Policy makers worry Europe’s job generators are at the mercy of U.S. digital companies

 

The European Union has woken up from one nightmare to find itself in another. After a five-year economic crisis, which Greece’s travails suggest might not yet be over, European policy makers now worry that their most successful job generators are at the mercy of U.S.-owned digital companies.

While Americans boast about the power of “disruption” to transform industries, many Europeans worry they are the ones at risk of being disrupted most—and not to their advantage.

It is a German—Günther Oettinger, European commissioner for the digital economy and society—who most frequently channels these existential anxieties. They also happen to be the main competitive concerns of many of his country’s pre-eminent manufacturing sectors.

“Radical and disruptive changes in business models,” he told an audience last month in Hannover, threaten well-established industries. Among them: automobiles, lighting, textiles, energy, household-appliance makers and the agri-food business.

Will Europe sell only cars or the range of new digital services that will come with them as well? he asked.

“We might invest in producing wonderful cars but those selling the new services for the car would be making the money. It would be a big risk for our entire economy if industry in Europe did not take advantage of these new business models while others do—such as those who dominate Web-service platforms today,” he said.

This speech was widely interpreted as having an anti-U.S. flavor. Little wonder since most of the digital disrupters are the American Internet giants, like Google Inc. and Amazon.com.

Yet, there is something else in what Mr. Oettinger said. He didn’t emphasize the creation of European Internet companies to rival the likes of Google, Apple and Facebook. Mr. Oettinger’s European vision of the future is digital—but is centered around digital platforms owned by incumbent European companies.

He isn’t looking therefore to replicate the American giants: outsiders that are disrupting established industries from without. Or the Chinese version of the same “outsider” model, in which Beijing bars many American companies from operating and replaces them with Chinese equivalents: Alibaba for Amazon, Baidu for Google.

The European version is an “insider” model: Existing European industrial champions would build the digital platforms that will dominate the future. “Industry in Europe should take the lead and become a major contributor to the next generation of digital platforms that will replace today’s Web search engines, operating systems and social networks,” in Mr. Oettinger’s words.

Europe’s effort to create a digital single market is aimed in part at lowering national barriers to e-commerce so that the European “home market” can reach critical mass, like the U.S. But it is also about how to create the conditions for European insiders to thrive.

It isn’t only in the digital world where European incumbents are beginning to feel the heat: Take what is happening in electricity generation. Europe’s electricity grids have huge investments tied up in their generating capacity and transmission networks, and they are being urged by policy makers to invest more to tie national networks together.

That is in part to resolve one of the dilemmas created by the growing share of renewable energy sources like wind and solar energy—in the European energy mix. It is more efficient to deliver available electricity across borders to areas where the wind isn’t blowing and the sun isn’t shining, than to keep expensive spare generating capacity on standby, ready to fire up only when renewable sources dry up.

Yet something else is happening: The price of renewable energy installations, such as solar panels for houses, is falling and their efficiency is rising. Meanwhile, the cost of electricity storage is tumbling, as emphasized by Tesla Motors Inc. ’s announcement last month of its intention to enter the domestic energy-storage market.

If, as expected, prices of both renewable generation and storage continue to fall, at some point over the next decade there will be a transformation: Large numbers of households will decide it is economically viable to generate and store their own electricity. Then, they will turn to the grid only when their own electricity generation, which they consume at zero marginal cost, falls short.

The technology potentially offers an extraordinary future of low-carbon energy generation. But what sort of future is it for established utilities with massive generation capacity and a costly transmission network that is only called on occasionally? Will these “insiders”—often influential with policy makers—try to ensure the rules of the game favor them over the disruptive outsiders from the energy-storage and renewable energy industries?

Probably, yes. But Europe is still diverse enough to favor more than one model. For example, as Denmark builds a “smart” electricity grid to enable users to consume energy at the lowest cost, its national energy database is being designed to allow access to outsiders so they can deliver services to consumers.

Moreover, even if the incumbents succeed in resisting the outsiders, it is likely to be in delaying rather than in defeating them. One way or another, sooner or later, Europe’s economy will be “disrupted.”