EU PROSECUTION
Have you noticed that almost all big court rulings against tech monopolies and tech regulation come from the EU? Within just the last 6 years, European countries have taken action against Google 7 times, Apple 2 times, Facebook 3 times, Microsoft 1 time, and Amazon 1 time.
This usually consists of billions of dollars worth of fines, lawsuits regarding anti-competitive practices, investigations into power abuse, and of course new standards for Apple. And those are just the most notable cases from the EU.
For perspective, the biggest lawsuit that American authorities have brought against big tech in recent times is suing to block Microsoft from acquiring Activision Blizzard. And, in the end, this didn’t really do anything anyway given that Microsoft ended up closing on the deal later the same year.
As such, the EU has often been described by the press as being the last regulatory body that’s truly fighting to keep big tech in check. But while their efforts have painted them as somewhat of a valiant hero, this relentless pursuit has not been without consequences.
For example, Europe does not have big tech companies of their own. In fact, the only 2 European tech companies that even make the Fortune 100 are ASML and SAP. In contrast, 7 of the top 10 largest companies in the world are American big tech companies.
At this point, you can even argue that Berkshire Hathaway itself is just a tech holding company given that almost half of their portfolio is just Apple stock. Europe is also getting the short end of the stick when it comes to big tech compensation with big tech companies regularly paying Europeans 25-50% less for the exact same jobs.
Yet despite all of this, the EU has continued its noble pursuit of maintaining free markets and minimizing monopolization.
Just a few months ago, for example, the EU started investigating Elon Musk’s X. But why? Does the EU truly just care that much about their people and corporate landscape? Or is there some more ulterior motives at play? Well, here’s the real reason why the EU keeps prosecuting big tech.
LEFT BEHIND
Taking a more macro perspective, it’s likely that Europe’s moves against big tech are less of an offensive move and more of a defensive move. You see, Europe has been getting left behind in the tech industry since really the 1960s and 1970s, the era in which Silicon Valley was born.
We saw the rise of Gen 1 tech companies like Fairchild Semiconductor, Intel, AMD, IBM, Microsoft, and Apple. This was largely thanks to the high-risk high-reward mindset of Americans across the board. In terms of company leadership, you had a bunch of 20-year-olds with no experience dropping out of college and betting it all on a company.
In terms of venture funding, Silicon Valley almost created a sort of self-sustaining funding model. The winners of each decade would go on to become billionaires and establish their own VCs and incubators that supported a whole new generation of startups.
In terms of regulation, all of the laws were set up to reward winners as much as possible while also subsidizing losers as much as possible. This meant lower taxes for companies, less regulation, government grants, tax credits, political favors, and so on.
On the flip side, if your venture didn’t work out, you still enjoyed solid bankruptcy protections, the ability to try again, and sometimes even government bailouts. This sort of landscape was simply pushed into overdrive when President Ronald Reagan came into power and implemented his controversial Reaganomics.
He cut the personal income tax rate from 70% down to 28%, the corporate tax rate from 45% down to 35%, and he would be dubbed the Great Deregulator. Whether these moves were actually better for America over the long term or not is highly debated, but one thing is for sure, these moves basically paved the road for trillion-dollar giants and mega-billionaires.
At the same time, Europe was taking a far more conservative approach. They stuck with their high taxes, focused on social welfare, maintained tight regulations, and they were largely risk averse. In fact, to this day, 8 out of the top 10 countries with the highest personal income tax rates are European countries.
9 out of the top 10 countries with the highest sales tax rates are also European countries. And social security tax can be as high as 65-68% in Europe. What this means is that it’s not uncommon for even middle-class Europeans to pay over half of their income to various taxes.
And if you’re a wealthy European, you could be paying as much as 70-80% of your income to various taxes. In contrast, 40% of US households don’t pay any federal income tax whatsoever, and the highest income earners often get away with the lowest tax rates.
Again, whether this is healthy or not is highly contested, but one thing that’s for sure is that it’s far better to be a rich person in America than a rich person in Europe. And as such, taking stupid high risks to become stupid rich is far more appealing to Americans.
In Europe, it simply makes far more sense to reduce risk with increasing net worth as more and more of your income will be handed over to the government anyway. For the longest time, this difference in mindset didn’t really incite an economic difference.
The American tech industry was just a niche portion of the economy while the real heavyweights were pharmaceuticals, banks, retail giants, industrials, and energy, sectors in which Europe had a bunch of their own heavy weights.
But, all of this changed with the turn of the century after which tech became the dominant player. Since then, Europe has been falling behind across the board whether it be return on invested capital, growth, capital investment, or R&D. And all of these shortfalls are almost single-handedly due to just tech.
In fact, McKinsey estimates that over 90% of the shortfall in return on invested capital, over 60% of the shortfall in growth, over 80% of the shortfall in investment, and over 70% of the shortfall in R&D are due to Europe’s tech inferiority. To make things worse, big tech and America have been playing Europe for fools for decades.
PLAYED FOR FOOLS
While Europe has been quite successful at taxing its own citizens and companies, the same cannot be said about American companies which have insanely sophisticated ways to avoid taxes. Take Apple for example. They like to hold the vast majority of their intellectual property in countries with extremely favorable tax laws like Ireland.
This way, they can minimize their international tax load by funneling the majority of their profits through these tax havens. Last year, for example, Apple made just over $110 billion out of which $70 billion went through Ireland. It’s the same thing with Microsoft, Google, Meta, and any other big tech company you can think of.
Schemes like these are why Amazon was able to get €44 billion worth of sales from Europe without paying a dime in corporate tax. Now, to be fair, big tech companies leverage these same strategies to avoid American taxes as well, usually at even larger scales, but it’s a completely different dynamic.
For starters, these companies employ millions of Americans who earn multi-six figures who end up paying a crap ton in income tax, sales tax, property tax, social security tax, and so on, even with America’s more favorable tax laws. But let’s even put tax revenue.
Even if big tech companies paid identical taxes to America and Europe, the 2 are not even comparable. It’s almost like comparing Jeff Bezos to the average American. Before Jeff retired, he was only earning a modest $81,840 on paper, an amount that’s quite comparable to the average American.
Now, of course, you’re probably saying that Jeff was earning tens of billions through stock appreciation and you’re completely right. So, let’s say that Jeff wasn’t allowed to sell any of his $100 billion Amazon fortune similar to how America isn’t able to cash in on the profits earned by big tech.
Jeff would still not even be close to being comparable to the average American despite only earning $80k. This is because Jeff would still have leadership over a trillion-dollar company, influence over a million employees, control over a third of the global cloud market, and sales of over $500 billion just to name a few perks.
Also, he could borrow against his Amazon fortune to fund an insane lifestyle without selling a cent of Amazon stock. It’s the same case with America as a whole, just at a much larger scale. Sure, they may not make much tax revenue from big tech, but they are still the home country to tech companies worth tens of trillions with dominant control over the entire globe’s tech and internet.
The raw amount of power, influence, wealth, dominance, and control that America gets from big tech on a macroeconomic and political scale is incomprehensible. China saw that this is where things were heading back in the 1990s, and that’s why they banned most American tech giants and created their own tech giants.
Europe on the other hand largely ignored this trend and did virtually nothing to cultivate their own tech hub. 20 years later, this has left Europe in a much less desirable of simply being a consumer of tech as opposed to being an owner of tech.
And if we look back at history, the key to power and wealth has been control over capital throughout the entirety of human history. From the ancient kings who owned entire regions of land to the 18th-century land owners who forged fortunes using slave labor to the Gilded Age industrialists who controlled every sector known to mankind, the key was always capital.
For the past 1000 years, Europe has been the leader of global capital, but over the past few decades, they have effectively dropped the ball regarding tech capital. And now, they’re trying to claw back as much tech capital as possible with the help of regulatory control bringing us to modern-day Europe.
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EUROPE’S LAST STAND
With all of this extra context, it becomes apparent that all of the EU’s lawsuits, regulations, and fines are less of a heroic effort to keep big tech in check and save the world or something and more of a last-ditch effort to save themselves in the new global order.
Bill Gates has long speculated that Europe is on its way to becoming an open-air museum for Americans and East Asians.
And honestly, this reality is looking more likely by the day. They’ve been falling behind for half a century, they’ve transitioned from being owners of capital to consumers, and now, they’re using their last political resources to simply delay the inevitable because let’s be honest, that’s all that’s happening.
I mean, do you really think Apple has any less global power just because they had to switch to USBC earlier than they would’ve wanted to or that Google or Facebook really care about the multi-billion euro fines that cost a few weeks' worth of profit.
Of course not, this is just the cost of doing business and maintaining international relations. Also, about taxes, Europe has been trying to get big tech to pay more taxes through new regulations. And these efforts have been successful at generating more tax revenue but there’s just one problem.
It’s not the big tech companies that are paying these taxes, it’s Europeans as big tech companies are happy to directly pass on the cost to European consumers. That’s why iPhones cost hundreds of dollars more in Europe.
Wrapping Up
So, the sad reality is that Europe’s antics against big tech is not only not hurting or even slowing down these giants but oftentimes, their policies are backfiring and ending up costing Europeans. None of this is to say that Europe is gonna end up as the 3rd world or something, but a fate like Japan seems increasingly likely.
A stagnant region that is cashing in on the glory days of the past. Do you see a different outcome for Europe? Comment that down below.
