Regulation of the digital economy, together with ecological transformation, is the main challenge facing capitalism and democracy.
The stock market flotation of Airbnb saw its shares soar by 115%. This defiance of the Covid-19 epidemic – which is sapping tourism – by the San Francisco start-up that has become a leader in the tourist industry over the last 13 years, illustrates the dazzling rise of digital platforms and their resilience to crises. In 30 years, the digital industry has achieved the fastest and most wide-ranging technological revolution in history.
This major transformation has been led by the American GAFAM giants and by the digital leaders of China’s totalitarian capitalism. Their amazing success has been achieved without conforming to the normal regulations set by capitalism, competition law and tax law. In the USA, this has been because of the accepted premise of the freedom and neutrality of the internet. In China, it has been caused by Beijing’s prioritizing the need to catch up on the USA in terms of technology.
This situation is about to be overturned because the political powers are bringing the digital sector back under control. This is taking place in the light of four developments. Firstly, the technology giants have gained an excessive market power. Secondly, the Covid-19 epidemic has accelerated the development of the digital economy. Thirdly, heavily indebted nations are caught in a vice between, on the one hand, economic and social costs linked to the digital transition are rising and, on the other hand, their income is melting away because online operators make it a point of strategy to optimize their taxability. Fourthly, a major conflict has developed between the USA and China; at stake is technological supremacy with regard to 5G and artificial intelligence.
China’s totalitarian capitalism has used the same brutality towards successful digital entrepreneurs as it has to exert control over the population or to assert its ambitions in terms of power. The target of its show of force has been Jack Ma, the founder of Alibaba: 48 hours before Ant Financial’s flotation on the stock exchange, which was due to raise a record amount of $34 billion, the Chinese authorities forced him to cancel it.
The purpose of this humiliation of a man who was about to become the richest man in China, was to remind everyone of the absolute primacy of the Communist Party’s power, including control over its digital weapons.
In the West, American platforms have gained the monopoly in data management, with their scope of action even wider than that of the railroads and oil companies in the 19th century or the telecommunications companies in the 20th century. This monopoly is based on unearned income from technology and on a financial clout that means they can curb competition by buying up any potential competitors. These platforms have become a threat to developed societies because they increase inequality, nurture individualism and exacerbate polarization.
They are also a threat to democracy, because they take control of individual privacy, develop surveillance capitalism and provide an opening for foreign propaganda.
The many scandals that have arisen have provided the public authorities with a wake-up call, beginning in Europe. Individual member states and the EU have come up with numerous plans to tax the GAFAM and are involved in tax disputes with them.
The General Regulation on Data Protection has defined the first legal structure concerning the gathering and exploitation of data, and has quickly become an international standard.
The EU is now envisioning the acquisition of an all-encompassing system of regulation.
The heart of the battle is taking place in the USA, where the digital economy is becoming integrated into the rule of law. In October, the House of Representatives published a report that concluded that the GAFAM were monopolies that systematically abused their market power. The long-standing impunity that the platforms had benefited from came to an end. With the support of 11 states, the Justice Department began proceedings against Google, much as it had done 20 years ago when it obliged Microsoft to open up its operating system. At the same time, the Federal Trade Commission is demanding that Facebook’s monopoly of digital messaging be dismantled, by selling off WhatsApp, Messenger and Instagram.
Together with ecological transition, regulation of the digital economy constitutes the main challenge for capitalism and democracy in the 21st century. It is a test bench for the reconciliation of innovation with personal freedom, for the ability of democracies to restore people’s confidence in their institutions, and for the renewal of the TTIP – which makes Europe an equal partner (and which presupposes that it will not stop at regulation but will get back its taste for risk, innovation and production).
(Column published in Le Figaro, 14th December 2020)