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Which Internet for Europe?

BRUSSELS – When the European Commission announces its new digital strategy on May 6, it will face a decisive choice between two very different approaches to the Internet. Will it choose a forward-looking, market-driven path? Or will it opt for a defensive, backward-looking, insular retreat?

First the good news: the high profile of the planned announcement shows that the continent’s leaders recognize that the Internet can no longer be shunted to the sidelines of European policymaking. It is central to economic performance and to modernizing Europe’s industrial base.

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Over the past five years, while Europe has grappled with its macroeconomic woes, the United States and Asia have raced ahead, reaping digital benefits. According to a recent study by Plum Consulting, information and communications technology (ICT) contributed nearly 1.6% to annual productivity growth in the US during this period – double its contribution in Europe. Perhaps that should come as no surprise, given that nearly 5% of US investment is spent on ICT, compared to 2% in Europe.

“The difference is not because the Internet comprises a larger share of the economy in the US, but because the US has been better at using the Internet throughout the economy,” write Plum consultants Brian Williamson and Sam Wood. “Europe invests more than the US overall relative to GDP, but not in relation to the Internet and ICT.”

The question facing European policymakers is how to close this gap. The best way forward would be to embrace the Internet, even where it is disruptive. In practice, this means cutting red tape so that all businesses can sell their goods and services across a common market of 500 million people. European companies today must navigate 28 sets of rules. It is little wonder that only 15% of consumers shop online across European borders.

Europe’s focus should be on removing barriers and updating regulation to encourage more, not less, use of the Internet. This will require having the courage to face down those who would retreat behind national borders and protect existing business models. To benefit fully from the Internet, the EU should avoid favoring local businesses over global competitors, and all investment should be welcome, whether it comes from Stockholm, Seoul, or San Francisco. A regulatory regime that gave unfair advantages to local businesses would hurt consumers, hamper innovation, and damage competitiveness.

European policymakers should also guarantee non-discriminatory wholesale access to communications networks, and that consumers and businesses have a range of choices for telecommunications and online services. Similarly, the EU should engage internationally to ensure that the Internet remains a key part of the global trading system. For example, it should complete negotiations with the US on an improved “Safe Harbor” framework for data transfers, thereby encouraging companies on both sides of the Atlantic to rely on transfers of commercial data.

Unfortunately, ominous signs are pointing in the wrong direction. Europe’s two heavyweights, France and Germany, have been vocal in their determination to roll back digital progress. Recently, European Commissioner for Digital Economy and Society Günther Oettinger referred to the concept of net neutrality – in which all Internet traffic is treated equally, regardless of its nature or origins – as “Taliban-like” and called for a new levy on online services.

German and French pressure has led to calls for beefed-up regulatory powers to rein in powerful, usually American platforms, such as Google and Facebook. The continent also seems poised to gut the important “one-stop shop” principle, which would have allowed companies to deal with the data protection authority in the country where they have their main European base. Meanwhile, protesters across Europe have called for a clampdown on Uber’s ride-sharing service and restrictions on Airbnb’s apartment-sharing service, and the French Senate is considering “search neutrality” obligations.

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All of these moves add up to an alarming and wrongheaded approach to the Internet. If Europe continues on this path, it risks missing out on the potential of the online economy. After all, it is European small businesses, not just American, that benefit from e-commerce platforms like eBay and Amazon and the advertising services of Google and Facebook. And European app developers, too, build businesses on mobile phone software.

The Internet is not a game of winners or losers; everyone can win. Nor does it pit Europe against other regions. After all, Europe has almost as many billion-euro Internet firms as the US. The wisest choice for Europe would be to ensure that many more successful Internet firms emerge, by creating the best possible conditions for digital innovators.