The tremor in Silicon Valley emerged from Brussels, not the San Andreas Fault. The European Union’s decision on Google’s search practices makes clear the absence of domestic regulation has opened the door for policies to be decided by foreign governments.
It should be a worry – and a wake-up – for all the companies whose platforms drive internet services. The EU has leveled a record-breaking $2.7 billion fine against Google for its search practices. But that’s just money (albeit lots of money). A more pervasive consequence is the EU mandate that Google alter the manner in which its search results are presented.
Thanks to the interconnectedness of the internet, imposing rules in one major market necessarily impacts operations in other markets. While the internet platform companies may celebrate how they have avoided regulation at home, it does not mean they have avoided government oversight – just that such policies come from other governments. And because the effects of a keystroke can circle the world in seconds, policy imposed by the EU, for instance, can be felt far beyond the European continent.
The prevailing attitude in Silicon Valley seems to be one of disregard for the policy making activities of Washington. But when the top five companies by market capitalization are all internet platforms, it is hard to imagine such power and dominance existing without the government installing some behavioral guide rails. That is what the EU just did, and they promise more to come. This raises the interesting question of whether the countries of Europe now set the standards for the internet.
While protecting consumers and competition is their goal, it would be an unnatural act for foreign regulators not to take into consideration the effect the internet giants have on companies in the countries of those regulators. Thus, the question occurs whether the success of the U.S. internet giants in keeping their own government at arms’ length is not actually counter-productive. Rather than the U.S. setting the international standard for appropriate oversight of the platforms of the internet – and in doing so advancing and protecting American economic influence, consumer interests and innovation – the U.S. internet companies’ actions have defaulted the leadership to other countries with perhaps other goals.
Historically, the rest of the world has looked to the U.S. for policy leadership in how to deal with new marketplace developments. The EU, for instance, adopted net neutrality rules that were very similar to those adopted by the FCC in 2015 (and which the Trump FCC now seeks to repeal). As the sponsor of those rules, we worked very closely with the EU to avoid conflicting regulations that could negatively affect the market on both sides of the Atlantic.
The European Union isn’t finished. Still continuing is an investigation into the effects of the company’s dominance with its Android mobile operating system (which runs 86 percent of the world’s smartphones) and the AdSense advertising platform. The other internet platform companies have also been targeted: Facebook has already had a run-in, as have Apple and Uber. An internet privacy decision of the European Court of Justice left U.S. internet companies scrambling to get the U.S. government to establish a safe harbor in order to insulate them from the EU’s privacy protections.
Yet, the U.S. platform companies continue to keep their own policy makers at arm’s length. They successfully lobbied the Congress, for instance, to repeal the FCC’s rules protecting individual privacy, even though the rules affected only network providers, not them.
But they feared that responsible network privacy protections might eventually spread from the networks they ride on to impact their behavior. The networks who benefitted from the rule’s repeal showed their appreciation by supporting legislation to do just what the platform companies feared.
Domestic internet programs might want to consider their own corporate interest in embracing domestic policy regulatory oversight. The decision of the EU is a wake-up call that perhaps having policies established by the U.S. government isn’t such a bad idea after all.
Google and Facebook are donors to the Brookings Institution. The findings, interpretations, and conclusions posted in this piece are solely those of the author and not influenced by any donation.