For Digital Competition, Antitrust and Regulation are ‘Small Ball.’ What Matters is Infrastructure.

A debate has been raging amongst liberal elites in the United States over the last six months over the thesis put forward in Abundance, a best-selling book by columnists Ezra Klein and Derek Thompson, which aims to set out a new agenda for a lost Democratic party. Essentially, the thesis is that the US is trapped in an economic malaise of low wages, high rents and bad healthcare, the legacy of a neoliberal world with too many rules and regulations that stifle America’s vitality and drive to “build” new and better.

The book has attracted much criticism from the Left. It has been described by some as a deliberate and malignant project congruent with the interests of anti-regulation tech oligarchs who want a “free for all,” rebuffed in its analysis of key sectors like housing and energy, rejected for not giving credit to the role that antitrust and regulation can and must play in addressing the country’s inequality and curbing concentrations of corporate power; and dismissed for failing to give enough credit to government policies as strong drivers of prosperity.

Europe has been oblivious to this debate. Europeans are too culturally fragmented to have intellectual policy discussions other than at national level (see the current “tax the rich” discombobulation in France), let alone pay attention to what happens in the US. And of course, the Abundance debate is specific to American circumstances.

But where there is a similarity is in its anxiety over what it takes to “build,” which is acute in Europe right now. That anxiety is overtaking preoccupations with the antitrust and regulation experiment that played out on the continent for over a decade, and which has enjoyed political consensus. I talk in particular of the digital sector, which is the focus of this piece. Antitrust enforcement and the regulation of digital products and markets have been pretty much unopposed as flagship policies in Europe for years. And yet these policies failed entirely to induce material change on the ground — let alone to “build” European-owned assets.

These two phenomena are related. The obvious, immediate reaction from the antitrust/regulation faithful will be that it’s too early to really tell, that Europe has not really enforced antitrust and regulation properly, and that it failed to “build” not because of too much regulation dampening its animal spirits but because of a host of other reasons. This may be true, but it does not change the fact that the lesson of the last 20 years is that Europeans have had deference and political consensus behind antitrust enforcement and broad political convergence from all sides around the need for regulation, and yet have overlooked the “build” part.

Now, as antitrust and regulation appear to have failed, proving themselves to be just “small ball” in this area, the continent is exposed as a digital colony, with huge gaps in its capabilities and prospects for self reliance. This is not to say Europe should abandon antitrust enforcement or regulation. But relying only on them to the extent it did was a massive mistake, and yet Europeans remain reluctant to recognize it.

Infrastructure is all that matters

I will discuss further below the hopeless overreliance on antitrust and regulation to somehow deliver an industry, but let’s start with the desperate need for building infrastructure. This is not a plea for an Abundance-like ideology. But there is an urgent question about how Europe can achieve growth and industrial muscle on a continent in major economic trouble. The Abundance proponents may well be guilty of overlooking antimonopoly policies as key levers. But Europe is the place where antitrust and regulation were everyone’s darlings for years, and yet it has no digital industry to speak of. Europeans have somehow fooled themselves into thinking that if they tamed the incumbents it would happen spontaneously. That was, and remains, magical thinking.

Europe today is in a very different place relative to the US. It is a continent whose entire economic model of export-driven open economies is under massive threat, and that is the overwhelming challenge we face. The “Draghi diagnosis,” laid out a year ago and then repeated with greater urgency and alarm a few days ago in the European Parliament, may well be Europe’s marching music to irrelevance and final demise. Europe does not enjoy the underlying vitality of the US economy, nor the relentless surge capabilities of China. Its fundamentals are not promising in multiple sectors. The summer of humiliation following the tariff battle with the Trump administration has laid bare how dependencies on the US — as a market, as a supplier of technologies, and as defense shield — are complete and make European leaders fearful and supine. This state of affairs is made worse because Europe has no alternatives of its own: its internal market is not absorbing enough of what it makes, it has underinvested in defense, and it is entirely overrun by US technology.

A continent relying on external technology is vulnerable to whatever happens. Geopolitical developments are only making this more starkly obvious. But it is unconscionable that a common market of Europe’s size and means has become a digital colony — not just in terms of consumer-facing apps, but critically in terms of the entire underlying infrastructure: compute, cloud, connectivity, even the cables under the ground and under the sea which are the backbone of its digital services Nearly all European data is held in US cloud environments. Cyberattacks or plain outages that hit US suppliers immediately disrupt European governments and businesses. AI technology, on which so much of the future appears to be premised, is developed in the US, and it is US companies that will impose on Europe standards and contracts with support from the White House through its Executive Orders.

That this state of affairs is existential for Europe is becoming clear, at last: hundreds of billions (at least a quarter of a trillion according to estimates) in cloud and software services are paid by European companies and governments each year to US suppliers, much of it funded by taxpayer money. Data centers are carpeting Europe end-to-end, built by US companies that appear to be making offers governments cannot refuse. Software is supplied in unbreakable bundles, building is only possible on existing structures, and data is extracted and stored outside of European control.

This is not about how friendly and benign these companies may be, nor how much they may love their customers. This is not even about the fear of a “kill switch.” It is about digital infrastructure as a key industrial sector comprising hardware, software and services, which moreover feeds into multiple other critical sectors (from defense to manufacturing) and represents billions in revenues and jobs — all of which are not going to Europeans. This is the point. For a continent in deep existential economic crisis, where the economic model is faltering, and where productivity growth is lagging because of slower digitization, reliance for critical infrastructure on other nations is just not sustainable. Now Draghi says Europe must reduce its dependencies fast, and names technology as the first lever. Europeans are, he says, “failing to match the speed of change elsewhere…governments have not grasped the gravity of the moment…inertia is even presented as respect for the rule of law. That is complacency. Competitors in the US and China are far less constrained, even when acting within the law.”

How did Europe go so wrong? It is not because it lacks competencies or capabilities or talent; it has exceptional strengths there. Yes, the usual fragmentation and lack of appropriate capital allocation are a persistent problem. But things have gone south very quickly. In less than 20 years Europe has gone from being a powerhouse on a par with the US in productivity growth, to a massive laggard. This is extraordinary, and needs reversing. How can Europe build resilience and industrial muscle if it is totally dependent?

This is an industrial strategy issue, and a capital allocation issue. The shallowness of European capital in tech is the central cause and effect of the weakening of its own supply chains, underinvestment in skills, widening gaps in product offers, and disastrous delay in the development of AI. Europe must reverse this state of affairs and create local assets and capabilities. Calls for “sovereignty” are not about ripping up existing US infrastructure, nor replacing it entirely with European alternatives: this is just not possible and makes no sense. It is about creating enough industrial capacity in a critical sector to offer alternatives for at least a number of user cases. I call this “building alternative infrastructure,” and it is the most urgent priority for Europe right now, together with creating a defense capability and retrieving its manufacturing sector from oblivion.

Antitrust and regulation alone cannot deliver us an industry

How did Europe get to the point where it failed to build anything at all in tech that could hold its own? There are multiple reasons, but let’s not hide the ball. The last decade and a half have seen European policymakers fall for the incantation that antitrust action against incumbent American players in consumer apps, and more recently antitrust-style regulation, was ‘all’ that was necessary to create a fair market. The assumption was that the enforcement of antitrust rules and the application of regulations (GDPR, DMA, DSA etc.) to the bad American digital monopolists would eliminate barriers to entry and thereby induce entry of successful European challengers, all the while protecting citizens from exploitation. This is where all of the energy has been funnelled. It is too late already; Europe needs to redirect its energy altogether.

A frequent riposte from skeptics is that “Europe will not be self-sufficient in digital services. It's not going to happen" – recent dictum by none other than our retired Competition Commissioner Margrethe Vestager at a recent event. But no one is saying Europe will or should be entirely “self sufficient” – it’s a straw man. Vestager doubled down that digital sovereignty is about insisting on enforcing Europe’s laws with tech giants: "Being sovereign means that you can make your own decisions and that you can afford to implement them.” The argument is frankly obtuse: sure, European regulators want to insist that behavioral rules are enforced, that’s a no brainer, but is this it? Is this all Europe needs? Does this secure its “sovereignty”?

As Draghi in fact said in his recent encore at the European Parliament, Brussels leaders need to get away from “blind faith that market forces will build new sectors," and that enforcing some narrow case against digital incumbents will create ipso facto a European industry. In theory, enforcement can lower barriers to entry and thus reduce obstacles to market challengers having a go. That’s the mantra anyway. But that is not really the full story.

First, of course, antitrust enforcement has been weak and ineffectual; and like the whole of antitrust, it gets mired into the contortions of market definition and competitive effects analysis, and always ends up with narrow remedies to address a narrow problem — if at all. Ditto regulation. But second, even when you create opportunities, rolling out successful businesses requires a business case, a business model, funding and demand. None of this is a given just because you ‘tamed’ an incumbent. It just does not happen spontaneously.

Antitrust and regulation are “small ball” in Europe today

What are the real lessons from 15 years of antitrust and regulation exertions on digital markets in Europe? My personal lesson — after so many years in the trenches — is that while in principle antitrust has the potential to prevent and address the capture and foreclosure of markets, and thus contribute to growth and productivity, in practice it can’t and it didn’t and it won’t. And this is a universal lesson, the only possible consequence of which is that European policymakers should not attach such hopes to antitrust because it simply cannot deliver.

In the US, there was a bold and ambitious vision of antitrust as a key tool of antimonopoly. This was the vision of the Brandeisians in the Biden administration: they dusted off a historic tool that had been dormant but could be wielded powerfully to break up and contain corporate power and support citizens, farmers, and small businesses. This populist, progressive effort has now been interrupted by the change in administration, which ushered in a different view of what “populist antitrust” may consist of and a notably different relationship with big technology companies. So the future is uncertain.

But none of this carried through to Europe anyway. Europe deliberately watched the Brandeisian exertions as alien, and its regulators never really got on board with the view of antimonopoly as a tool for protecting democracy. Vestager finally said it at the very end of her mandate, but by then it felt like an afterthought. European antitrust for the prior decade remained rigorously orthodox, dominated by traditional lawyers, concerns over consumer welfare and unadventurous economists. The one exception was the UK, which fancied itself aligned with Lina Khan’s efforts at the Federal Trade Commission and Jonathan Kanter’s agenda at the Department of Justice, but ended up being swatted into compliance and pushed into Big Tech’s tent by a fearful, sinking Labor government.

Ultimately, the discourse on the role and purpose of antitrust never caught on in Europe. The European brand of enforcement was unambitious, and regulators did not really have the courage to make a difference. Europe has been at it one way or another for 15 years, and it has little to show in terms of outcomes: no antitrust intervention in digital has created serious competition let alone truly contained the growth of digital incumbents.

Europe saw dozens of cases — I have been personally involved in EU and Member States cases adverse to Google, Meta, and for Apple, Amazon, Microsoft and more — all of which have involved lengthy investigations and ended in fines and some behavioral remedies or settlements without admissions of liability. But these decisions produced no material change on the ground. Of the billions in fines (still irrelevant in the scheme of things, often no more than a day’s revenue) only a small portion has actually been paid, while the rest remains in the form of bank guarantees till the appeals are completely exhausted.

Antitrust then transmogrified into regulation of commercial conduct under the Digital Markets Act. But with President Trump and his threats, it appears DMA enforcement has entered into suspended animation. On content moderation, the Digital Services Act — also in an effective state of suspended animation as US platforms have simply ceased any effort in this direction in the new political environment. And there is the GDPR, which is a disaster zone in terms of implementation. Even Mario Monti just said (p.4) it should be mercifully killed.

This is not a paean for no regulation ever, but a factual observation that regulation in Europe was going nowhere much in terms of results even before the Trump administration — a combination of piecemeal cases, slow uncertain execution, tech ignorance, lack of understanding of ecosystems, and impotence in the face of Big Tech’s delay and decoy tactics.

Europeans do rightful indignation like no one else, typically to hide their own flaws. We preach about ‘our values’ like the best of them. The European bubble dwellers courageously proclaim that ‘we must enforce our laws to assert our values and protect our democracy!’ But this is the cry of the impotent and the clueless. Trump aside, it has been the singular obsession with antitrust and regulation at the expense of everything else which has put Europe in this extraordinarily weak position of vassalage and dependence.

Admittedly, the US is a cypher at the moment. After the optimism of the Biden years and the fragile hopes of some conservative realignment with Trump enforcers, it is right to wonder what antitrust can really achieve. Much expectation has been set globally by the big pipeline of US cases against Google, Meta, Amazon, Apple, Visa and more which appear to have been adopted by the new administration and are now coming to trial (though some are already settling —see the Amazon Dark Patterns case). And yes, private litigation delivered results for Epic in California against Apple and Google on their app store rules, though the decisions are under appeal. It remains to be seen what Judge Leonie Brinkema does with Google Adtech in a few months, and where other cases in the pipeline end up. But the shocking decision of Judge Amit Mehta on Google Search on September 2 really showed how the judiciary remains, ultimately, morally and intellectually conservative, unwilling to interfere with big corporations especially when a judge is fearful of interfering in innovation and so must be ‘humble.’

Back to infrastructure

All this points to the reality that antitrust and regulation are insufficient, and that Europe needs to build alternatives and power itself up. But if antitrust and regulation alone won’t do it, what will? I have no faith in the ability of the public sector to generally deliver a roadmap for Europe’s digital sector recovery. Economist Mariana Mazzucato has argued for years that the State needs to lead a “mission economy,” do “moonshots” and imitate DARPA as an engine for innovation, but this call has worn thin. It is not happening in Europe, and that’s that. Governments like the UK find it easier to get into bed with Big Tech — ‘don’t worry about anything, we will provide the cash and you just plug and play.’ The EuroStack Industry Initiative is advocating for European industry and private capital to take control of the mission, though there is also a version of it around that favors public funding.

I am skeptical, as the European Commission is otherwise known for spraying funds around without much to show for it. Yes, funding is a bottleneck in Europe, where there is little appetite for risk capital. But it’s worse: European investors actually send their capital to the US as risk capital to fund US ventures, even as European governments spend their citizens’ money to pay for US services. Why do I speak to the European Commission, or the Swedish government, or the German government, on Microsoft’s Teams? Is there no collaboration software in Europe the public administration could buy? Of course there is.

So one starting point, but an essential one, needs to be to redirect part of the public sector spend into European products. This is Buy European procurement rules. Americans do Buy American, the Chinese do Buy Chinese. Europe should not hesitate on this.

The private sector also needs to wake up and buy European. If there is more demand, there will be no need for subsidies. Pre-procurement works: suppliers can fund the development of new functionalities from private funds. How many more outages, disruptions and cyberattacks does it take before European businesses conclude they need fallbacks? How long does it take for European companies to find storing data in US clouds acceptable?

The industry needs to fill gaps, cooperate and collaborate to offer attractive bundles for at least some user cases and not just complain, blame the customers, blame the Commission for not doing enough, and continue to spend money on lawyers and lobbyists in the hope that regulation will deliver them from dependencies and create a market. Maybe something like this can happen at the margin — but again, don’t count on it.

There is budding recognition that while the obstacles are formidable, Europe should try to make something of itself in this space and could be joined by other blocks with positive global effects, including for the US. Perhaps. Indeed, the obstacles are formidable, but Europe has no alternative. Antitrust and regulation are small ball now, and the continent must truly build.