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Europe’s technology plans fall short

European proposals to catch up with the US and China in technology. It is focusing on taxing and regulation instead of encouraging competitors to Amazon, Google and Facebook.

European proposals to catch up with the US and China in technology. It is focusing on taxing and regulation instead of encouraging competitors to Amazon, Google and Facebook.

by
John Redwood

in Features

28.02.2020

My last two blogs described the problems being created by the novel coronavirus and the response of governments to the situation. I drew attention to the damage to revenues, profits and supply chains and to the gap between market expectations and current reality. That is now adjusting fast. I will keep you posted when we think the adjustment has gone far enough.

We will be looking for evidence of the peak of the virus and at the much-needed policy responses from the authorities to stimulate growth. Before that happens, we expect more downgrades to company prospects and more disappointing figures about economic activity from a wide range of countries.

Meanwhile, the larger long-term structural trends remain crucial to understanding these volatile markets. The world is developing a cyber curtain between a US-led digital economy dominated by Apple, Microsoft, Google, Facebook, Amazon and Netflix, and a Chinese led system dominated by Tencent, Baidu and Alibaba. The virus attacks will, if anything, strengthen the trends for more online shopping, more at-home entertainment and more use of digital data. People facing movement restrictions or cancelled sporting and cultural events will spend more time at home and more money online.

There is another important divide, within the West itself. The EU wants to establish an EU data market and data space. It resents the dominance of the US majors in the digital world and recognises that the US has stolen a march on it with successful American exploitation of personal and consumer data in the EU single market as well as at home.

The EU plan

In its recent White Papers on Artificial Intelligence and on a European Data Strategy, the EU argues for a strategy based on “European values”. It acknowledges that “In the US the organisation of data space is left to the private sector, with considerable concentration effects. China has a combination of government surveillance with a strong control of Big Tech companies over massive amounts of data, without sufficient safeguards for individuals”. Meanwhile “Several issues are holding the EU back”.

The EU decided it wants to establish a stronger EU-led government presence in the data field and to have a unified single market with strong EU regulation. It wants a policy framework, “an ecosystem of excellence”, a regulatory system “an ecosystem of trust” and high-quality public-sector data for reuse. It envisages strengthening its position by new laws, and by investment through a “high impact project”. Realising that cloud storage and processing is now dominant and the US has provided much of this, the EU looks forward to a world where there is more data storage and processing in smart connected objects where the EU hopes for a bigger presence. It wants more data in cars, home computers and appliances, and wants to lift the EU level of skills and data literacy.

The EU is playing catch-up with the US, but not by promoting its own consumer-based companies to take on Google and Amazon. Instead, the EU talks of chipping away at the US majors by competition enquiries, fines for bad conduct, toughened regulation and possible future taxes. Its alternative is a vision of state-led data sharing, and an effort to find a new way of holding and processing data away from the Cloud and the algorithms of the successful US corporations. The EU’s problem is the continuing popularity of the US offering. So far, consumers have been prepared to let US corporations hold and use their personal consumer data because Google, Facebook and others offer their service free to the user. Amazon learns a lot about customers because it offers a quick good value way of shopping with plenty of choice. The EU points out people do then receive targeted adverts based on sharing their personal consumer details, and companies have to pay the US majors for priority or attention in their systems. EU voters seem happy to accept this deal, or where they complain about the power of the US majors they do not want to lose their free service or good value shopping.

Data for all

The EU offers a vision of “data available to all, whether public or private” without explaining how this will be paid for. Of course, it is possible to improve public access to public data, which taxpayers are paying for anyway. That would be a good idea. When it comes to private data, the EU accepts the need for protection of individual privacy. It also needs to understand the deal US companies have got so many consumers to buy into. They get free service in return for letting the company use their anonymised data. We await the EU model of how this data can be better shared.

This seemingly technical discussion is relevant to stock markets. It reminds us there is still a wish to tax, regulate and control US big tech companies more on this side of the Atlantic. There is still difficulty in finding a viable alternative model. It looks likely that the EU state data model will suffer delays and shortages of investment capital, whilst the private sector-led innovations continue to be backed by big money. Data is important for modern economic success. We are still some way off a serious challenge emerging in the West to the US majors. Meanwhile, though subject to higher taxes and more regulations, they go on driving forward more online shopping.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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