Session Description:

Can government harness the power of IT to promote innovation, creativity and competition even while also providing tight safeguards for citizens’ digital experience? That’s what the EU aims to do in creating a “digital single market.” Can a mission so broad succeed? How could it affect Europe’s future? And what does it mean for other regions?

Kirkpatrick: I am very pleased now to welcome to the stage David O’Sullivan, who is the ambassador of the EU to the United States, where there’s been a lot of talk about respective attitudes about technology and regulation in the EU versus the United States, and that’s been a topic that emerged on our stage already several times today.

I wanted to just start with the very Techonomic statement that you made in an article you wrote for “Wired”—which is a meritable thing that you did that in the first place—in which you said tech is the key to the future success of human endeavor, which is something I wish more politicians and government leaders would say, even though it’s not an earthshaking thought. But just talk a little bit about how you see technology in the process of governance and the future role of government.

O’Sullivan: Well, I’m glad I said something you approve of, a good start to the conversation. It’s not just government, it’s not just what government can do. Because in some ways, and we’ll maybe talk a bit more about that, government can be an enabler. It can move with the technology, but it’s not in itself going to be the innovator, and it’s not going to even develop the sort of economic consequences which flow from it, because that’s going to come from entrepreneurs and the economic environment.

But I think the key thing is that—I lived in Japan in the early ’80s and I remember the first time I saw a computer, the first time I saw a sort of pseudo-tablet. And I’m amazed how long it’s taken us to get to where we’ve got to. I thought technology would move much more quickly. But I think we really have reached a tipping point now where the digital pervades everything. And that was the point I was trying to make, that there is no longer—when I was talking about this subject somewhere, I got myself tripped up because I said the digital world and the real world. And of course that’s completely wrong, because what’s interesting about what’s happening is the sort of pervasiveness of digital technology, not just as a self-contained sector, but actually being used everywhere, being used in industry, being used in health care—and that’s what I tried to say: that technology, to me, is going to be a huge driver of change, of quality of life, of improvement. And I think this is going to dramatically change the world in which we live.

Kirkpatrick: Well, as a European representative in the United States, how would you compare the respective attitudes towards that in the government in your home continent and countries and here?

O’Sullivan: Actually, I don’t think there is a huge difference at the level of government. Of course, America traditionally has thrived on probably—I don’t want to say—a greater level of entrepreneurship, but you’ve had a rather freer approach to letting the market develop things. In Europe, traditionally, we’ve wanted to regulate, to create, to shape the environment perhaps more than was the case in America, and this is clearly reflected in the huge success of American tech companies. But I think it’s very important to understand that Europe loves the Internet. Europe is heavily engaged in technology. There’s a lot of quite successful technology. And I don’t think there’s a huge difference, frankly, when it comes to the regulatory issues which we have, whether it’s, you know, the question of privacy, which we’re all concerned about, whether it’s about Internet security, crime, cybersecurity, or whether it’s even about the need—or not—for some government regulation of things like online platforms, and so forth. There’s a meeting today at the FTC on the sharing economy, where they’ll address some very similar issues to what we’re discussing in Europe. So I actually think we’re grappling with the same kinds of issues, actually.

Kirkpatrick: Well, that may be true. The US clearly up to now has essentially dominated the digital economy, I think that’s pretty clear. Meanwhile, your new government in Europe, or the [European] Commission, has two vice presidents who have digital responsibility in their very job description, which is not something we’ve ever had in a major government official role in the United States. And I think it’s telling. I don’t know exactly what it bespeaks. But certainly the idea that Europe has set out to create a “digital single market” is a very specific undertaking that shows a very specific effort—at least at the European Union level—to engage with the digital reality that is overwhelming all of us. And I think that I’d like you to talk about that, and then maybe talk about how it extends to the national governments as well, or not.

O’Sullivan: The thing you need to understand is that the European Commission, which is responsible for proposing legislation and for implementing the legislation which governs the functioning of the European Union, proposed in the mid-1980s the creation of the single market—in other words, an integrated economic flow of capital, goods, services, and people across all the member states of the European Union. That required regulatory intervention in order to break down the barriers between what was then the nine countries and what has become since 15 and 28.

So if you like, the creation of this European level space does require the dismantling of national regulations and the putting in place of European legislation. So in that sense, it’s more interventionist than the United States because you already have the United States market. But the result, then, was a great opening up of the European market, great opportunities for American companies to invest, and I think what we’re now doing is we’re now saying we need to do the same thing for the digital single market. We need to open up the digital space to be an EU-wide space, not siloed into 28 different countries, each with slightly different rules and which create difficulties for European companies, but also create difficulties even for American companies who are trying to operate in that environment. So I want to emphasize that the purpose of the intervention is to open and to liberate and to give more space to the digital economy across all of Europe and therefore to break down the silos of the national markets.

Kirkpatrick: Is it essentially accepted that in the non-digital economy you’ve pretty much broken down the barriers?

O’Sullivan: Look, you know, no economy the size of Europe—it’s 500 million people, 28 countries. I will not claim that we’ve dismantled every conceivable barrier. By the way, you haven’t done so in the United States. You know, try to bring citrus fruit into California and you find out what I’m talking about.

Kirkpatrick: The thing that’s interesting to me is the distinction between digital and non-digital and the fact that it requires its own separate set of regulatory and policy gestures is an interesting fact in itself that we see these two things as separate, whereas I think in this room and in the Techonomic kind of universe generally, we’re increasingly seeing that the digital economy may be the predominant part of the economy, period.

O’Sullivan: No, but I think I said that at the beginning, you know, so I buy that and I agree with you. All the more reason that we have to do this, because the inhibitions we have on a true European digital market will impact as we go forward on everything else because so much will depend on the flow of digital information, data flows. So that’s why this is such an important challenge– to break down these national silos, to create a European digital space, which will of course operate also in what we might like now or have in the past called the traditional economy. I mean, the interface between industry and digitalization, 3D printing, industry 4.0–this all shows that digital is so important that if we want our—and I’m struggling to find the word, because it always makes me sound like a Luddite if I say the “real” economy or “traditional”—

Kirkpatrick: No, it’s difficult to find the right word, so it’s not just you.

O’Sullivan: Exactly. But you know what I’m talking about. That will be ultimately hampered if we don’t actually develop a true digital space across our 28 member states. I want to emphasize that the nature of the digital economy is such that this will also inevitably have global spin over, and ultimately if we conclude a successful trade deal between the US and the EU—as I believe we will soon—this will become a trans-Atlantic digital space and it’ll then become hopefully maybe even a global digital space at some point.

Kirkpatrick: Is that really a likely corollary, that if you move in this direction and the trans-Atlantic trade deal does become reality, that most or many of the features of the digital single market in Europe will also be trans-Atlantic?

O’Sullivan: Well, I’m not saying that we’re going to absolutely replicate the legislative structure which we have to put in place in Europe to create one market out of 28.

Kirkpatrick: No, but is that what you think?

O’Sullivan: I think there will inevitably be a great deal of permeability between these two things, and I think the nature of the digital economy is such that it’s—you know, to be honest, in some ways it’s difficult to start distinguishing between whether companies are American or European or whatever.

Kirkpatrick: Yes.

O’Sullivan: So these are not necessarily concepts that will matter a lot in 10 or 15 years from now. And therefore, in that sense, yes, I think we will quickly move from a sort of European digital space to a US digital space to a trans-Atlantic digital space, and probably beyond that, frankly. I mean, I don’t think it’s just—we don’t want to create a closed trans-Atlantic digital space any more than we want to create a closed European digital space.

Kirkpatrick: Well, there was just a session on the stage about privacy, where the Microsoft guy was saying, you know, really these issues are global.

O’Sullivan: Absolutely.

Kirkpatrick: And a company like Microsoft, which operates globally, it would certainly be easier to operate, or for any company that’s trying to extend itself globally, if the rules were to some degree harmonized. But just quickly–and I mean, it’s an American audience, which isn’t obsessed with European details perhaps, but how likely is it that you’ll get these 28 countries to go along with something resembling a digital single market? Because my understanding is there is much more comprehension of the urgency at the European Commission level than there is at the national levels.

O’Sullivan: Well you know, Europe was created by having a vision and having a sort of magnetic north towards which you lead people. And that’s the role of the European Commission. As a European public servant, that’s what I’ve done my entire life. We work very closely with our member states. They are the reality. We are not a 29th member state. But sometimes we can set that magnetic north and say, This is where Europe needs to go. And we have a remarkable ability for bringing people with us in spite of the—when we set out to create the traditional single market in 1985, I remember so many American companies saying to me, “This is impossible, you’ll never do it. You’ll never persuade the member states to”—and we do. Because I think this is a truly visionary proposal that’s going to capture people’s imagination. I think people are going to get this. And I think we’re going to have a lot of public support for it. Of course there will be problems. There will be battles. There will be compromises, and some American companies say, “Oh, that’s a second best outcome because you had to compromise.” But we will get there and I’m absolutely certain that this will make a huge difference to the future of our economy, but hopefully to the trans-Atlantic economy in the context of our future trade relations.

Kirkpatrick: How long do you think it will take?

O’Sullivan: Look, I mean, I think it’s certainly a 5-to-10-year project. If you look at everything that is listed in—there’s 16 actions and if you look at everything that’s there—but you’re talking about quite some time for some of this legislation to be put in place. But I think you’re going to see, within a couple of years, some very tangible results and distinct progress—and after that, we will work our way through the different agenda items. So I would say in 5 years, a very substantial outcome, still continuing on for a few more years after that probably.

Kirkpatrick: [Edward] Snowden—let me just ask you how you see the consequences of his revelations having changed the nature of the dialogue about the role of the United States generally, especially in digital space, and the role of American technology companies. How big of a deal was Snowden for relations between the US and Europe, first of all?

O’Sullivan: I think initially, a very big shock. And I think people—perhaps naively, I don’t know—genuinely were surprised at the extent of surveillance of what were considered American allies. So people were kind of—as I think Chancellor [Angela] Merkel said very well, “With so many other people out there to try and spy on, why is America expending energy spying on countries which are actually in alliance?” And as we then found out, on her personally. And I think genuinely in many parts of Europe, there was shock, saying, “Wow, this is amazing.”

I think the dust has settled a bit. I mean, I think people have understood now that there’s a lot of this stuff that does go on. And I think we have been able, through the negotiations which we’re having with the American authorities on the umbrella agreement and the revitalization of the Safe Harbor Agreement, to find a common understanding about how we can take this stuff forward. And I think if we can conclude those two negotiations, we’ll be able to continue our very good cooperation in this area. But, yes, frankly, a certain amount of damage was done to trust and mutual confidence, which will have to be rebuilt. But you saw the body language between Chancellor Merkel and President Obama at the G7. You know, I think they actually get on quite well.

Kirkpatrick: Okay, since you mentioned Obama, you know, Obama himself, last fall I think it was, suggested that protectionism was behind a lot of the efforts that Europe has been making to regulate privacy, the right to be forgotten, etc., miscellaneous, especially privacy-related, regulatory shifts. What’s your thinking about that?

O’Sullivan: Well, far be it from me to criticize the President of the United States. But I think perhaps that word was not very well chosen.

Kirkpatrick: Well, he criticized you, in effect, so, you know.

O’Sullivan: I don’t think that that is what drives Europe. We are the largest economy in the world. We’re the largest market in the world. We’re the largest inward destination of foreign direct investment and we’re the largest owner of outward foreign direct investment. I mean, we are not protectionist. We live by trade. We live by exchanges. So I think that is the spirit we bring to this discussion. Of course, there are nuances between us in terms of privacy regulation and we’ll work our way through those issues. And are there some people in Europe, a very small minority, who sort of dream of some kind of digital protectionism? Perhaps. But they are not the mainstream, I can assure you. They’re not the center of gravity, and they are not what the vast majority of European citizens or European governments believe we need to go forward in the future. So it’s not a protectionist agenda. On the contrary, just—we were accused in the early ’80s, when we wanted to create the single market for goods and services, of Fortress Europe. And how American companies have now changed their minds and they’re the biggest defenders of what we’ve built, because they see it as creating huge opportunities for them. The digital single market in my view will create the same business opportunities for America. American companies are very well placed to exploit it, but also I believe European companies will also come through. There’s a lot of new startups in Europe. There’s a lot of digital activity. I’m very optimistic also about Europe’s high tech future.

Kirkpatrick: Yeah. I mean, I am too, by the way. But I think it’s not hard to see where the sentiment might come from if you look at, for example, history in France, where the national government of France at one point invested $200 or 300 million US to build its own French Google. That was even the way it was described at the time. It was a chimerical idiotic plan—in fact, it totally foundered. But it is in the history that we saw European countries’ governments deliberately trying to build alternatives to American companies. So it’s not shocking that this should be viewed as a possibility.

O’Sullivan: You know, what can I say? I mean, sometimes people get it wrong, and the outcome of that experiment is, I think, very instructive and speaks for itself.

Kirkpatrick: Yes, that’s probably true. But let me just ask you one more question that’s related and then go to the audience. Do you think it’s a problem that the dominant net companies are all American?

O’Sullivan: Not in the slightest.

Kirkpatrick: Good. Do you think that view is shared pretty much widely among your colleagues?

O’Sullivan: Yeah, I think people accept that, you know, the market is what it is. American companies have seized the opportunity and good luck to them. And they’re great companies and they provide good services. Are some of them perhaps open to investigation as to whether they’re exploiting dominant positions or whatever? Perhaps. And we will do that in the way we do that with European companies—and if you look at the statistics, I can assure you we’ve put many more fines on European companies for abuse of dominant position than we ever have on American companies. And when America puts $9 billion fines on European banks for breaking US sanctions but doing something that was perfectly legal under EU law, we didn’t say this was protectionism or this was striking at European companies. I think we both have systems and structures and laws which have to be followed, but there is great respect in Europe for the American companies and what they’ve achieved. I think our only hope is that going forward, we will be able to have Europeans who will also master this Internet and this new technology and be successful in doing so.

Kirkpatrick: It is astonishing, the startup energy that you can see in places like—just today it was mentioned, Berlin, London, Stockholm. I would add Barcelona as another city where there’s tremendous energy. Dublin—you being an Irish person originally, right?

O’Sullivan: Yeah, absolutely.

Kirkpatrick: You know, there’s amazing entrepreneurial energy in pretty much all these cities and I think it’s often underplayed and misunderstood in the US.

O’Sullivan: Yes. And the one thing I would say is that what’s missing—and if I may just complement with a further action by the Commission, one of the things is there is not the venture capital to help grow these companies. What many of them do is when they get to a certain point, they want to sell out to American companies, having grown the company to a certain point, but they’re not able to take it to the next level and higher again. One of the projects of this Commission is capital markets union, which is to create in Europe more liquid capital markets to—you know, you have about 70% of your companies are 70% financed by capital, 30% by banks. We’re the opposite. We would like to rebalance that in Europe, not necessarily to go to the American model, but to make it more 50-50. And we’re working hard on putting in place structures which will put more venture and liquid capital into the European economy, helping these startups perhaps to go from being startups to actually grow into being bigger companies.

Kirkpatrick: Let’s see, who in the audience—oh, okay, please. Identify yourself now.

Nelson: Mike Nelson with CloudFlare. We’ve heard several mentions today about the OPM [Office of Personnel Management] breach, and I just got a tweet saying that Ed Snowden stole 900,000 files from the Pentagon and it took a month to notice. I haven’t read a lot about similar breaches among national governments in Europe.

Kirkpatrick: He’s a security guy, by the way.

Nelson: So the question is, is that because you don’t have as many breaches in Europe? That you don’t know about as many breaches? I’m not reading the right sources? Or do you have really good security people? Or is it that you need some kind of security breach notification?

O’Sullivan: Look, as you know, people are notoriously reluctant to talk about security breaches. I mean, one of the problems we have in the whole cybersecurity thing is actually even getting companies to kind of admit that they’ve been breached, to share the information, because people don’t like that to be known publicly. So I think there is probably a reticence on the part of governments to the extent possible that when there is a breach, they’d prefer not to talk about it if they can. I also suspect that the United States government is a much bigger target than any of our national governments, which are individually quite small, except perhaps one or two of the bigger member states. But they don’t have the same weight or impact as the US does, so possibly the US is more of a target. But I think we face exactly the same threats. By the way, part of the digital single market is reinforced cooperation on cybersecurity, and this is going to be a huge issue: infrastructure, security. I mean, just think for a moment about breaches into nuclear power stations or whatever. I mean, this is a major challenge. The positive side of technology—and I’m a great fan of technology—is all the things we know. The downside is the vulnerability which that can create to our banking systems, our energy systems, and we really have to put in place the security needed to protect those.

Kirkpatrick: I wanted to talk briefly about China. Because it is interesting, and it’s come up onstage more than once today, that Chinese tech companies are advancing very rapidly. And it has struck some in the United States—as there has been what’s felt by some to be a strong pushback against American tech dominance in Europe—that the real common threat is actually Alibaba, Baidu, Tencent, and others that are really striving to achieve global market position and may start really driving much harder in the global markets. And I’m just curious if that’s something that’s on the radar in Europe, that—you know, we know that those companies do not have major market positions in Europe, although each one of them has bought companies in the United States and are already operating here. Alibaba has just decided not to build a data center but is building a huge data capacity in the US, etc.

O’Sullivan: Yeah. Well, first and foremost, just as I don’t have anything against American high tech companies, I don’t actually have anything against Chinese high tech companies. And I think we shouldn’t, as long as they’re respecting our rules when they’re operating in our environment. What we do have is a common concern—and we intervene jointly—about Chinese domestic policy in terms of technology transfer, laws which they’re proposing, or which they were proposing to enact which would encroach on the IPO rights of foreign companies. I mean, there we take a very strong position with the United States in opposition to that. But to the extent that—I think it’s quite natural. I’d be very surprised if there are not brilliant Chinese high tech companies that are going to emerge.

Kirkpatrick: Oh, they’re going to become global, definitely.

O’Sullivan: Exactly. And frankly, I said good luck to the American companies, I say good luck to the Chinese companies. As long as they are respecting our rules, as long as they are playing—at least in our markets—as fairly as all other companies, then I think they will add value, they will bring creativity, and it’s all to the good.