Max von Thun writes that Enrico Letta, Mario Draghi, and Emmanuel Macron are right in demanding a new economic vision for the European Union. However, they are wrong to advocate for corporate consolidation as part of the solution. The EU must pursue competition rather than consolidation if it is to create a robust political economy that can take back power from corporate behemoths, deliver growth and jobs to European citizens, and guarantee the future of the European project.
Editor’s note: We would like to foster a debate here in ProMarket about the future of competition policy in Europe in advance of the upcoming EU parliamentary election in June. Readers are invited to contribute to this debate. Pitches may be sent to promarket@chicagobooth.edu.
In the run up to the European Union elections in June—with the far-right predicted to make unprecedented gains—many are worried about what the future holds for the European project. While such soul searching is a natural part of the electoral cycle, it is clear that this time the stakes are higher than they have been for many years.
Europe is grappling not only with the aftermath of a pandemic and Russia’s war in Ukraine, but also with an increasingly assertive China and a politically volatile United States. Furthermore, a growing number of Europeans are questioning Europe’s ability to play a leading role in the global economy of the 21st century, be this in artificial intelligence and advanced semiconductors or electric vehicles and renewable energy.
Despite these challenges, and notwithstanding a flurry of legislative activity in Brussels in recent years, Europe continues to lack a compelling overarching vision of the future. Three figures have stepped in to fill this intellectual void: former Italian Prime Minister Enrico Letta, another former Italian Prime Minister and former head of the European Central Bank, Mario Draghi, and French President Emmanuel Macron.
Naturally, the specific analysis and proposals put forward by each man vary. Letta’s 147-page report packs in lots of useful (and not so useful) practical ideas on strengthening the EU’s Single Market, but ultimately lacks a coherent unifying narrative thread. For his part, Draghi has yet to publish his much-anticipated report on “competitiveness,” but his recent comments suggest a narrow lens focused too much on relativistic economic comparisons with other countries, and not enough on Europe’s own unique traditions, values and capabilities.
Macron’s vision—set out in a recent speech at the Sorbonne and a long interview in the Economist—makes a far more compelling case for the significance and urgency of the present moment. He does this by addressing Europe’s economic challenges not in isolation, but against the backdrop of a wider debate on the future of Europe’s distinct social model, its waning geopolitical influence, and its political and philosophical foundations.
Despite these differences, what Macron, Letta and Draghi all share is an accurate diagnosis of the overall problem: that Europe’s economic and political institutions remain too divided and fragmented, and too dependent on others, to adequately respond to the challenges of the day, be these geopolitical, economic, or environmental. The logical conclusion is that only through greater economic and political integration can Europe get itself back on track.
More Europe, not more European champions
Draghi, Letta and Macron are right that more, not less, Europe is the answer. They are right, for instance, to call for deeper capital markets and greater regulatory harmonization as a means of unifying the region’s still highly fragmented economy. They are right to identify the need for an ambitious program of public investment in the critical technologies and infrastructures of the future. And they are right that in an increasingly hostile world, Europe needs to operate as a coherent and consistent actor in security and defense.
But if there is one fundamental area where their recommendations miss the mark, it is on competition policy—and the fundamental role that oversight of corporate power and behavior must play in any coherent overarching economic vision. This means they also miss the mark more generally in identifying the economic model that Europe should be aspiring towards. In their reports and speeches, all three politicians advocate for market consolidation that would ultimately make it more difficult to achieve their overarching objectives, while failing to acknowledge the threats that existing levels of economic concentration already pose to Europe’s prosperity, security and democratic integrity.
Macron, Draghi and Letta have all called for rethinking EU competition enforcement in ways that would allow for—even encourage—market consolidation and the creation of so-called “European champions.” They focus especially closely on sectors they identify as strategically significant, including telecoms, financial services, energy and defense. Their ideas are gaining political momentum, as evidenced by a recent joint paper from the French and German governments advocating for similar reforms.
Yet it is a mistake to equate more European champions with a stronger Europe. Building a more unified Single Market through greater regulatory alignment and deeper capital markets will undoubtedly make it easier for European businesses, be they multinationals or startups, to scale their operations across the EU’s member states. But facilitating market consolidation through weak enforcement of competition law will undermine these actions while harming Europe’s economic prosperity and security.
This is clear when one looks towards the U.S., where many of the sectors Letta, Macron and Draghi want to consolidate in Europe are already highly concentrated. In case after case, the consequences of this concentration have been highly detrimental to American citizens and American strategic interests.
Consider defense. While Draghi interprets concentration in the U.S. defense sector as a sign of strength, a recent report by the U.S. Department of Defense observed that extreme consolidation in the U.S. military industrial base has actually undermined the country’s national security while raising costs and reducing innovation. The consequences of this consolidation are plain to see, from the ongoing safety issues at Boeing (which incidentally was allowed to merge with its only domestic competitor, McDonnell Douglas, back in 1997), to the ongoing and repeated failures of the United Launch Alliance (consisting of Boeing and another corporate behemoth, Lockheed Martin) to develop rockets for the U.S. military on time and at scale.
The same is true in telecoms, another industry singled out for consolidation in Europe. The oligopolistic U.S. telecoms sector charges consumers more and enjoys higher profits while investing proportionately less than its European counterparts. The situation has only gotten worse since U.S. authorities approved the merger of T-Mobile and Sprint in 2020, reducing the number of operators from four to a mere three.
Similarly, while Letta and Macron are correct that Europe needs truly EU-wide industrial policies instead of the current patchwork of largely national schemes, they are wrong to argue that this should target individual corporations. A fundamental lesson from industrial policies of the past, in Europe and elsewhere, is that measures (such as investment in core infrastructure and fundamental R&D) which help a broad swathe of market players to compete and scale are far more effective than attempting to pick winners.
Corporations that become large through mergers, subsidies or anticompetitive practices—rather than by fairly outperforming rivals—are unlikely to prosper on more cutthroat global markets, as recently argued by EU Competition Commissioner Margrethe Vestager herself.
Furthermore, a growing mountain of evidence demonstrates that market concentration produces a wealth of harms beyond just higher prices for consumers, from higher inequality and lower wages to weaker resilience, less innovation, and reduced investment. None of that is a recipe for European competitiveness, let alone security or prosperity.
If anything, European leaders should be developing creative ways to profit from the existing diversity and vibrancy of Europe’s economy. Despite a worrying rise in industrial concentration in Europe over the past few decades, the region still enjoys a more diverse and competitive economy than many other parts of the world, not least the country often held up as a model, the United States.
One area where this isn’t true is technology, where Europe is dependent on the same handful of tech giants that dominate the U.S. tech sector and those of countless other nations. The scale of the threat posed by these platforms demands an ambitious and immediate response which European governments have thus far failed to muster.
Yet despite the envious glances that Europeans sometimes cast at these monopolists, the answer is not to create homegrown European equivalents. Instead, Europe should combine measures to rein in the harms inflicted by Big Tech with efforts to build a more diverse and decentralized alternative. That will entail not just stopping the tech giants from swallowing up promising European startups, but also giving those entrepreneurs real alternatives through the creation of pan-European venture capital, public markets and government funding schemes. It will also require significant investment in alternatives to the digital infrastructure currently dominated by tech giants, especially semiconductors and cloud computing.
Some progress, but not enough
The good news is that during the Commission’s current term, there has been significant progress in the EU’s approach towards excessive concentration of corporate power.
For starters, the Commission finally appears to be taking the threat of mergers and acquisitions seriously, with major deals including Arm/Nvidia, Adobe/Figma, Illumina/Grail, Booking/Etraveli, and Amazon/iRobot either blocked or abandoned following intense scrutiny. In the past, such deals would almost certainly have been cleared unconditionally or approved subject to weak remedies, as Google/Fitbit, Facebook/WhatsApp, Bayer/Monsanto and many other mergers were in the recent past.
DG Competition has also launched several ambitious antitrust investigations, not least an ongoing probe of Google’s dominance in the advertising technology market, in which the EU appears ready to finally break its ill-advised taboo on using structural remedies to tackle the root causes of monopolistic behaviour.
Last not but least, the Commission put forward and has now started implementing legislation designed to fill gaps in its enforcement capabilities. This includes most notably the Digital Markets Act (DMA), which, though still in its infancy, empowers the EU to crack down on unfair conduct by digital gatekeepers faster than is possible under traditional competition law.
Yet despite these important moves in the right direction, the EU’s incrementalist approach is ill-suited to a rapidly changing and dangerous world, not to mention out of step with policy developments elsewhere. One way to understand Europe’s challenge today is through three key challenges facing the continent, namely: the growing (and increasingly AI-enhanced) power of tech monopolies over our digital lives, the region’s continued reliance on highly concentrated supply chains for key goods and inputs, and the central role of large corporations in driving—and hindering efforts to stop—climate change.
Crucially, the EU’s ability to overcome these challenges is handicapped by an outdated enforcement paradigm which fixates myopically on how rising economic concentration affects consumers and the competitive process, while overlooking a whole set of equally if not more important harms to workers, small businesses, media plurality, economic resilience, sustainability, and the integrity of democracy itself.
This outdated approach is also highly siloed. Instead of looking at how different tools, such as antitrust and data protection, can work in tandem to help Europe achieve its broader economic objectives, each tool is applied in a vacuum, informed by narrow bureaucratic priorities instead of the bigger picture. This of course undermines the effectiveness of each tool, by creating contradictions and duplicating efforts.
This is in contrast with the emerging enforcement philosophy of the Biden administration in the U.S. Under President Joe Biden, Federal Trade Commission Chair Lina Khan, Assistant Attorney General Jonathan Kanter at the Department of Justice, U.S. Trade Representative Katherine Tai, and others, the government has comprehensively rejected the narrow “consumer welfare” standard in favour of a broader approach centred on protecting workers, businesses, citizens and ultimately democracy itself from concentrated economic power.
To achieve this the administration has adopted a “whole-of-government” approach, ensuring that not only antitrust but other policy tools —including trade, industrial policy and public procurement —all play a role in tackling concentration and distributing power more equitably across the economy.
A roadmap for the next Commission
The next European Commission, and the next European competition commissioner, will have the rare opportunity of drawing on these experiments while still developing a distinctly European approach to addressing concentration of power and capacity in the economy.
In fact, Europe already has many of the intellectual foundations for this broader political economic vision of competition policy. These include the historic role of the European Coal and Steel Community as the continent’s first anti-monopoly tool, and the distinctly ordoliberal roots of the European treaties, which put competition policy in the service of protecting the social market economy.
The EU can build on these foundations by making an ambitious yet precise set of changes to the structure and powers of the next European Commission. These should be informed by a clear hierarchy of threats, and a corresponding set of actions needed to address them.
Many of these necessary reforms were set out in a roadmap published last month by a coalition of civil society organizations, including by the Open Markets Institute. Our roadmap calls for an enforcement paradigm that transcends a narrow focus on consumers or even the competitive process. The EU must be capable of responding to the wide and growing array of threats posed by economic concentration, including, but not limited to, harms to workers, freedom of expression, resilience, and democracy. This means that competition policy must become much more closely informed by the lived experience of European citizens, not just the views of a narrow antitrust bubble.
Second, the Commission should adopt a more joined-up approach to promoting competition and reining in concentration. DG Competition should be working more closely with other relevant parts of the Commission—including the European Data Protection Supervisor and DGs GROW, JUST and Trade—under a cross-Commission mandate to diversify Europe’s economy and reduce its dependence on concentrated supply chains abroad.
As discussed earlier, one key implication of this is that industrial policy—towards the defense or manufacturing sectors, for example—should seek to promote a diverse marketplace, instead of fuelling concentration through support for national or European champions. Another is that trade policy should play a role in addressing Europe’s supply chain dependencies, including preventing these from getting worse, which rising German investment in China, such as in critical chemicals, risks doing.
Third, our roadmap proposes a concrete set of reforms to the Commission’s enforcement powers and practices. These include an EU-wide market investigation tool enabling the Commission to investigate and impose remedies on entire industries, greater use of structural remedies in competition investigations, and an expansion of the merger control regime to capture transactions—such as “partnerships”—designed to avoid scrutiny. To support these expanded enforcement responsibilities, the Commission also needs a serious budget increase, including by imposing levies on the dominant corporations it supervises.
By taking on board these recommendations, the EU can steer Europe’s future in a direction that fosters innovation, enhances resilience and security, strengthens the fabric of democracy, and improves the lives of millions of European citizens.
Author Disclosure: The author works for the Open Markets Institute, which receives funding from foundations such as the Lumpkin Family Foundation, William and Flora Hewlett Foundation, Wallace Global Fund, Omidyar Network, Open Society Foundations, and Schöpflin Stiftung.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
