Margrethe Vestager: Silicon Valley’s Bitter Wife
Margrethe Vestager, the EU competition commissioner, has proven her ability to serve as an impediment to business expansion and success. A former leader of the Social Liberal Party in Denmark, Vestager assumed her position as competition commissioner in November 2014. In her first three years in office, she has become more of a threat to Silicon Valley than any commissioner in recent history. How better to achieve such a feat than to attack the two largest tech companies in the world.
The EU commissioner has made two significant attacks on Silicon Valley. Firstly, she demanded that Apple pay back €13 billion in taxes to the Irish government, a request that even the Irish tax authorities find inconvenient. Secondly, she has most recently slapped Google with a €2.42 billion fine after violating an anti-trust law- apparently Google is not allowed to use their search engine influence to sell their own products, as it unfairly hurts competitors’ sales. Is that not the whole point of competition? It doesn’t stop there, if Google fails to make the required changes to their search engine within 90 days, they will get charged five percent of their daily shopping revenues, which would amount to $12 million daily (according to the Financial Times).
Unfortunately, the new populist political landscape has begun to invade the operations of businesses. The Socialist ideology has crept into the business atmosphere, and Margrethe Vestager’s stance on U.S. multi-nationals is a testament to this finding. The consequence of these two multi-billion dollar cases are that potential companies are willing to place subsidiaries or operations in the EU that will simply pull out in fear. Not to mention, the already existing tension between Ireland and the EU has also escalated to new heights. This may force Ireland to take a tougher stance on EU corporations hoping to enjoy the generous 12.5 percent corporation tax provided by the government.
Google may be heavily affected if this case falls into the commission’s favor, although the fine only represents a mere 2.7 percent of Alphabet’s (Google’s parent company) total revenue last year. This would place competitors in the online goods market on par with the search engine giant, hence, squeezing future shopping revenues and profits. Shareholders are already displeased with the current predicament, as Alphabet’s stock price dropped 2.5 percent to a six-week low of $948.09 at Tuesday’s market close. Given the substantial market cap of the company, any minor drop represents a much larger loss. However, given Google’s vast market reach, plenty of avenues could be tapped into.
Placing a ceiling above Google’s progression will give competitors and future market entrants a glimmer of hope, but in the long run, any corporation that reaches such a vantage point may find itself in a similar position. I have long been an opponent to a system that punishes large corporations for successfully increasing their market share. Competitors can celebrate for today, but tomorrow they could be facing the wrath of the EU Competition Commission. Therefore, we may witness a disincentive for Silicon start-ups investing in Europe as they expect future profits to be scrapped away.
However, such a fine could work in capitalism’s favor. Innovation may reach new heights as the heavyweights make efforts to beat the system and re-enter their realms of endless cash flows. Prices of products will be pushed downwards to the detriment of monopolies, but to the benefit of consumers. Product diversification offers more choice and utility to the consumer base. The retained earnings received by the Silicon Valley giants can be re-invested into more intrinsic and real growth initiatives, such as research and development as well as equipment purchases. Finally, instead of focusing on artificial methods of increasing margins, these companies may turn back to what truly made them what they are today.
The U.S. and EU competition commissions operate differently in the sense that the U.S. has an unspoken obligation to imprison offenders after their company has been fined. It therefore bestows a larger level of responsibility upon them to reach the right verdict before targeting a giant corporation. The EU competition commission on the other hand, only has an obligation to collect fines or impose monetary responsibility upon the accused. The former is of course, the more favorable for companies, as it is only the extreme offenders that bear the brunt of their actions.
Margrethe Vestager is extremely eager to stamp her authority and play hard ball with the main protagonists in the global business environment in order to defend Europe’s identity. However, she should remember that these actions may have severe consequences in the long run, especially as we enter an age of elevated Euroscepticism.
Follow this author on Twitter: @corneliusmubi
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