– Baldur Bjarnason
You can’t be a good manager or executive, in any industry, if you operate in constant denial of the facts on the ground. Arguing from ideology or beliefs that aren’t grounded in observation, measurement, or study, is the hallmark of a politician or media personality, not a manager responsible for other people’s jobs.
This should be obvious, but it isn’t.
Basing your opinion on factional loyalty and vibes is fine for a blogger or a pundit, but it does not make for a sound management strategy.
Unfortunately, it’s the default for modern executives, best seen in the popularity of mass lay-offs – a strategy that has been resoundly proven to be counter-productive, costly, even disastrous, along multiple dimensions, over multiple decades of study.
There are a few examples of this trend towards denying reality. The starkest one being Elon Musk behaving as if European labour unions don’t exist and that labour is entirely powerless, leading his companies to lose money on strikes and other collective actions.
But Elon Musk isn’t alone. It’s very common for US punditry to completely misunderstand the EU and analyse it as if it were a US political entity – imagining that its actions are driven by the same political and social dynamics as a protectionist industry within the US. They treat the EU’s actions as analogous to a coalition of traditional media companies, such as The New York Times and Washington Post, trying to bolster their industry against tech. They cover EU statements as if they were the comments of the taxi industry trying to stave off Uber and Lyft.
But that’s just not the reality of the situation and to understand what’s going on – to be able to make sound management decisions and form executive strategy – you need to understand what the EU is. More specifically, you need to understand the European Single Market.
It is trivially obvious that the management at Apple, Google, and Microsoft have not done this work. Apple especially seems to be in denial about the nature of the EU.
This should worry you, because understanding it isn’t hard – the equivalent of a single high school civics lesson – but they seem to be basing billion-dollar executive decisions on wishful thinking, and that’s a cause for concern.
The European Single Market #
The single market: bringing Europe together
One of the cornerstones of EU integration, the single market makes it possible for goods, services, capital and people to move across the bloc as freely as within a single country.
It includes both EU and non-EU countries: Iceland, Liechtenstein and Norway take part through the European Economic Area they have established with the EU, while Switzerland has concluded a series of bilateral agreements with the EU that give the country partial access to the single market.
The single market is, from the perspective of the EU itself, its single most important project. Greater trade unity and competitiveness with other markets is the very reason why its predecessors were formed. The EU is for lowering internal barriers to trade and services while protecting that internal market with whatever tools it deems necessary.
Most of the time that has involved some sort of external barrier.
This is the reason why I get a bit frustrated whenever I see somebody in tech dismisses the EU as just trying to protect European companies from competition with their glorious and wonderful US companies.
It is, to put it bluntly, an ignorant thing to say.
The EU absolutely is for protecting and strengthening the European single market.
This is not a gotcha!
There’s a lot to dislike about the EU. They operate internally on some of the worst ideas to come out of post-war economics theory. They are all too willing to let individual member countries slide into fascism. And, as an institution, they are largely all too convinced that an all-seeing universal surveillance state would be a good thing, actually.
These are all good reasons to criticise the EU.
But the single market is what it’s for. Without it, the EU would cease to exist. To understand what motivates EU, as an organisation, you need to understand the single market.
Whenever I point out on social media that the single market is the purpose of the EU, I get bombarded by replies saying: “No you’re wrong. The EU was founded to preserve peace in Europe. Gotcha!”
What mechanism do you think they used to preserve that peace? Cozy feelings about elections for the EU parliament? Happy thoughts about student exchange programs?
The single market is the EU peace project, which makes protecting it an existential issue to many involved in the EU.
The process of European integration has many elements in common with the liberal theory of peace articulated by the US President Woodrow Wilson (1918) in his ‘Fourteen Points’ address to the Congress. In particular, there is and has been an emphasis on trade liberalization, democracy and open agreements as means of ensuring peace. Although the Second World War had shaken belief in the liberal approach to peace, the EU’s founding fathers—including Jean Monnet, Robert Schuman, Paul-Henri Spaak, Alcide de Gaspari and Konrad Adenauer—sought to build upon it.
Their approach to promoting peace through integration stressed the importance of trade liberalization and (at least implicitly) democracy. To these ingredients, they added an emphasis on functional integration and the creation of supranational institutions.
Many people today either don’t know this or have forgotten, even people heavily involved in EU industry, but the EU was formed on the basis of the liberal idea that integrated economies will not go to war.
Liberalism in general has always operated on the theory that free trade promotes peace. It’s what drove much of the US’s efforts towards globalisation in the post-war era.
But the EU peace project is explicitly not global.
Their European project also diverged from the Wilsonian vision in another, significant way. The European project was explicitly regional, rather than global, plurilateral rather than multilateral.
The purpose of is the EU single market, and EU big industries generally believe it has worked.
In the words of BDI, the Federation of German Industries:
Alongside the preservation of lasting peace in Europe, the single market is the greatest achievement of the European integration project. At the same time, it is the central basis for the future of the European Union. Only a well-integrated market is competitive, creates prosperity and jobs, guarantees stability and secures Europe’s political influence in the world. The continuous deepening of the single market in all areas is therefore imperative so we can continue to defend and claim our European sovereignty, our standards and values globally.
Why should US tech companies care about EU history? #
When US tech is fighting the EU on core policy issues, they are not fighting a few individual bureaucrats with an agenda. They are fighting a multinational trade organisation with an agenda.
To be effective, it pays to understand the agenda.
Integrating a single market has been a decades-long task along multiple dimensions, much of it taking the form of standardisation.
- Voltage harmonisation ensured that a device bought in one EU country won’t be destroyed by simply plugging it into an outlet in a different country. The EU standardised on 230v electricity.
- The many product standards aren’t just there for the consumers but also for trade and industry. Businesses can better trust the work products they’re buying and industries need to worry less about parts and materials. The US has product standards as well, for similar reasons, but the EU arguably takes it further.
- Phone charger harmonisation. We went from having dozens of different connectors to only two and, soon, hopefully only one.
This is only a tiny part of the massive project that is the European Single Market, but it highlights just how important standardisation is to the EU theory of what makes a market free and open. The core mechanism that helps unify the single market is standardisation and the ability to move freely within the market.
The EU ban on roaming charges is a good example. European mobile phone companies generally aren’t allow to inflict surcharges for using their service across the EU.
Or, another way to put it would be that the EU does not let private parties turn the single market into multiple subdivided markets under private control. It doesn’t matter that most of these companies were European, their practices threatened the very concept of a single market, so the practice had to be eased out.
Private parties are not allowed to divide or fragment the single market, allowing that in the long term is an existential threat to the EU, because the single market is what the EU is for.
The roaming regulations are also widely considered to be a success, even beyond their obvious popularity among EU consumers.
Assuming that our estimates are representative across the EU, the total consumer surplus gain of RLAH would be around €2 billion in 2017.
“The Welfare Effects of Mobile Internet Access: Evidence from Roam-Like-at-Home”
And:
In total, however, the suggestive evidence presented here suggests that consumer surplus increased more than network operator surplus decreased, implying that RLAH had overall positive welfare effects.
“The Welfare Effects of Mobile Internet Access: Evidence from Roam-Like-at-Home”
Data use increased across the board, meaning that digital service providers benefited from the change, increasing economic activity there as well.
From the EU’s perspective, taking action to prevent private parties from fragmenting and taking private control over the single market simultaneously grew the economy and increased consumer surplus.
This is the operating theory behind much of the actions the EU takes regarding market regulation and product standardisation: a single market built on standards is more profitable for both businesses and consumers.
It’s obviously a deeply capitalist perspective, but if you want to understand the actions and motivations of the EU as an organisation you need to understand their operating theories.
They are also quite pragmatic about it. For example, the EU has standardised on USB-C as the standard connector for phones. Phones are not infrastructure and people upgrade them regularly. USB-C is a flexible connector that’s even today capable of much more than most phones need, both in terms of data transfer and current. Mandating that future phones all use the same connector doesn’t require you to swap out existing phones or chargers and would increase customer surplus in the future at relatively little cost to the industry, which seems to be migrating to USB-C anyway. Even Apple, before the latest USB-C enabled iPhone was released, has slowly been migrating many of its products over to USB-C. That’s why standardising on USB-C looked to the EU to be the market equivalent of a free lunch and Apple’s protests to the contrary sounded weak.
In contrast, EU electrical plugs aren’t standardised. The REFIT Platform, at the EU Commission’s behest, explained it this way:
The REFIT Platform does not recommend harmonising the plugs and socket-outlet systems in Europe, due to (i) the strong social and economic impact on the citizens without evident benefits in terms of safety and (ii) the fact that the EU and Member States may currently have other legislative and investment priorities.
“REFIT Platform Opinion on the submission by a citizen on Plugs and Socket”
Plugs and outlets are infrastructure and can be in place for decades. The costs of standardisation would almost certainly be much higher than any potential consumer or business benefit, so they aren’t standardised.
The EU, as an organisation, has a specific economic theory that guides most of its actions. Once you understand the theory, they become very predictable.
This is why Apple’s battle against the EU on both app stores and web browsers could become very costly.
The single market versus Apple’s privately fragmented App Store market #
Much like roaming, App Stores let private companies subdivide and control the single market to their own financial gain. When much of the digital economy is taking place on phones, tablets, and various other devices that are largely limited to App Stores, this is effectively ceding the single market to a fragmented market that’s entirely under corporate control.
This is against the core operating theory behind the EU. They would be institutionally against this even if the companies in question were European. Many, if not most, of the mobile phone operators affected by the roaming regulations were European. That didn’t earn them a pass on compliance.
The web is also the closest thing to an international common standard we have for delivering digital services and software.
It shouldn’t be a surprise to anybody that the EU is very concerned about preserving the single market in digital services and software. That means they have to do something about Apple’s control over the iOS App Store and exclusion of competing web browsers. From their perspective, they don’t really have a choice.
What should surprise you is how accommodating and outright gentle the EU has been with Apple’s shenanigans over the years, whether it was about exploiting loopholes to avoid phone plug standardisation, or their violations of EU antitrust regulation that pre-date the new Digital Markets Act.
That’s because the EU is manifestly pro-business, but it feels forced to act because the single market is the EU and the EU is the single market.
To Apple, the App Store is a side line. To the EU, the single market is the foundation of its existence.
Any time you see two entities of similar size fight, bet on the one that thinks it’s fighting for its life.
Preserving the single market is explicitly the goal of the new Digital Single Market regulation. In a resolution adopted by the EU Parliament on the 30th anniversary of the single market the MEP emphasised that:
… the recent entry into force of the Digital Markets Act and the Digital Services Act represents an essential contribution to the creation of a harmonised, fair, competitive and trustworthy digital single market; considers it essential to ensure the effective implementation and enforcement of these two legislative acts including by making available sufficient financial and human resources; calls on the Commission to monitor implementation of these acts continuously and closely and to report to the relevant parliamentary committee accordingly;
The EU’s desire to prevent the fragmentation of the digital single market has the backing of the EU political sector.
And, remember, the EU is a capitalist entity that serves European industrial and capital needs. But they, too, are strongly in favour of the EU taking action to prevent the fragmentation of the digital single market, what the BDI usually calls digital sovereignty:
Studies show: Completion of the digital single market would unleash a growth potential of around EUR 110 billion per year. Therefore, the European Commission, the European Parliament and the Member States should work towards a uniform, innovation-promoting, technology-open and industry-friendly regulatory framework for digital policy.
I’m not asking you to agree with either of these organisations, but if you are in a management or executive position at a non-EU tech company, you absolutely do need to understand them, otherwise you are going to get blindsided, just like Apple.
Apple got blindsided by the EU because they refused to understand the principle theories that motivate the EU #
This is costing them money, and it’s going to cost them more money in the future.
Normally when the EU regulates a given sector, it does so with ample lead time and works with industry to make sure that they understand their obligations.
Apple instead thought that the regulatory contact from the EU during the lead time to the DMA was an opportunity for it to lecture the EU on its right to exist. Then its executives made up some fiction in their own minds as to what the regulation meant, announced their changes, only to discover later that they were full of bullshit.
This was entirely Apple’s own fault. For months, we’ve been hearing leaks about Apple’s talks with the EU about the Digital Market Act. Those talks were not negotiations even though Apple seems to have thought they were. Talks like those are to help companies implement incoming regulations, with some leeway for interpretation on the EU’s side to accommodate business interests.
Remember what I wrote about electrical plugs? The EU is pro-business – often criticised for being essentially a pro-business entity – and not in favour of regulation for regulation’s sake.
If Apple had faced reality and tried to understand the facts as they are, they would have used the talks to clarify all of these issues and more well in advance of the DMA taking effect.
But they didn’t because they have caught the tech industry management disease of demanding that reality bend to their ideas and wishes.
They were behaving like Elon Musk.
And we certainly don’t want more Elon Musks in the world.