Sound Policy For Platforms, Not Tempting Short-Term Measures
If you are reading this, then you are likely aware that the European Union is in the process of deciding the regulatory future of online platforms. In December, the European Commission finished collecting public input to their online platform consultation, which is part of their Digital Single Market (DSM) programme. Besides the online platform consultation, the DSM is a sweeping review of Europe’s approach to Internet regulation in the digital age and covers a wide range of topics including rules for online video, cybersecurity, consumer protections in e-commerce, copyright reform and taxes on cross-border e-commerce. The online platform consultation is nested with these other initiatives, but the nature of the question asked raise even more questions. Most notably, why do online platforms need to be singled out from a regulatory perspective? What do services like travel sites, e-commerce sites, payment processors, search engines, online video providers, social media sites and cloud hosting services — all of which have been identified by the commission as online platforms — have in common that justify similar regulatory treatment? Do offline platforms need to be examined as well? Are new laws even needed? What is a platform anyway?
Recently, the Dutch government — currently holding the Presidency of the European Council — commissioned a report on the subject. “Digital platforms: an analytical framework for identifying and evaluating policy options” (available in Dutch and English) is essential reading for those interested in the future of Internet policy. The report is the first serious attempt to understand the landscape of digital platforms and comes just at the right time as European Commission ponders whether they need to do anything in relation to platforms.
So with all this activity what picture is emerging and what does the Dutch government report say?
I have consistently argued that a definition of platforms and an initiative towards platforms makes little sense given the broad differences between, say, stock exchanges, media platforms, ecommerce platforms and connected car platforms. My organization’s (CCIA) response to the Commission argues the same: that a definition is of no use as i) a ‘problem statement’ would be the necessary starting point for such a project, not a definition; ii) even if a problem were identified the next step would be to see if existing law can deal with any problem and iii) a definition would bring in so many different types of companies that it might not serve the purpose the governments of France and Germany originally hoped it would.
Encouragingly, this point of view seems to be more held by most parties voicing their views — from the excellent Charly Berthet of the French advisory body the ‘Conseil Nationale Numerique’ (see 2:14 to 3:16) arguing there is “no need to adapt substantive law, just the procedures” to the report commissioned by the Dutch government which advises that:
“Most of the platform characteristics that are included in the framework are also relevant in cases that do not involve digital platforms. Certain characteristics (such as network effects, economies of scale and use of data) are more pronounced and relevant in many platform cases, but this does not warrant a delineation of digital platforms through a specific definition.” [emphasis added]
Also encouraging is the tone adopted by the Commission in its work on digitising European industry. The strategy rightly identifies the need for a “broad digital transformation of all industry” and the need for “leadership in platforms”. The ambition to create the right conditions for European leadership in platforms (industrial or consumer) by putting in place the right conditions, support networks, skills and regulatory framework is spot on.
It is vital that the Commission’s wider agenda on platforms does not undermine this. A re-regulatory approach to platforms, for example, risks cementing the lead that existing platform leaders have and making it more difficult for new entrants to grab market share, whether in consumer or industrial markets, originating in Europe or internationally. These new entrants are what power economic growth, as they account for the vast majority of net job growth.
It is also a dynamic marketplace with low barriers to entry. Whole new categories of products are created every year and one generation of market leaders often quickly gets replaced by the next. Europe is well positioned in this cycle, and European companies will be at the forefront of the next wave of Internet world beaters. The density of European population of billion dollar “unicorns,” and the incredible showing of French startups at the Consumer Electronics Show are two examples of this trend. That is, of course, if we don’t create a stifling layer of regulation that makes it harder for startups to get off the ground and disrupt current incumbents who can more easily bear the cost and complexity of new regulation. As Internet scholar Tim Wu stated, “no one has ever conceived a better way of scotching competitors than to make them comply with complex federal regulation.”
As Paul Krugman noted back in 1994:
“Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”
In times of considerable change this maxim is something for policymakers to focus on, while remembering not to be diverted down an unproductive dead end.