Notes from the Next World Order

Cristina Caffarra’s annual competition-fest today in Brussels (Antitrust, Regulation and the Next World Order) was as speaker- and content-packed as ever. As well as much discussion of the eagerly anticipated deadline for Digital Markets Act compliance in five weeks, it was a fascinating look beyond narrow antitrust policy to competition policy linkages with industrial and trade policy (with lots of AI on the side).

The video should be freely available soon, but until then you can read my notes below. Grazie mille Cristina and all the speakers!

Rebooting the Next Commission

Andreas Schwab MEP (DMA rapporteur): Post-European Parliament elections in June, resilience will become a more important part of Single Market rules, eg in telecommunications and energy. Will need Member State investment at borders (interconnection).

Olivier Guersent (European Commission DG Competition): State aid control is essential to protect the Single Market, given the different resources of the member states. EU will match US Inflation Reduction Act funding for well-researched projects. So far only 1 case.

Competition policy is a side dish for industrial policy, sectoral policies… How do you use competition to make these policies more effective? Eg EU halved cost of wind turbines through open procurement.

Industrial policy funding cannot rely on MS funding. Needs to happen at EU level.

Resilience means diversification, not 100% reinsurance.

Big Tech platforms are becoming like essential utilities, unavoidable trading partners, and EU has been trying to deal with their strategies for 35 years, which try to protect the source of their power in their core market, and use this power in upstream and downstream markets. Entrenchment, sophistication of the practices is increasing and so needs more sophisticated analysis. DG COMP had a very strong case on self-preferencing against Amazon, who dropped their iRobot acquisition rather than test it in court. Doesn’t know if they would accept Facebook acquisition of WhatsApp today but that was 8 years ago. Companies got more sophisticated along the way, as did DG COMP. Look at Booking/eTraveli for current thinking on ecosystems

AS: First DMA designations were the easiest. More complicated are cases like free e-mail, free cloud, AI, voice assistants but still needed to create a sound structure where new companies can enter.

OG: agreed. There is and will be a learning curve (especially just with 40 people, more are needed.) First must satisfy legal obligations. But being ahead of the curve is even more important, being future proof. We want the designated companies to comply effectively. We see lots of bundling and tying. Continued 102 and national activity will be essential, the European Competition Network (of regulators) has many more resources and may have to take some cases forward first. AI is the same, will be coordinated via the ECN.

Pricing vs power

Luigi Zingales (University of Chicago): dispersal of power was at the heart of antitrust development in the mid-20th century. But the rise of the consumer welfare standard was a combination of bad economics and good marketing, fuelled by powerful interests. Pendulum of enforcement has swung too far away, imperilling freedom. AI does not have a bright future as it begins in an already concentrated industry.

Underlying any antitrust policy are important political choices. First should be freedom to choose between different products; to change jobs without retaliation; and to speak without fear of consequences. This needs competition not just antitrust policy and needs technology as well as law. Europe should align with India on its public tech stack.

Tommaso Valletti (Imperial College): Europe 30 years ago imported from the US the “more economic approach”, but the economic consultancies have become concentrated; there is little innovation; and the business model is to try to make money by protecting much bigger rents bigger business have.

Economic practice has narrowed onto a few models which don’t work in practice, and are ignoring scientific knowledge advances elsewhere, even within economics. Mergers have largely been approved, claiming efficiencies, but academic analysis shows in 55% of approved cases prices go up [updated paper coming soon in JCLE]. And the profession has become insular, not interested in new topics. Do economists have anything to say about power (of largest companies to influence politics through lobbying, revolving doors…)?

Andreas Mundt (German BundeskartellAmt): German antitrust has always been about power, not price. For the first time we might see things “moving in the digital economy” thanks to the DMA. Agencies have had great cases to make markets fairer, but not contestable. Competitors for the first time seem to believe things are improving to a certain extent.

Big Tech has the data, computational skills, the financial resources to benefit from AI — Europe is again lagging behind in investment, which doesn’t make it easy for competition. Meta court proceedings in Germany has already taken 5 years and this is the environment in which we try to enforce competition law. Is this the way forward? How will the DSA and AI Act affect smaller firms, the European startup scene? None of this is about price. The digital economy has an artificial price — data — and we still haven’t found the real way to deal with that question.

We need to create an atmosphere for entrepreneurship and innovation in Europe, to keep our wealth and do something for consumer welfare. We need to reinstall the freedom to compete on the merits, with equal chances and democracy in the economy. Big Tech have political as well as economic power. We need very strict and rigorous competition enforcement in this world. 

Rebecca Slaughter (FTC): there is no apolitical enforcement of competition law. Non-intervention is a policy choice. Economics doesn’t provide neutral analysis — you see this with competing economists in court cases arguing opposite conclusions from the same data. It can be one of a number of tools. FTC has created its office of technology and is building its data science and other analytical capabilities. 

Enforcers must learn from the past. FTC does competition and consumer protection, which in the past have been treated separately but should not be. Competition is not a side dish to industrial policy but underlies all work of government; President Biden created a whole of government approach. Ex post enforcement is hard. Cases take a long time and getting corrective action is very very challenging. We need a future-looking way at how markets can be built competitively, which is why AI is such a current topic. 

Gina Cass-Gottlieb (ACCC): Australian government has set up a merger task force review — ACCC says laws are no longer fit for purpose. Task force is using micro data held by national statistical agency to show current regime only gives partial visibility of mergers (around ¼), which tend to be made disproportionately by the largest firms. ACCC proposes legal reform is required, and merging parties should have to demonstrate there will not be a significant lessening of competition. 

LZ: AI challenge is huge and we need to promote competition, not only ex post, and do it fast. 

AM: has AI already developed into something competition agencies cannot see properly? This is why we need to be vigorous with merger control to avoid dealing with all this mess afterwards in lengthy abuse proceedings which are so hard to win. In the past these were a niche part of our work but today they are the focus. We cannot deal with the digital industry where cases last 8, 9, 10 years, when the issue will be long gone.

TV: AI needs hardware (Nvidia monopoly), cloud (3 firms oligopoly), data (Microsoft, Google…)

RS: FTC is extremely focused on deterrence to have market-wide impact eg injunction on healthcare data advertising (IQVIA), a hospital merger in N California, pesticide manufacturers, multiple pharmaceutical mergers, Illumina, use of facial recognition technology, Amazon, data brokers’ use of sensitive data, child privacy rules, rulemaking on junk fees, data security and commercial surveillance… 

Are the Courts Likely to Listen?

Marc Van Der Woude (General Court, EU Court of Justice): it’s difficult to change the law as judges must preserve legal certainty. 1980s-2004 there was a market opening phase, when regulation needed to be developed, including Article 85 of the Treaty on restriction of commercial freedom and a need for exemptions, on eg restructuring of chemical and telecoms industries. This created a deadlock before the national courts due to lack of resources of EC, leading ECJ to come to a more liberal interpretation of Article 101, the more economic approach. This led to fewer cases and fewer exemption cases.

Currently, there is an enforcement problem. The court’s rules of procedure are not fit to deal with eg Intel case, but it’s also the conduct of the parties. Second problem: is the system responding to societal needs, such as environmental standards? Three signs of change: courts are becoming reluctant to put such a focus on an effects-based approach, shifting to the object; changed approach to exemptions; and much more explicit rules of the DMA. 

Marcus Smith (UK Competition Appeals Tribunal): courts should not encroach on the legitimate policy choices of regulatory agencies, such as what to investigate and what penalties to impose. There is a policy question on the role of the market in a mixed economy, which lies at the heart of competition law. But policy considerations should not apply in the application of law. The court’s understanding of economics is informed by expert evidence. 

Market power dysfunctions

Doha Mekki (US Department of Justice): antitrust law is not co-extensive with Industrial Organisation economics; there is 100+ years of antitrust law to build on. Some economic models are not well suited to current economic facts, such as on vertical mergers. DoJ staff have done a great job of explaining to courts why large firms sometimes should not be able to accrue more power via mergers, such as the Penguin/Schuster case. In JetBlue/Spirit the judge found the merger “does violence” to competition, understanding the impact on the cost-conscious consumer.  

Isabelle Weber (University of Massachusetts Amherst): energy, food, essential raw materials, transport firms ended up experiencing massive price and profit spikes. These are largely commodity sectors where there is market power but firms are not setting prices. Downstream there are firms with price-setting power; these cost shocks are a kind of coordinating mechanism to increase prices to protect profit margins — a form of passive collusion, even if perceived as more acceptable by consumers (excuse-flation). 

Gabriel Zucman (Paris School of Economics): in 1950s, effective US corporate tax rate was about 50%. Today this is down to about 20%. Much reflects rising evasion, eg profit-shifting and reflects a deep failure of enforcement. 

Jan Eeckout (UPF Barcelona): Europe has its own Big Tech. ASML is an absolute monopolist growing very fast. AI concentration comes from a concentrated supply chain, which is becoming much longer globally, making it easier for companies to have bottlenecks and exploit their position. And this type of equipment requires capital spending universities and even governments cannot match. 

AI might reduce the college premium (which has grown from 50% to 100%) even for non-routine cognitive jobs, but if there is so much further increase in concentration, profits will go up, with higher compensation for superstars, with increasing inequality in income and wealth. Competition policy can restore efficiency and redistribution through a reduction in superstar compensation coming from market power. 

Florian Ederer (Boston University): IO economics is dogmatic on the questions it studies, the methods admissible, and exclusionary in terms of people studying certain types of question. Eg an immense focus on short-run prices and markups, it’s the proverbial lamppost illuminating the area, excluding much more interesting questions such as privacy, innovation, etc. 

Large asset management firms are largest owners of several direct competitors — will they discourage competition? We now have evidence it does, with airlines, consumer goods, pharmaceuticals, and on innovation and entry as well as prices/markups (although not in breakfast cereals!) Such common owners don’t have such a strong incentive to push for price competition and innovation, and make their CEO compensation less performance-intensive. It can lead to a deadweight loss of 2-5% from a redistribution of consumer surplus now accruing to higher profits — partly benefits richer consumers who also hold shares, but not others.

Industrial policy

Nathan Lane (Oxford University): well-designed industrial policy takes account of concerns with efficiency and preserving competition.

Ufuk Akgicit (University of Chicago): every country has its own specifics, so using micro data to understand them is important. For those far from the tech frontier, openness to Foreign Direct Investment and talent migration works. At the technology frontier we have a less good understanding. Human capital is most important to prioritise but most industrial policy debates are about subsidising firms.

Market power is a major issue. New players in markets have stronger incentives to innovate; dominant players start becoming defensive (evidence from Italy: patent quality goes down, number of former politicians employed goes up). Business dynamism is declining to in US: new entrants used to be about 15% of market, now down to 7%. Job reallocation rate falling significantly. Markups and market power increasing while labour share of revenues is decreasing. Number of inventors (on patents) has more than doubled relative to the population in the 2000s; there has been a more than 50% shift towards incumbents. Inventors are now trying to look for jobs at large firms rather than founding startups, where they earn (much) more money but are (much) less inventive.

Small business sector has been shrinking for a long time but the pandemic didn’t help; they are fragile. Employment share has been declining since rise in interest rates; these businesses are increasingly using credit cards for financing. 

Heather Boushey (White House Council of Economic Advisers): industrial strategy is thinking about what is made in US and how it’s made; thinking about its impact on national competitiveness, good jobs, national security… Two pillars are empowering and educating workers; the third is open, fair and competitive markets. The strategy is about making smart public investments in specific industries, in left-behind places, paying attention to equity and small businesses; to mobilise private investment; and a competition policy to enable investment in strong industries rather than national champion firms (eg using technical standards in car charging plugs to enable interoperability and facilitate entry). Competition analysis now being applied to new regulation, alongside cost-benefit analysis. 

Rene Repasi MEP: industrial policy is not an ugly word in Europe, unlike the US. Following the next EU elections the headline will be competitiveness (not green deal). This cannot be about deregulation or subsidies for national champions, but states intervening to ensure markets follow public interests. On competition policy state aid control is about subsidies and antitrust is about efficiency; there needs to be more focused on innovation and R&D. For digital markets we need new challengers, protecting startup ideas to let them grow rather than be squashed by incumbents; and a change of mindset in universities to let researchers research rather than write funding proposals.

HB: focus on innovation benefiting American people, economy at large. Good university research doesn’t automatically get out into the wider economy. Will new industries create jobs across the country, also for non-graduates? Does competition workers and their facilities through labour markets and opportunities for small businesses?

RR: we need the competitiveness debate until the election, stimulated by the Draghi and Lette reports in March, to popularise them, in the DMA, the DSA, reforming the merger regulation, cases pending at CJEU… we have bits and pieces going in the right direction. Industrial policy is a progressive idea on how we can make markets work.

Connecting Trade, Competition and Industrial Policy

Katherine Tai (US Trade Representative): trade and antitrust are facing several similar issues driving evolution: globalisation/free-trade paradigm was built on maximising efficiency as an end in itself, with a benefit of low prices, meaning a race to the bottom: a cutting of costs, the exploiting of people and planet, and a focus on consumers. We need to think of individuals as well as workers; consider public interest factors, not just what is good for biggest US firms. 

What is digital trade? Began as e-commerce chapters in trade agreements, where technology was an enabler of traditional trade, so looked for rules to liberalise digital flows to facilitate trade flows. But that approach doesn’t work today because eg liberalising the flow of data has a big impact on privacy and concentration, and previous US positions on also eg localisation, source code need further development.

The US is not the only country looking at how trade and antitrust policy can democratise opportunity. KT has recently talked to South Africa about its similar approach.

Franziska Bratner (Germany State Secretary on Economic Affairs): Our objectives are efficiency yes, but also innovation, resilience/security. There are trade-offs on eg govt support on price vs national producers. There are questions on data monopolies eg with Teslas in Europe exporting data but Mercedes in China not allowed to, this is a competition issue.

James Hodge (South African Competition Commission): S Africa has proposed ending the WTO moratorium on digital tariffs because it lets every digital transaction go through Ireland without any tax. Few Big Tech companies make any significant investment in S Africa, facilitated by the zero-tariff rule. Digital economy is very broad and local entrepreneurs are often then acquired by global north firms, which could lead to an even bigger digital divide, and concentrates markets gradually. We see the same global merger creep in other markets, such as food. There needs to be more international cooperation on antitrust.

(Some) competition economists complain it’s very difficult to assess consumer welfare alongside other public interest factors, but trade does it all the time.

KT: “bigness” is distorting, unfair, bullying. Trade negotiators are concerned with movements between markets while competition enforcers are concerned with national markets; but trade needs to think more about antitrust between markets. Ricardo’s idea of comparative advantage doesn’t translate to the real world. One problem would be it would encourage two countries to build monopolies and trade with each other.

JH: out of apartheid came a highly concentrated economy excluding most people, so capitalism could only be acceptable in S Africa with the competition requirements in the post-apartheid constitution.

FB: Ricardo did not pay attention to security/resilience. 

Problem with EU is trade policy as an EU competence, industrial support a national one, with competition a mixed competence. The next Commission has to work hard on bringing these together, and to create a better partnership worldwide on a more equal footing, cooperating more with countries such as S Africa and Brazil. The justice question on how we divide the gains of capitalism will be key to democracy.

KT: democracies need to empower their people to participate in their political systems, to maximise their potential and have access to economic opportunity for themselves and their children/grandchildren. Democracies have so much in common on political and economic inclusion.

“The great reordering”

Stephanie Yon-Courtin MEP: since 2019 EU has realised competition policy and industrial strategy are compatible; while the pandemic, Russian invasion of Ukraine and the US Inflation Reduction Act has been quite a shock, requiring a renewing of concepts and new conversations on innovation and global competition, infrastructure investment such as telecoms, completion of the Single Market.

The EU has made a lot of progress with legislation like the DMA and DSA, and needs to deliver more eg designating AI as a DMA Core Platform Service. Global approaches are needed for tech giants and AI.

The big question is who will be in charge after the next EU and US elections.

Barry Lynn (Open Markets Institute): we have an opportunity in 2025 to put in place a radically new economic system, the open and cooperative liberal world we have dreamed of — but only if we accept monopoly platforms are crushing the free press today, amplifying disinformation subverting our democracy today, that catastrophic concentration in China and Taiwan threaten the global economy. Europe needs a vision of how to address all these threats. Its absence increases the threat of more significant global conflict. There is likely to be another Biden administration — how will the EU meet its vision?

We need to dream of a much better world. Neoliberalism is a language restricting how we see the world, disguising power.

Rohit Chopra (US CFPB): we’ve seen a learned helplessness from regulators around the world the last 40 years, watching from the sidelines. But these markets are shaped by rules of competition, and the private sector should want govt to ensure a race to the top not bottom occurs; supporting innovation and humans broadly, not just a clique at the top.

Tech conglomerates are entering finance in ways that are pivotal for every central bank and financial regulator. Libra showed central banks and regulators were unprepared. Fortunately Meta failed, but we now have new ways Big Tech companies want to create currencies and payment systems which will have significant national security implications. Regulators can’t sit around and study this for 10 years, but need to act. AI is just another example of where we can let a couple of inventors throw their discovery into the world and see what happens, or have an agency by agency approach to make sure it doesn’t turn into a disaster.

For the first time, we’ve seen the classic monetary policy approach to inflation being challenged by data on corporate profits contributing, and begging the question of the role of competition in ensuring price stability. We have a lot to do, sector by sector.

Both US and Europe realise we are creeping to a path where there are three or four AI foundation models that collect our geolocation, with an impact on our credit ratings or job listing ads, and that’s something for all the US regulators to confront. Will Big Tech companies become private governments, through eg creating their own currencies? 

Fireside chat with US Assistant Attorney-General Jonathan Kanter

Jonathan Kanter (US Department of Justice): we are opening up the conversation about antitrust to the people, farmers, small businesses… everyone the laws were originally created to protect. Those people use words like power and democracy (not specialised economic terms).

The new merger guidelines are about the rule of law — enforcing the statutes based on their text and case law. The economy and the way people conduct business have changed and law enforcement must reflect this.

The JetBlue/Spirit judgment talked about how the merger would affect not just those two companies, but all the other firms in the market, and their customers.

AI monopolistic practices can be in the chips, in the datasets, in the development of algorithms, in the platforms for distribution, in the APIs… We have invested heavily, including with our own technologists, to ensure we have what it takes to enforcing the law. AI can and will be used in lots of different parts of business, lots of different industries, in lots of different flavours. We need to dig in so we can have a sophisticated approach to how we think about these issues. These markets have massive feedback effects, so the danger of them tipping, becoming dominant chokepoints, is perhaps even greater than other types of markets — with massive impact on society. Where there are violations we need to take action, and we have a number of active investigations.

Antitrust enforcement is an essential part of competition policy, but the latter is something which should be considered and evaluated across the government.

There’s a huge enthusiasm in the wider public — eg university students — to talk more about antitrust, as they feel it’s so critical to a free society.

DoJ’s ambition is to enforce the law faithfully, to bring cases, to put forward enforcement policies which resonate with and protect the public. Markets have changed hugely in 30 years and we have to deal with them as they are now, not then.

Antitrust as agent for change

Sarah Cardell (UK Competition & Markets Authority): we have to be relentless in advocating the case for competition, always grounded in the reality of situations facing people and businesses in their daily lives; laser focused in choices of work; and not stay in a competition bubble. 

Innovation is a key driver of change, including productivity and growth, and competitive markets are essential for it, which is why so many agencies are focused on digital markets, ensuring monopolists are not squashing disruptive innovators. Robust merger control is critical, like Meta/GIPHY, Adobe/Figma. Highly sceptical of arguments robust merger control deters investment and innovation. New powers in new legislation important.

CMA cannot singlehandedly address root causes of inflation, but can make sure markets like food are as competitive as they can be, that people can get the best deals possible in those markets.

Regulators need to look ahead as well as deal with older issues, but if they wait until they know everything it will be too late. Eg CMA’s generative AI review. Increasingly working with other antitrust agencies as well as parallel regulators like data protection and online safety, and using its research to inform policy development in these neighbouring areas.

Digital Markets Unit should have its now powers by the end of this year so using them will be top priority. Need to keep a focus on the future.

Benoit Coeuré (French Autorité de la Concurrence): competition enforcers pride themselves on using new tools, taking effective action, pushing boundaries into new domains like sustainability and labour markets; but everywhere free trade has almost entirely lost popular support. Competition has been perhaps spared for serendipitous reasons (cost of living crisis) but inflation is down, interest groups are back and they have big megaphones; and the geopolitics are against us with drives for “moated castles”.

We need to show fellow citizens how competition fits into the broader policy framework and reinforce other policy objectives, like “pro-competitive” industrial policy; and connect competition and regulatory policy as a mix of solutions are needed to many problems. Some issues seen in cloud services can be addressed with antitrust; some better with contract or consumer protection law (like opacity in contracts); interoperability needs regulations and market standards. We have a close relationship with CNIL, who in the past has deferred part of GDPR enforcement to platforms; AdlC wants CNIL to minimise enforcement concerns when enforcing GDPR. And we need to better connect competition and trade policy. The Foreign Subsidy Regulation is beautiful in theory but the Commission is under-equipped to enforce it. 

BC wants next Commission to deliver what has already been promised — DMA implementation and enforcement (should it be narrow and limited, or a dynamic tool with cloud services, AI etc. — if they don’t do latter it will come back to antitrust but that might not be most efficient.) Needs to be a new compact between industrial and competition policy. Might need some tidying up of merger control.

Nuno Rodrigues (Portuguese Competition Authority — full speech): competition enforcers can support innovation, the green transition (eg electronic mobility needs a dense charging network), worker mobility (has sanctioned no-poach agreements). Access to inputs will be key for AI: foundational models, cloud computing, data. Digital markets break territorial links familiar from traditional markets. Competition between enforcers is essential, including to deal with Big Tech’s outsized bargaining power. 

EU has avoided damaging tit-for-tat retaliation on trade, introducing instead the Foreign Subsidy Regulation and Chips Act.  

We need implementation; advocacy to firms and market; coordination with European Competition Network; and enforcement.

John Newman (former Director US Federal Trade Commission): FTC’s Illumina order had a powerful narrative about life-saving technology and how important competition was to it developing. The Amazon and Google adtech complaints show incumbents wielding the power they have where they have already won that race.

Agency heads should spend less time with CEOs and more with ordinary workers.

Aviv Nevo (Director of FTC Bureau of Economics): how to translate high-level goals into day-to-day work? The merger guidelines are an example of doing that. They contain new tools; sharpen old tools; but also change the narrative. Where were courts not buying the ways issues were previously put? And what is needed to look forward?

The guidelines stress the statutes’ use of probability, not certainty. They talk about platforms and dynamic competition; harm in the labour market; entrenchment and extension of dominant positions through mergers (all new). Sharpening: change of narrative on vertical mergers, which is intuitively harder to convey.

Conversation with US Federal Trade Commission Chair Lina Khan

Lina Khan: Americans are increasingly connecting problems in their day-to-day lives with competition policy decisions in Washington, DC. LK has spent a lot of time out of DC hearing about the impact of business practices on customers and workers eg on the impact of the incursion of private equity into healthcare, leading to burnout for doctors and reduced quality care. Helps FTC prioritise work, and track changes in real-time.

As the social web emerged, policymakers mostly decided to step back, allowing predatory and damaging business models emerge; this allowed dominant firms to build and strengthen their moats against competitors. LK wants to learn from those experiences and avoid these missteps a second time. FTC reaction to AI tools is an opportunity to do better. The emergence of new technologies can be inflexion points and FTC now has a team of technologists to look “under the hood” of AI to ensure it has an accurate understanding to get ahead of potential problems. 

For the next four years: we have made a lot of progress but it feels like we are just getting started, on litigation, ensuring antitrust protects consumers as well as workers, finalising rules on non-compete… 

Building up large volumes personal data can reinforce monopolies, which in turn make it easier for those firms to collect more data. FTC approach has been to draw red lines on very sensitive data, such as stopping resale or reuse of geolocation or health data.

For natural monopolies, policies such as designating common carriers, nondiscrimination rules, interoperability obligations… might be necessary sometimes, complementary to antitrust.

AI Act, DSA and DMA Implementation

Roberto Viola (DG CNECT, European Commission): managing expectations is important with the AI Act, and DMA/DSA. This is a dynamic path — definitions can evolve, system risks can be adapted — stakeholders, regulators, scientific community will work together. If something goes wrong it can be corrected. It takes time to deploy.

Largest high-risk models will not face hundreds of regulators, but one AI Office (even though it works with an ecosystem of national regulators). They will hire 100 top experts (for interest, if not salary). It will work hand in hand with the DSA and DMA regulators. Then national conformity assessment will take place on high-risk products.

So far, very large algorithms have been produced by very large companies, so it is a proxy for market power. But the AI Act does not directly look at it.

When we see how generative AI is used in enhancing the offering of search engines — then it’s a search function. So it is likely many services will come under existing DMA and DSA definitions. But DMA can be expanded if necessary, adding new services [IB: and obligations/prohibitions].

DMA is much closer to telecom regulation than people think, esp. on interoperability. Latter is based on reference offers and then it’s the job of regulators to look at these 20,000 pages to assess the details. This is ultra-technical and ultra-specific to the company’s technology.

AI Awakening — making it Pro-Human Despite the Tech Industry?

Darron Acemoglu (MIT): similar innovations can develop in very different directions — nitrogen fixing is essential to fertiliser, but similar processes produce explosives. We are at the cusp of significant changes in technology thanks to AI. That can be pro-human, but right now the tech ecosystem pushing in a disempowering direction. Tasks are automated at breakneck speed, data is collected without any guardrails, a small elite can use algorithms over other humans. We need to tackle both economic power and persuasion power — the tech industry has sold a narrative AI will be used for the good of society, helped by the media sector in many places.

Relentless automation and monetisation of data are creating significant problems, but could be addressed by tax policies. Many countries subsidise capital and tax labour — we should try to equalise this. And a digital ads tax — ads are the lifeblood of current digital technologies, which create a very pernicious narrative about how data is expropriated and monetised — could enable other business models.

Erik Brynjolfsson (Stanford University): we are entering a time of radical uncertainty, especially around AI, the most powerful technology we’ve had. Uncertainties around productivity gains (could take decades to play out); industrial concentration (but can smaller models be as powerful and valuable?); and the trade-off between automation and augmentation of human workers. Both approaches can increase productivity but there’s far too much emphasis on that by technologists. So much more can be achieved through augmenting, as well as get a widespread distribution of benefits. This means changing tax policy, management practices, and how we conceive what the technology can do. It’s also much more likely to be organisationally adopted, if all parties benefit.

Policy should be encouraging lots of competition in smaller models. And enforce/encourage standards/interoperability. There’s a gap between the private incentives to silo people and the public interest. Interoperability enables the benefits of scale, of networks, but also of competition. But it doesn’t happen organically. [IB: See also his recent interview on similar themes in the Financial Times.]

The European grand regulation project

Filomena Chirico (European Commission DMA Task Force): the DMA is meant to correct problems we have already observed. Compliance implies change is happening. The status quo is not what we expect. 

The DMA is opening holes in gatekeeper services that new innovators can go through and build services to give users new choices. 

Alberto Bacchiega (European Commission DG Competition): what will important is how the market (businesses and users) reacts to changes made for the DMA: effective compliance, not just on paper. Some compliance solutions we will know only when we see them working. Some proposed we don’t think comply with the law, and we will need to take action on those relatively quickly. EC has already organised a public workshop post-7 Mar for gatekeepers to explain their compliance measures; EC will listen and then “very quick[ly]” take action (but there is not a formal deadline)

Johnny Ryan (Irish Council for Civil Liberties): the stakes here are incredibly high, so incremental change is not what is called for. Competition is not a “side dish” (a remark this morning by Olivier Guersent). 

Gatekeepers should fear regulators, not be having “nice conversations”.

Francesca Bria (former president of Italian National Innovation Fund): I am more optimistic after today on EU and US cooperation on strategic economic reform to better serve people. Europe needs an industrial policy that’s forward-looking because we are too dependent on Big Tech firms. We don’t have a European tech stack which aligns with our values, our democratic principles — with chips, with cloud, with AI, with data… Is the EU requiring interoperability, open standards, ethics and privacy by design when it gives out subsidies?

We are trapped between the US private sector and Chinese big state models. We need public digital infrastructure and institutions. How about urban data to fight climate change, kept in a data trust owned by citizens? What about public participation? What about social media manipulation leading to polarisation? Public interest does not mean state control. We need infrastructures to mobilise people with public returns, allow political participation where the data is kept as a digital commons.

How can public investment funds ensure successful startups it funds aren’t just bought up by private equity and sovereign wealth funds?

Amba Kak (AI Now Institute): EC and US governments are planning multi-billion euro investments in public AI resources (also UAE, India…) but we should ensure a narrative of “regulation kills innovation” does not take hold. And what is the connection between these investments and concentration of power? The narrative is of “democratising AI” but there’s a question of scale to contend with: Big Tech firms are spending orders of magnitude more. And the scope/vision seems on industry terms: US plan was originally for cloud procurement; current version looks at compute and data credits, and other ways for AI firms to contribute, but big firms like OpenAI and Anthropic are being given a big say in the innovation path.

The Biden Executive Order is clear: the answer to foreign monopolies is not to tolerate domestic ones.

Joanna Bryson (Hertie School of Governance): for most problems you do not need these giant AI models (which hallucinate cleanly and fluently when you ask for a prediction off too little data). 

The EU does have AI development commensurate with its economic size; only the US is an outlier there. Google uses the world’s talent, uses the world’s data, has fibre optic cables wrapping the world — we would call this infrastructure. Why aren’t they regulated as a utility? It’s essential infrastructure.

Brando Benifei MEP (AI Act rapporteur): big AI developers have tried to write their own rules for the most powerful models, and sceptical they aren’t left to self-regulation. 

AI Act needs the standards, so will take time; but no-one in the rest of the world is making their voluntary schemes mandatory, with fines and the AI Office to enforce [IB: China?]

We need international cooperation to pursue some safety objectives for the most powerful models (general-purpose AI with systemic risk).