September 13, 2017
Why Europe’s Stance on Data Privacy is Bad for Business
By James G. Brooks

Right now there are two major forces driving business. One is digitization — the conversion of all aspects of business into digital form — and the other globalization.

In some cases, the two are at odds. The U.S. and the EU have starkly different ideas about data privacy. While the U.S. is relatively laissez-faire, the EU is more activist. Next year, the EU will introduce the  General Data Protection Regulation, 99 articles that will allow consumers to have easier access to data that companies hold about them and will require those companies to obtain the consent of such consumers or face fines.

The GDPR illustrates that the EU is much more protective of the average user’s data privacy and the U.S. is more laissez-faire. At the risk of appearing jingoistic, the U.S. has the winning approach. Overprotection of consumer data will slow business growth. Since all business is digital, that’s a big deal. Here’s why the U.S.’s more hands-off approach to data privacy is better:

  1. France’s economy shows the strain. Europe is vast and the EU’s 28 countries all have different views about their economies. But no country epitomizes the EU’s protectionist policies better than France. Since 2013, the French economy has grown 1% a year versus 1.6% for the rest of the euro zone. French per capita income only came back to 2008 levels last year while German per capita income crossed that milestone in 2010. Data privacy isn’t the primary cause, but I know from first-hand experience that France’s focus on individual rights often comes at the expense of commercial enterprise. It’s very hard to hire and fire in France and new construction is a nightmare. France’s attitude toward data privacy is one component of this view. While it might be attractive as an individual to receive this sort of government protection, the downside is there is less economic growth.
  2. Most U.S. consumers are aware that they’re trading their data for services. U.S. consumers are generally OK with brands using their data if they trust the brands and if they get something in return. A 2015 study on this topic found 75% of consumers were willing to share their address, name, mobile phone number and date of birth with companies for a product or service they value. The figure jumped to 80% if the consumers received special offers or data-enabled benefits like reward points or product recommendations.
  3. The market will determine which approach is best. If consumers are so concerned about their privacy you would think that the idea of a paid social media network would get some traction. But App.net, which cost $50 a year, shut down last year. DuckDuckGo, a search engine that doesn’t track users’ data, is doing better but its market share is well south of 1%. Since consumers aren’t willing to pay for social media, how can social media services stay in business if they’re not running ads? And how can they run ads without using data about their customers? Even TV networks use data about their viewers to sell ads.

Don’t get me wrong. The U.S. government should be making sure that companies that collect data from their customers aren’t abusing their power. Such companies should also provide full disclosure about their data-collection methods and most do. But consumers already are aware of the data-for-access deals they’re making with digital media companies. Adding a layer of bureaucracy is overkill and is likely to hurt the startup scene in Europe.

In time, Europe will realize this and perhaps the U.S. climate will begin going more in a protectionist direction. Either way, I expect that pragmatism will prompt both to meet somewhere in the middle.

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