The European Union's Interference Equation: Inaction + competition = over-reaction

admin Tuesday July 21, 2020

In 1996, yearly worldwide PC sales went beyond 70 million units. It was obvious that personal computers would become ubiquitous and that the world would crucially need operating systems and commodity software.

The network effect on computers was already known in the early 1980s. In fact, in 1996, software vendor lock-in was already very much a reality.

In 1996, it was obvious what would happen if the world didn't make such software and let private companies and individuals tackle the problem. In fact, in 1996, private companies had already started creating operating systems and software with intentional vendor lock-in, and individuals had already started creating badly underfunded free software. Efforts were duplicated and allocation was highly inefficient. In 1996, the main PC operating system was Microsoft Windows 95; the software world was already plenty messy.

And yet, in 1996, neither the United States nor the European Union, nor any other union decided to offer its citizens a "universal operating system". A few years later, the situation had unsurprisingly worsened, and Microsoft's dominance was even greater.

At that point, the world could have learned from its errors and decided to avoid doing the same errors with the next big innovations. But rather than offering a public Web search engine or starting an operating system for mobile devices, the United States dug up old legislation and recycled it to pretend it was doing something about the problem. In 2001, the United States government sued the largest software enterprise which its inaction had forced to fill in the gap, claiming the Evil Microsoft had broken antitrust legislation. A settlement stopped the government short of dealing a grave blow to entrepreneurship and the free market.

The European Union, having done nothing more than the USA, was plagued by the same problems. In 2004-2007, it used the same pretext found by the USA to suck a €497 million fine from the dangerous Microsoft, which was evil enough to include a media player in its operating system. The EU too would have done something about the problems.

Smaller computers, bigger interference

With all that energy spent blaming the Bad private sector, the world had no energy left to prevent repeating its errors, with the advent of the Internet and handheld computers. The world let the private sector provision web search engines and operating systems for handheld devices. We let Google build a web search engine, and when it created an operating system for handheld devices, surprise surprise - the Evil Google made Android's default search engine Google Search.

Will these new failures be enough for us to learn and tackle the next problems before it's too late? At least in Europe, the answer seems to be no. The EU has chosen instead to stick to its pattern and slap a €5 billion fine on Google, that Evil innovator which provides the world with the open source Android operating system. As for the USA, its current political situation sweeps away any chance of seeing the Federal government anticipating any future problem in the next years.

Intervention in moderation

If further state intervention is to be expected, is our world doomed to have neither the public nor the private sector provisioning solutions to coming challenges? Or can these interventions be turned into something positive?

I believe governments can indeed intervene without undue interference. There is no better way to illustrate how than to use a real-life example, so let's take the first Google practice the EU blames Google for: Google has required manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google's app store (the Play Store);

If such a practice is deemed problematic, here are 2 alternative interventions I suggest:

  1. Forbid sale of the relevant devices to minors without agreement from their tutors
  2. Inform customers buying the relevant devices about the practice and require them to confirm their understanding of that practice in order to complete the purchase.

By using such moderate interventions instead, we would let transactions without negative externalities occur, but we would also make citizens aware of problematic practices, and - perhaps - make consumers wonder why such practices have come into existence.