by Stefano Quintarelli, Italian MP.
The Internet is the immaterial dimension of existence, in which we hold social and economical relationships. It is not alternative nor complementary to the material dimension, likewise length is not alternative nor complementary to depth.
The Internet economy not only is generally associated with zero marginal costs but it is also real-time and interconnected, allowing for zero frictions and positive feedbacks at a global level which are paramount conditions to the forming of global monopolies or oligopolies.
The immaterial is rapidly becoming THE user interface of the material dimension allowing for a replacement of local, fragmented, slow material intermediaries (which build a local socioeconomical fabric) with global, fast, monopolists/oligpolists immaterial intermediaries (eroding the local fabric).
States observe the (concentrated) missing tax revenues, but those are just a tiny portion of the overall (distributed) value that is flowing away from many local intermediaries, through the immaterial dimension, to few global intermediaries in tax heavens.
Not only the new global immaterial intermediaries are favoured by zero marginal costs and realtime, interconnected positive feedbacks (based on deflationary technologies) but also by a light touch regulation which has no equivalence in the material dimensions (other segments are subject to pro-competitive ex-ante regulation in order to maximize customers contendability and consumers warranties).
They tend to acquire significant market power thanks to traditional scale and scope economies cooupled with a careful exploitation of network effects and users lock-in mechanisms. As a consequence competition grows, in an extremely predominant way, FOR the market and not IN the market looking for world dominance where “winner takes it all”. A second effect is that venture capital funding tends to a concentrate geographically and on few prospected winners.
The digital evolution is leading a fundamental change in our economy for which the EU plays at with major structural disadvantages in the immaterial dimension. (think for example of regulatory, market and cultural fragmentation posing a limit in the dimension and speed for a EU company to reach a market size compared to a similar company in a more homogeneous market like the US or China).
Socially desirable targets are diverging from actual developments in part due to a regulatory framework not fit to the purpose of dealing with the intrinsic characteristics of the immaterial dimension.
As a consequence, there are many reactive initiatives conducted in civil courts and antitrust authorities throughout Europe. We can foresee the latent risk that, eventually, a sharp outcome of an EU competition case against a monopolist or some resolution approved by the Parliament might distract from the more general pattern of economy re-intermediation and instill a false sense of confidence.
EU Communications regulations may act ex-ante imposing pro-competitive and antitrust-inspired conditions, even asymmetric regulations in case of SMP, but only on predetermined, well defined markets which do not include online services.
Antitrust ex-post interventions require many years to reach to a final decision loosing its deterrent effect as in the meanwhile the company may have well grown 10x or 100x.
This is a fundamental trend that will last a long period of time determining damages to the EU economy in the material dimension as well as the immaterial. It will reduce the capacity of the EU to pursue the finalities of growth and welfare that correspond to the values and the inspiration of the Union, impacting also upon the sovereignity of the Union and of the member states.
I believe we need to reverse the present trend of disintermediation of the EU economy and its reintermediation by global well-established players by
- stimulating well financed digital entrepreneurship in Europe,
- building a regulatory environment capable of fast reaction to the emergence of monopolistic players
- ensuring for EU companies the possibility to an effective access to the markets
so that EU companies can participate in a vibrant competition IN the markets and not just FOR the markets.