Europe’s dig­i­tal re­ac­tionar­ies

Financial Mirror (Cyprus) - - FRONT PAGE -

Many Euro­pean politi­cians praise the In­ter­net. Un­for­tu­nately, their lofty rhetoric of­ten rings hol­low. While call­ing for a strong dig­i­tal agenda in one breath, the same politi­cians, sup­ported by pro­tec­tion­ist in­ter­ests at home, of­ten ar­gue for putting a brake on the In­ter­net’s “dis­rup­tion” by im­pos­ing strict new reg­u­la­tion.

Such dou­ble-talk is mis­guided. If Europe is to pros­per in the twenty-first century, its newly elected lead­ers need to em­brace a pos­i­tive, con­crete pro-In­ter­net agenda. That means sign­ing dig­i­tal free-trade agree­ments and cre­at­ing a true Euro­pean dig­i­tal sin­gle mar­ket out of to­day’s frag­mented 28 na­tional ju­ris­dic­tions. Long-out­dated copy­right and li­cens­ing laws must be over­hauled. New pri­vacy rules must pro­tect cit­i­zens and al­low in­no­va­tion; calls for manda­tory data lo­cal­i­sa­tion and lo­cal ver­sions of the “In­ter­net” must be re­sisted.

If car­ried out, this sub­stan­tive dig­i­tal agenda could pro­vide what Europe needs most af­ter the fi­nan­cial cri­sis: eco­nomic growth. Ac­cord­ing to the OECD, the In­ter­net now ac­counts for up to 13% of eco­nomic out­put in the US. Ev­ery type of busi­ness now de­pends on the dig­i­tal econ­omy. With a few key­strokes, small com­pa­nies sell­ing Pol­ish antiques, tra­di­tional Bavar­ian cos­tumes, and Span­ish shoes have burst out of their home mar­kets and reached con­sumers around the globe.

By un­leash­ing the In­ter­net, fi­nan­cially strapped Europe can cre­ate new jobs with­out tak­ing on new debt. Euro­pean Com­mis­sion fig­ures sug­gest that Europe’s so-called “appecon­omy” work­force will rise to 4.8 mln by 2018, from 1.8 mln in 2013, with rev­enues more than tripling, to EUR 63 bln ($86 bln). We also know that some 90% of jobs by 2020 will re­quire work­ers to have tech­nolo­gies.

Such suc­cess re­quires break­ing down re­sis­tance by Europe’s mar­ket in­cum­bents and em­brac­ing rather than block­ing new en­trants. Un­der the Euro­pean Union’s cur­rent frag­mented reg­u­la­tory regimes, com­pa­nies must ob­tain sep­a­rate per­mis­sion to sell in each of the 28 na­tional mar­kets. It takes even large com­pa­nies like Ap­ple and Google years of work to open lo­cal stores and launch new of­fer­ings. The growth of small Euro­pean in­no­va­tors, such as Spo­tify, has been stunted. Many new ser­vices that al­low us to swap, rent, and share ev­ery­thing from taxi rides to sec­ond-hand de­signer dresses are strug­gling to get off the ground.

In­ter­net skep­tics could also scut­tle po­ten­tially trans­for­ma­tive tran­satlan­tic free-trade talks, launched with great fan­fare last year. A grow­ing vol­ume of trade is con­ducted in bits and bytes that flow over the In­ter­net. A new study by McKin­sey finds that dig­i­tal-driven, knowl­edge-in­ten­sive goods to­day com­prise a full 50% of to­tal global cross-bor­der trade – and are grow­ing at least 1.3 times as fast as other types of trade. If cur­rent trends per­sist, the vol­ume of such goods could triple by 2025.

Yet many Euro­peans talk of im­pos­ing dra­co­nian pri­vacy or data-lo­cal­i­sa­tion rules as a pre­con­di­tion for sign­ing any new free-trade deal. Such re­quire­ments would be di­a­met­ri­cally op­posed to the In­ter­net’s found­ing prin­ci­ples of fric­tion­less, borderless ac­cess to in­for­ma­tion. Like Rus­sia and China, Europe would be blocked from the rest of the global In­ter­net, be­cause new ser­vices that are un­able to build Euro­pean data cen­tres would be locked out.

In this con­text, the Euro­pean Court of Jus­tice’s re­cent rul­ing, which recog­nises a “right to be for­got­ten” – and thus re­quires Google to re­move search in­for­ma­tion, even when le­gal, on de­mand – rep­re­sents a sig­nif­i­cant dan­ger. By re­quir­ing ev­ery search ser­vice, in­clud­ing those of univer­sity li­braries, to



in­for­ma­tion and com­mu­ni­ca­tion make it dif­fi­cult to find le­gal in­for­ma­tion, we risk open­ing the door to large-scale pri­vate cen­sor­ship.

Such un­in­tended con­se­quences per­vade EU com­pe­ti­tion pol­icy as well. Euro­pean pol­i­cy­mak­ers are con­sid­er­ing a reg­u­la­tion that would re­quire In­ter­net plat­forms like app stores, so­cial net­works, search en­gines, and ecom­merce sites to meet cer­tain pub­licly spec­i­fied cri­te­ria to achieve eco­nomic, so­cial, or po­lit­i­cal ends. Such reg­u­la­tion, it is ar­gued, would fa­cil­i­tate the emer­gence of Euro­pean In­ter­net plat­forms and guar­an­tee “open ac­cess” to users.

In fact, these moves might cre­ate new bar­ri­ers to en­try, en­trench­ing mar­ket lead­ers and un­der­min­ing in­no­va­tion. In­ter­net mar­kets are typ­i­fied by dra­matic change. Wit­ness how Face­book over­took MyS­pace in so­cial net­works, or how Ap­ple up­ended the mar­ket for smart­phones – or how new ser­vices and mar­kets are con­stantly be­ing in­vented. Twit­ter has dis­placed no one; rather, it sup­ple­ments and com­petes with all other modes of com­mu­ni­ca­tion.

By con­trast, EU com­pe­ti­tion in­ves­ti­ga­tions drag on and on. It took ten years to reach a set­tle­ment with Mi­crosoft; it may end up tak­ing that long with Google. By that point, the fast­paced In­ter­net en­vi­ron­ment may well have evolved be­yond recog­ni­tion.

Euro­pean au­thor­i­ties should avoid shack­ling dig­i­tal progress. Europe’s con­sumers should be able to buy on­line songs, watch on­line video, and shop on­line for what­ever prod­ucts they choose, and Europe’s businesses should be able to ben­e­fit fully from the EU’s gi­ant mar­ket. In­deed, let­ting the In­ter­net blos­som not only makes good busi­ness sense; it might also help to re­store vot­ers’ wan­ing faith in the Euro­pean project.

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