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Economy Updated: 23 Nov 2017

Europe rewrites the rules for Silicon Valley

The other day Angela Merkel took a few hours out from the cacophony of day-to-day politics. Putting to one side migration, the eurozone, Russia and Ukraine, Brexit and the rest, the chancellor gave a speech about algorithms. Yes, algorithms.

Her message to an audience in Munich was that the search engines that deliver news on websites such as Google and Facebook are creating distorting prisms. The closely guarded formulas, or algorithms, used by these companies to tailor the output to recorded personal preferences can create echo chambers. Citizens eventually may receive only the news that fits their prejudices - a gift to today's populist proponents of post-truth politics. Healthy democracies depend on the wide exposure of conflicting ideas and interpretations.

At very least, Ms Merkel said, it was incumbent on the technology companies to be transparent about the way the algorithms are constructed, so viewers and readers understood they are being offered a strictly limited perspective on the world around them.

A couple of days later an employment court in London ruled in favour of Uber drivers who had complained that their contracts wrongly denied them basic employment rights such as the minimum wage and paid holidays. Uber, the court said, could not pretend they were entirely independent contractors.

As striking as the court's judgment was the robust language in which it was couched. The notion that the London operations of Uber, Judge Anthony Snelson remarked laconically, represented a mosaic of some 30,000 small businesses linked by Uber's technology platform, was "faintly ridiculous". The company had resorted to fictitious and twisted language and had even invented "brand new terminology" in the effort to hoodwink the court.

Uber has said it will appeal against the decision. Many lawyers think it more likely the judgment will improve the working conditions of hundreds of thousands of people now employed in Britain's casual, or "gig", economy.

The Americans believe Europe is simply unhappy with how US companies dominate the marketplace. There is something to that

You would have to be a conspiracy theorist of Trumpian proportions to connect these two events in different European cities. And yet they tell much the same story. Ms Merkel's speech and Mr Snelson's ruling are straws in a wind that is changing the weather in Europe for the mainly American technology giants. Not so long ago the digital innovators and disrupters seemed set to sweep all before them. Now politicians and regulators are pushing back.

Of course, opposition to Uber and Airbnb, its rent-an-apartment equivalent, is not confined to one side of the Atlantic. The governor of New York has signed into law severe restrictions on Airbnb's operations in the state and Uber has faced battles with its drivers in several US cities. But it is in Europe that you sense the deeper disquiet about the economic and societal effect of the new technologies.

Another manifestation came in the summer with the European Commission's imposition of a €13bn fine on Apple. The company's aggressive tax avoidance - framed, it should be said, in collusion with a previous Irish government - ran foul of competition laws. The Brussels commission has few admirers these days in EU member states, but applause for the fine echoed across the continent's capitals.

Apple is not alone. The commission is investigating Amazon's tax affairs and has launched a probe into whether Google has broken antitrust rules. Facebook has bowed to pressure and agreed to book more of its sales in the UK rather than the Republic of Ireland, which has a lower corporate tax rate. Google, which has had its offices in Paris and Madrid raided by tax inspectors, may do something similar.

To twitter

Awareness is growing among politicians of the public policy implications of the new technologies

There is a suspicion in Washington that all this is part of a protectionist plot. Europeans are simply unhappy with the way US companies dominate the marketplace. And there is something to that charge. It is probably no accident that German media business are among the sharpest critics of the mysteries of search engine algorithms.

There is also something else: a collision between Silicon Valley's "government get out of the way" disdain for anything that might dent its profits and a growing awareness among beleaguered politicians of the public policy implications of the new technologies. It matters to Europe's political leaders if voters are exposed only to views they agree with, or if workers are denied decent wages and social safety nets in the so-called sharing economy.

Tim Cook, the chief executive of Apple, often sounds as if he believes his company should be free to decide how much it pays in taxes. Mr Cook also thinks it is for Apple rather than elected politicians to decide where to strike the balance between personal privacy and national security in the use of encryption. He does not seem to have noticed that these are tough political times or that governments are no longer dazzled by all the technological hype.

What is happening, I think, is that these businesses are being "socialised" - albeit slowly and with some kicking and screaming. The direction is as it should be. Technology companies cannot opt out of the responsibilities borne by other businesses. A rebalancing of the relationship between private profit and public welfare is overdue. Mr Cook would do best to stick with the clever gadgets.

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Source: Philip Stephens. 2016. 'Europe rewrites the rules for Silicon Valley'. Financial Times / November 3, 2016 Used under licence from the Financial Times. © The Financial Times Limited 2016.

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