Around the world, countries face a crucial policy choice that could impact millions of consumers, the pace of innovation, and even the global geopolitical balance. One path follows the United States, which regulates with a light touch and has thus fostered the most dynamic economy in world history; the other follows Europe, whose heavy regulations have led to stagnation and decline. These choices will determine which countries, and which set of values, build the future.
Earlier this year, Europe implemented the Digital Markets Act, an ex-ante regulatory regime that imposes significant burdens on select “gatekeepers,” almost all American companies. For instance, the DMA constrains “gatekeepers” from integrating their product offerings and requires them to provide their competitors with proprietary information and competitive expertise.
In contrast, the United States maintains a light-touch system that focuses on consumer welfare and intervenes only afterwards if the evidence shows that a company’s conduct harms consumers, a high standard. The Unites States allows larger companies to compete in new product markets, invest in start-ups, and grow organically without artificial restrictions. To date, progressives have failed to persuade Congress or any state to change their laws and have met with limited success in the courts.
Now that Europe has sneezed, however, the world is catching cold. From Brazil to Turkey to India to South Korea, many countries may follow Europe down the DMA road. Their governments seem less driven by protectionism, a key driver of Europe’s law, or by meaningful concerns about the prices or choices available to their consumers online, than by a sense of “Regulatory FOMO,” fear of missing out on a powerful set of new regulatory tools. After all, what policymaker doesn’t want to be seen as “doing something,” particularly with respect to an economic sector that produces enormous growth and touches billions of lives?
Nevertheless, early returns suggest that other countries should bypass Europe’s approach. In its few months of existence, the DMA has already frustrated European consumers by degrading one of the Internet’s prime virtues, the ability of consumers to receive integrated services at no out-of-pocket cost. For instance, European consumers can no longer readily access their preferred mapping tools and now must pay for services that were once available for free.
European businesses are also suffering. The DMA has reduced online traffic to many European companies, including airlines, hotels, and restaurants, because the DMA effectively directs search requests to favored competitors, namely third-party intermediaries, over others. Direct hotel clicks and bookings have fallen 30%.
Longer term, the global policymaking community should recognize that the DMA could sharply reduce innovation and even living standards. Even before the DMA, Europe regulated business much more stringently than the United States, such as via an amorphous “abuse of dominance” standard that discourages investment and cross-market growth.
Partially because of these different regulatory approaches, the United States attracts more than ten times as much venture capital investment as the European Union and, of the world’s 50 largest technology companies by revenue, only five are European. Recently, one European CEO pointed out that “America has a lot of AI and no regulation, Europe has no AI and a lot of regulation.” Another CEO commented that Europe’s regulatory excesses are turning the continent into “a museum.”
The DMA is likely to accelerate these trends. Under the DMA, for example, regulators must review all potential acquisitions by large tech companies, a requirement likely to discourage investment in startups and small companies. Similarly, the DMA imposes exorbitant fines for non-compliance, ranging from 10 to 20 percent of a company’s world-wide turnover, a penalty that could dramatically reduce spending on research and development.
Finally, countries should recognize that DMA-style proposals could affect the global order. At a time of rising authoritarianism around the globe, western democracies should seek to strengthen their strategic technology relationships to improve their collective economic and security interests. The DMA, however, subjects many U.S. companies to unique and disproportionate ex ante rules, to the benefit of countries that are using technology to subvert democratic values.
Aside from the competition concerns, these proposals could compromise the ability of western technology companies to protect cyberinfrastructure from bad actors, to update their security systems, and to shield sensitive consumer data from unfriendly foreign governments. In Europe, for instance, the DMA allows developers to circumvent current security systems and to place their software applications directly onto platforms with fewer security constraints. The DMA also forces American companies to disclose to competitors, including foreign adversaries, critical proprietary information and competitive expertise. These provisions also may prohibit the platforms from restricting or downgrading these applications, including those with links to foreign governments often hostile to the western democracies.
As countries choose their technology paths, they should understand that Europe’s regulatory approach has been marked by short-term pitfalls and long-term stagnation, whereas America’s approach has consistently led to prosperity, growth, and innovation. For policymakers around the globe, the choice should be clear.
