Connect with us

Economy

EU vs. Google: When Goliath Pretends to be David

Dr. Matthew Crosston

Published

on

The European Commission has opened a formal investigation into Google to ascertain whether or not the company’s operating system, applications, and services have breached EU anti-trust rules.

The Commission is seeking to figure out if Google has engaged in anti-competitive activities in its business philosophy and has tried to abuse what is a dominant commercial position in the European market. This formal inquiry actually goes back five years, when the EU was concerned primarily with Google’s dominance over the advertising search market (at the time it controlled 95% of the EU). The current incarnation of the inquiry now focuses on three main points:

  1. Whether Google has illegally hindered the development and access of rival mobile applications.
  2. Whether Google has prevented smartphone and tablet manufacturers from developing and marketing modified and potentially competing versions of Android.
  3. Whether Google has illegally hindered the development of rival applications and services by tying or bundling certain applications and services with other exclusively Google interfaces.

Google has always refuted such charges, its chief executive boldly declaring things like it is ‘not the gateway to the internet’ and that it was not true that Google would ‘promote its own products at the expense of its competitors.’ It is this last aspect which brings a bit of the surreal into the situation and should leave any sane thinkers of commercial activity in Europe shaking their collective heads. It is truly a farce majeure where two Goliaths desperately want the public to believe they both are in fact Davids.

Companies built upon the prevalence and popularity of the internet have always benefited from what I consider to be a bit of false praise. Whether you want to call them social media platforms, internet service providers, mobile application purveyors or any other semi-technical fancy phrase, the one simple reality of all such entities like Google is this: they are and always will be a BUSINESS first and foremost. The point of business is to be successful. The best success is one that is maximized and leveraged. This by default means earning a dominant position in which there may be rivals and competition, but such challenges must never amount to severe problems or damage to the company’s bottom line or market share. This is the great confusion of people in Western states: the conflation of capitalist rules with democratic principles. It is true the West has done an admirable job of instilling both systems into their societies. But it is not true that capitalism and democracy are two perfectly mirrored sides of the same coin. This is just the naïve mistake of those not bothering to understand how their relationship has always been a tethered and tense one, usually to the benefit of all, but not ever absent discord and disagreement.

Which brings us back to Google: ‘internet companies’ have helped themselves over the years by creating a brand image that emphasizes freedom, access, information, and connectivity. Indeed, in America we often call this process ‘drinking the company Kool-Aid,’ which means buying into your own propaganda. Companies like Google and Microsoft have always been quite enthusiastic about drinking their own Kool-Aid, believing they are somehow not just businesses, but something more: something more valuable and more productive for the overall growth and functioning of free societies all over the globe. It is indeed a wonderful brand image to develop. It also happens to be exaggerated. As long as Google or Microsoft dominate their respective markets, it is easy for them to focus on and proclaim how much ‘more than a business’ they are. Inquiries like the present EU investigation, however, call this mythology into question.

First instinct in the face of accusation is to of course always deny. But let’s examine the statements made by Google more objectively: Google, an ‘internet company’ that specializes in being the first portal for consumers to think of when it comes to net access, does not want to be ‘the gateway to the internet?’ Of course it does. It is almost ridiculous to consider the alternative. Second, as Google begins to grow and diversify its holdings, services, products, and applications, it doesn’t want to promote such products and services over other competitors? Again, of course it does. Why? Simply because it is a capitalist business operating in a global capitalist system. Because if what the Google chairman said was true it would mean Google is literally acting against the fundamental axiom of basic business, indeed of capitalism itself: we create not just to sell but to sell more than anyone else. Which subsequently means Google is acting against Google if it is not remaining faithful to this mission. Which version of reality seems more likely to any rational consumer: Google acting against itself or acting against rivals and competition? A more rhetorical question has never been asked.

The EU’s probe into this leads to a fascinating philosophical question that gets to the very heart of commercial activism and has different answers across the globe: WHO EXACTLY is responsible to guarantee greater competition and access to choice in the market? Should that competition be ‘facilitated’ by government watchdog agencies because businesses inherently cannot be trusted to engender honest competition and consumer choice? Or should it be a much more ‘organic’ process, Darwinian even, where only the best ideas, products, and organizations survive the competition, with the consumers’ actions themselves deciding everyone’s business fate? America has often prided itself on being in the latter school of thought (though anyone who looks closely at American economic policy and economic history knows this is not entirely true) while Europe more staunchly likes to position itself as the champion of the former (again, also not entirely true). These are the dual dilemmas secretly hidden under the layers of the EU inquiry into Google. On the one hand, Google is trying to maintain and secure its brand image as the benevolent and benign Goliath. Not a marauder inflicting damage to the market and consumers, but rather a friendly giant that should be appreciated and left alone. On the other hand, the EU is trying to stand on its own brand image as the Goliath that protects the people and guarantees true commercial freedom. Not an overly meddlesome bureaucracy whose good intentions only end up causing market regression, but rather the sole legitimate power able to stand up for the people against major multinational behemoths like Google.

The irony of ironies is that in this battle between two Goliaths, one commercial and the other political, BOTH try so earnestly to portray themselves as David fighting against injustice. Be wary, Europeans, whenever actors with pockets deeper than the ocean depths both cry ‘woe is me’ and seek to earn your sympathy party. In such cases the only woe is usually your own and the only true sympathy needed is for the consumers of the EU itself. In the end, the decision-making of any Goliath tends to be suspect.

Dr. Matthew Crosston is Senior Doctoral Faculty in the School of Security and Global Studies at the American Military University and was just named the future Co-Editor of the seminal International Journal of Intelligence and Counterintelligence. His work is catalogued at: https://brown.academia.edu/ProfMatthewCrosston/Analytics

Continue Reading
Comments

Economy

Regional Comprehensive Economic Partnership (RCEP) and India

Prof. Pankaj Jha

Published

on

Regional or bilateral free trade agreements between India and other countries/institutions have always faced local resistance because of intrinsic anxiety that low cost imported goods would stifle the growth of domestic industry. Commentators have justified this apprehension advocating that domestic industry in India is still unprepared for international competition, and there are no state subsidies that the government provides to the industry for reducing costs and facilitating unfair cost advantage with regard to exports. Within India, sector specific associations are powerful and a result of which many items such as tea, palm oil, coffee and pepper were enlisted as highly sensitive list items (very less reduction in tariffs) when India-ASEAN Free Trade Agreement was signed in 2009. India is witnessing a very high percentage of growth in services sector (contributes nearly two-thirds of India’s GDP)and therefore has always sought to offset the negative balance of merchandise trade with promotion of services sector and investment as an integral component of bilateral or multilateral trade talks.

RCEP is proposed to be one free trade area which will include 3.4 billion people across the East Asian and Oceania region, with a GDP of more than US $22 trillion and the intra RCEP trade would account for more than 30 percent of global trade, as it would integrate the three largest economies of Asia-China, Japan and India. For India, accession to this economic trading bloc would mean opening its large market of 1.25 billion people for the products from 15 countries including 10 ASEAN members and the five dialogue partner countries -China, Australia, New Zealand, Japan, and Korea. During the last few meetings of RCEP negotiations, India has made it very clear that it would not compromise on issues related to trade in services and also addressing concerns related to the small and medium enterprises in the negotiations.

As discussed, RCEP is expected to bring the ASEAN countries and its six dialogue partners under one large geographic and economic landmass which would be one of the largest economic blocs in the world. India has Free Trade agreements or Comprehensive Economic Cooperation/ Partnership Agreements (CECA/CEPA) with Thailand, Singapore, Malaysia, and Korea while it is negotiating terms of bilateral free trade along with services agreement with Australia, and New Zealand. India has proposed to include services sector into the larger negotiation process while many countries do not want to open their market for highly talented and qualified professionals from India. The bone of contention in this regard is Mode IV which ‘deals with movement of natural persons who are service providers or independent professionals’ to another WTO member country. India has pressed for the Mode IV negotiations while negotiating with Malaysia and Singapore. However, both the countries have only opened Mode IV for select individuals such as consultants, accountants, nurses and financial experts. The limited access to the emerging markets have annoyed Indian negotiators to such an extent that at one time India decided not to enter into any free trade negotiations without including services and investment in the negotiation blueprint.

India started economic liberalization process in early 1992, it is yet to integrate with the global economy given the intrinsic problems with regard to tariff structures, customs procedures and the inherent red tape which was a legacy of the license regime. However, putting onus on India for failed attempts with regard to free trade and better terms of trade with other countries across Asia would be unfair. India has not gained the promised advantage while trading with the price competitive economies of the Asian region. On the contrary, the low cost production centres, particularly China, which thrives on state subsidized production has easy access to the India market while it has not bestowed the same privileges to Indian exports. The tariff and non-tariff barriers in China are still not conducive to Indian exports leading to skewed balance of trade. Taking cue from China’s re-routing of its products through ASEAN nations, India has stressed on the stringently following the Rules of Origin (ROO) template with 35 percent of local value addition as a necessary prerequisite.

This year, in the post Wuhan summit bonhomie, Chinese government has opened its pharmaceutical market to select Indian drugs such as anti-cancer, and other lifesaving drugs which are relatively cheaper than Western imports. Overall China has removed import duties on 28 medicines imported from India. The trade frictions between India and China still exists as India has registered a number of anti-dumping and unfair trade practices case in WTO against China. Indian industry particularly Small and Medium Enterprises(SMEs) however accept the fact that cheap Chinese input material in sectors such as steel, pharma and other related industries have brought down the costs, and have also indirectly helped in real estate, automobile spares, and textile sectors. Nonetheless, larger industrial houses are not in favour of such opening up of market as they feel their future endeavors would be jeopardized if Chinese cheap products both in terms of raw materials and semi-finished products would curtail their market expansion plans through new products. These large industrial houses do control the Indian politics through their corporate funds given to various political parties to fight elections and have a sizeable influence among the country’s parliamentarians and legislators. SME sector in India is relatively unorganized, both in terms of associations and political clout.

In order to increase its trade with countries in East Asia and Oceania, India has been trying to adopt international production methods, and be a part of the Regional Value Chain(RVC). However, India’s incremental approach for market liberalization and other market facilitation efforts have not met with active engagement from the regional community. India has not yet been inducted into the Asia-Pacific Economic Cooperation (APEC) which could have prepared the country for business standardization and harmonization of tariffs as per the APEC provisions. This would have created the base for effective implementation of the RCEP trade provisions with necessary structural support. Indian economists have made it very clear that only market access to merchandise trade without any quid pro quo would not be acceptable to the Indian entrepreneurs. It might also create social problems given the fact that Chinese cheap products have already decimated electronics, mobile, toys and silk industry in India. The cascading effect has left very large number of both skilled and unskilled labour jobless. Given the fact that select sectors in India are still labour intensive, retrenchment of workers has a political cost. There are apprehensions projected by industry associations that cheap imports would adversely impact the steel, chemicals, textiles, copper, aluminum, and pharma industry. India is has a sizeable share of global trade in automotive parts, pharma and textile industry, and so negotiations would be a long drawn affair.  Further, strategic experts feel that India must not become an ancillary industry to Chinese production network as it would jeopardize India’s rise in future as a production and skill center in Asia. Also, it will put China as the benefactor of India’s industrial change which might not be palatable to the political class.

Indian negotiators still believe that until and unless the demands with regard to trade in services, investment and also concerns related to SMEs is addressed, the RCEP would be facing an invisible deadlock. Opening up services sector would help the Indian economy and partly offset the effect that would be felt from the cheap products from relatively cheaper production and export centres. Indian economy still faces stiff competition from China and as a result of this the negotiations with China, would be long drawn affairs. However, there is still a silver lining that RCEP would be concluded in 2019 but the deadline from the Indian side would be after the general elections in 2019 when the current Prime Minister Narendra Modi would be looking for a second term to bring about comprehensive set of economic and financial reforms. In case a coalition government comes into power, it would seriously jeopardize the RCEP negotiations because then the different associations and lobbies would be playing the political game to protect their economic interests.

Continue Reading

Economy

‘America First’ vs. Global Financial Stability

M Waqas Jan

Published

on

The recently concluded annual meeting of the IMF and World Bank group, held in Indonesia last weekend, has highlighted a series of concerning trends with regard to the global economy. It has subsequently left many considering the impacts of a possible global recession that may be looming ahead in the next of couple of years to come.  These fears were evident in the worldwide sell-off in global equities last Thursday that has been widely attributed to the IMF revising down its global growth forecast in its World Economic Outlook (WEO) report. The report highlighted growth in a number of developed economies as having plateaued, with rising trade tensions and policy uncertainty greatly contributing to the slow-down. This includes the ongoing trade war between the US and China, as well as the numerous uncertainties pervading within the Euro-Zone.

All of this has had a significant knock-on effect on emerging markets, including Pakistan which has already been struggling with massive fiscal and current account deficits amid rampant inflationary pressures.  With tensions between the United States and China still on the rise, Pakistan presents a notable example of how deteriorating global macro-economic conditions have been exacerbated by rising geo-political tensions between these two global powers.

For instance, it took Imran Khan’s fledgling government months to accept the reality of another IMF bailout (Pakistan’s 13th in the last 30 years) despite its $68 billion investment commitment with China. This is because the US, being the largest contributor of funds to the IMF has increasingly politicized this bailout in light of its own deteriorating relations with China.  In fact, the US has directly blamed China for Pakistan’s recent debt woes referring to what has been come to known as China’s ‘Debt Trap Diplomacy’. The argument being that the massive loans being doled out by China to developing countries under its Belt & Road Initiative are leading to unsustainable debt levels, eroding their sovereignty while expanding China’s hold over them. Pakistan’s loan obligations to China as part of the China Pakistan Economic Corridor are presented as a case in point.

Despite both Pakistan’s and China’s protests to the contrary, it is widely expected that some of the IMF’s conditions attached to Pakistan’s requested bailout are thus likely to include greater scrutiny and revisions regarding the CPEC initiative. This is likely to form part of the US’s overall objective of limiting and constraining China’s influence over Pakistan and the wider region.  The impact this would have on Pakistan however is likely to prove critical considering its precarious economic as well as geo-political position. Not only would the IMF’s conditions limit the new government’s ability to maneuver its economy around an increasingly unstable world financial system; it would also delay the much needed infrastructure projects being planned and implemented under CPEC with Chinese assistance.  Therefore, the very purpose of the IMF bailout which is to provide some semblance of stability to Pakistan’s ailing economy, would embroil it deeper in uncertainty as a direct result of the US’s unilateral push against China.

It is worth noting here that during its annual meeting, the IMF clearly voiced its concerns regarding escalating trade tensions between the US and China. While calling for increased dialogue and a careful examination of debt induced risks across the world, the IMF seems to be warning both sides over the fragility of prevailing global economic conditions. At the same meeting, China too echoed these concerns and called for increased dialogue with the US to promote open trade and growth. As a country that has for the last few decades championed globalization, China’s vision of shared global growth and win-win partnerships in emerging markets such as Pakistan, have however been directly challenged by the US. A US, that is in contrast aggressively willing to defend the prevailing status quo, as part of President Trump’s mantra of ‘America First’. Hence it was no surprise that US representatives, in response to these concerns brought up by the IMF and China, have continued to downplay the risks of their policies on global economic stability.

With respect to China and numerous emerging markets such as Pakistan, the fact still remains that the world financial system is currently replete with risks and uncertainty as a direct result of US policy. All of this is occurring while the US President continues to boast about surging US equities and record employment figures as a direct outcome of these policies. While the US economy has experienced sustained growth since the 2008 financial crisis, markets and business cycles have a way of correcting themselves, especially when world leaders themselves point to overbought and overextended conditions.

If the US economy truly is on the cusp of a potential downturn, then present geo-political tensions are more than likely to exacerbate the impacts of an impending global recession. For Pakistan, with its precariously low foreign currency reserves and an unsustainable debt to GDP ratio, such a recession is likely to bring on even bigger problems than any of the potential cuts the IMF may propose on CPEC. Thus, while the US may limit China’s rise as an economic power in the short-term, it does so at the expense of emerging markets and global economic stability in the long-run. This lack of foresight is likely to hurt the US more as it realizes how economies cannot exist within a vacuum in an increasingly interdependent world.

Continue Reading

Economy

How to finance Asia’s infrastructure gap

Susantono Bambang

Published

on

Asia’s countries famously need to invest trillions of dollars a year to provide infrastructure required to keep traffic flowing, ports trading, and factories humming. Yet most countries in the region consistently fall short.

The 2017 Asian Development Bank (ADB) report “Meeting Asia’s Infrastructure Needs” puts the infrastructure tab for 45 developing Asian countries at more than US$1.7 trillion per year. Developing Asia now invests only about $881 billion a year, or slightly more than 50 percent of that. This is the infrastructure gap.

Less well known, however, is that the investment shortfall is frequently not for a lack of funds or technology. The money may be available, particularly in the private sector, but not enough of it is going where Asia needs it. And this is because many developing countries lack the knowledge and capacity to design and implement bankable infrastructure projects that integrate new technologies.

To encourage private sector investment in infrastructure, high-quality bankable projects must adopt current levels of proven technology as well as be “future-proofed” to further advances in technology.

Delegates from across the development spectrum — from government through the private sector — will gather on Oct.13 in Bali for the Global Infrastructure Forum 2018 to discuss several trillion-dollar questions. How can governments and the private sector help fill the infrastructure gap? How can authorities’ better pair the world’s big investors with the many inclusive, resilient, sustainable, and technology-driven infrastructure projects this region needs to advance economic progress? And how can multilateral development banks best help?

To be sure, strong infrastructure projects are going up all over Asia. Take Indonesia, the Forum host; the country has made enormous strides under its ongoing and ambitious infrastructure program.

The country has seen progress: from the trans-Papua road project in one of the country’s most remote and underdeveloped regions to better information and communications technology under the Palapa Ring (satellite) Project. Indonesia has also launched innovative and clean energy projects such as the 72-megawatt Tolo wind-farm in South Sulawesi and massive urban infrastructure to boost Jakarta’s livability and competitiveness. This latter project includes a new modern airport terminal, rail link, and the first phase of the mass rapid transit expected to open in 2019.

Knowledge is crucial to get such projects off the ground, and this is where the multilateral development banks, including ADB, can assist.

The development banks are providing governments financial and technical support to enhance knowledge in numerous areas.

ADB is also helping strengthen government and private sector project development and governance capacity, for instance, for preparing high-quality projects able to support private finance. It also established the Asia Pacific Project Preparation Facility, a $73 million multi-donor trust fund to support project preparation, monitoring, and project restructuring, as well as capacity building and policy-reform initiatives linked to specific projects.

In addition, the organization is promoting public-private partnerships, catalyzing regulatory reforms to make infrastructure more attractive to private investors, and encourage more bankable projects. Potential is vast, in that pension funds alone, which hold $7.8 trillion in assets, are estimated to invest only about 1 percent of funds under management in infrastructure.

A recent ADB report, “Closing the Financing Gap in Asian Infrastructure,” notes that the richer Asian economies, such as Japan — where savings rates top 30 percent — can clearly play a stronger role if it only could. Yet, the country still invests almost $4 trillion in portfolio assets outside Asia.

Likewise, ADB is developing alternative financing structures and is backing green finance to encourage a bankable green finance project pipeline that can access funds from commercial and institutional investors. Many major investors are now strictly subject to environmental, social, and governance requirements in their investment decisions.

Finally, as technology rapidly evolves, particularly digital, it is creating substantial opportunity. Land acquisition, for example, significantly delays infrastructure projects across the region. Digital technologies are therefore being tested in several countries and watched closely for an ability to improve land titling. Likewise, ADB is involved in Spatial Data Analysis Explorer to help in decision-making relevant to climate hazards and resilience across urban systems.

Multilateral development banks can play multiple roles, from assisting and advising on the creation of appropriate legal and regulatory frameworks, developing bankable projects, direct financing or providing credit enhancement tools to finance projects, to structuring innovative “blended finance” solutions in circumstances where the underlying project is incapable of supporting a financing structure priced at commercial funding rates. In all of this, multilateral development banks and other development partners can assist developing countries gain the knowledge to better develop sustainable, accessible, resilient, and quality infrastructure.

ADB

Continue Reading

Latest

Trending

Copyright © 2018 Modern Diplomacy