Paving Roman Roads - Jan 17

What Roman roads and Alexander the Great's military successes were for the First Advent, the rise of the internet and global regulation coming out of the EU is to the Second Advent of Christ. Expect this trend to continue and accelerate in the coming years. Please note this is not the full article. I have pasted only those paragraphs which I thought were relevant for this post.

Johnny Cash

Global Market Brief: Europe's 'California Effect'

The European Commission launched a new antitrust investigation into Microsoft Corp. on Jan. 14. This comes four months after Microsoft lost an appeal on a commission ruling that the firm was engaging in anti-competitive practices by protecting the source code for the Windows operating system. EU antitrust regulators also are looking closely at Google’s recent acquisition of DoubleClick and U.S. chipmaker Intel Corp.’s business practices.

EU antitrust regulators’ focus on these technology companies foretells Europe’s emergence as the world’s primary regulatory authority. The European Union’s strategy to take the regulatory helm is evident in issues such as climate change, chemicals regulation, genetically modified organisms and antitrust regulation, for which Europe has adopted legislation or enforcement regimes that are stricter than those of the United States — and that, through the “California effect,” are forcing changes globally.

This drive has benefited from (Europe would say it was necessitated by) the deregulatory mood that has prevailed in Washington for the past decade. Issues such as the health effects of chemicals and global warming have evolved in ways that have open the door for new regulation, while increasing merger activity has dramatically increased the chances of anti-competitive business practices. The U.S. federal government, meanwhile, has maintained a deregulatory posture in the face of these changes. This posture reflects the majority view in the United States that regulation is a brake on innovation and productivity, and that government should regulate as lightly as possible.

Because of the continued integration of the global economy, the U.S. deregulatory posture also has allowed Europe to step into a vacuum and define the regulatory parameters for global commerce without facing a competing U.S. regulation built in response to contemporary business pressures. (The most powerful U.S. regulations, save Sarbanes Oxley, were drafted before 1991.) The change of U.S. administration in 2009 almost certainly will bring with it a more active set of regulators, whether in securities, environment, consumer protection, telecommunications or antitrust. The question is whether this change will slow the European Union’s emergence as the de facto global regulator.

The Californization of Brussels

Brussels has become the city to watch on regulatory developments, not because EU regulations are necessarily the best but because they increasingly are the strictest. In part, this is because of Europe’s culture and its voters’ priorities, but it also is a result of business and government officials seeing opportunity through regulation. This opportunity is amplified by the common perception that the United States largely has turned its back on regulation over the past decade. Europeans see this as an opportunity not only to step in to “fix” things where the United States is lagging but also to find real advantage in the U.S. abdication.

As if climate change and chemicals policy regulations — or the lack thereof — were not enough, the subprime mortgage crisis’ impact in Europe has heightened Europe’s perception of the United States as a laggard. Bankers and regulators in Europe argue that lax U.S. regulation of mortgage-backed securities is responsible for the problems in Europe emanating from the subprime crisis (even though Europe has its own regulators looking at the same securities).
Were Europe a small economy with a tiny population, its strong regulatory system would spell disaster for its populace, as global business would abandon this market; however, the EU bloc is the largest economy in the world — it has a consumer market near 500 million and a combined gross domestic product in excess of $14 trillion.

Europe is, in effect, becoming the new home to the “California effect,” a reference to the phenomenon in the United States in which the largest U.S. state has, at various times, dictated national policy by adopting a stricter regulation than the federal government, forcing corporations to choose whether to follow California’s law or give up on selling goods in the country’s largest market. Just as few major U.S. companies can afford to ignore California’s market, few multinational corporations can compete without maintaining a presence in the EU economy.

Looking Beyond 2008

The next U.S. administration is almost guaranteed to bring the U.S. and EU economies closer together on regulations, and it will mark the end of a period in which Europe perceives the United States as strictly opposed to regulation. But the United States is not likely to move very far, since the prevailing view of regulation in the United States remains overwhelmingly negative.