TCS Daily


Europe in Denial

By Salil Tripathi - March 28, 2006 12:00 AM

It says something about the French president's priorities that Jacques Chirac stormed out of an important gathering of EU leaders discussing ways to make their economies competitive again, so that more jobs could be created, because a French speaker spoke in English, and not French. The walkout was another example of a European leader opting for theater, when what's needed is a substantive change in attitudes and policies.

For make no mistake: this past week's EU summit was meant to jump-start the on-again, off-again program of reforms European leaders had agreed to implement as part of the ambitious Lisbon agenda, so that growth would be the norm, and not an exception. Instead, in the current darkened mood, leaders are opting for excuses instead of action, and offering words instead of specific policies. The result will be less growth and less innovation.

Economic nationalism has grown across Europe, and the result of inaction will keep Europe mired inside a fortress, trying to strengthen barriers to keep out the unwelcome advances of globalization.

Here's how the pattern of recent European actions might look to an outsider:

When you can't invent, you legalize theft: France has proposed a law that would destroy Apple's business model by requiring it to open its hardware to music downloaded from any store, not only iTunes. There was a time when France was an early champion of Apple Computers, and had opted for its proprietary technology over the wider popularity of Wintel PCs. In the digital music industry, iPod is the Goliath, not David, and so France views Apple differently.

When a company exploits its monopoly and erects barriers to entry for other competitors, there is a legitimate role for the state to break the monopoly and support competition. But Apple is not preventing competition: other systems -- in the form of players, stores, and transaction mechanisms -- exist. Apple's superiority is due to its attractiveness to consumers and ease of use. Its business model creates an exclusive channel for those who own its hardware. Smart, yes; but unlawful? Hardly.

The French law would force online music stores to make digital tracks operable on any device. If users came up with another way of bypassing the exclusive channel, the law would permit that. It would also compel companies to make their hardware work with tracks purchased from a rival store. It sounds appealing at first glance, but it would severely undermine Apple's business model, which has, in effect, made it possible for music to be downloaded legally online.

At heart, the problem lies in a different understanding of market behavior in Europe and the United States. In Europe, if firms become dominant (and hence fewer), the European Commission takes notice, concerned about the shrinking producers (and, in effect, possibly fewer jobs). In the US, the focus is on consumer choice. When that is restricted, the anti-competitive machinery gets into high gear.

The focus on companies, not consumers, also explains Europe's jihad against Microsoft. The rule is:

When you can't control, you break it up: Microsoft's "monopoly" is again largely due to consumer preferences. It does have a certain amount of built-in software that makes it easier to use Microsoft's products (as against a rival's), but options for consumers to use other platforms exist. And yet, the European authorities keep inflicting more and more fines and restrictions on Microsoft.

When you can't create, you replicate: Reinventing the wheel seems another French priority. Stunned by Google's success and popularity (as well as Anglophone origins), the French are backing efforts to create a French version of cataloguing, searching, and indexing, and take on Google.

When you can't prevent, you protect: Beyond the digital world, as the ongoing saga of Mittal Steel's attempt to take over Arcelor shows, even when a European company tries to take over another European company, all sorts of bogeys are raised. Mittal's bid was criticized because, surely, Mittal could not be a well-run company, Luxembourgeoise and French politicians argued; Lakshmi Mittal is an Indian, even if his company is based in the Netherlands. When an Italian utility tried to buy its French counterpart, the French state supported a shotgun wedding between French companies, so that the power coursing through French cables remains "French-owned." (This has emboldened the onetime free-marketeer Polish government to erect barriers, in trying to prevent an Italian company from merging two Polish banks it already owns).

Of course, there are variations within Europe, and Britain is an excellent counterpoint: here many companies that would appear to Europeans as national champions have been taken over by foreign firms. And, thank you, Britain is doing just fine.

In trying to control the raison d'ĂȘtre of globalization -- seamlessness and efficiencies -- Europe will prevent consolidation in industries, permit inefficiencies, and opt for stagnation. The end result? Think of the streets of Paris: European politicians and bureaucrats are, in a sense, acting just like the demonstrators. They are trying to protect "freedoms" that are virtual, not real. In the process they are denying themselves the opportunity to participate more meaningfully in the global economy, the only place where those freedoms will ever exist.

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5 Comments

Why Europe is lagging
Rather thn strive or work harder it seeks to level the playing field so merit and hard work do not matter. Its so French.

And to think this is what the Democrats want for the US.

There is no legitimate role for the state to create competition when consumers prefer one supplier o
I am suprised that this article would say that there is a government role in "creating competition" when a company exploits is monopoly position. The government should have no right to interfere unless the supplier uses force, fraud or coersion to maintain its monopoly position and not just get it by making customers happy. And in the history of the US, most monopolies like Standard Oil, RCA, GM, IBM, Microsoft, etc decayed over time as the incentive for profits attracted domestic and foreign competition.

Do not think that our government is that much better than the European governments when it comes to granting monopoly rights. It does it all the time. Think port management, drug approval, etc.

I suggest you go back and study your Austrian Economics or Ayn Rand.

A Big Joke
Frankly, I always thought the whole concept of the EU was a big joke. Put a bunch of egotists in a room and expect them to cooperate for the common good --- RIGHT!! Everybody wants to be a chief but nobody wants to be an Indian --- and the French are the worst. If there is a single reason to argue against a successful EU, it is FRANCE. The country and its government have got to come to a realization that the lingua Franca of the world is no longer "Franca" but English. And they have to realize that the the Age of Enlightenment and French intellectual height is gone. THEY'VE abandoned it for every petty reason in the book.

But it's not just France (even though it is the biggest actor), every country in Europe has its "thing" with regard to EU unity and cooperation. EU is a union in name only --- an open marriage has more unity in a swing club.

Another reason to boycott France
As if their back stabbing in the UN and their support for Saddam were not enough reasons to support a boycott of the French, I hope Apple decides it is better not to do any business in France than to join in their stupidity.

I am so glad my ancestors left France centuries ago!

ipods
Well, I'm usually happy to pile on the French-bashing. It's fun, and hard to get wrong. But I think they're right about the ipod law. (Even if their real motivation might be the usual anti-Americanism.)

France is not legalizing file theft, they're just requiring that devices and software inter-operate. This is no burden; it's easier than what the companies are doing now.

Apple is asserting the right to forbid the buyer from using what he has purchased has he sees fit. It would be like GM telling you where you can drive your car, even after you have paid for it. Why should that be legal?

In this case, Apple's (and other provider's) deliberate incompatibility has no purpose but to prevent competition. While this may benefit Apple, it's hard to see how it either benefits consumers, or constitutes a legitimate property right on Apple's part.

After all, we're not talking about some patentable innovation here. Neither music players nor web sites to sell music are exactly innovative at this point. Ipod is simply a marketing arrangement. Insisting it compete on an equal basis is hardly theft.

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