Equal Opportunities: Taming the Digital Giants


Transnational digital giants such as Facebook or Google have taken over the world. Now, when under the influence of coronavirus the trend towards the mass transition of the economy to the online sphere has finally become firmly established, the problem of equilibrium in this market has become more urgent than ever - the IT sector needs full competition without the overwhelming dominance of large corporations. Antitrust authorities around the world are involved in solving this problem, including in Russia.

The monopoly position of digital giants is alarming the authorities of states around the world, including the United States itself. However, it would seem that the success of American developers should be positively perceived in the country to which they generate billions of dollars in revenue. The US authorities, in particular, are conducting a full-fledged antitrust investigation against Google - prosecutors from all 50 states have been involved in the process, and company accusations, according to The Washington Post, maybe brought this summer.

"Now, in the world, there is an intensification of competition for who will dominate the new digital economy. This is a fairly serious race because the jackpot is very serious. If we look at global corporations, most of which are fed by the US stock market, we will see that a significant proportion of the money they operate is the money that investors gave them for future victories. That is, it is money to capture the world. Investors expect that tomorrow they will be able to control large chunks of economic life, new markets in a monopoly regime, which will allow them to derive monopolistically high profits," the Director of the HSE Law and Development Institute told Skolkovo, Director of the BRICS Competition Centre Alexey Ivanov.

According to him, this is not about one specific market, but about systemic dominance in the conditions of a new technological structure. In this regard, the question arises of how to be in countries that do not have such financial opportunities as in the USA, in which there is no such stock market and where national players are essentially deprived of the opportunity to access the endless financial resources that global corporations in the USA have. "The answer to this question is not very obvious, it's not very clear what to do, but there are two scenarios that are currently being used," says Ivanov.

The first scenario can be arbitrarily called Chinese. Its essence is that Chinese companies go to the American market as much as possible, mimic American business in one form or another, or try to create their financial market through Hong Kong, which is also very closely connected with the global financial market. "And by the way, we see that Trump, in his last threats to China, is pointing precisely at this point - he is threatening to excommunicate Chinese business from the American, and therefore the global capital market," the expert notes.

The second scenario is instead a hybrid variant, which has not yet been fully formed, but the embryos of this scenario are visible, for example, in European Union politics.

The EU is trying to say: "We do not want to exist in conditions of exclusively American market dominance, we want to dilute US companies with national players." And here various regulatory instruments are included, in particular, antitrust, competition law begins to play a vital role.

Alexey Ivanov emphasizes that the dominant American companies today have become Internet leaders, primarily because they were at the right time in the right place, and this is not necessarily related to some unique competitive edge, because their product is the best, it's often not. For example, Facebook is by no means a champion in the protection of personal data, but Google in the neutrality of search results. But the fact that they were at the right time in the right place gives them a decisive competitive advantage.

In response to this situation, the antitrust authorities, including in the EU, say: "Once you become a leader, you do not buy yourself the right to be a leader forever." Ivanov continues by explaining it - "If you begin to slow down the competition, begin to restrain your competitors through various tools that are not directly related to the quality of your service, for example, due to network effects or technological, economic linking of your products with certain dominant platforms, then we will try to limit this so that competition was as vibrant, real, genuine as it was in the early days of the Internet economy,".

In this regard, the role of antitrust regulation becomes, if not decisive, then one of the key. It is precisely an attempt to equalize the chances of different countries, different economic blocks in the new digital economy. In this regard, the Russian state behaves somewhat strangely and inconsistently, Aleksey Ivanov believes.

"The inconsistency lies in the fact that we practically do not use the potential of the most effective tool to equalize chances, equalize economic conditions - antitrust regulation, that is, what the Europeans are doing. They use antitrust, thereby not destroying the fabric of a market economy, not isolating Europe from global processes, but at the same time creating opportunities for European companies to grow economically, promote their products, and restrain the leadership of the American digital giants," explains the Director of the BRICS Competition Centre.

For this, the European antitrust uses a variety of tools, and some of these tools are absent in Russian law because, for a very long time, the globalization paradigm in our country was dominant. We tried to integrate everywhere and once again not "tease the geese", not limit the influence global corporations in their economic appetites and opportunities.

"This was especially noticeable in the mid-2000s - 2005-2007, when oil prices were high, we entered all conceivable and inconceivable organizations, tried in every possible way to get into the WTO, and so on. What is characteristic of this period is that we strongly emasculated our antitrust regulation at the most key points that are of significance for the fight against transnational corporations. That is, inside Russia, relatively speaking, we worked more or less nothing on the traditional markets of cement, cast iron and steel. However, concerning global markets, where the key players are companies in the new economy and the main tool for commercialization are intellectual rights, intellectual property, big data, a variety of digital services, and so on, our antitrust is very limited," says Alexey Ivanov.

In particular, the expert continues, we introduced the so-called "antitrust immunities" for intellectual property, which in itself is nonsense - this is a legal anomaly, which is not found in any adequate jurisdiction, on the one hand, but also an economic anomaly on the other. Thus, we have limited the ability of our country, our antitrust authority to respond to various forms of abuse of market power by transnational corporations. So we put our customers, our small and medium-sized businesses in a very disadvantageous position.

"Antitrust immunities are one example of how we disarmed our antitrust— they do not exist either in America or in Europe. However, for some reason, we are holding on to them. This is partly the "Stockholm syndrome" when we were forced to do something, and we still believe that it is right, we are afraid to admit a mistake. But to a large extent, the continued influence of the very global business, which has already grown accustomed to the monopoly profits in the Russian market and is not at all ready to give them up, we see very serious lobbying for the interests of global corporations who are resisting the abolition of these abnormal "antitrust immunities" at all levels." - says Ivanov.
To reverse this situation, the Fifth Antimonopoly Package was developed, which includes several provisions that will allow the Russian antitrust authority to respond to the challenges of the digital economy more actively. In particular, one of these challenges is the current monopolization through the purchase of companies by global players.
"We have developed relevant proposals; I was their author and co-leader of the FAS Russia working group on the preparation of the Fifth Antimonopoly Package. We have prepared a comprehensive set of proposals, summarized the best practices - this was in 2018, but "things are still there," says Alexey Ivanov.

The expert admits that he often hears criticism of this document from various groups of Russian developers.
However, according to him, it is necessary to understand precisely what considerations the opponents of the Fifth Package are guided by.

"First, you need to figure out whether it's Russian developers, or it's lobbyists hired by Western companies who represent themselves as a business from Russia, not being such - wolves in sheep's clothing. The second group of opponents of change is Russian business, which is integrated into the global market so much that for them, the interests of its global partners are more important than national interests. The third group consists of completely Russian players who do not have a global oligarchy behind them, but who represent a small cohort of privileged organizations that have found themselves in an extremely advantageous situation in the conditions of exhausted antitrust regulation. They are at the top of market power, often not at the expense of the quality of their product, but because they have developed a branched network, and it is stable precisely because of its scale. They fear that if change begins, everything will collapse," Ivanov is sure.

But some Russian developers wholeheartedly approve the Fifth Antitrust Package. They can also be divided into two broad groups. One group is those who enter the Western market with their product, for example, Kaspersky Lab, the expert says.
"Moreover, many Russian digital companies earn mainly in Russia, but have investors from abroad, and Kaspersky makes money all over the world. Such players understand very well that the weakness of antitrust regulation in our country reduces their economic strength. For them, strong antitrust regulation in Russia is a guarantee that they can be competitive, that global monopolists will not dictate conditions for them, they can more efficiently develop and be more competitive in a global sense. We have few such companies, but they do exist," says Alexey Ivanov.

The second group of Russian developers supporting the Fifth package are those who conditionally is the "undergrowth" of the digital economy, he notes. These are small and medium-sized companies, there are many of them, but they are significantly less noticeable than Yandex, Mail.Ru or 1C.

"They are not invited to meetings in the government; as a rule, they do not contain specially trained people who go to government bodies on their staff. Personally, I talked with a large number of real Russian developers who are ready to support our proposals, but they don't have a voice in the public space - they are not members of the Digital Economy ANO, they don't have the strength and time to go to endless working groups, which now are no longer to consider," says Ivanov.

The expert assures that active competition policy does not lead to market degradation, it leads to its development - this has been proven thousands of times in many sectors of the economy, including in the field of IT empirically. "Wherever we see development, we see a strong antitrust policy. This is a proven law of a market economy. Degradation occurs where competition is buried, where several players sit, control all markets, and no one can do anything with them. This is a clear economic law," says Alexey Ivanov.

He is sure that to improve the situation on the Russian market, it is necessary to adopt the Fifth Antitrust Package, move away from "antitrust immunities" for intellectual property, and we can talk about modernizing law enforcement practice. It is necessary to adopt appropriate methodological recommendations at the level of the Federal Antimonopoly Service and the government, which will allow an antitrust policy to operate in all innovative markets: IT, pharmaceuticals, and markets where the role of intellectual property is significant.

"These are some instructions, soft law, which is used to better structure law enforcement practice. This is the direction of development that we must follow. However, first we need to change the law: remove from it the old, rigid provisions imposed on us by global corporations to the detriment of the development of the national economy and allow the antitrust regulator to act more vibrantly and dynamically," the expert explains.
It is impossible to react statically to variability, says Alexey Ivanov. Therefore, static laws focused on "here and now" do not work in the new world.

"No need to try to catch up with reality, adopting one law after another. Antitrust law is just a tool for managing change, a flexible way to regulate market relations. In the current rapidly changing environment, legal regulation should maximize the use of adaptive tools such as antitrust regulation and enhance their flexibility. That's why we developed the Fifth Antitrust Package," said the expert.

"According to the popular Lebanese writer Nassim Taleb, now more than ever, "anti-fragility"- adaptability is essential. And this anti-fragility is probably the key to success in regulating the digital economy. Antitrust regulation is one of the most flexible instruments, which, if set up correctly, can help to respond effectively to the most diverse and rapidly changing conditions," summarizes Alexey Ivanov.