Too many restrictions for a digital future

Legislators are in danger of crippling the growth of a true European digital single market by imposing too many restrictions on copyright and licensing laws, writes James Waterwort

MANY European politicians praise the internet. Unfortunately, their lofty rhetoric often rings hollow. While calling for a strong digital agenda in one breath, the same politicians, supported by protectionist interests at home, often argue for putting a brake on the internet’s “disruption” by imposing strict new regulation.

Such double-talk is misguided. If Europe is to prosper in the 21st century its newly elected leaders need to embrace a positive, concrete pro-internet agenda. That means signing digital free-trade agreements and creating a true European digital single market out of today’s fragmented 28 national jurisdictions.

Long-outdated copyright and licensing laws must be overhauled. New privacy rules must protect citizens and allow innovation; calls for mandatory data localisation and local versions of the “internet” must be resisted.

If carried out, this substantive digital agenda could provide what Europe needs most after the financial crisis: economic growth. According to the OECD, the internet now accounts for up to 13% of US economic output.

Every type of business now depends on the digital economy. With a few keystrokes, small companies selling Polish antiques, traditional Bavarian costumes, and Spanish shoes have burst out of their home markets and reached consumers around the globe.

By unleashing the internet, financially strapped Europe can create new jobs without taking on new debt. European Commission figures suggest that Europe’s so-called “app-economy” workforce will rise to 4.8 million by 2018, from 1.8m in 2013, with revenues more than tripling, to €63 billion. We also know that 90% of jobs by 2020 will require workers to have skills in information and communication technologies.

Such success requires breaking down resistance by Europe’s market incumbents and embracing rather than blocking new entrants. Under the European Union’s current fragmented regulatory regimes, companies must obtain separate permission to sell in each of the 28 national markets.

It takes even large companies like Apple and Google years of work to open local stores and launch new offerings. The growth of small European innovators, such as Spotify, has been stunted. Many new services that allow us to swap, rent, and share everything from taxi rides to second-hand designer dresses are struggling to get off the ground.

Internet sceptics could also scuttle potentially transformative transatlantic free-trade talks, launched with great fanfare last year. A growing volume of trade is conducted in bits and bytes that flow over the internet. A new study by McKinsey finds that digital-driven, knowledge-intensive goods comprise 50% of total global cross-border trade — and are growing at least 1.3 times as fast as other types of trade. If current trends persist, the volume of such goods could triple by 2025.

Yet many Europeans talk of imposing draconian privacy or data-localisation rules as a precondition for signing any new free-trade deal. Such requirements would be diametrically opposed to the internet’s founding principles of frictionless, borderless access to information.

Like Russia and China, Europe would be blocked from the rest of the global internet, because new services that are unable to build European data centres would be locked out.

The European Court of Justice’s recent ruling, which recognises a “right to be forgotten” — and thus requires Google to remove search information, even when legal, on demand — represents a significant danger. By requiring every search service, including those of university libraries, to make it difficult to find legal information, we risk opening the door to large-scale private censorship.

Such unintended consequences pervade EU competition policy as well. European policymakers are considering a regulation that would require internet platforms like app stores, social networks, search engines, and e-commerce sites to meet certain publicly specified criteria to achieve economic, social, or political ends. Such regulation, it is argued, would facilitate the emergence of European Internet platforms and guarantee “open access” to users.

In fact, these moves might create new barriers to entry, entrenching market leaders and undermining innovation. Internet markets are typified by dramatic change. Witness how Facebook overtook MySpace in social networks, or how Apple upended the market for smartphones — or how new services and markets are constantly being invented.

By contrast, EU competition investigations drag on and on. It took ten years to reach a settlement with Microsoft; it may end up taking that long with Google. By that point, the fast-paced internet environment may well have evolved beyond recognition.

European authorities should avoid shackling digital progress. Europe’s consumers should be able to buy online songs, watch online video, and shop online for whatever products they choose, and Europe’s businesses should be able to benefit fully from the EU’s giant market. Indeed, letting the internet blossom not only makes good business sense; it might also help to restore voters’ waning faith in the European project.

James Waterworth is vice president of the Computer and Communications Industry Association. Copyright: Project Syndicate, 2014.


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