welfare standard in competition policy has led to consolidation and unchecked dominance in our domestic market.” Moving away from “liberalization and the pursuit of efficiency and low costs,” American economic policymakers now emphasize “raising standards,” “driving sustainability,” and “fostering more inclusive prosperity at home and abroad.”

Europe is wary of the shift, suspecting it is wolfish protectionism in sheep’s clothing. But there is no escaping it. In the 2021 address in which he outlined his administration’s “all-of-government” approach, Biden highlighted the interconnectedness of trade, industrial, and antitrust policies. Europe cannot remain stuck in the outdated paradigm that views antitrust as a technocratic island and a bulwark against the emergence of “national champions.” European regulatory elites need to grasp that the antitrust they are practicing today is far from “pure” or “neutral.” Instead, it is the product of the neoliberal shift of the 1980s. Nowadays, US officials are insisting that antitrust also has a major role to play in achieving a different goal: not efficiency but opportunities.

Europe needs its own agenda for the 2024 elections. “Taming Big Tech” is not achievable through the DMA. While any progress it brings will be welcome, it will not dent digital gatekeepers’ economic and political power. Crucially, the DMA alone will not catalyze European innovation or fuel tech investments. Pursuing digital gatekeepers with rules based on old competition-law principles is hardly an election manifesto.

Instead, Europe needs affirmative goals: plans to build public digital infrastructures, enforce data protection, and encourage innovation by creating incentives for domestic investment and funding startups that are not the incumbents’ vassals. European authorities should also be less permissive toward acquisitions and more vigilant against incumbent digital giants grandfathering their power into AI through agreements that are mergers in all but name.

Among multiple paradigm shifts, antitrust and regulation have a much broader role to play beyond implementing the DMA rules. They should also support industrial goals and a more democratic economic agenda.

Source: Project Syndicate

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