Europeans are strangling innovation – why doesn’t the EU step in?

published 22 September 2014

If you want to order a taxi in Berlin or Frankfurt, don't bother looking at your smartphone. Fancy hiring a film or buying a book in France? Don't bother trying to do it online. The French have hit Amazon with a special tax designed to prop up local bookshops, while online broadcaster Netflix has been threatened with another tax to try to slow down its expansion.

The European Union is meant to be about enforcing open markets and free competition across the continent but the fact is, the EU seems increasingly feeble when it comes to forcing countries to level the playing field for new technologies and more and more tolerant of small-minded, local protectionism.

This is a big mistake. It doesn't matter where innovation comes from.It still creates jobs and wealth. If the EU wants to lift the continent out of recession, it must get a lot tougher with countriesthat are cracking down on new companies.

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Ride-sharing app Uber has been the first company to feel the full weight of the technology backlash unfortunately, it is unlikely to be the last. Uber can be used to book either an ordinary taxi, or a mini-cab, or, more controversially, to get a lift from a private car.

Wherever it has launched, there have been protests from traditional taxi drivers, who are of course not known for being slow to complain. But in Germany, the courts upheld the complaints against one of its apps, and although Uber is appealing, it remains to be seen whether it can operate there.

Google is facing similar problems.A group of German publishers is trying to use European law to break the search engine up. They complain it uses its search results to promote its own services over theirs but it is hard to escape the suspicion that they simply find it too hard to keep up with it.

Over in France, American technology companies are having an even harder time. Earlier this year, the countrypassed what quickly became knownas an anti-Amazon law'. It already had a law that stopped anyone discounting more than 5% off the price of a book. But it tightened the rules to stopAmazon offering free shipping, because book shops said it was unfair.

Netflix is facing just as much opposition to its recently launched film-streaming service. The local film producers' association has accused it of fiscal dumping', and the culture minister described the company as stowaways'.

If its earnings go above €10m, it willhave to pay a special 2% tax in France, and the Council of State has recommended oversight of its algorithm to make sure it favours French films. With so many hurdles, it is a wonder it even bothers.

Innovation is disruptive. The internet is very good at replacing old industries with new ways of doing things. And whenever that happens, some people will lose out, and find it harder to make a living. But usually lots of other people will benefit.

Uber might well put some taxi drivers out of business. But it will also drive down fares and make cabs easier to find. Drivers might lose out, but passengers will be better off.

Likewise, Amazon has made life tougher for local bookshops in many places, and plenty have gone out of business. But it has also made a lot more books available than you could ever find in any shop, and at lower prices too, so the average reader is better off.

There are more winners than losers.The trouble is, the losers are better organised, and more vocal. The taxi drivers make more noise, and are not afraid to use the courts, or lobby politicians. Same with the book shops or film producers. The winners don't have the same kind of stake, and make less noise. So they get ignored.

That is where the EU should come in. It is, at least to its enthusiasts, meant to be about forcing open markets, and promoting competition. That is what the single market was always meant to be about. But it isn't happening.

Big technology companies find it increasingly hard to operate in Europe, and the EU is doing nothing to help them. That may be because most of them are American rather than European.

Unfortunately, Europe has so far produced few transformational tech companies. The music streaming service Spotify, which was started in Sweden, and is now headquartered in London, is the only real example. If Uber was German, or Amazon French, perhaps they would find it a bit easier.

Economic growth is generated by innovation, investment and change. Whether that comes from American, Korean or German companies doesn't matter. The EU talks about creating a more open, dynamic economy, and investing in digital industries indeed, it is one of the seven pillars' of its 2020 strategy for European growth. But there is precious little sign of it so far and until it tackles this, Europe's depression will just get worse and worse.

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.