Europe’s Digital Power Play

Tying down U.S. behemoths won’t boost European competitors

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Ask not why Europe doesn’t regulate digital companies more. Ask why Europe doesn’t have more of its own digital companies to regulate. That is the question Brussels should have considered as it prepared the new tech regulations the European Commission unveiled Tuesday.

The European Union’s bureaucratic arm is nothing if not ambitious. The proposals would create new mechanisms for regulating content such as violence or hate speech. They would formalize rules for relationships between platform companies and third-party software developers that the commission previously tried to impose via antitrust cases. They’d require new transparency about proprietary business practices such as ad targeting. And the commission wants to impose draconian penalties for violations, including fines of 10% of annual global revenue or the ability to break up tech giants.

The rules don’t explicitly say they’re aimed at U.S. companies. But the proposals are crafted narrowly enough that, wouldn’t you know, mostly very large American companies would fall under their purview. Not many social-media platforms reach at least 10% of the EU’s 450 million consumers, which is the threshold for some of the strictest new rules.

We have no special brief for American tech companies, and our parent company’s executives have tangled with firms such as Google over their sometimes casual approach to intellectual property. The U.S. companies can lobby as they wish in Brussels, and they will. Expect the EU’s new proposals to become law, if they ever do, only after years of wrangling.

Someone should ask, however, why European competitors haven’t emerged to the American behemoths. The commission and its boosters claim this is what the new regulations will do, by creating a “level playing field” for local tech entrepreneurs. But rules such as the commission’s proposal usually do the opposite.

As threatening as the potential fines appear to Facebook or Google, the bigger threat by far will always be to European startups that struggle to absorb regulatory-compliance costs as they grow. Love ’em or hate ’em, today’s tech giants have the resources to comply with new rules and hire lawyers to tussle with Brussels in years to come. Can European entrepreneurs say the same?

American companies have done far less to stunt a single digital market in the EU than have, say, disparate consumption-tax regimes that entangle small businesses trying to ship across national boundaries. Europe might have more of its own tech champions if taxation of venture capital were less punitive, or if labor laws on startups were less onerous, or antitrust enforcement of mobile services less capricious or, well, it’s a long list.

The EU’s tech proposals will make the list of anti-entrepreneurship policies even longer. Whatever regulatory regime tech giants might require or deserve, no one should imagine they’ll be bigger losers from all this than European upstarts will be.

By The Editorial Board | The Wall Street Journal | Dec. 15, 2020 18:26. Appeared in the December 16, 2020, print edition.

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