Rebooting the European Economy

On Tuesday, Vice President of Global Affairs and Communications Nick Clegg spoke with the European Commissioner for Economy, Paolo Gentiloni, Chupi Sweetman of the SME Chupi Jewellery, and Daniel Gros of the Center for European Policy Studies at the European Business Summit panel on how to reboot the European economy and create a more green, digital and resilient Union. 

As part of this discussion, Nick explained Facebook’s contribution to Europe’s economic recovery, the importance of a digital single market, and the need for rules to regulate Europe’s burgeoning digital-first economy. Rules that will help the millions of data-driven businesses in Europe compete on a global scale.

What follows is an edited transcript of Nick’s remarks on select topics to provide a snapshot of the points he raised during the panel.

Personalized Advertising Provides a Lifeline for Small and Medium Sized Enterprises in Europe

Economic recovery is created by millions of decisions, by millions of individual businesswomen and businessmen setting up their own businesses, trying to run them in exceptionally difficult circumstances. In Facebook’s case, in Europe, we have 25 million companies using Facebook’s apps and tools. And the vast vast majority of those 25 million companies do so for free.

Last year, we surveyed a number of those businesses across 15 countries and arrived at the estimate that we helped generate sales of around EUR 208 billion, which translates to an estimate of over 3 million jobs.

Our most important role is to continue to provide that extraordinary capacity for small businesses to do something which in the past only big businesses could do: effective marketing tools, based on personalized ads, Facebook’s business model, to reach customers.

I’m acutely aware that it is a business model that has plenty of criticism aimed at it. And there’s a legitimate ongoing debate which rages in Brussels and elsewhere, about how Facebook gathers, stores and monetizes data. 

But I hope people will not overlook that our business model has one ingenious benefit amongst others, which is it allows businesses to operate on the same basis as big businesses in reaching their customers. And doing so during the pandemic, when you can’t do person to person is even more important.

A True Digital Single Market in the EU

As Europe, and indeed the world, comes out of this terribly difficult period of time, I do think one of the the big questions is: why is it that China and the US have managed to be the homes for extraordinarily successful, explosively successful so-called tech giants, and it hasn’t really happened in Europe? 

I may be a Facebook employee, but I’m also a proud European. I would love to see the next Alibaba or Google emerge in Europe. And I actually think it’s entirely possible that the next next generation of tech giants could emerge in Europe. 

My own slight concern is that whilst policymakers in Europe, quite understandably talk about digital sovereignty and new regulation — much of which I’m sure is well founded and well placed — in the end, the single biggest ingredient which would help Europe to compete against China and America is finishing an old project, not starting a new one. And that is creating this unfinished digital single market. 

The digital single market doesn’t really exist in reality. It is too often something which is declared in theory and in EU Summit conclusions. But if you ask tech entrepreneurs in Europe, they say the reality is there are still far too many different regulations, from intellectual property laws, licencing arrangements, obstacles to delivery of goods bought online, which make the reality of the single market much more fragmented than the theory.

The thing that we don’t have in Europe, which they do have in China in the US, is these great big domestic markets. We haven’t really finished that in the EU. 

So all I would ask policymakers is, as they rush to new frontiers, and new regulation, please don’t forget that it’s actually that boring work of finishing the task that’s not yet complete, which will do most to ensure that Europe might actually become the home of the next Alibaba, the next Amazon, and the next Google in the years to come. 

New Tax Rules

We need a reform of tax rules for digital businesses.  And by the way, if that means for Facebook, we pay more tax, so be it.

Today, we have a tax system, both nationally and internationally, which is built for a world which no longer exists. We have tax rules for a bricks and mortar world in which the only economic activity is physical economic activity, and the only trade is the trading goods produced in factories and shipped abroad. Our tax rules don’t capture that we are increasingly operating in a digital world today. 

And in the case of companies like Facebook, here’s the dilemma: Facebook pays plenty of tax. Last year, we paid $5 billion in corporate income tax while our average over the last several years of corporate tax was about 20%, which is roughly in line with the OECD average. But the issue is that we pay it overwhelmingly in the United States, because this is where the intellectual property and the value in the product is created.

So you have a discrepancy: It’s not that tax is not paid, it’s that it’s paid according to the letter and principles of tax law, but the vast majority is paid in the place where the company is domiciled, and where the value is created and where the IP is created. But of course, the users are elsewhere: the vast majority of Facebook’s users aren’t in America. Our biggest growth markets, as you might imagine, are in the Asia Pacific region. We are very supportive as a company of the OECD process. If in the end we’ll get a European arrangement, of course, we will abide by the law and by the tax rules. But it would be far better for Europe, if these rules were struck at a global level via the OECD, because it is a global issue. 

Data Transfers at Risk

What is at stake today concerning data transfers from Europe is a really big issue for the whole of the European economy.

For many years, the EU and the US have tried to put the transfer of data across the Atlantic on a stable legal footing, but we had the Safe Harbour Agreement that was struck down by the courts in 2015, and then earlier this summer Privacy Shield, which is used by more than 5,000 companies on both sides of the Atlantic, was also invalidated by the European Court of Justice. 

What remains today is a separate legal tool called Standard Contract Clauses which companies use to transfer data. But since the Court ruling this summer, the Irish Data Protection Commissioner, who is our Data Protection Authority, in effect appears to suggest that we, Facebook, would not be able to use Standard Contractual Clauses either to continue to transfer data across the Atlantic either. This would be very bad for Facebook, but crucially, this isn’t just about Facebook. The IDPC’s reasoning would apply to all other companies that transfer data, too. It would be absolutely disastrous for the economy as a whole. 

Data transfers are a standard thing to do for companies. But in the most extreme case, if data transfers really were ended, because there was no legal basis for those data transfers, a small tech startup in Germany would no longer be able to use a US based cloud provider, or a Spanish product development company would no longer be able to run an operation across multiple time zones, and so on.

If those legal means of data transfer are removed, not by us, but by regulators, then, of course, that will have a profound effect on how, not just our services, but countless other companies operate. 

We are clearly not able to operate as we do, and nor will many, many other companies, if from one moment to the next, the existing legal provisions which govern data transfers from the European Union to the US or to other jurisdictions are suddenly removed before a new legal basis is found. 

And that’s why we’ve taken the recent court action in Ireland, precisely to protect the continuing provision of our services in Europe. And we very much hope that the Irish Data Protection Commissioner and others understand the gravity of this and step back from what we think is very preemptive steps they appear to be taking, to allow the political process to find a durable and sustainable legal solution to this problem.

This is a big issue, which in the end can only be resolved politically, by a continuing negotiation between the US and the EU. That clearly is not going to happen until there’s a new US administration in place after the transition period in the early part of next year and we therefore need more time.

Let me also be absolutely crystal clear. We have absolutely no desire, no wish, no plans to withdraw our services from Europe. Why would we? We are delighted that so many people take joy and find WhatsApp and Instagram and Messenger and Facebook useful. And crucially, we are very proud of the fact that we play such a key role in particularly helping small and medium sized businesses through this difficult time. 

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