The European Union Approach to Digital Reform

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The European Union Approach to Digital Reform

Happy Tuesday!  Please note, this is an excerpt from a larger report produced for a Perch Perspectives client and partner and is shared with their permission. If you find the content interesting, or are interested in the investment implications of these sorts of geopolitical developments in general, keep an eye on this space (or contact us directly). We’re looking forward to sharing more about what we’re up to with this partner in 2021. In the meantime, enjoy this tease, wear your masks, have a great holiday season, and we’ll catch you on the flip side!

The European Commission proposed two far-reaching digital reforms that promise to increase European scrutiny and control over online platforms and to ensure that digital “gatekeepers” do not stifle a more competitive online business environment.

There is no European equivalent to Google, Amazon, or Facebook. Even the areas where European companies are global leaders in the tech sector (think Nokia or Ericsson) are about hardware. In announcing its proposals, the European Commission pointed out that “some very large players have emerged as quasi-public spaces for information sharing and online trade. They have become system in nature and pose particular risks for users’ rights, information flows, and public participation.” The EC is proposing to give itself special new powers to supervise large platforms (defined as reaching more than 10 percent of the EU population), including the ability to sanction these platforms and gatekeepers directly, to include “fines of up to 10 percent of the gatekeeper’s worldwide turnover.” 

The European Commission is essentially starting from scratch. It can’t go back in time and fix inadequacies hardwired into the EU’s political structure. There are no such inadequacies when it comes to the digital economy because the digital economy didn’t exist in 1992. By creating a “modern rulebook across the single market” and by pushing for a European “Digital Decade,” the EU is attempting to create a level of digital integration that may be able to “pull” political integration forward along with it. It is also, in effect, protecting Europe’s digital future from foreign tech companies and creating a space for European champions to emerge – presumably champions that will agree to play, not by the rules of whichever member state their creators hail from, but by EU rules. 

Just as technology greased the wheels of globalization, technology is now being put to use by states and governments to protect national (or in this case, European) interests. We expect and are already seeing the rise of separate technological spheres in China, Russia, and the United States. The EU is starting from behind, but that backwardness is precisely what allows Brussels to assert a level of authority and control that would be impossible on almost any other issue of this magnitude. This is digital protectionism, not just for the sake of “European values,” but to enable European tech giants the chance to catch up and make their mark on the continent’s future, both at home and abroad.