Why the EU leads in digital regulation, but lags in digital innovation

In its efforts to harmonise the digital legislation of its 28 countries, the EU has accidentally become the world’s digital regulator, while ceding ground to other digital innovators. [Shutterstock]

It is often forgotten that, even though Facebook is a US-based company, its largest market is not the United States. The site has more users in the European Union. That is why the EU has been able to force its regulations on Facebook and other companies like it.

The power of the EU’s regulatory might in the digital sphere has been proven through the new General Data Protection Regulation (GDPR) provisions, which companies across the world have adopted. Because of the EU’s size, and because of inaction in the United States, Brussels has become the world’s digital regulator.

But Andrus Ansip, who was until recently the EU’s digital Commissioner and is now a member of the European Parliament, says the EU ended up in this position by accident.

“In the EU we weren’t trying to regulate everything, during these last five years we were aiming to deregulate, to harmonise 28 sets of rules into one,” he said at an event last week in Brussels.

“We weren’t trying to set global standards, even when talking about GDPR, but somehow it happened so,” he added. “In the United States they don’t have federal data protection rules, the only available set was our GDPR.

And we’re of course happy that our GDPR became a global standard. Ask those global service providers, they are really happy that now those rules are harmonized across the world”.

Ansip made his comments at the recent Euractiv event ‘Smart and Open Europe’, supported by the Confederation of Finnish Industries and the Technology Industries of Finland.

The event brought together stakeholders from the political, business and civil society worlds – while many complain that while the EU has been busy regulating, it hasn’t been innovating.

“Europe has been quite heavy on privacy and integrity, which we value very highly, but that needs to stand in relation to innovation capabilities,” said Christian Guttmann, head of artificial intelligence and data science at the Tieto Corporation. “From my point of view, and that of many in the industry, we need to speed that up.”

Regulation vs innovation?

During the last five years, the European Commission proposed 30 different legislative proposals to eliminate digital barriers separating EU member states, following the launch of the Digital Europe program in May 2015. 28 of those proposals were passed into law.

Some of them concerned consumer freedom, for instance preventing streaming companies from blocking their users from accessing content they have paid for while they are in a different EU member state. Others sought to tackle the emerging issues around data collection and privacy, such as the GDPR. These were issues that regulators in the United States, where the tech giants are based, had largely ignored.

The Commission’s strategy has also tried to encourage innovation. The Connecting Europe Facility focuses on projects of the highest European added value and particularly on cross-border connections.

On digital, it aims to ensure that all main socio-economic drivers such as schools, hospitals, and transport hubs, main providers of public services and digitally-intensive enterprises have access to broadband connections by 2025. Making sure this broadband is available across the EU has been identified as essential to small digital businesses.

But despite this EU funding, innovation has been slow. The reasons that Europe lags behind the US for innovation are myriad.

Chief among them is a lack of financing – the notorious “valley of death” where it is difficult to find private equity or venture capital funding. Another is still-fragmented EU single market, as businesses have difficulty scaling up their new technology across member states.

Some in industry blame over-regulation for the slow pace of innovation. “When you reflect back, most of the technologies when they were introduced, they weren’t first regulated,” he said.

“With the internet, what drove the internet 25 years ago when it became really popular wasn’t a whole bunch of heavy regulations, there was a standards committee that suggested there should be a standard on how you communicate that information, html and protocols, and that has essentially created the free market approach, that’s why we have so many websites and apps now. There was reasonably little regulation at the beginning, and a fair bit of standardisation, that allowed the market to drive innovation.”

Value-based innovation

But Penny Clarke, head of EU Policy at the European Public Service Union, which represents public service workers, said that Europe’s approach has been right, because unbridled innovation in emerging spaces like big data and artificial intelligence could have a scary impact on people’s lives.

She noted that Margrethe Vestager, the nominated EU vice president for digital affairs, told the European Parliament in her confirmation hearing last week, that she would work to make Europe “more like itself, and not like China or the US”.

“She said she would try to do this by linking to European values,” Clarke recalled.

“I think for many workers and citizens digitalization is sometimes presented as an aim in itself. We would say a direction for digital needs a clear purpose, and we want these technologies and the digital transformation solve a number of problems we have, like climate change.”

Joris van Hoboken, a professor of law at the Free University of Brussels (VUB), agreed.

“I think it’s quite impressive what Europe is doing in this area,” he said. “I also support a value-based innovation approach, and I think we do see a lot of innovation in technology at a global level that is not taking that approach. And I think the question is going to be – do we really want to compete with that?”

[Edited by Zoran Radosavljevic]

Subscribe to our newsletters