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European Commission President-elect Ursula von der Leyen wants to set up a €100 billion fund to bolster “European champions” against American and Chinese tech companies. The so-called European Future Fund is part of a 173-page wish list that “European Commission officials want to put onto [von der Leyen’s] agenda,” including items such as greater restrictions on social media, EU unemployment insurance, unilateral tariffs on the United States (with the expectation that the US will leave the World Trade Organization), and more.
The past two European Commissions have been single-mindedly confident that their policies, such as net neutrality, the General Data Protection Regulation (GDPR), and merger restrictions, would guarantee innovation, level the playing field, and protect competition. But as the document reportedly notes, Europe has no companies that rival Google, Apple, Facebook, Amazon, Microsoft, Baidu, Alibaba, or Tencent. Not only has EU innovation policy failed to deliver promised European giants but it has also undermined earlier European champions which were best positioned to challenge American and Chinese competitors.
Mobile technologies
As I described in a 2014 paper, the EU of the early 2000s was a mobile technology powerhouse, with six handset manufacturers producing half of the world’s phones, all mobile operators aligned on the 3G and GSM standards, one-third of the world’s network investment, and a surplus of capital from spectrum auctions flooding public treasuries. But EU policymakers intervened to control prices with flawed ordoliberal regulatory and competition policy. This sent capital fleeing to other parts of the world where investors and innovators could earn returns and join complementary assets through mergers. Notably, the US invests in broadband networks at twice the rate per capita compared to the EU and accounts for a staggering quarter of the world’s total broadband network investment.
Sadly, the capital that earlier had fertilized the EU mobile tech ecosystem dried up, killing hundreds of thousands of well-paying tech jobs. Infrastructure companies such as Ericsson and Nokia, which stand today as the last line of defense against Huawei, were weakened. Von der Leyen pledges €100 billion to foster EU tech titans, an amount equal to the investment gap in EU broadband networks today. This amount is what would have otherwise been invested privately in the telecom sector and could have kept the EU on the forefront of next generation networks.
Net neutrality
At first, European telecom regulators rejected the notion of net neutrality, citing the mandated reselling regimes and the lack of monopoly or market failure, but rational explanations were no match for the digital deluge orchestrated by transnational net neutrality activists. In 2015, they succeeded in implementing rules that cemented price and traffic controls favoring Silicon Valley firms, prohibited price differentiation, and obliged regulators to engage in costly and invasive network monitoring and reporting. Proponents claimed the rules would give rise to a European Google.
Four years later, the EU has no evidence of homegrown tech innovation, so it feebly observes the presence of tech clusters as ex-post justification for the policy, a development that precedes net neutrality rules by more than a decade. In fact, the very cross-marketing partnerships with mobile operators that created Europe’s one success story, Spotify, are now prohibited.
Fortunately for the US, the Federal Communications Commission has ended its misguided experiment with net neutrality regulation. Despite partisan predictions of doom from the repeal of the Open Internet Order, network investment, 5G wireless, and innovation are booming. CompTIA’s Cyberstates reported that the number of internet startups increased from 34,000 in 2017 to 40,500 in 2018. (See the empirical research reviewing net neutrality outcomes across 50 countries.)
General Data Protection Regulation
Politico has also reported how the GDPR has rewarded the largest US tech platforms with increased market share. A slate of negative consequences has engendered buyer’s remorse from many EU policymakers. Advertisers have stopped using ad tech companies because they believe these firms can’t afford to comply with the regulation. Venture capital to the EU tech sector has plummeted, and thousands of US media companies have exited the market.
GDPR proponents expected the regulation would somehow tame the giants, reduce their market size, drive their happy users away, and, most importantly, direct large payouts to litigators. In contrast to policymakers’ promises, official EU reports do not record an increase in consumer trust online nor growth by small- to medium-sized enterprises. However, millions have installed blockers to stop the annoying pop-ups every time they visit a website.
The silver lining for the US is that GDPR is a natural experiment, and its results demonstrate how not to do privacy legislation. Let’s hope that lawmakers in Congress and California are paying attention.
Conclusion
At one time, EU policymakers may have viewed competition policy as a way to incentivize markets to make better products and deliver more value. But that has been disregarded in the wake of a parade of jingoistic and rent-seeking policies, none of which have spurred European innovation. The success of EU government-sponsored innovation programs is mixed. Quaero and Theseus, intended to challenge Google, were hobbled by political hubris. Simply put, testing and learning from users in every single interaction has an advantage over bureaucrat-designed innovations.
Rarely reflecting on past mistakes and rushing to outdo their predecessors with pseudo-consumer friendly platitudes, past European Commission presidents have proposed grand schemes that amounted to little. While it remains to be seen whether von der Leyen will do better, many voters are fed up with policies that promised jobs and growth but failed to deliver. The United Kingdom is the first country to make a serious go at leaving the EU; it may not be the last.
European Commission president-elect Ursula von der Leyen is eager to bolster tech competition with the US and China, but EU innovation policies have failed for years. In fact, the EU’s past mistakes could provide useful lessons for lawmakers in the US.
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