The New European Tech Doctrine Part II: How Aggressive European Policy is reshaping the future of big-tech

In spite of criticism over excessive bureaucracy, the EU has undeniably taken the lead over the US in new regulation of big-tech; these ideas will significantly impact the future activities of Silicon Valley’s largest firms. Europe is an increasingly important source of technology revenue; Amazon, Apple, Facebook, and  Microsoft each reported a quarter of annual revenue from the continent in 2018. As the world’s largest single economic bloc, the standards of the EU are often copied as benchmarks for the developing world; hence European policy could have a knock-on effect on attitudes to big-tech globally.  European economic power is matched with tough restrictions on lobbying and unification of legal standards across multiple jurisdictions, helping the region take an objective and long-term perspective towards significant technology regulation.

Key to differences in the pursuit of regulation in between America and Europe lie in the underlying economic philosophy embraced in either region. American antitrust policy has in recent years become dominated by free-market economists of the Chicago school, eyeing government intervention with deep scepticism. American courts view dominant firms as a problem only if clear harm to consumers is exemplified; it is the lure of large profits that after all draws firms to develop innovations in the first place. In contrast, the economics consultant Cristina Cataffarra has argued that ‘Europe is philosophically more sceptical of firms that have market power’. Competition is seen as valuable in and of itself and European regulators seek to see competitors exist beyond one firm conquering a market. Through this viewpoint, the dominance which Facebook possesses in user data and Amazon has over customer purchase-history data must be challenged, as it is this control which places a stranglehold over potential competition.

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Facebook employs sophisticated machine-learning algorithms to recommend content from vast quantities of user data

Not only do Europeans feel more strongly about regulation than regulators in the US, but they have also been granted more legislative power to implement necessary changes. Whereas American antitrust involves prosecuting the case to a judge, the European Commission has the power to impose fines by itself without approval of national governments. Moreover, European antitrust law can be applied both by the commission and national authorities granting additional legislative strength. Evidence for this lies in the recent spate of high-profile antitrust suits launched by the European Commission launched against major Tech firms, including Google (sanctioned for a total of €8.2 billion since 2017), Facebook (fined €110m in 2017), and Amazon.

A supporting point to the increasing competition legislation is Europe’s historical experience with dictatorship, which has rendered data-privacy protection as a far more critical concern than in the US, and a central component of Europe’s technology doctrine. The EU General Data Protection Regulation (GDPR), introduced in May 2018, has further intensified the issue; the policy served to harmonise data-protection across EU member-states whilst establishing the central importance of individual choice over how their data is used and monetised.  GDPR fundamentally challenges the advertising-revenue model used by social-networks through the imposition of harsh sanctions for non-compliance and misuse of user information. A pressing example came in September 2018, when Facebook experienced the worst data-breach in its history with personal information of 50m users exposed. The firm faces a potential fine of up to 4% of annual revenue ($1.626bn) if officials find it failed to act sufficiently to avoid the breach.

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The 2018 EU General Data Protection Regulation (GDPR) intensified data-privacy regulation within Europe

Alongside data-protection, legislative measures are critical to regulate technology firms to act in the public interest and ensure competition is promoted. One extreme policy proposed by the US Democratic Senator Elizabeth Warren, is breaking up tech giants Amazon, Facebook and Google to ensure competitive markets and prevent monopoly abuse.  The EU has so far dismissed such measures. Instead, the European approach offers a halfway approach through forcing companies to share data, weakening their market power and empowering citizens with additional market-choice to raise standards. Through enforcing interoperability between services, users should theoretically more easily switch to providers with more ethical behaviour or superior financial terms.

One proponent of data disbursement is Harvard economist Jason Furman, who has advocated for an independent regulator to liberate data from firms with a dominant ‘market status’. Under such an initiative, consumers would be free to move their individual data such as Amazon purchasing-history to a rival service if they have a preferable approach to privacy. Whilst software-engineers at incumbent tech-firms could still access vast quantities of user-data, this policy would deny them from privileged access to it. Similarly, competitor firms could demand bulk-data from Google to strengthen their proprietary search engines. There is a precedent for such an approach to competition in Germany, where large-insurance companies are forced to share data under an e-health policy to improve their risk models.

“There are a lot of benefits to the digital sector, but when you have these large companies that are so dominant in so many markets, consumers don’t have the choices they should have,” Professor Furman told the BBC in a panel concerning digital competition.

This vision would shift the balance of power away from tech firms with enormous profit-margins to consumers; failure to invest in an innovative user-experience would lead to a reduction in market-share if thriving competitors are preferred.

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Professor Jason Furman has advocated for an independent regulator to enforce data-sharing between competing tech firms

These information-sharing approaches are risky and must be fine-tuned. One key difficulty is ensuring user-privacy whilst providing for the open-flow of data. Here, EU legislators must cooperate with tech-entrepreneurs across the globe to ensure necessary security-standards are enforced. In particular, anonymization of a large dataset such as Google search-history for competitor-algorithms may prove difficult without some individual-data leaking out. Secondly, if Europe’s data-protection and data-sharing methods are not adopted worldwide, there is a risk that the region is cut off from the mainstream with a significant loss of inward investment.  

Regardless of this uncertainty, it is clear that the tide is turning against unregulated data-collection towards the European model.  Evidence for this comes from data-privacy laws adopted in Russia (2015) and the US with the California Consumer Protection Act (2018).

Europe’s aggressive and innovative approach to regulating big-tech should serve as a model to governments worldwide. Whilst entrepreneurial activity is critical to economic growth, legislation is justified to level an unequal market playing-field and to promote competition among tech firms. Safeguarding data-privacy and enforcing data-sharing are key ingredients of required policy.

Thomas Kurian

 

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