The switch under the US president and Xi Jinping, from a recognition of interdependence and mutual interest to outright hostility and conflict, has enormous implications for the digital world – and for us
Last week saw two, apparently unrelated, clashes in the battle for dominance in the world of big tech, involving companies and governments which dominate the digital economy. Apple won one round of a complex legal battle with the European Commission to protect its use of low-tax jurisdictions. And Huawei lost out on UK business after the British government did a U-turn from its decision to allow limited Huawei participation in the UK 5G network. A perfect storm of Conservative backbench insurrection and US sanctions made the previous UK position untenable.
These clashes are skirmishes in a much bigger war for dominance of the emerging digital world economy and the new, overlapping, technologies within it: artificial intelligence; 5G; big data; advanced semiconductors; and quantum computing.
One aspect of this multifaceted conflict is between the “big five” American data giants – Apple, Amazon, Alphabet (ie Google), Microsoft and Facebook – and various governments trying to impose rules regarding privacy, content, competition and tax. Another is the emergence of competition with these household names from China’s lesser-known but enormous data companies – Alibaba, Tencent, Baidu, and others which have achieved global leadership in specific sectors like Huawei (telecommunications) and Daijang (drones).
Only the two economic superpowers, the US and China, now have the capacity in their companies and national infrastructure to compete seriously in this territory. That competition is rapidly degenerating into a polarised “cold war” between them.
Europe has not produced any of its own data giants and seems unlikely to do so. Instead, its markets are being fought over by US companies and increasingly the Chinese. The activities of the European Union have centred on consumers rather than producers, with the General Data Protection Regulation (GDPR) becoming a notable success in establishing a common standard for the protection of privacy across Europe. It is accepted beyond the EU’s borders, including in Brexit Britain.
Meanwhile, the European Commission is the only effective referee of the market, as the sole competition authority with sufficient heft and will to tackle, head-on, the immense power which resides in the data giants. This power derives from having near monopoly reach through a commonly used operating system as with Microsoft and MS-DOS in the Eighties and Nineties, Apple more recently with IoS and Google with Android. Conversely, internet platforms gain power as they gain users, with Amazon’s online retail, Facebook’s social media and Google’s search engine now near-universal services. The monopolies are strengthened by numerous acquisitions of innovative companies and potential competitors, such as Facebook’s acquisition of Instagram and WhatsApp, and Google’s of YouTube and Spotify.
The only major counterweight is Margrethe Vestager, a Danish liberal, who as European competition commissioner has a passion for free trade, open markets and consumer rights in the European liberal tradition. She is rumoured to have been the model for the fictional Birgitte Nyborg in the Danish political drama Borgen. In the real world, she has been tenacious in challenging the data giants, albeit with mixed results.
In this field, proving monopoly abuse is difficult, not least because data giants provide their services free at the point of use, so do not obviously rip anyone off. Instead we pay indirectly through advertising and the data collected on what we click. We pay even more through lost revenue when big companies pick and choose where to pay their taxes, escaping billions in liabilities. In the complex task of demonstrating that abuse it taking place, the commission is painfully slow. Google for example managed to acquire 167 companies after an EU Commission inquiry commenced. It was, however, eventually fined for market abuse over competition between its search engine and price comparison sites.
Apple has been defter, successfully defeating the commission in the courts. It was accused of colluding with the Irish government to dodge state aid rules through a “sweetheart” deal which involved paying 1 per cent corporate tax. The second-highest court in the EU found for Ireland and the company, and the commission has low expectations of winning when the issue goes to the European Court of Justice. It is to the credit of Vestager that she keeps fighting. She is already bringing another case against Apple over the fees Spotify has to pay for using its payments system.
By comparison, the US takes virtually no action over big data companies. The “trust-busting” traditions – the break-up of the railway baronies, the Rockefeller oil empire and Bell Telephone – are long forgotten. Today’s president sees data companies solely in terms of their political usefulness in promoting his message. Although a few radical legislators like Elizabeth Warren have called for the likes of Facebook to be broken up, the companies face far less challenge than in Europe.
The US authorities have so far had an additional reason for turning a blind eye to whatever market abuses the data companies get up to: superpower competition with China. To paraphrase a former US statesman challenged about his country’s unsavoury allies: “They may be bas***ds but they are our bas***ds”. With the big tech giants, and others in specialised applications – Netflix, PayPal, Uber, eBay – and many others the US is the only western country with the range of skills, the depth of capital markets, the entrepreneurial energy and the scale to be able to dominate and push ahead into new technologies.
Some of the big US data companies were never allowed to get a foothold in China (Google, Facebook), opening the way to Chinese alternatives, and Amazon has been marginalised there by a Chinese competitor, Alibaba. China has produced its own version of Uber (Didi) and hitherto unknown companies are colonising other areas.
The switch under Donald Trump and Xi Jinping from a recognition of interdependence and mutual interest to outright hostility and conflict has enormous implications for the digital world. In a few cases, notably Apple, there is heavy interdependence with China and interlocking supply chains. Companies like Huawei are genuinely global. Others like TikTok have become popular with western consumers. Newcomers like Zoom have a big research and development footprint in both the west and China.
The policy of delinking now apparently being pursued by the west will be seriously disruptive for some of these companies, but it will also deprive countries like Britain of state-of-the-art technology. In its latest act of self-harm, the UK has just accepted that it will go backwards for several years in ambitions for 5G connectivity, in return for pleasing Trump. Meanwhile, the timid challenge which Britain offered to the tech industry through a proposed digital tax is likely to be swept away as a condition for the US agreeing to a bilateral trade deal.
The long-term effect of American myopia over what should be recognisable mutual interest is unlikely to be China simply backing off and giving up. Instead, the Chinese will try even harder, using the country’s immense capacity to mobilise talent, investment and hard work. In the long term, their ambition is not just to equal US power, but to exceed it and become number one. As these titans wage war against each other, more is the pity that the UK has walked away from the – limited – protection that a forceful European Competition Commission provides from the crossfire.
Vince Cable is the former leader of the Liberal Democrats
