Tom Smith is a partner at the law firm Geradin Partners, which represents a number of tech companies interested in these issues. He was previously legal director at the CMA and on the Digital Markets Taskforce.
The Government has been weighing up proposals that would encourage competition in the tech sector. It has the opportunity to promote economic growth, and it can do so in a more flexible and business-friendly way than the European Union.
The UK’s competition watchdog, the Competition and Markets Authority (CMA), has argued that a handful of tech giants such as Google, Apple, Amazon and Meta now enjoy such a strategic gatekeeper position in the UK economy that they stifle competition and consumers lose out. If their closed ecosystems were opened up to competition, digital entrepreneurs in the UK would have the opportunity to flourish.
The CMA has published nearly 4,000 pages of economic analysis in several reports to prove its point. In May, the Johnson Government reaffirmed its agreement with the CMA’s proposals and pledged to legislate for new rules “as soon as parliamentary time allows”.
The Online Safety Bill is currently being reviewed by the Sunak Government as it considers how to deal with “legal but harmful” content without undermining free speech. It seems likely to carry on its progress through Parliament, perhaps with some revisions.
But, we do not currently know whether the Government supports the other aspects of tech regulation that aim to boost competition. We do know that the aim of promoting economic growth is now central to British politics, and it is very clear that the proposed rules to be overseen by the Digital Markets Unit will further that aim.
For a long time, we have marvelled at the innovations of Big Tech, and rightly so. However, these companies give rise to some problems that have gradually come into focus over the last few years. Their power hinders economic growth worldwide because new companies with great ideas cannot challenge their supremacy.
As Hayek said in his famous Road to Serfdom, first published in 1944, “to create conditions in which competition will be as effective as possible, to prevent fraud and deception, to break up monopolies – these tasks provide a wide and unquestioned field for state activity.”
Here are three examples to illustrate. When Apple bans new ways of delivering video games on its devices, British game developers are prevented from serving their customers better. At the moment, Apple prevents the development of a subscription streaming market for games of the type that Netflix and others offer for television. Game developing is a large, high tech and creative industry for which the UK is widely lauded. If the Digital Markets Unit believes Apple’s restrictions are bad for the UK economy, it could free developers to innovate by removing them.
It has been claimed that Amazon collects the sales data of the small businesses who sell through Amazon Marketplace, and use it to compete unfairly against them by identifying which of their products it might like to copy. Amazon denies the practice. But if it freerides on other businesses’ investments, those investments will eventually stop being made – to the detriment of the economic growth that this country sorely needs.
As we all know, Google operates an excellent search engine. However, it can also use its unique market position to favour its portfolio of other services and hinder the development of competing services. A British company called Foundem has been fighting Google since 2009 through the EU’s endless competition law process. It says its comparison-shopping service was unfairly disadvantaged on Google’s search results pages, and the European institutions have so far agreed. The new UK framework proposes to resolve these types of issues one way or the other within six months, therefore giving innovative new companies who cannot wait a decade for market access the chance to stay afloat. And if Google has not done anything wrong, it will be released from having to defend the never-ending court cases.
The tech giants currently share their inflated profits amongst themselves and in doing so act as a drag on the modern economy. For example, Google pays tens of billions of dollars to device manufacturers (chiefly, Apple) for its search engine to enjoy a privileged position on their devices. How are these billions paid for? British businesses need to pay Google whatever it demands to ensure they are visible in its search results (ask yourself how often you click onto the second page of Google’s results). Those businesses must inevitably pass that cost onto families who pay more for goods and services across the economy.
All advanced economies are grappling with these issues. There are various legislative proposals currently being debated in the US, and the EU has already passed its Digital Markets Act. If it acts quickly, the UK has the opportunity to lead the debate internationally with its own flavour of new-style growth strategy. If the UK chooses not to do so, it will shortly become a rule-taker from Brussels because the tech giants will apply the EU rules in the UK rather than developing UK-specific business models.
The Digital Markets Unit is not the type of regulation that kills innovation. These are pro-competitive and flexible measures that enable the businesses with the best ideas to win, and lazy incumbents to lose. They are something that free market liberals should welcome with open arms. The digital sector is nowadays so important that any comprehensive plan for economic growth is incomplete without them.