Corporate concentration in the United States is not only increasing inequality but also undermining competition and consumers’ standard of living. Politically, the commensurate lobbying influence of big tech, big finance and other large conglomerates has created what political scientist Francis Fukuyama calls a “vetocracy” — where vested concerns have amassed the clout to choke off legislative reforms that would diminish their spoils.
Why the opposite is happening in the European Union is an unfamiliar tale of how governance one step removed from electoral democracy has been able to resist the lobbying of organized special interests to make policy that benefits the average person.
Active antitrust policies in the second half of the 20th century fairly leveled the playing field of American commerce. “But starting around 2000, U.S. markets began to lose their competitive edge,” Germán Gutiérrez and Thomas Philippon write, based on a new study of theirs.
“Now, Internet access and monthly cellphone plans are much cheaper in Europe than in America, as are flights. Even in Mexico, mobile data plans are better priced than in the United States. … Meanwhile in the United States, deregulation and antitrust efforts have nearly ground to a halt. The United States has not completed a major reform to the goods and services market since 1996, and as a result, its industries have grown increasingly concentrated.”
What explains this stunning shift is deliberate policy choices. As the authors relate: “European countries created the single market, which took effect in 1993, and deregulated their domestic markets. Today, most European Union countries score better than the United States in enacting policies that make industries more competitive. Not surprisingly, antitrust enforcement remains active in Europe, with two recent cases against Google resulting in over $7.7 billion in fines. European markets are also less concentrated than U.S. markets.”
Gutiérrez and Philippon argue that “free markets are supposed to discipline private companies, but today, many private companies have grown so dominant that they can get away with bad service, high prices and deficient privacy safeguards. … If America wants to lead once more in this realm, it must remember its own history and relearn the lessons it successfully taught the rest of the world.”
Mario Monti — who was Italian prime minister from 2011 to 2013 as well as the E.U. competition commissioner from 1999 to 2004 and is famous for “shooting down mergers in flames” — agrees with Gutiérrez and Philippon. But he adds an important dimension they don’t discuss: how the much-maligned “technocratic” European Commission has been more able than American antitrust authorities to resist undue corporate influence over policy decisions.
While antitrust efforts in the United States are highly sensitive to election cycles and outcomes, Monti points out, the European Commission (which is indirectly elected by the European Parliament) operates at arm’s length from politics and can make decisions that are independent from lobbyist pressures on parliaments at both the national and European level. As he put it in a recent interview, “the more far away you are, the less you feel under pressure.”
The result is policy decisions that are more disinterested because the process is less politicized. This same technocratic distance in Brussels that has enabled a vigorous competition policy also applies to Europe’s landmark privacy regulation, the General Data Protection Regulation (GDPR), passed earlier this year.
Yet as Giovanni Buttarelli, the E.U.’s data protection supervisor charged with implementing the GDPR, laments, passing a law is only the beginning of reining in big tech abuses. “First came the scaremongering. Then came the strong-arming. After being contested in arguably the biggest lobbying exercise in the history of the European Union, the General Data Protection Regulation became fully applicable at the end of May,” he writes from Brussels. “Since its passage, there have been great efforts at compliance, which regulators recognize. At the same time, unfortunately, consumers have felt nudged or bullied by companies into agreeing to business as usual. This would appear to violate the spirit, if not the letter, of the new law.”
The challenge of implementing the law now, says Buttarelli, is continually challenging big tech. As he puts it, “The E.U. is seeking to prevent people from being cajoled into ‘consenting’ to unfair contracts and accepting surveillance in exchange for a service.”
Buttarelli is looking ahead to the next phase of reform. Under that reform, “Devices and programming would be geared by default to safeguard people’s privacy and freedom. Today’s overcentralized Internet would be de-concentrated, as advocated by Tim Berners-Lee, who first invented the Internet, with a fairer allocation of the digital dividend and with the control of information handed back to individuals from big tech and the state.”
While big tech lobbyists have so far frustrated privacy legislation at the national level in the United States, California has been able to pass curbs on abuses of personal data. Ironically, this was due not to technocratic insulation from politics but its opposite: the citizens’ ballot initiative. A San Francisco real estate magnate funded the gathering of qualifying signatures for a proposition that would impose the same kind of limits on use of personal data in California as contained in the GDPR, forcing big tech to come — reluctantly — to the table.
State legislators then negotiated and passed a measure this summer along GDPR lines that would be open to amendment as technology evolves. With legislation secured, the initiative was withdrawn from the public ballot. (If law is made by the citizens’ ballot initiative, it can only be amended by another vote of the public.) As state Sen. Bob Hertzberg (D), who crafted the compromise between privacy advocates and the tech companies, notes, the law in effect makes California’s attorney general the nation’s “chief privacy officer,” since most of the big tech companies affected are located in Silicon Valley.
Making a market that works for the average citizen requires government that acts in the public interest, not at the behest of the largest players in the economy who underwrite the electoral and legislative process. To the extent that elected legislatures are captured by organized special interests, the “vetocracy” can be circumvented either by indirectly elected technocratic authorities or by direct democracy through the citizens’ ballot initiative.
The experiences with antitrust and privacy regulation examined in The WorldPost this week suggest that a mixed system that combines disinterested technocrats, elected representatives and direct democracy — each as a check and balance on the other — would be the most intelligent form of governance.