20 tech giants could face stricter rules in the EU. Will this hurt innovation?

2 min read
Osman

I like to think about the impact that the internet has on humanity. In my free time, I'm wolfing down pasta.

EU to regulate big tech

Facebook, Amazon, Google, and other Silicon Valley leviathans could face new rules designed to control their market power, according to a new report in the Financial Times.

EU regulators are forming a list of up to 20 internet giants to be subject to tougher criteria and more stringent rules than smaller competitors. The new rules could force big tech to share data with rivals and reveal their data capture processes.

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The 20 companies will likely be chosen based on criteria such as number of users, revenue, and market share. The idea is to change how these huge companies do business in the EU without having to launch investigations or court cases.

Despite robust privacy laws such as the GDPR, EU legislators maintain that more needs to be done to protect consumer interests and encourage competition. In some cases, it’s possible that the EU might move to break up large companies or force them to sell business units if they are deemed to be behaving in a way that stifles competition.

An ongoing effort to rein in Big Tech

The EU has taken the lead when it comes to regulations targeting Big Tech. Its GDPR (General Data Protection Regulation), implemented in 2018, is the clearest indicator of the EU’s pro-privacy approach. More recently, the EU struck down an agreement that allowed its residents’ data to be transferred from the EU to the U.S., prompting the likes of Facebook to challenge the decision.

But the desire to rein in the power of tech companies exists across party lines in the U.S., too, with legislation such as the EARN IT bill gaining traction. On a global level, Australia, Britain, Canada, New Zealand, India, Japan, and the U.S. released a joint statement last month demanding greater access to encrypted communications.

There’s undoubtedly a lot of political will to restrain tech companies, but does that go against the principles of laissez-faire economics? Could it eventually stifle innovation and leave consumers worse off?

Is it good for innovation?

The purpose of breaking up monopolies is to foster competition, which encourages innovation, benefiting consumers with the best possible products and services.

But there are reasons to question the idea of breaking up tech companies deemed too big.

Many analysts liken today’s big tech companies to Standard Oil, a 19th-century monopoly. Standard Oil was eventually broken into 34 different companies as regulators deemed it to be preventing competition from taking root.

But the world has fundamentally changed since then, says Bhaskar Chakravorti, a scholar of global business at Tufts University. International competition is already unfair, he argues, as China has bolstered its homegrown tech firms—such as Baidu, Alibaba, Tencent, Huawei, and ByteDance—by barring U.S. competitors within its borders.

By suppressing the growth of Alphabet, Amazon, Facebook, and Apple, the U.S. further disadvantages its own companies on a global level—a problem that Standard Oil didn’t have—and consumers will be the ones who lose.

Garrett Johnson, a professor of marketing at Boston University, echoes these sentiments: “It’s frustrating that the conversation tends to go along the lines of, ‘These companies are doing bad things, so we want to hurt them by breaking them up.’ If we start breaking up companies wantonly, that’s going to hurt innovation.”

Should the world’s biggest tech companies’ market power be controlled through regulation? Let us know what you think in the comments.

Also read: Facebook: Our future in Europe is unclear

I like to think about the impact that the internet has on humanity. In my free time, I'm wolfing down pasta.