PJ Media

Obama and the Europeanization of American Capitalism

The European Union made one of the most significant antitrust decisions in its history on May 13 when it found computer chip-maker Intel guilty of anticompetitive practices in Europe. Intel was fined more than €1 billion ($1.45 billion) on charges that it violated EU monopoly rules by selling chips below cost to computer makers, to the detriment of its smaller rival Advanced Micro Devices (AMD). Even though the most likely consequence of the EU’s action will be higher prices for consumers, EU Competition Commissioner Neelie Kroes hailed the move. “Given that Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for over five years, the size of the fine should come as no surprise,” she declared.

EU regulators said they calculated Intel’s fine — 4 percent of last year’s $37.6 billion in worldwide sales — on the value of its European chip sales over the five years that it broke European law. The EU could have gone even higher as EU antitrust rules allow for a fine of up to 10 percent of a company’s annual global revenue for each year of noncompliance. After Kroes announced the fine, which must be paid within three months, she joked that Intel is now the “sponsor of the European taxpayer,” a spoof on the company’s new ad campaign “sponsors of tomorrow.”

Intel is not the first American technology giant to be slapped down by the European competition regulator. In 2001, the European Commission blocked the planned merger of General Electric and Honeywell, even though both companies were based in the United States and American regulators had already approved the merger. And in 2004, the EU ordered Microsoft to pay a fine of more than $600 million for abusing its dominant position in the software market, plus an additional fine for failing to respect the antitrust ruling. The EU also ordered Microsoft to give away for free its trade secrets to competitors.

Like Microsoft, Intel claims it is simply building a better mousetrap and that European regulators, blinded by protectionist dogma, are short-sightedly stifling innovation. But Europe’s corporatist economic model, which allows EU bureaucrats to manipulate economic outcomes at their will, seeks not only to ensure that consumers are not harmed by monopolistic behavior, but also that competitors are not harmed by other competitors, even if they happen to offer better products and services. As a result, the European case against Intel actually is a backdoor industrial policy that is masquerading as competition policy. (Although it is, no doubt, also European protectionism masquerading as “consumer protection.”)

The EU’s regulatory activism may soon have an important effect in the United States as well. Indeed, far from contesting the economic and legal flaws in the EU mindset, the Obama administration seems eager to bring American competition policy into line with the European model. In a May 11 speech, Assistant Attorney General Christine Varney, who is U.S. President Barack Obama’s new antitrust chief, announced a return to “vigorous antitrust enforcement action” by the U.S. Justice Department. At the same time, Varney withdrew a report issued in September 2008 by the Bush administration which delineated a laissez-fair approach to enforcing the Sherman Act, the federal statute that deals with monopolization cases. The report held that markets are usually self-correcting and that big companies are agents of economic efficiency that should be constrained only if their action “disproportionately harms consumers.” But Varney said: “We must change course and take a new tack.”

Needless to say, Europeans are giddy over the shift in U.S. competition policy. Kroes said Varney’s words give her hope that the EU’s information exchanges with the Obama administration “could go in a very positive way” in the future. “The more competition authorities are joining us in our philosophy, the better it is for it is a global world,” she said. Her phraseology, however, is actually European bureaucratic jargon that means Europe is determined to impose its statist economic model upon the rest of the world, and it expects the United States to fall into line.

Indeed, Europe increasingly is usurping America’s role as a source of global standards, and many analysts say that Brussels is becoming the world’s regulatory capital. At the same time, European antitrust policy is moving in an increasingly anti-American direction. In fact, Europe’s regulatory zeal is an essential component of its strategy to rebalance global power in such a way that places Europe at the top of the international pecking order.

The main obstacle to European superpower ambitions is, of course, the United States, in whose likeness the present global system is made. As a result, Europeans are targeting the primary sources of American power. On the military front, Europeans recognize the impossibility of achieving hard power parity with America, so they are working to change the rules of the international game to make soft power the only acceptable superpower standard. Toward this end, Europeans are ensconcing a system of international law based around the United Nations, which they hope will constrain the exercise of American military power. For Europeans, multilateralism is about neutering American hard power. It is, as the cliché goes, all about Lilliputians tying down Gulliver.

On the economic front, Europeans say it’s time to usher in a new global economic order, one that would replace the current system that is dominated by the United States with a new model far more to Europe’s liking. For example, German Finance Minister Peer Steinbrueck believes the “Anglo-Saxon” capitalist system has run its course and that “the United States will lose its status as the superpower of the global financial system.” French President Nicolas Sarkozy says “Self-regulation to solve all problems, it’s finished. Laissez-faire, it’s finished. The all-powerful market that is always right, it’s finished. … It is necessary then for the state to intervene.”

All the more perplexing then, that during his recent trip to Europe, Obama gave in to European demands for global financial regulations that Sarkozy said turned the page on the Anglo-Saxon model of free markets.

European bureaucrats, who have created the world’s most highly regulated Leviathan, are now portraying themselves as global defenders of competition law, even though their excessively interventionist policies are strangling entrepreneurial innovation and destroying economic growth. The big question for Americans is why Obama would want to cede more global enforcement authority to the Europeans. And why would he want to punish U.S. multinational companies with billions of dollars in fines when his political future depends upon a speedy economic recovery that is led by a revival in business profits and hiring. Does he want to lead American down the path towards a new era of global socialism?