Saturday, April 6, 2019

Macron's party names GAFA (Google, Amazon, Facebook, Apple) among Europe's largest rivals on global stage

It's election season in Europe, and that's the time when political priorities often crystallize. In a television appearance that is as stunning as it is telling, the top-listed candidate of French president Macron's party for the European Parliament elections, Nathalie Loiseau, practically declared war on four major U.S. tech companies by likening them to rival nations on the world stage for Europe to confront (this post continues below the tweet):

The statement was made on a popular political TV program in France, L'Émission politique, and subsequently Mrs. Loiseau retweeted a recording. Interestingly, the list of rivals she named on TV also included the United States, but she (or, more likely, her social media team) omitted the U.S. from the list in the tweet. The complete list of rivals is:

  • China,

  • the United States,

  • Russia, and

  • GAFA (Google, Amazon, Facebook, Apple).

The GAFA companies are U.S. companies, and the tech sector is a significant part of the U.S. ecoomy, so the fact that this group of companies is nevertheless additionally listed at a level with the three global superpowers says a lot.

What she says is that in the face of those challenges, "Europe has to make others respect it" (I purposely translated this fairly literally). It's a rather combative statement.

Just prior to the list of rivals she stresses that "there won't be a strong France without a strong Europe," and that's the problem. Macron ran on a pro-European platform, but his vision for Europe is one of putting French interests and the French school of thought first and demanding that the rest of Europe follow because he knows, as Mrs. Loiseau does, that France alone is too weak.

The idea of being stronger together than alone is shared by the political establishment across continental Europe. German politicians basically say the same. But there are different approaches, especially to economic policy and, by extension, IP policy: "social market economy" (the German policy goal, which is also shared by large parts of Central and Northern Europe, and the post-socialist transformation of the Eastern European economy is driven by similar ideas) vs. a statist (heavy-handed government), centralized system as the one favored by France.

Here are four key characteristics of the French economy:

  • The highest ratio of public spending to GDP of all EU Member States (56.5%),

  • a revolving door between government and large corporations (and not just the lobbying departments, like in Germany, but senior management),

  • a focus on "national champions," and

  • a weak SME (small and medium-sized enterprises) segment.

They even have a state-owned patent troll (France Brevets).

The French approach just isn't working in the Digital Age. There are exceptions, such as two French games companies that I highly respect: Ubisoft and, more recently, Voodoo, which focuses on "snackable" minigames and generates huge numbers of downloads. But Northern Europe is way stronger (even in interactive games).

In December, Gunnar Heinsohn, a professor emeritus who's both an ecoomist and a sociologist, published an article (in German) entitled "Why France is beyond salvation." The article mentions that South Korea is now filing almost twice as many international (PCT) patent applications per year as France, though its population size is about 25% less than that of France, and the average French IQ is only 98, with immigrants averaging only 92. According to the OECD, France has the least qualified immigrants of all 36 OECD nations. When TIMSS (Trends in International Mathematics and Science Study) was conducted for the first time, back in 1995, French students were ranked 13th in the world, but over the course of the next 20 years, France dropped by more than 20 ranks to #35, behind Qatar and Abu Dhabi. In light of all of those facts, Professor Heinsohn concludes that "it's over," and nothing can be done anymore to bring France back on track.

He could have pointed to additional facts. According to TIMMS, the performance of French students is below that of any other large EU member state. By comparison, in the UK's strongest region, Northern Ireland, 27% of all students are top math performers, more than ten times the percentage of France (2%). And based on what I hear from experts, the brain drain is massive, with a significant percentage of the best French engineers and scientists being hired by U.S. tech companies.

That is the backdrop against which Mrs. Loiseau wants Europe to make France stronger as it takes on tech giants. The alternative would be for France to focus on strengthening its own digital economy, but apart from the likes of Ubisoft and Voodoo, France is lost. Macron would like it to become a "Startup Nation," but Bloomberg and others have explained it's just not happening.

French politicians can't say so publicly, but since their country's failure in the digital economy is definitive, they're just interested in taxes and regulation. More than anything else, they'd like to get Europe to impose a Digital Tax. They won't ever stop pushing for it until they get it, but so far there's sufficient resistence. In terms of regulation, they want legislative measures as well as aggressive antitrust enforcement.

The EU Copyright Directive (officially: Directive on Copyright in the Digital Single Market) is a mix of (indirect) taxes and regulation: while Europe's market share among content-sharing platforms is extremely low (almost nothing but Spotify), the share of European creatives in the market for content consumed by European users is obviously far higher. Unfortunately, a liability regime that practically requires upload filters will cause a number of issues, and by now even the German coalition parties appear to realize that it was a big mistake to support the French proposal. Yesterday, Tiemo Woelken, a German social democratic MEP who opposes Article 13 (now Article 17; the "upload filter" paragraph), tweeted about a Reuters report according to which the German government is divided over the issue because Federal Minister of Justice Katarina Barley would like to attach a (legally non-binding) statement to the impending EU Council decision, according to which Germany would transpose the directive into national law without mandating upload filters, but Merkel's Christian Democratic Union/Christian Social Union opposes doing so. Technically, the German government would actually have to abstain as long as this disagreement isn't resolved, and an abstention would have the same effect in the EU Council as a No vote. Without Germany, there's no qualified majority as Italy, Poland, the Netherlands, Finland and Luxembourg already oppose the bill. We'll see what happens.

Brussels insiders expect that the next major digital policy battle in the EU will involve a replacement of the eCommerce directive (officially named Directive of the European Parliament and the Council on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market). The version that is currently in effect was promulgated in 2000. At the time, Google was two years old; Facebook was founded four years later, and it took another four years before Apple's App Store opened. It's foreseeable that EU politicians, with French parties at the forefront again, will try to seize this opportunity to further regulate the digital economy.

That's the wider context of Mrs. Loiseau's statement. It would lead too far now to go into detail on how the rest of Europe views this, but generally speaking, other southern European countries are pretty much on the same page, and in Germany the political establishment is fairly willing to support Macron as long as the negative effects on the German economy aren't too obvious.

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