The EU’s digital self-sabotage
To say that Europe is a digital economy backwater is an understatement. On Forbes magazine’s list of top 20 digital companies, 17 are American and three are Indian, Chinese, and Korean, respectively. It is not the case that the continent has given up on innovation altogether — after all, Europe is still home to some of the world’s leading pharmaceutical and engineering businesses and accounts for a big part of global R&D spending. Yet, a variety of cultural, legal and regulatory factors are holding it back in areas in which Silicon Valley has established itself as the world’s main hub of digital growth and innovation.
One reason is the fragmentation of Europe’s digital markets. Even if all explicit regulatory barriers disappeared overnight, new digital businesses would continue to face 27 different tax collection agencies, and a variety of business cultures — not to speak of language barriers. And in spite of efforts to make regulatory obstacles go away, those remain firmly in place.
Worse yet, in areas in which European institutions could be helpful, they are doing the opposite. While there is a case to be made for tighter protection of users’ data, reflected in the 2016 General Data Protection Regulation (GDPR), the evidence behind the idea that digital businesses are singularly successful at avoiding taxes and should therefore be subject of an additional European levy on their revenue is extremely flimsy. Whereas the ‘digital tax’ faces opposition from member states, another policy measure has just made it through the EU’s legislative process: the Directive on Copyright in the Digital Single Market.
The new piece of legislation is controversial for two of its clauses. First, in order to protect content providers — such as news organizations — it stipulates that existing copyright protections of original content ought to extend to inclusions in, say, search results under the so-called “neighboring rights.” That may mean that companies such as Google and Facebook would need to obtain permissions of news organizations, and even offer them compensation, in order to be able to display small snippets of the content alongside links (as has been the norm on such platforms). The Directive thus misunderstands the role of search engines and online content aggregators in connecting the public with the online content that they seek.
Second, in the case of platforms that rely on content uploads by users — such as Youtube — the directive places the onus of preventing copyright violations on the platforms themselves. There, the concern is that a strengthening of existing copyright filters, which are already heavy-handed, will render such platforms effectively unusable.
Arguably, these two provisions are results of intense lobbying by large media organizations, particularly in Germany. Now, the Directive is vague and its implementation will rely on further legislation by member states. It is perfectly conceivable that legislative and technological responses will be crafted to get around the two ideas. However, those may also be steps toward a gradual balkanization of the internet. Either way, it is safe to predict that the new piece of legislation will not help to turn the EU from a laggard into a global digital player — quite the contrary.
Dalibor Rohac is a research fellow at the American Enterprise Institute (AEI), where he studies European political and economic trends. Specifically, he is working on Central and Eastern Europe, the European Union (EU) and the eurozone, US-EU relations, and the post-Communist transitions and backsliding of countries in the former Soviet bloc. He is concurrently a visiting junior fellow at the Max Beloff Centre for the Study of Liberty at the University of Buckingham in the UK and a fellow at the Institute of Economic Affairs in London.
