American tech companies are under unprecedented attack by EU regulators. The European Commission has charged Google with abusing its near-monopoly over internet search in the EU to favour its own shopping services. It has also opened a probe of Google’s Android mobile operating system. And, as part of its just-announced ‘Digital Single Market Strategy’, the Commission is calling for a comprehensive investigation of the role of (mostly American) internet platforms, such as social networks and app stores.
Questionable practices by companies from any country should be addressed in a fair, impartial way. But that seems unlikely to happen here. The key driver of the EU’s regulatory onslaught is not concern for the welfare of ordinary Europeans; it is the lobbying power of protectionist German businesses and their corporatist champions in government. Germany’s government boasts about how “globally competitive” the country is, and its officials lecture their EU peers on the need to emulate their supposed reformist zeal. And yet, while the country remains a world-beating exporter in industries like automobiles, it is an also-ran in the internet realm. There is no German equivalent of Google or Facebook. Stymied at home by red tape and a risk-averse culture, the most successful German internet entrepreneurs live in Silicon Valley. While US-based companies conquer the cloud, Germany is stuck in the mud.
While US-based companies conquer the cloud, Germany is stuck in
With Germany’s digital start-ups stifled by overregulation and underinvestment, dinosaurs from the analogue world set the policy agenda. Traditional media companies resent their reliance on Google to direct traffic to their sites and its ability to sell advertising based on snippets of their content. The partly state-owned Deutsche Telekom hates that it does not earn additional revenue when people use its network to make calls on Skype, send messages on WhatsApp, and watch videos on Netflix and YouTube. TUI, the world’s largest travel agency and tour operator, feels threatened by TripAdvisor. Retailers fear Amazon’s ever-expanding empire.
Germany was the first EU country to institute a national ban on Uber, at the behest of taxi drivers fearful of competition. And Germany’s powerful industrial lobby frets that American tech companies could eat their manufacturing lunch. As Günther Oettinger, the EU’s (German) digital commissioner, put it, “If we do not pay enough attention, we might invest in producing wonderful cars, but those selling the new services for the car would be making the money.” Whereas Oettinger’s predecessor, Neelie Kroes, championed the potential of disruptive technologies to benefit consumers and boost economic growth, Oettinger is unashamedly corporatist in advancing German business interests.
German companies are not alone in fearing American competition, but their influence within the European Commission is decisive. Indeed, Germany has never had more clout in the EU. The debt crisis, which distracted France and alienated the UK, has thrust Germany, the eurozone’s largest creditor, into the European driver’s seat.
European Commission President Jean-Claude Juncker owes his position to the European People’s Party, the centre-right political grouping dominated by German Chancellor Angela Merkel’s Christian Democratic Union, which in turns holds sway over the European Parliament. Juncker is also indebted to the Axel Springer media group, the publisher of Bild, Germany’s best-selling tabloid newspaper, which strongly backed him last summer when Merkel was wavering. And his German Chief of Staff, Martin Selmayr, ensures that his country’s concerns are heeded across the Commission.
Last year, Germany pressured Joaquín Almunia, the EU’s then-competition commissioner, not to settle its antitrust dispute with Google, enabling his successor, Margrethe Vestager, to pursue it. In fact, the investigation into internet platforms comes at the demand of Germany’s economics minister, Sigmar Gabriel. And its outcome seems preordained; in a leaked position paper, Oettinger proposes a powerful new EU regulator to rein in online platforms. He recently spoke of the need to “replace today’s web search engines, operating systems, and social networks”.
A digital single market
No one forces Europeans to use Google as a search engine; competitors are only a click away. For shopping, Europeans increasingly bypass it, searching directly on Amazon or eBay, or navigating through Facebook. So Google scarcely controls, much less monopolises, this rapidly evolving landscape. Nor have shoppers suffered. But, whereas US antitrust law rightly focuses on whether consumers are being harmed, EU competition authorities also consider whether rival firms have lost out – including old-fashioned shopping portals, such as Ladenzeile.de, owned by Axel Springer.
Creating a digital single market makes sense. Whereas every American internet start-up benefits from a huge domestic market, their European counterparts are limited by domestic regulations to smaller local markets. Unfortunately, the European Commission’s proposals are not focused on enabling Italians to buy from British websites or opening a market of 500 million Europeans to Spanish start-ups. Their main goal seems to be to constrain American digital platforms. As Gabriel put it in a letter to the Commission last November: “The EU has an attractive single market and significant political means to structure it; the EU must bring these factors into play in order to assert itself against other parties involved at the global level.”
Instead of conspiring to hobble its American rivals, stifle innovation, and deprive Europeans of the full benefit of the internet, Germany should practice what it preaches and make the difficult reforms it needs to raise its game. It should make it easier to start and expand internet businesses. It should boost investment in broadband infrastructure and digital technologies. And it should throw its weight behind a genuine EU digital single market that benefits consumers and enables start-ups to flourish, instead of a backdoor industrial policy that favours Germany’s digital flops.
Philippe Legrain is Visiting Senior Fellow at London School of Economics’ European Institute.
© Project Syndicate 2015