European Union Loots Google

On June 27, the European Commission, an agency of the government of the European Union, placed a $2.71-billion fine upon Google, the American technological giant.  To indicate the anti-American hostility of the Commission, it related the fine not to Google's annual sales in the E.U., but to Google's worldwide sales.

The anti-trust authorities in a number of other countries could, taking a lesson from the E.U.'s action, fine Google on the basis of its worldwide sales as well.  Russia, South KoreaTurkey, and India are among the global enforcers who already have commenced their own investigations.

Google's strong market position in search is based purely upon the high quality of the search results it returns.  Its crime is that it makes a better product than anybody else and is trying to profit from that fact.  If a better search engine emerges, Google will lose its dominant position.  

Economic Warfare against the U.S.

This decision against Google comes in the wake of other decisions by the European Commission against American technological leaders.  In 2009, the European Commission looted Intel of $1.45 billion and from 2004-2008 looted Microsoft of about $2 billion.  And the European Commission is just getting started.  It has already announced plans to loot American technological leader Qualcomm and six major U.S. film studios.

After the looting of Intel, many observers predicted that the E.U.'s next big target would be Google.  In fact, we ourselves, back in May 2009, correctly made that prediction.  We knew that the E.U. would loot Google, no matter what Google did, simply because "Google is big, dominant, and American."

These record fines against Microsoft, Intel, and Google dwarf the fines that the European Commission levies against European companies for monopolistic violations.  The reason for the disparity is simple.  Member countries would object if their own companies were looted by the European Commission, a point once made by Wikipedia:

[S]ome analysts assert that the Commission's monopoly policy … has been "largely ineffective," because of the resistance of individual Member State governments that sought to shield their most salient national companies from legal challenges.

So why does the European Commission loot American companies?  The E.U.'s antitrust chief, Neelie Kroes, once bragged:

I would like to draw your attention to Intel's latest global advertising campaign which proposes Intel as the sponsors of tomorrow. Well now they are sponsors of the European taxpayers, so to say.

Are Fines of Tech Leaders Economically Legitimate?

Some anti-trust prosecutions are economically legitimate.  When Congress passed the Sherman Anti-Trust Act in 1890, some American deal-makers were combining all of the large competing companies in an industry so they could gain the monopoly power needed to raise the prices of their products.  Breaking up such trusts was economically justified in order to reduce prices for the consumer.

But there is no economic justification for looting technological leaders in order to prevent them from profiting from the monopolies that their technological leadership earned.  These companies make enormous profits, and they invest a large part of those profits into research that drives economic growth.

This observation was first noted by economist J.A. Schumpeter, whose work led to the endogenous growth theory, the dominant modern theory of long-term economic growth.  Companies invest enormous amounts in research in an attempt to stay ahead of their competition and also to expand markets for their products.

Schumpeter's favorite example was the Aluminum Corporation of America.  Even though its patent protection expired in 1909, it continued to engage in "cost-reducing research, in the economic development of the productive apparatus, [and] in teaching new uses for the product" (note 20, pp. 101-102).  It maintained its near monopoly for decades while it simultaneously reduced aluminum prices and expanded aluminum output.

Schumpeter wrote about ALCOA way back in 1943.  But the intervening years have shown again and again that he was correct.  Since World War II, companies that have had technological monopolies have continued to propel economic growth through their research.  These innovative companies have included AT&T, IBM, Xerox, Microsoft, Intel, and Google.

The European Commission is bleeding American technological leaders of the profits that could have been devoted to research.  It is putting these companies on notice that they need to spend their effort worrying about government interference instead of researching new inventions.

Is the Prosecution of Google Legally Legitimate?

If the prosecution against Google were legitimate, Google would have been able to avoid prosecution by studying the decisions against Intel and Microsoft and avoiding their so-called "crimes."  But the criminal case against Google is simply due to Google being an American technological monopoly, and there was never anything that Google could do to avoid it.

If the prosecution against Google were legitimate, the penalties would correspond with the harm done.  Instead, the E.U. calibrates its loot so as to bleed its victims without killing them.  That way, it can loot again in the future or force its victim into paying for "protection."

But the most important reason why the E.U.'s prosecution is illegitimate is because the E.U. lacks jurisdiction when it levies fines based upon Google's worldwide sales.  If every country could levy fines of five percent upon American companies' worldwide revenues, a few taking such action could put American-based multinationals out of business.

In effect, the E.U. is claiming that Google's operations in the U.S. are subject not just to U.S. law, but to the E.U.'s laws as well.  If these actions are allowed to stand, American companies will be held to "full faith and credit" to other nation's laws, making European laws the law in the United States.

There is a basic principle at stake: international law must restrict fines to harm done within the borders of the countries that impose the fines.  The European Union cannot be allowed to claim jurisdiction over the entire world.

What Should the United States Do?

The Europeans are taking away future inventions from the United States.  They are bleeding the American geese that would have laid American golden eggs.  The American government did nothing when Microsoft and Intel were looted.  This is economic warfare, but only one side is fighting!

In 2016, the United States had a $93-billion trade deficit in goods and services with the European Union, partly produced through actions like this looting.  Balancing our trade deficit with Europe would create about 700,000 U.S. manufacturing jobs.  At the very least, we should promulgate a retaliatory trade-balancing tariff against European Union products.

Also, we are negotiating a multi-country treaty with the Europeans called the Transatlantic Trade and Investment Partnership (TTIP).  We need to tell the European Union that we consider fines levied on U.S. multinationals on the basis of sales outside Europe to be invalid and that such fines must be returned as a pre-condition for further negotiations.

The United States desperately needs a government that fights back against foreign looting of American companies.  We protect Europe, while Europe loots us.  We need to let the Europeans know that we are mad as hell and will not be taking this anymore.

The Richmans co-authored the 2014 book Balanced Trade, published by Lexington Books, and the 2008 book Trading Away Our Future, published by Ideal Taxes Association.