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How Europe Differs from America

There is an important difference between European and American appetites, in addition to those for fast foods: risk taking. “Investments in Start-Ups Pick Up Pace,” reports the New York Times after surveying the high-tech financing scene here in America. “Europe Struggles to Foster a Startup Culture,” reports the Wall Street Journal. It seems that in contrast with “multiple rounds of fund-raising [in the U.S.] in months, rather than years,” Europeans are “valuing prudence … and leisure time over flamboyant risk-taking.”

“Any time you’re raising over $8-12 million, you need to leave Europe,” says Peter Smith, who had to go to the West Coast to raise $30 million for his Blockchain, a bitcoin company that now processes transactions valued at $2 billion per month. Some observers put the top amount that European investors will risk on a startup at closer to $5 million, more than a little short of the $100 million billionaire investor-activist Carl Icahn just bet on ride-sharing Lyft’s ability to compete successfully with the much larger Uber. This unavailability of risk-taking capital was the loudest of the complaints I heard from fledgling German entrepreneurs at a meeting in Berlin.

As a consequence of these opposed attitudes towards risk-taking, says the Wall Street Journal, “policy makers in Europe are increasingly concerned about the lack of home-grown rivals to compete against dominant U.S. players like Google Inc. and Facebook Inc.” Add Amazon to the list. Some of that concern is mere techno-envy, some good old fashioned anti-Americanism. But some has a basis in three problems created for the EU by the business practices of the successful U.S. firms: taxes, privacy, and competitive tactics.

The tax issue is the easiest to understand. European nations, like America and other countries, need revenues with which to meet the promises they have made to their ageing populations. American companies, like those from other countries, want to minimize their tax liabilities – indeed, their boards are under a fiduciary obligation to do just that. In the process, they at times cut special deals, such as the one between Amazon and Luxembourg, the discovery of which is now generating dealmakers’ remorse. Jean-Claude Juncker, then serving as Luxembourg’s premier and now president of the European Commission, is a vigorous opponent of deals to meet the special needs of member states such as Great Britain, but he agreed to an arrangement that shifted Amazon’s profits from Europe to “an untaxed entity,” according to EC investigators.

In the case of taxation, when special breaks become a bit too special, politics overtakes the letter of the law. Amazon has now agreed to pay taxes where it earns profits, to state the matter in broad terms. Other American companies are bound to be pressured to follow suit, putting an end to a game of “find my taxable profits if you can,” one that should have brought to an end long ago by a simple reform – a tax on sales in the countries in which the sales are made.

The problems of privacy are not so easily solved, even here in America, where battles to determine the right balance between privacy and security are being fought out in a congress that has until Sunday to produce legislation telling the National Security Agency (NSA) what it may and may not do to keep the country safe without treading on constitutional rights to privacy. American firms, many of them parochial denizens of Silicon Valley, their world-girdling private jets notwithstanding, do not understand Europeans’ sensibilities about privacy. We Americans might find it an advantage to have a Google truck plot where we and our friends live so we can find each other on Google Maps, but residents of many European countries, for example those in Germany, see the words “We know where you live” as redolent of a history they would just as soon forget. Google [a former client] and other Silicon Valley firms are shoring up their European legal and lobbying teams to the tune of hundreds of millions of dollars, but it will take some sensitivity training at home if compromise solutions are to be developed. Perhaps the best indication of the EU-U.S. gap is the ruling by the EU court that individuals have the “Right to be Forgotten” that allows them, “to ask search engines to remove links with personal information about them … where the information is inaccurate, inadequate, irrelevant or excessive…”. Case-by-case assessments will be necessary to balance the Right to be Forgotten” against “other fundamental rights such as freedom of expression,” according to the court. In the year since the court ruled Google has received 253,000 removal requests covering over 920,000 such links, and has removed about 40 percent of those links, or some 389,000. On a per capita basis French and German citizens have recorded the highest number of requests to be forgotten.

So much for privacy, and issue on which the EU and U.S. twain are unlikely ever to meet. Which brings us to the question of the so-called dominance of the American tech giants. The Europeans have now decided how to close the gap. One step is a massive effort, led by the EU’s Brussel bureaucracy, to knit the 28 EU members into one vast digital market, with no location-based barriers to cross-border online trade in goods and services. This “Digital Single Market Strategy” is expected to breed future Web giants. Presumably, these multi-fathered giants will be created during the 35-hour weeks to which French workers are legally limited, and consumers will come to the European sites because barriers to interstate commerce will be lowered and, well, because they are European rather than American. Here again we have a cultural difference as deep as that affecting risk-taking. One pundit notes that the 35-hour limit on weekly work hours shows that for the French work is an interlude that interferes with leisure and family life, and should be kept as short as possible. A sharp contrast with the 24/7 work week of which so many Americans boast.

The second step is to bring legal actions against the American “dominant” firms. The European parliament wants to break up Google, although that is not likely to happen. And French and German authorities are demanding a “comprehensive assessment” of “platforms” such as Google and Facebook, after which they would subjected to “an appropriate general regulatory framework.” That’s the EU version of western cowboy justice – “First we try [assess] them, then we hang [regulate] them.”

Meanwhile, EU competition authorities are attempting to discover whether the Americans have gained their “dominance” by fair means or foul. Google’s attempts to settle its case have failed, mainly because it could not satisfy the commission that its competitors’ complaints are the whingeing of inefficient competitors seeking to win from regulators what they cannot win in the market. And Facebook, which has 260 million users in Europe, is under attack for its allegedly inadequate data and privacy protection policies, and possible dominance of messaging services.

It almost doesn’t matter whether the regulators win or lose – in either event they will have diverted management energies and millions of dollars from product development to the coffers of European lawyers. For many years. All in the name of consumer welfare. The U.S.-based international law firm of Skadden, Arps is warning clients, “The Commission … inquiry is likely to entail a potentially significant burden and diversion for companies subject to the Commission’s query.” Facebook, at least, is unfazed. Richard Allen, formerly a British MP, now head of Facebook’s policy team in Europe, says “We expect scrutiny. We are not afraid of it.” They should be.