Antitrust (and Regulation) are “Small Ball”: What Matters is Build Infrastructure
“Small ball”: a strategy for progressing towards a goal by proceeding in small steps or by addressing small matters.
A debate has been raging amongst US intellectual elites over the last 6 months on a thesis put forward in a best-selling book, Abundance, by columnists Ezra Klein and Derek Thompson – aiming to set out a new agenda for a lost Democratic party. Simplifying, the thesis is that America is trapped in an economic malaise of low wages, high rents and bad healthcare which is the legacy of a neoliberal world with too many rules and regulations stifling America’s vitality and drive to “build” new and better. The book has attracted much criticism from the Left of the party – described by some as a deliberate and malignant project sponsored by anti-regulation tech oligarchs who want a “free for all”; rebuffed in its analysis of key sectors like housing and energy; but also rejected for not giving credit to the role that antitrust and regulation can and must play in addressing America’s inequality and curbing concentrated corporate power (ultimately to protect democracy); and for failing to give credit to government policies as strong drivers of prosperity.
Europe has been oblivious to this debate – we are too culturally fragmented to have intellectual policy discussions other than at national level (see the current “tax the rich” discombobulation in France, while no one else cares); let alone pay attention to what happens in US policy debates – just another planet. For sure, the Abundance debate is specific to American circumstances. But the “build” anxiety is acute in Europe right now, while the antitrust and regulation “experiments” played out here big time for over a decade, and with full political consensus behind. I talk in particular of the digital sector, which is the focus of this piece. Antitrust and regulation of digital markets were pretty much unopposed as flagship policies for years in Europe. And yet we failed entirely to induce material change on the ground – let alone to “build” our own assets.
These two phenomena are related in my view. The obvious immediate reaction from the antitrust/regulation faithful and hopefuls will be that we have not enforced antitrust and regulation “properly”, and we failed to “build” not because of too much regulation dampening our animal spirits - but a host of other reasons. This may be true but it does not change the fact that the lesson of the last 20 years in Europe is we have had deference and political consensus behind antitrust enforcement, broad political convergence from all sides around the need for regulation, and yet we have overlooked the “build” part. Now as antitrust and regulation have failed, proving themselves to be just “small ball” in this area, we are left with a continent which is digital colony, with huge gaps in our capabilities and prospects for self reliance. This is not to say we should abandon these tools. But relying only on them to the extent we did was a massive mistake, and we remain reluctant to recognise it. Anyone who says it is a sinister pro-monopolist and all-round traitor.
Infrastructure is all that matters
Let’s start with our desperate need for building “infrastructure” of our own. This is not a plea for an Abundance-like ideology. But there is an urgent question about how do we achieve growth and industrial muscle in a continent in freefall. The Abundance proponents may well be guilty of overlooking antimonopoly policies as key levers. But Europe is the place where antitrust and regulation were everyone’s darlings for years, and yet we have no digital industry to speak of. We somehow fooled ourselves that if we tamed the incumbents it would happen spontaneously. That was and remains magical thinking.
The US has its own issues – it faces multiple crises including extreme polarization, massive concentration of power starting with the media, huge inequalities and unfolding questions about democracy, free speech and authoritarianism. The primary issue in Europe is altogether a different one Centrestage for us is the fact we are a continent in major crisis whose entire economic model of export-driven open economies (and our physical integrity) is under massive threat. The “Draghi diagnosis”, laid out a year ago and then repeated with greater urgency and alarm a few days ago in the European Parliament, may well be our marching music to irrelevance and final demise. We do not have the underlying vitality of the US economy, nor the relentless surge capabilities of China. Our fundamentals are grim. Our “summer of humiliation” has laid bare how our dependencies on the US (as a market, as supplier of technologies, as defence shield) are complete and make us fearful and supine. Because we have no alternatives of our own: our internal market is not absorbing enough of what we make, we have underinvested in defence, we are entirely overrun by US technology.
A continent relying on external technology is vulnerable whatever happens. Geo-political developments are only making this more starkly obvious. But it is unconscionable that for a Continent of our size and means, we have become a digital colony not just in terms of consumer-facing apps but critically in terms of the entire underlying infrastructure: compute, cloud, connectivity, cables under the ground and under the sea which are the backbone of the digital services we use. We do not own the assets on which services are delivered to us. All of our data is held in US cloud environments. Cyberattacks or plain outages which hit US suppliers immediately disrupt us here. AI technology on which so much of the future appears to be premised is developed in the US, and US companies will impose on Europe standards and contracts with support from White House Executive Orders (“or else”).
That this is existential for Europe is becoming clear, at last: hundreds of billions (at least a quarter of a trillion according to estimates) in cloud and software services are paid by European companies and governments each year to US suppliers. Much funded by taxpayer money. Data centres are carpeting Europe end-to-end, built by US companies bribing governments, software is supplied in unbreakable bundles, building is only possible on existing structures, and data is extracted and stored outside of our control. This is not about how friendly and benign these companies may be, nor how much they may “love their customers”. This is not even about the fear of a “kill switch”, though that too. It is about digital infrastructure as key industrial sector comprised of hardware, software and services, which moreover feeds into multiple other critical sectors (from defence to manufacturing) and represents billions in revenues and jobs – all of which are not going to Europeans. This is the point. For a continent in deep existential economic crisis, where the economic model is faltering, where productivity growth is lagging because of slower digitisation (“…Europe largely missed out on the digital revolution led by the internet and the productivity gains it brought: in fact, the productivity gap between the EU and the US is largely explained by the tech sector”, see Draghi report p. 7), reliance for critical infrastructure on another continent is just not sustainable. Now Draghi says we must reduce our dependencies fast, and names “technology” as the first lever – “(we are) failing to match the speed of change elsewhere…governments have not grasped the gravity of the moment…inertia is even presented as respect for the rule of law. That is complacency. Competitors in the US and China are far less constrained, even when acting within the law”.
How did we go so wrong? Not because Europe lacks competences or capabilities or talent. We have exceptional strengths there. Yes, the usual fragmentation and lack of appropriate capital allocation (though the capital is here) are a persistent problem. But this has gone south very quick. In less than 20 years Europe has gone from being a powerhouse on a par with the US in productivity growth, to a massive laggard. This is extraordinary and needs reversing. How can we build resilience and industrial muscle on total dependencies?
This is an industrial strategy issue and a capital formation issue. The shallowing of European capital in tech is THE central cause and effect of the weakening of our own supply chains, underinvestment in skills, widening gaps in product offers and disastrous delay in AI. We must reverse the capital shallowing and create local assets and capabilities. Calls for “sovereignty” are not about ripping up existing US infrastructure, nor replacing it entirely with European alternatives: this is just not possible and makes no sense. It is about creating enough industrial capacity in a critical sector to offer alternatives for at least a number of user cases. I call this “building alternative infrastructure”, and it is the most urgent priority for Europe right now, together with creating a defence capability and retrieving our manufacturing sector from oblivion.
Antitrust and regulation alone cannot deliver us an industry
How did we get to the point where Europe failed to build anything at all in tech that could held its own, in the face of the successful US rollout? There are multiple reasons, but also let’s not hide the ball. The last decade and a half have seen us fall for the incantation that antitrust action against incumbent American players in consumer apps, and more recently antitrust-style regulation, was all we needed to do over here. That if we enforced the antitrust rules, and applied our regulations (GDPR, DMA, DSA etc.) to the bad American digital monopolists we would eliminate barriers to entry and thereby induce entry of our successful challengers, all the while protecting citizens from exploitation. This is where our entire energy has gone.
Saying that this was delusional is not the same as saying we should give up altogether. This is a straw man. The debate is indeed littered with straw men, not just from lobbyists and proxies and astroturfers for US companies (understandably defending their patch); but also, frustratingly, from all sort of parties who should know better, and are either wilfully or obtusely failing to see what’s obvious. There’s the parterre of advocates, consultants and academics who make a living out of proclaiming it is all going to go swimmingly and achieve splendid results for their clients and the rule of law if we only give it a little more time. Meanwhile, let’s have another conference on “DMA Progress”!
A different but frequent riposte is that “Europe will not be self-sufficient in digital services. It's not going to happen" – recent dictum by none other than our retired Competition Commissioner Margrethe Vestager at a recent event. Thank you for your leadership. But no one is saying Europe will or should be entirely “self sufficient” – it’s a straw man. Vestager doubled down that digital sovereignty is about insisting on enforcing our laws with tech giants: "Being sovereign means that you can make your own decisions and that you can afford to implement them”. This is frankly obtuse: sure we want to insist that behavioural rules are enforced, no brainer, but is this it? Is this all Europe needs? Does this give us “sovereignty”? Only a regulator can come up with this kind of blinkered view. Understand you spent a decade thinking competition and regulation where all that mattered and posting bicep emojis whenever possible: but again is this all Europe needs? Suggest an urgent appointment at Mario Draghi’s surgery.
As Draghi in fact said in his recent “encore” at the European Parliament, we need to get away from “blind faith that market forces will build new sectors", and that if only we enforce some narrow case against digital incumbents we will create ipso facto a European industry. In theory, enforcement can lower barriers to entry and thus reduce obstacles to market challengers having a go. That’s the mantra anyway. But that is not really the full story. First, of course our enforcement has been weak and ineffectual; and like the whole of antitrust, it gets mired into the contortions of market definition and competitive effects analysis and always ends up with narrow remedies to address a narrow problem – if at all. Ditto regulation (back in 2021 I wrote “rules derived from a narrow antitrust syllabus can help protect some competition ‘on the platform’ but will not empower entry and growth to challenge current incumbents, bringing about a more diverse digital world… the current regulation proposals will have limited upside for greater digital diversity and meaningful competition”. Amen. No chance of dispersing power). But second, even when you created opportunities, rolling out successful businesses requires a business case, a business model, funding and demand prospects. None of this is a given just because you “tamed” an incumbent. It just does not happen spontaneously without some nudge.
Where we are: antitrust and regulation are “small ball” in Europe today
I want to double down on this because it matters, and if one calls a spade a spade one is accused of negativity and ulterior motives. What have we really learned in 15 years of antitrust and regulation exertions on digital markets in Europe? My personal lesson – after so many years in the trenches – is that while in principle antitrust has the potential to prevent and address the capture and foreclosure of markets, and thus contribute to growth and productivity, in practice it can’t and it didn’t and it won’t. And this is a universal lesson, whose only possible consequence is we should not attach such hopes and mission to antitrust because it simply cannot deliver.
In the US there was a bold and powerful and heroic and ambitious vision of antitrust as a key tool of antimonopoly with a record of fighting and breaking up excesses of concentrated power. This was the vision of the Brandeisians in the Biden administration: they dusted off a historic tool that had been dormant but could be wielded powerfully to break up and contain corporate power and support citizens, farmers, small businesses. This populist, progressive effort has now been interrupted by the administration change and a different view of what “populist antitrust” may consist of (plus, huge lobby pressures). So the future is uncertain.
But none of this carried through to Europe anyway. Europe deliberately watched the Brandeisian exertions as alien, and our regulators never really got on board with the view of antimonopoly as a tool for protecting democracy. Margrethe Vestager finally said it at the very end of her mandate, but felt like an afterthought. European antitrust for the prior decades has remained rigorously orthodox, dominated by traditional lawyers, consumer welfare and unadventurous IO economists – nothing too strenuous (Tommaso Valletti as Chief Economist tried, but was controversial and quickly forgotten). The one exception was the UK which fancied itself the sister agency of Khan/Kanter FTC/DOJ but ended up being swatted into compliance and pushed into Big Tech’s tent by a fearful sinking Labour government.
The discourse on the role and purpose of antitrust never caught on in Europe. I tried to push it but the self-interest of the Bubble is of course too strong. Again lots of straw men: “Cristina wants to introduce all sorts of other goals into antitrust! Anathema! Antitrust should ONLY be about competition!” Calling for more joined up thinking with trade and industrial policy? “Relative to these big issues of our time, competition policy is just a side dish!” Progress has been very modest. Nature heals. Playing it safe has fulfilled the prophecy: competition policy in Europe is indeed just a side-dish.
Antitrust and regulation are just “small ball”: small steps, small matters. Some progress, but incremental and limited. Our brand of enforcement was unambitious and regulators did not really have the courage to make a difference. IIn the UK we have seen the practical swatting down of a once progressive agency. Europe has not moved much, proud to remain “steady as she goes” – a bastion of neoliberal thinking and traditional IO economics, where we spend type studying portfolio effects between Pringles and Oreo Biscuits without the slightest sense of irony (the Mars / Kellanova merger case).
But look at the facts. Europe has been “at it” one way or another for 15 years, and it truly has nothing (much) to show in terms of outcomes: no antitrust intervention in digital has created serious competition let alone truly contained the growth of digital incumbents. We had dozens of cases – I have been personally involved in EU and Member States cases adverse to Google (Comparison Shopping, Android, Adtech), cases involving Apple (Music Streaming aka Spotify complaint on preventing consumer steering to other channels, App Store fees, App Tracking Transparency, tap-to-pay, mobile distribution, browsers and more), Amazon (unfair data use and Buy Box, foreclosure in logistics etc etc), Microsoft (Teams, several deals), and more – all of which have involved lengthy investigations and ended in fines and some behavioural remedies, or settlements without admissions of liability and some undertaking. But no material change on the ground. Some marginal effect at best. Even after appeals have been concluded, affirming the regulator’s decision, nothing happened. Of the billions in fines (still irrelevant in the scheme of things, a day’s revenue) only a small proportion has actually been paid while the rest remains in the form of bank guarantees till the appeal process is completely exhausted.
Just look at the last couple of weeks: the European Commission eventually produced a “nothing burger” decision against Google in the Adtech case after a 5-year investigation, and a “thank you for your leadership” settlement with Microsoft on Teams also after 5 years. Fear of President Trump is of course behind these “lipstick on a pig” European decisions, but there is a bigger pattern: again, no European antitrust decision in digital ever achieved material change.
We then transmogrified antitrust into regulation of commercial conduct: the DMA. Nothing much to report there too. Few cases, going nowhere. With President Trump and his threats, all in suspended animation. On content moderation, DSA - also in suspended animation as US platforms have simply ceased any effort in this direction in the new political environment – and containing online disagreeable stuff is just not possible anyway. And we have the GDPR, which is a disaster zone in terms of implementation and even Mario Monti just said should be mercifully killed.
This is not a pean for no regulation ever, far from it, but a factual observation that regulation in Europe was delivering nothing much in terms of results even way before the Trump administration – a combination of piecemeal cases, slow uncertain execution, tech ignorance, lack of understanding of ecosystems, impotence in the face of delay and decoy tactics. Way before President Trump and his threats knocked all the modest remaining stuffing out of the doll.
Europeans do rightful indignation like no one else, typically to hide their own flaws. We do preaching like the best of them (“our values” – like no one else has values). Everything except actually DOING something. So the waves are full of European bubble dwellers courageously proclaiming “we must enforce our laws to assert our values and protect our democracy!”. This is so comical. It is the cry of the impotent and the clueless. Because Trump wild card aside, it has been our singular obsession with antitrust and regulation at the expense of everything else which has put us in this extraordinarily weak position of vassalage and dependence.
Tell me how spotty intervention that takes forever and is localised on one bit of a vast ecosystem will grow us a European digital industry. “Bad! Evil! You forked tongued corporate demons!” has been the extent of our intellectual response. Of course some of the conduct was/is egregious and it’s fine to pursue it - if nothing else to make a stand. But stop thinking this stuff alone is the answer.
Admittedly the US is a cypher at the moment. After the optimism of the Biden years and the fragile hopes of some “conservative realignment” with Trump enforcers, we do all wonder what can antitrust really achieve. Much store has been set globally by the big pipeline of US cases against Google, Meta, Amazon, Apple, Visa and more which are now coming to trial – “we cannot do much in Europe but the US now woke up and you just look!” – we told ourselves. “They will break ‘em up!”. Yes, private litigation delivered results for Epic in California against Apple and Google on their app store rules, though the decision is under appeal. We will see what Judge Brinkema does with Google Adtech in a few months, and where other cases in the pipeline end up. But the shocking decision of Judge Mehta on Google Search on 5 September really showed how the judiciary remains ultimately morally and intellectually conservative, unwilling to interfere with big corporations especially when a judge is fearful and can find comfort in the statement he/she does not fully understand the technology so must be “humble”.
So: are we winning with antitrust and regulation? Emphatically not. Antitrust has returned to a side dish. Are we expanding our ambition and updating our beliefs? No. The real war is elsewhere. Time to recognise this is not a path that will deliver salvation to Europe. Fine carry on if it’s your job, but the single minded fixation with this as “the solution” is a wasted investment.
Back to infrastructure
Europe needs to build alternatives and power itself up. Antitrust and regulation alone won’t do it. What will? The public sector? AI Factories? I have no faith in the ability of the public sector (mostly lawyers, no entrepreneurs, no tecchies) to generally deliver a roadmap for Europe’s digital sector recovery. Economist Mariana Mazzucato has argued for years that the State needs to lead a “mission economy”, do “moonshots” and imitate DARPA as an engine for innovation, but this call has worn thin. It is not happening in Europe, and that’s that. Governments like the UK find it easier to get into bed with Big Tech – “don’t worry about anything, we will provide the cash and you just plug and play”. EuroStack is my initiative, though there is also a version of it around that fixates on public funding.
The public sector in Europe is otherwise known for spraying funds around (hundreds of millions for meetings) without much to show for it. Yes, funding is a bottleneck in Europe where we don’t have appetite for risk capital. But it’s worse: we actually send our capital to the US as risk capital to fund US ventures. AND we spend our citizens’ money to pay for US services. Why do I speak to the European Commission, or the Swedish government, or the German government, on Microsoft’s Teams? Do we have no collaboration software in Europe the public administration could buy? Of course we do.
So one starting point, but an essential one, needs to be to redirect part of the public sector spend into European products. This is Buy European procurement rules. Americans do Buy American, Chinese do Buy Chinese. No brainer. Must happen.
The private sector also needs to wake up and buy. If there is demand, there’s no need for subsidies. Pre-procurement works: suppliers can fund the development of new functionalities from private funds. How many more outages, disruptions and cyberattacks does it take before European businesses conclude they need fallbacks? How long does it take for European companies to find storing data in US clouds unacceptable?
The industry needs to fill gaps, cooperate and collaborate to offer attractive bundles for at least some user cases. “Portfolios” as products. Not just complain, blame the customers, blame “the Commission” for not doing “enough”, and continue to spend money on lawyers and lobbyists in the hope that regulation will deliver them from dependencies and create a market. Maybe something like this can happen at the margin, but again, don’t count on it.
There is budding recognition that while the obstacles are formidable, Europe should try to make something of itself in this space (Making the case for a third AI technology stack | Brookings) and could be joined by other blocks with positive global spillovers including for the United States. Perhaps. Indeed even though the obstacles are formidable we have no alternative in Europe. Antitrust and regulation are small ball here now, we need to build.