Europe’s Digital Future
In recent years, the European Union has unveiled a series of ambitious legislative and regulatory packages to rein in problems endemic to the new digital economy. Can leading the world in tech governance help to establish Europe's place in the twenty-first century?
Recently, Anu Bradford, a professor at Columbia Law School and the author of The Brussels Effect: How the European Union Rules the World, sat down with European Commission Executive Vice-President Margrethe Vestager, one of the European Union’s leading regulatory and economic-policy minds, to discuss key developments and trends in the digital economy. From privacy protection and antitrust action to online speech regulation and innovation policy, what happens in Europe’s digital economy will have profound and far-reaching implications for the rest of the world in the years ahead.
Anu Bradford: Most of the Big Tech companies have been in the news lately. Let’s start with Apple. The European Commission recently issued a statement saying that the company has abused its dominant position in the music streaming industry. This is one of several competition cases that you have brought against big American tech companies, including Google and Amazon.
What, exactly, is your main concern with how Big Tech operates? Consumers love and depend on these companies’ products, after all, and that reliance has grown during the pandemic. What is the concrete harm that an individual consumer experiences, and what would a more competitive marketplace look like?
Margrethe Vestager: A competitive marketplace, first of all, is an open marketplace where someone who wants to invest and innovate can do so. Recall the EU’s first action against Google in 2010, over its Google Shopping service. In that case, there was little reason for a new market entrant to invest in its own shopping-comparison technology, because the services being provided never would have reached customers, owing to Google’s control of search. The reference point for our policy is to embrace technology and innovation so that customers actually get more out of it.
This is one reason why we have called in the cavalry with the Digital Markets Act (DMA), which the European Commission proposed this past December. We need to prevent what led to the Google Shopping case from happening again.
With respect to Apple, we have suspicions – and have concluded preliminarily – that the company is misusing its dominant position by way of its App Store. An iPhone user has nowhere else to go for applications. I live in Belgium, so if I am unhappy with Delhaize supermarkets, I can go to Carrefour (another supermarket chain). But if I buy an iPhone, I am locked into one app store. If we think of a digital app store as a supermarket, that lock-in seems really strange. When the DMA takes effect, these users can have other app stores on their phones.
AB: The DMA is partly motivated by a recognition that the current toolkit for bringing cases against the Big Tech companies is not enough. You have fined Google around $10 billion, but those penalties haven’t produced a competitive marketplace in internet search. How confident are you that the DMA will change that?
MV: We think that it will make a real difference. In Europe, we have no ban on monopoly; what we ban is monopolistic behavior. A company is more than welcome to be successful and grow large in the EU. But with power comes responsibility. Under the DMA, a company that has been designated a gatekeeper will have a number of obligations, and will be subject to a number of prohibitions. These conditions will open up the marketplace.
It is important to remember that this is a special marketplace, because it is digital. We must account for features such as network effects, marginal costs approaching zero, markets in which users pay with their data, rather than with money. In my view, this is a market where you can have both giant gatekeepers and a vibrant ecosystem for entrepreneurship and innovation.
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As matters stand, however, there are a number of areas where we do not see the innovative responses that one would have expected. Take privacy. In a competitive market, you would expect there to be many more services meeting this basic consumer demand with privacy protections built in as the default.
AB: You point to the intersection between privacy and competition law. Apple recently made waves with the release of a new anti-tracking feature on its devices. Many privacy advocates welcome the fact that the company seems to be innovating toward a value that we all consider to be important. But others see the move as an example of Apple entrenching its dominant position and curtailing competition. Other companies – especially Facebook – are seen to be the big losers.
Were you delighted with this new feature, or do you have some concerns?
MV: I was very positively surprised when I saw it. The feature is simple. Most people will understand what they’re being asked when prompted with the question of whether they want a given app to track them even when they’re not using it. This is an important lesson that we’re still learning when it comes to enforcing privacy rights: we need to make it simple.
Here, the only concern is that it should also apply to Apple itself. From my understanding so far, Apple claims that this is indeed the case. Equal treatment between different apps is important. But Apple has provided a push in favor of business models that rely on the provision of an actual service, not just the harvesting of data. With informed consent, users can make decisions about what they want to pay – in their own data – for these services.
Doing Business in Europe
AB: When we talk about Big Tech, we’re almost always referring to American companies. As such, some in the United States have come to regard the EU’s actions as a form of protectionism, driven by envy. How do you respond to this criticism?
MV: Looking at the facts of the cases and the markets, it’s really quite difficult to find any support for this “envy theory.” After all, the first case – against Google Shopping – started with a complaint by US companies, many of which found that they could not do the business that they wanted to do in the EU market. Moreover, if you look at how many European businesses have been bought by tech giants over the last couple of years, you realize that – wow – they’re coming to Europe for the innovation that is happening here.
So, why are there no European giants in the business-to-consumer segment of the digital economy? One reason is that we have lacked the digital single market and the capital market needed to enable that kind of scaling up. We have been doing our best to correct both shortcomings, and these efforts will pave the way for the second phase of digitalization – industrial digitalization –which will center on health, energy, transportation, farming, and public services, where European markets are quite robust. There is already a lot of demand for innovation here, so it will be interesting to see how Europe fares.
AB: But when foreign companies go shopping in Europe, they are sometimes backed by state subsidies, raising concerns about the integrity of the single market and the levelness of the playing field. To mitigate this, the European Commission recently unveiled a proposal to regulate foreign subsidies that support foreign companies operating in the EU, or even finance their acquisitions of European companies. What concrete impact do you expect from this regulation?
MV: What we want to achieve is fairness. The EU has been controlling state aid for 60 years so that such aid doesn’t lead to an uneven playing field or affect trade. This is something that European businesses live with. But there is a problem when they have competitors who can acquire European businesses or win a tender with help from a foreign state subsidy, or even rely on state subsidies to cover their operating costs. That is not fair competition.
What we are proposing is simply a tool that will allow us to look at these issues, to say, “You must notify us if you have a subsidy on your books when seeking to acquire a European company or participate in a European tender process.” If someone fails to do that, we should have the power to say, “If we receive the market information, if someone complains, if we think something is wrong here, we can investigate.”
And because it is not always easy to gain a party’s cooperation, we are suggesting that we should be able to make a decision based on whatever information we have. That way, the parties in question have an incentive to give us more information, so that we can weigh all of the evidence about a given subsidy’s effect. The hope is that this will create a deterrent. The best possible outcome is that when companies come here to do business, it is because they really want to do business, rather than to advance some other agenda.
AB: We know that many Chinese companies are likely to be affected by this regulation. Have you heard any reactions from the Chinese government?
MV: No, we have not. But it is also important to say that this is about ensuring fairness in the European marketplace. Many features of the proposal mirror our own thinking about state-aid controls on European member states. One hopes that people will see that the proposal is proportionate and balanced.
Autonomy and Sovereignty
AB: This discussion points to a broader concept that is becoming a buzzword nowadays: the idea of European strategic autonomy and digital sovereignty. There’s a lot of debate about what these terms even mean. How would you define them? What would it mean for the EU to be digitally sovereign, and is that a feasible policy goal?
MV: At the risk of complicating matters, we actually would call it “open strategic autonomy.” One thing we have learned over the decades is that a big part of Europe’s strength comes from its openness. Europe is a preferred trading partner for 74 countries. We work with people from all over the planet in business, research, innovation, and many other areas.
But the world is changing. With new geopolitical patterns emerging, we must find the best ways to keep serving European interests. Usually, this is done in a global or multilateral manner. For example, it is in Europe’s interest to have a World Trade Organization that works properly, and to maintain firm alliances within the International Telecommunication Union. In other areas, however, our interests are closer to home. For example, only 10% of all semiconductors are currently produced in Europe, and we want to increase that figure to 20% (of the most advanced kind) over the next ten years.
Open strategic autonomy is not about doing everything yourself; but it is about doing more. Europe is a massive machine to regulate, so it is important to have the necessary hands-on experience to know what it is you’re regulating. That is what I think of as digital sovereignty.
But it is important that we put more muscle on the bones of this concept. It cannot remain a high-level, abstract debate indefinitely. What matters is what we do in a tangible sense, whether it be setting targets on advanced semiconductors, building our network of high-performance computers, or launching at least one quantum computer within the next five years.
AB: Another critical area of innovation is artificial intelligence, which will be essential to Europe’s pursuit of digital sovereignty and economic prosperity. Here, too, the EU has proposed a pathbreaking regulation, the Artificial Intelligence Act, both to encourage the uptake of AI and to protect European consumers and citizens against its attendant risks. Is this regulation striking the right balance between innovation and precaution? More broadly, how do you think about the relationship between innovation and regulation
MV: It may sound strange, but the point of the regulation is to embrace AI fully. That is how you ensure that customers feel safe and that those deploying the technology feel comfortable in the regulatory environment. The Artificial Intelligence Act embodies a pyramid metaphor. At the bottom, there are a lot of things left untouched by the regulation. At the next level – a website chatbot, for example – the only requirement is that the interaction be transparent: people should know they’re interacting with digital code.
It gets a bit trickier when you get closer to the top of the pyramid, because that is where one finds technologies that could pose a risk to our fundamental values. There have already been cases where AI used by social services or law enforcement has been shown to be biased. When it comes to social affairs, you want to be seen as who you are, not merely as an iteration of a particular gender, race, or social background.
So, the regulation requires that the AIs used in decisions about hiring, mortgages, and so forth be built on a foundation of high-quality data. The decisions need to be explainable. There must be a human in the loop, and the most stringent cybersecurity measures need to be in place. By ensuring a basic level of trust, the regulation should be an enabling factor for the market. People should be able to say, “We want to use this service because we can be confident that the fundamentals are taken care of.”
At the very tip-top of the pyramid are cases where we would simply say, “This cannot be. This goes against our values.” Here, I’m thinking of things like remote biometric identification in public spaces, with governments devising social scoring for individuals. This should be prohibited, perhaps with the exception of using remote biometric identification for a limited time to prevent an imminent terrorist attack or to find a missing child.
Again, the point here is to enable the best uses of the technology. To do that, we need to focus on specific cases and the associated risks to ensure that we are being proportional. We should be mindful of all the amazing things that AI is already helping us do and will help us do in the future. We should enable innovation for these uses, and the regulation helps to do this by creating the trust needed to open the market. A completely unregulated environment for AI is not what gives us the best innovation.
We also must open up financing of AI. Following up to the regulatory proposal, we have also issued a new coordinated plan for AI investment, so that more money can be deployed for innovation in this domain.
The Speech Wars
AB: AI also powers the algorithms on social-media platforms, determining which speech is amplified and which silenced. The EU’s recently proposed Digital Services Act (DSA) seems aimed at introducing more transparency and accountability here. Will it establish democratic oversight over online speech? Who, in your view, should be deciding which speech is harmful and which is permitted?
MV: That decision is for EU member states. The DSA is not about content; it’s about the processes needed to ensure that digital services work in a way that supports decisions made in our democracies about what is legal or illegal. Different member states will make different decisions concerning hate speech. Some will be very strict, others less so, depending on a number of factors such as cultural issues and how a country conducts its public discourse. Comparing just the Danes and the Swedes, we would expect two very different approaches.
The DSA will ask two things of platforms. First, they will have to set up a mechanism for users to complain or seek redress if their posts or entire profiles are removed. That way, these decisions will not feel so one-sided. Second, the DSA will require general risk assessments. Tech companies will need to ask themselves whether their platforms will invite threats to democracy, and what they can do to mitigate those risks.
Remember, social media can be a great enabler of democracy; but it can also be the opposite. I work with a program to help more women engage in politics, and a recurring issue that we face is online hate speech and harassment that is clearly aimed at discouraging women’s participation. At the same time, these platforms create opportunities for people to voice their ideas and interact with others. Ultimately, I think that full democracy will have a physical side and a virtual side. We need to ensure that the virtual side is enhancing our democracy, not undermining it.
AB: One of the hardest questions is where to draw the line between robust freedom of speech and curtailing the kind of hate speech that undermines dignity and democracy itself. In the US, where people have traditionally embraced a very broad notion of freedom of speech, many are growing uncomfortable with the lack of speech boundaries online. But at the same time, there are strong objections to the idea of the government or a private corporation regulating speech.
One experimental solution, Facebook’s so-called supreme court – an independent oversight board – has been in the news lately. What are your views on this version of democratic oversight? Does this approach meet your criteria of transparency and accountability?
MV: I think it’s a good idea. Part of being a responsible business is setting up your own mechanisms for accountability and transparency. But it’s not necessarily enough, either for transparency or from the standpoint of protecting the public interest. You will have your user terms and conditions, but then you will also have your approach to engaging with the wider society. My guess is that there will usually be a large degree of overlap between the two. But it is important to have transparency so that we can keep discussing issues in the gray zone – such as speech that is harmful but not illegal. This is not a discussion that can be finalized once and for all. That is why we need processes for maintaining transparency, and these processes must be anchored in a legal framework that applies the same rules to everyone.
So, no, we cannot rely just on individual business. Even though I think Facebook has improved – a lot of obviously illegal things are now being taken down – I also think these processes should be anchored in legislation that is created, debated, and adopted by our elected representatives.
The Brussels Effect
AB: The Big Tech firms are being regulated by several jurisdictions; but the EU has been most vigorous in developing new legal frameworks, and these have proven to have a wide global reach – what I call the “Brussels effect.”
A prime example is Europe’s General Data Protection Regulation. Companies have complied with the GDPR across their global operations, because doing so is easier and less expensive than maintaining different practices in different countries. Similarly, norms on hate speech have emerged through various codes of conduct that these companies negotiated with the EU. And many other governments have used EU law as a template for their own regulatory regimes. So, I’m curious whether you have global consumers in mind when you are drafting regulations. And what is the advantage for the EU when EU law gets replicated across the global marketplace?
MV: I think you are right about the “Brussels effect.” Europe was way ahead of the curve when it passed the GDPR. Many others are now starting to catch up with legislation that is similar, though not exactly the same. I think India is the latest example, along with a number of US states.
When we draft legislation for Europe, what we try to do is to make our values a real thing in everyday life. But our values are not just European. I think we share something fundamental with most democracies when it comes to respecting the integrity and the dignity of each individual. That’s not just a European notion. It’s also an American, Japanese, and South African notion. I think that is why our legislation inspires others, and I hope it continues to do so, because we need the world’s democracies to come together.
We will not have a global DSA or DMA. But maybe we will have a legal alignment and a shared mindset. Over the last couple of years, more and more people, and more and more jurisdictions, have started to think along the same lines about these issues. That is a dramatic change. The task now is to figure out how to translate that shared mindset into legislative frameworks.
Of course, I hope that Europe can inspire here, too. But I’m also humbled by the fact that others are following the same path not necessarily because ours is the best way of doing things, but because it reflects a fundamental impulse of democracy. Again, we need democracies to come together. There is an emerging systemic rivalry between democracies and non-democracies. I think that we in the EU should show that democracies can deliver for people in everyday life.
AB: Of course, under former US President Donald Trump, there was a deep transatlantic divide on many policy issues, including those concerning the digital economy. There was a lot of talk about not seeing eye to eye on regulation, data flows, digital taxes, or antitrust. Some of these differences remain quite entrenched.
Nonetheless, many would say that the US is now moving closer to the European position. The US Federal Trade Commission and Department of Justice have begun to pursue antitrust action against some of the big digital companies. In a tweet, Jake Sullivan, US President Joe Biden’s national security adviser, welcomed the EU’s AI regulation and affirmed America’s willingness to work with other likeminded countries in regulating these technologies. Finally, we are also seeing potential progress in digital-services taxation, with the US exploring avenues for global cooperation on corporate taxes more generally.
Given these developments, are you optimistic for a return to closer transatlantic alignment?
MV: Well, I’m an optimist, whether it is by nature or by choice, because I find that pessimists never get anything done. Why would they, if they assume things will be worse tomorrow? But mine isn’t optimism for its own sake. It reflects the facts. Major changes are underway within the US and in terms of geopolitics. I am encouraged by the fact that in discussions about taxation, antitrust, and privacy, we are already in a very different place than we were a few years ago. That doesn’t mean we will agree on everything. But we are paving the way to something really fundamental: democracies working together.
Consider a small but illustrative example of why it matters so much in today’s systemic rivalry that democracies can form a united front. Last year at the International Telecommunication Union, China advanced a proposal that would basically have turned the architecture of the internet upside down, making it far more centralized and controllable by governments. A number of democracies came together to reject this proposal, and we should be glad they did. But constant vigilance will be needed to ward off these threats to the system, and to show that democracies need other democracies in order to deliver for their citizens.
The Next Chapter
AB: Let’s put your optimism to test. Building on the idea of the EU as a global regulatory superpower, can Europe also become a technology power? When will we see a European tech giant to rival the likes of Google, Amazon, Apple, Facebook, and Microsoft? What will it take?
MV: I mentioned earlier that we are starting the second chapter of digitalization. The past ten years were about business-to-consumer growth. Next will be industrial digitalization of health, transport, energy, farming, and public services. Public goods and services are Europe’s strong suits. Our highly advanced energy systems are undergoing the transition to renewables, and we are equally advanced in farming.
There is very strong demand for technological solutions that will enable these sectors to develop and transform themselves dramatically in the coming years. Europe has the industrial and entrepreneurial culture to drive this era of digitalization. To handle all of the data that is now being generated, new types of digital companies will emerge. But many will be business-to-business, so you won’t necessarily hear about them as much as you hear about the services you use on your smartphone every day.
Nonetheless, business is fundamental to how our society works, and the digitization of industries will be especially exciting in the European context. There are so many things that we simply cannot do without digital technologies. For example, it’s probably not even possible to fight climate change without digital tools. I think the latest estimates suggest that 20% of emissions can be dealt with over the next ten years using digital means.
AB: So, what do you expect the world to look like in ten years? That’s a long time in the digital economy. Will European values ultimately prevail, leaving us with a more human-centric, fair, inclusive, and democratic digital economy?
MV: I always fear this kind of question. So much has happened in the last ten years, and the only thing I see as a fil rouge – a red thread running through it – is a struggle to make our societies more inclusive. The 2008 financial crisis was awful in many respects, but one of the worst parts was people getting laid off and feeling like they had been fired not just from a job but from their society. Many had nowhere to go, and we have been dealing with the legacy of this ever since.
I just got back from the Portuguese-hosted Porto Social Summit, where I saw European heads of state and government, employers, union leaders, and civil-society groups coming together to recognize the need for an inclusive society that is not detrimental to growth. Witnessing that, I think many things will be quite different in ten years, and that we will have made progress in helping everyone feel more of a sense of belonging in society.
AB: What is the most important legacy that you want to leave behind as the most powerful regulator of the technology industry?
MV: What gets me out of bed every morning is the work of pushing for each and every one of us to see that we have choices, and that our choices make a difference. I find that recognition to be really empowering. Everyone should be able to feel that what they do makes a difference, and this is especially true in the marketplace. When you have an open, contestable marketplace, consumers and citizens have choices and can make a difference.
Likewise, in a democracy, individual contributions can make a difference. For me, it is this act of empowering and enabling that drives what I do, and determines what I would like to achieve. With digitalization, we may finally be able to fulfill some of the promises that we have been hearing for decades when it comes to health, education, and other issues. That would be my humble wish.
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