This article titled “Google fine: EU is not waging underhand trade war against US tech firms” was written by Nils Pratley, for The Guardian on Tuesday 27th June 2017 17.41 UTC
Let’s start by laying one falsehood to rest. In fining Google €2.42bn (£2.14bn), the European commission is not engaged in a form of underhand trade warfare against US technology companies. Instead, Margrethe Vestager, the EU competition commissioner, is addressing a central commercial question of the digital age: to what extent should companies such as Google be able to exploit their dominance in one area to gain advantage in another?
Accusations of anti-American bias don’t hold water if one views the commission’s pro-competition patrols in aggregate. In other industries with different competition complaints, Brussels has been strong in dishing out fines against European firms. Just ask the truck makers – all European – who copped a collective €2.93bn fine last year for colluding on prices.
The fact that most of the technology titans are American is just tribute to the fact that Silicon Valley has been extremely successful in producing companies that grow to dominate their markets. One wishes the commission had more European tech innovators to investigate. Note, too, that many of the onlookers cheering Vestager’s efforts are themselves American – the likes of Oracle and Yelp. There is no evidence of anti-American bias at the commission.
As for the ruling itself, Vestager is treading on new regulatory ground but her argument seems entirely fair. If Google was overhyping its Google Shopping facility in search results while artificially relegating rivals’ price comparison websites, there is bound to be an effect on competition. The consumer harm may be difficult to measure, but it surely exists. Upstarts, whose shopping services might be preferred by consumers, will struggle to get off the ground.
It is also true, as Google has argued, that many online shopping rivals have still managed to prosper – just look at Amazon. But that objection is hardly a clincher. This investigation had to establish when dominance in one area (search) can be used to seek advantage in an adjacent field (shopping). The finding that Google was seeking an “illegal advantage” chimes with common sense. Google wasn’t merely giving its in-house service home advantage; it was massively distorting search results, says the commission.
This finding will have far-reaching consequences if Google or others have also been privileging their products in areas such as travel and hotels. If so, consumer-friendly action by regulators should be applauded: the commission is saying dominance in new fields should be earned on merit, not by seeking to choke rivals.
Such a strict pro-competition view of the world would benefit consumers everywhere, including the US. The wonder is that US regulators, who once upon a time had an honourable record of acting against powerful monopolists, have been so supine with the technology giants.
Bank right to bolster the buffers
You don’t have to be a central banker to know there is a mini-credit boom taking place in the UK. The evidence is the number of new cars on the road, many financed with loan agreements known as personal contract purchases.
Is it a worry? Yes it is, which is why the Bank of England is right to force banks to hold more capital if they wish to carry on feeding the demand. Consumer credit – not just in car loans, but also as credit card borrowing and personal loans – rose by 10.3% in the 12 months to April, which is obviously much faster than the rate of increase in incomes.
The position is not necessarily dangerous but could become so if banks, fooled by the current low levels of default, relax lending standards. The UK’s experience with sudden credit booms is terrible.
The Bank’s intervention is designed to encourage more prudence. In the jargon, counter-cyclical buffers are being increased. Banks will be obliged to hold £11.4bn of capital over the next 18 months to cover lending mistakes that, in practice, may or may not materialise.
Wouldn’t it be easier to raise interest rates as a way to tell overstretched consumers to go easy on the credit? It could still come to that in theory – “monetary policy is the last line of defence to address financial stability issues”, the governor, Mark Carney, reminded his audience – but the Bank’s tweak with the buffers is a better formula. It targets the direct problem and avoids overkill.
That, at least, is the big idea. After the banking crash of 2008, the Bank asked for its regulatory “toolbox” to be expanded to protect financial stability. There is no point having tools and not using them. The same buffers were cut last year to “cushion the shocks” from the vote for Brexit. Since that danger has now passed (for the time being, at least), restoring levels to a “standard” setting is sensible.
Nestlé yields to Third Point pressure
What a coincidence: activist investor Dan Loeb’s Third Point hedge fund is hounding Nestlé to improve its performance, and the consumer goods multinational has decided this is exactly the right moment to launch a SFr20bn (£16bn) buy-back. The share purchase is not quite as dramatic as it sounds since it will be executed over three years. All the same, the move smells suspiciously like a panicky way to buy some peace. There is also a top-of-the-market whiff about it.