Europe’s digital wrong turn

STOCKHOLM . When it comes to crafting
good digital policy, Europe has failed
its first big test. In May, the European
Commission announced that it would create
a unified digital market of 500 million
consumers that would add 415 billion euros
($458 billion) to the European Union’s
GDP and create some 3.8 million jobs. Unfortunately,
a recent decision on one key
digital issue . data privacy . threatens
to derail that effort.
In June, the EU’s home and justice
ministers voted to retain significant national
powers over the protection of digital
privacy, rather than creating a single set
of rules that would apply in all 28 EU
countries. If the European Parliament approves
their proposal, divergent national
rules would be reintroduced. Even more
worryingly, this would open the door for
provisions outlawing the benign, lowrisk
data mining that drives online advertising.
Online advertising allows EU citizens
to access information, educational material,
commerce channels, and entertainment
sites without paying for them directly,
and the amount being spent on it in
Europe is growing fast. The industry’s
revenues have more than quadrupled
since 2006, even as the overall European
economy has stagnated. The EU’s privacy
crackdown threatens to undermine all of
this. Not only will it create an administrative
burden through additional costs and
bureaucratic hassles; it also raises the real
possibility that the new rules will undermine
the business model of many of Europe’s
most prominent online companies.
That would be a pity . one that could
have been easily avoided. In 2012, the European
Commission presented a proposal
to replace the EU’s existing data-protection
legislation, the latest version of which
had been drafted in 1995, when the Internet
played only a tiny role in the economy.
The initial text was promising. It aimed to
harmonize Europe’s fragmented legal
framework, provide businesses with a
helpful “one-stop shop,” and reassure
consumers that their data were being used
properly.
Unfortunately, many of the most benevolent
provisions have since been discarded.
At the June ministerial meeting,
the important one-stop-shop principle
was gutted. Instead of allowing businesses
to deal with the data-protection authority
in the country where they are headquartered
or have their main European
base, member states are insisting that national
regulators maintain control. Under
the newly proposed rules, any “concerned”
authority could object to a decision
by another national regulator, triggering
a complex arbitration procedure
involving all 28 agencies.
The ministers also adopted a broad
definition of personal data. Both cookies
(small pieces of data stored on a web surfer’s
computer) and IP addresses (a code
used to identify a computer when it is
connected to the Internet) would be included
. even though neither provides a
link to a particular individual. At best,
this broad, indiscriminate definition of
personal data threatens to create unnecessary
obstacles for EU-based digital advertisers.
At worst, it will outlaw their business
model.
Unnecessarily strict data rules will
hurt European companies disproportionately.
Google, Facebook and other American
Internet giants are in a position to receive
explicit consent from users. But Europe’s
online sector is dominated by
business-to-business companies with little-
known brands that process consumer
data but lack direct contact with users. As
a result, the only real alternative for European
Internet companies will be to work
with large American platforms and become
even more dependent on them.
The United Kingdom, Sweden, Norway
and the Netherlands are global online
leaders, but many other European
countries are lagging far behind. As a result,
the digital economy contributes
about four percent to the EU’s GDP, compared
to five percent in the United States
and 7.3 percent in South Korea. These
new regulations will ensure that European
companies will be left trailing far
behind their international competitors.
Europe is facing an important choice.
To be sure, the EU needs to reassure its
citizens that their data will be used properly;
measures that do this will help the
digital economy grow. But the continent’s
policymakers must remember that a digital
single market cannot exist as long as
there are rules that reinforce divergent national
approaches to privacy and hinder
the Internet’s use of anonymous data for
digital advertising. At stake is an entire
generation of European digital entrepreneurs.
Copyright: Project Syndicate, 2015.

*The author is CEO of the Swedish online account marketer Vendemore.

by Christopher Engman