“We know the paradox of a free market is that sometimes you have to intervene. You have to make sure that it’s not the law of the jungle but the laws of democracy that works.”

On this episode of Recode Decode, hosted by Kara Swisher, the show goes to Lisbon, Portugal, for a live taping with European Union competition commissioner Margrethe Vestager. The two discuss Vestager’s stand on American companies in Europe — especially Google and Facebook — and how U.S. and European regulations differ.

You can read some of the highlights here, or listen to the entire interview in the audio player below. We’ve also provided a lightly edited complete transcript of their conversation.

If you like this, be sure to subscribe to Recode Decode on Apple Podcasts, Spotify, Pocket Casts, Overcast or wherever you listen to podcasts.


Kara Swisher: Recode Radio presents Recode Decode coming to you from the Vox Media podcast network.

Hi, I’m Kara Swisher, executive editor of Recode. You may know me as a supporter of the right to be forgotten, although personally I know I am unforgettable, but in my spare time I talk tech and you’re listening to Recode Decode, a podcast about tech and media’s key players, big ideas, and how they’re changing the world we live in. You can find more episodes of Recode Decode on Apple Podcasts, Spotify, Google Play Music, or wherever you listen to your podcasts, or just visit Recode.net/podcasts.

Today we’re going to play an interview I conducted at the 2017 Web Summit in Lisbon, Portugal. I talked to European Commissioner for Competition Margrethe Vestager, who you may have heard of on a previous episode of Recode Decode, but the last time we talked was before the 2016 U.S. presidential election and a lot has changed since then. Let’s take a listen.

All right, let’s get started because we have a very short time. So Margrethe, how fucked is Silicon Valley?

Margrethe Vestager: Well, I don’t like to generalize because everyone should have a fair chance of making it, also in Silicon Valley, but at least serious enough so that we found that a fine of 2.4 billion euros was the fine in the Google case that we just decided.

So talk about where it is now, because, you know, you’ve been out in the forefront talking to these companies about their power, about their influence. And right now in the United States, finally, in Congress, which has acted not at all and our government has not acted very much against these companies, they’re under a lot of, they’re under siege, they’re under pressure, especially about Russia investigations. Can you talk a little bit about why you first went for them? Because I think they don’t have a sense of their power, and now people are recognizing the potential impact of what they’ve done.

Well, our values are very simple. If you’re successful in the market, it should be because you have the best products. Then your customers like you, not because then you cut corners, or you get a tax break, or you don’t inform authorities about how things actually are. And this is the case of the Apple case of unpaid taxes, and the Google case of misusing a dominant position, or the Facebook fine of not giving sufficient information to authorities when assessing a case.

On top of sort of my day job as a commissioner of competition, I have this worry about what happens with our democracy. What happens with our way of being together?

Right.

Being social. And I think maybe sometimes the platform businesses, they underestimate the powers that they hold.

All right, let’s talk about that. Because right now these investigations, it’s pretty clear these platforms were used and abused by others, in this case Russia, and a lot of the indications point that it had an impact on the election. And of course it’s not just a U.S. issue, it’s a global issue, that these platforms have enormous influence over politics, society, culture, all kinds of things, including the coarsening of society.

One of the things I’ve always talked about is the fact that they’re not benign platforms, and they see themselves that way. They often do. Can you talk about the challenge of dealing with these big companies? Because largely they’ve been protected by the government in the U.S.

Well, for us the challenge is to develop the right tools, because I find that sort of the founders of the European Union, they saw rightly that we need fair competition to have a fair market.

Right.

And I think the motives are breaching competition, or they are as old as Adam and Eve. It’s about greed and fear, and when you combine that with power you have a very, very poisoned cocktail.

The motives, well, they go way back. But our challenge is to stay fast enough and to have the right tools, because this is a fast-moving area in our economy and we really need to make sure that all the businesses, all the coming-ups, all the entrepreneurs have a fair chance of making it in this market, to serve citizens in the role of customers.

Do you imagine, though, that the damage is done? Because so many of these companies right now, there’s consolidation in the United States, there’s … these companies are getting more powerful. One of the things that you’ve been accused of by these companies is you’re trying to stifle innovation when in fact they’re getting more powerful than ever. So can you talk about that, that accusation that you’re trying to do protectionist, stifle innovation, not let them do what they do best?

But on the contrary, because I think everyone here would like to be the next Google. Who doesn’t want to build a success? But to think …

Well, I don’t, but go ahead.

Well, you are a success already, so no need.

Yeah.

No, but the thing is, one thing is that when you grow, you shouldn’t deny others the chance to challenge you and you should never yourself say, “No one will challenge me so I don’t need to innovate anymore.” Competition is one of the most important drivers of innovation, because you have to stay in the race. You have to think of something new and if you don’t, well, of course you should leave the market.

And this is again where competitional enforcement comes in, to make sure that it actually happens.

So let’s talk about the state of play with these fines that you’ve put in. You’ve levied these fines, the one right now in the United States, there’s tax reform going on to bring back some of these … such as the Apple taxes and the billions that are here. Can you talk about where they are at this point, what happens now?

Well, the thing is that even if you appeal a case after a Commission decision, you still have to pay the fine. Of course, if you win, then you get your money back. If you don’t, well, we redistribute the fine to member states of the European Union. So, the fines of the Google case, the guarantee has been paid. The fines of the Facebook case has been paid, and now we’re in the process of trying to recover the unpaid taxes of Apple.

But the Commission as such is also working on digitalized taxation as a matter of principle, because corporate taxation was maybe invented in a time where you had a physical footprint, you were present in the country. Now it can be present in the country by buying more server space back home, so we need to reinvent corporate taxation to make sure that every company pay their fair share of taxes.

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Well, talk a little about today’s news, about the International Committee of Investigative Journalists uncovered the Paradise papers. Which was essentially a scheme … seems like a scheme, I’m trying to bring it down to a very simple level, it’s rich people trying to hide their wealth, essentially. Ultra rich people. Can you talk a little bit about how you look at something like these? Because there are several tech companies involved, there were investments that were hidden in shell companies, all kinds of things. So what were your thoughts today, because it’s a very complex and robust system to protect these companies and the people involved.

But that has to change.

So how does that happen?

You really have to change.

Talk about what you thought today when you saw those.

Well, I think, thanks to citizens, there’s been an enormous pressure because of the Lux leaks first and the Panama papers, and now with the Paradise papers, for legislation to change. For transparency, we would also like to have public country-by-country reporting, just report simple things. Do you have activity? Do you have employees? Do you make a profit? Do you pay your taxes? So that we know.

And second we would like also all the tax intermediaries, those who make this happen, to feel responsibility of enabling some businesses not to pay their taxes whether many, many, many, many businesses, they do pay their taxes.

Well, how do you do that? Because the scope of what’s going on here, this is a … I’m assuming this is just the tip of an iceberg here of how they do protect their monies going forward. And one of the things, for example, with Facebook, I think all of us understood that there was Russian government money invested in Twitter and Facebook and other places. But now it’s very clearly outlined on how that works. How do you, with your powers, begin to change that?

I mean, you’re a very hopeful person but I’m not, and I’m assuming they’ll figure out ways to subvert all these things.

Oh yes, but people like me never get unemployed, unfortunately, but I think we can take steps forward to improve things.

Right.

I have a very strong tool in competitional enforcement: To do merger control, to look into cartels, misuse of dominant position, when member states hand out favors, for instance in terms of tax breaks. But even though that’s a strong tool, it cannot solve everything. We need regulation as well to say, “Well, these are sort of the basic rules of how the market should work,” and that’s in particular within taxation to make sure that our tax authorities have the right tools and they know the full history of a company. And that has actually been passed as legislation in the European Union within the last couple of years.

Right. That is counter to what’s going on in the United States, which obviously has an impact. We have tax reform going on that essentially gives backs to wealthy people, that’s what seems to be going on. We’ve got a president who, I’m not gonna go on about other things but wants to … and by the way, I’m still sorry, Europe, I apologize for the United States of America.

But here’s the … He wants to remove the regulation, that’s one of his most popular stances is the idea of removing regulation, removing oversight, removing any kind of strictures against these companies and their growth. How do you battle that when these companies are in the United States, they’re not being pulled back by the authorities in the United States?

But the thing is, I never feel more European than when I’m in the States. Because we’re different.

Right.

We have built up a market, a single market where you have a potential of 500 million customers, but it’s a market where you care. You care about environment, working conditions, human rights, taxes being paid, because we want a free market. But we know the paradox of a free market is that sometimes you have to intervene. You have to make sure that it’s not the law of the jungle but the laws of democracy that works.

Right.

Talk a little bit about where it’s going to, because one of the issues I’ve been writing about a lot or talking about a lot in podcasts and various things are what’s coming next. In a lot of ways, a lot of the things you’re talking about are technologies not of the past but of previous behaviors coming up — AI, robotics, automation, self-transportation, self-driving cars, the whole change of the transportation system. Infrastructure, new cities. Is that an area that you think you have to begin to look at strongly, because I literally was just in an Amazon warehouse in Kent, Washington, where there are people there and they’re working there but the robotics is both breathtaking and disturbing to see at the same time.

How do you look at those, and do you think, because they’re real advantages when you have a robot to boss around versus a person. So how do you look at that?

Two points. First of all, we take an interest in data because sometimes it’s nothing but sometimes it’s a real barrier to entry, which makes it very very difficult for others to come into this market. So we take care and look into mergers, if the amount of data will disable competition.

The second point is that I think some of these algorithms, they all have to go to law school before they are let out.

Okay, all right, meaning? What does that mean?

The thing is that …

Because I don’t recommend anybody go to law school, but go ahead.

Well, I have a thing with lawyers as well.

Yeah, I get that, I get that.

Yes. But that being said, you cannot just say, “What happens in the black box stays in the black box.”

Well, they like it that way.

I know, but that’s not how things are.

They don’t know what’s going on in the black box, as it turns out, but.

And this is why you have to teach your algorithm what it can do and what it cannot do, because otherwise there is a risk that the algorithms will learn the tricks of, like, the old cartels. We just had a really old-school truck cartel of six companies colluding on prices and on environmental benefits in trucks and we had to fine them almost four billion euros for their behavior.

We don’t want algorithms to learn the tricks of the old cartels. We want them to play by the book, also, when they start playing by themselves.

So last thing, I wanna finish up very quickly and talk about where it goes from here and what are your biggest concerns. We were talking backstage, we both have teenagers. You’re not very … surprisingly, I’m like a European regulator with strictness on my kids and you’re not. You like to let them do what they want, or what …

Well, I don’t think that parents should be friends with their children on Facebook or Snapchat or whatever.

Really? How can you make them miserable then, how does that work?

Well, that’s a real-life competence and I’ll tell you, I muster it.

Yeah. So you, when you’re thinking about your kids and the impact on what they’re having, one of the things that’s being discussed in Silicon Valley, in Hollywood and everywhere else is around sexual harassment, around all kinds of issues, but it really boils down to an idea of diversity. And that’s another … Do you feel like that’s your purview?

We were talking about this, that when you’re thinking about AI and various things, it seems like crap in, crap out, and if you have the same people designing these systems all the time, the same kind of people, do you think that’s something you, that’s part of your purview as a regulator?

Two things. First of all, I’ve seen my oldest daughter, she puts down her phone and she uses it less and less because she has a real life, in real life, and that I think is a very good thing. The new generation is doing all kinds of things, also, when it comes to the sustainability goals. They engage differently in their society. They are not just all on their screen, and I think that is a very, very good thing.

But we have to take our democracy back. We cannot leave it, neither to Facebook or Snapchat or anyone else, we have to take democracy back and renew it. Because society is about people and not about technology.

And going forward, what do you think your biggest focus is gonna … The last question, what do you think your biggest focus for the next year is gonna be on, in a very short …

Well, the next focus is going to be on whether we think that we can trust technology or not.

No, but go ahead.

Because this is the biggest wake-up call we have ever had. We’ve seen the potential, now we get the fear of what it will bring us. If we don’t relearn to trust technology, then we’ll never make any good of the potential.

Margrethe Vestager, everybody.

Thank you.


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