The EU’s Regulatory Nightmare

Instead of promoting innovation, Europe is punishing success
August 27, 2018 Updated: August 27, 2018

The European Union, in its current state, isn’t famous for being a great promoter of free markets, entrepreneurship, and innovation, but rather a machine spurting out masses of regulations and rules.

One just needs to look at the 109 regulations on pillows, 50 on duvets and sheets, or 31 laws on toothbrushes that Brussels has conceived. Or the immensely detailed explanation of how a banana must look, and that it has to be “free from malformation or abnormal curvature” (yes, this is an actual law).

It may be possible that all these crazy stories, which are regularly featured in tabloids for the amusement (or frustration) of the population, only come up because the politicians and unelected bureaucrats of the European Union are simply bored, not knowing what to do with their time. But here is more behind the path Europe has taken.

Indeed, it is an entire approach that Brussels and also European national governments adopted a long time ago. As scholar Veronique de Rugy wrote in a recent article, “European governments are nothing but a bunch of protectionists.” In her excellent analysis, she echoes the crucial dichotomy that Adam Thierer put forth in his book “Permissionless Innovation.”

Promote or Stifle Innovation

The gist is this: There are two ways that governments can respond to innovative efforts. Either they can follow the process of permissionless innovation, that is, as Thierer writes, “the notion that experimentation with new technologies and business models should, generally speaking, be permitted by default.” If any problems were to arise, they could still be addressed later. But governments can also follow the precautionary principle, so “the belief that new innovations should be curtailed or disallowed until their developers can prove that they will not cause any harm.”

While permissionless innovation is “about the creativity of the human mind to run wild,” the precautionary principle in its essence takes away what entrepreneurial endeavors are all about: looking for new opportunities that others haven’t identified yet, taking a risk, participating in a trial-and-error process, and either make the world a better place (and profit from it yourself), or, yes, fail.

The United States, for the most part at least and very much compared to Europe, has taken an approach more akin to permissionless innovation, where risks can be taken and where failure is tolerated, if not seen as a normal part of the process. In Europe, meanwhile, the precautionary principle is dominating.

To a certain extent, this might be a cultural component: failure is judged in many European cultures, and a business venture gone awry will be seen quickly as a complete career failure—considering that never failing is an impossibility, this means that entrepreneurship is naturally less of a factor on the Old Continent. But governments, and especially the EU, have played a major part, too.

Regulate to Death

There are many, actually countless, examples of this. Just take the ongoing war on Uber, Airbnb, and all sorts of other sharing economy services, which governments in Europe have tried to regulate to death for years. Or take the new data-protection rules which have already resulted in companies leaving Europe, since compliance is impossible without spending immense amounts of money.

It is little surprising under these circumstances that it isn’t Europe, the continent where free-market capitalism and the industrialization took off, where major innovations are made today. Much has been talked about the supposed tech hubs in Stockholm and Berlin, but little has come out of it except Swedish Spotify—which is increasingly moving its endeavors to the United States as well. As of 2016, Thierer reports in his book, “Airbnb’s market value alone exceeds the value of all Germany’s billion-dollar technology companies combined.”

The response by the EU has been mind-boggling: Instead of relaxing its tight rules, it has doubled down, and in recent years, expanded its War on Innovation ever more. For their successes, companies—almost exclusively from the United States, have been heavily penalized. Microsoft has been hit with fines four times, most recently in 2013 with $635 million. The list also includes Intel ($1.2 billion, 2009), Facebook ($122 million, 2017), Amazon ($293 million, 2017), and Qualcomm ($1.2 billion, 2018).

But the most shocking verdicts were the Apple fine of $14.6 billion in 2016 (supposedly for “not paying their fair share” in Ireland, even though the Irish thought everything was just fine with that), a $2.7 billion fine for Google in 2017 (while at the very same time bailing out Italian banks), and just last month, a new record fine for Google at the impressive price tag of $5 billion.

The EU is often shocked about how countries such as the United States have tech hubs like Silicon Valley, all those innovations, all those start-ups, and all this entrepreneurial spirit. Instead of penalizing those who prevail despite major obstacles put in their place, Europe should instead change its perspective, though. Indeed, as Thierer writes, “a liberal dose of permissionless innovation thinking can help spur the next great industrial revolution by unlocking amazing opportunities.”

This next industrial revolution could also happen on European land. But for that, governments need to let the miracles of the market go their own way.

Kai Weiss is a research fellow at the Austrian Economics Center and a board member of the Hayek Institute. This article was first published by AIER.org

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

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