By Konrad Shek, 7 November 2024
The Draghi report1 serves a timely reminder that Europe stands in front of an existential challenge. Growth in the EU is slowing, and we are falling behind our principal competitors, the US and China, in both innovation and investment. These sobering realities are a wakeup call, but we find ourselves at a rare and critical moment with the beginning of a new mandate for both the European Parliament and the Commission. It presents a real opportunity to reset and forge a new path.
It is important to emphasise this potential for renewal, particularly as we should not be fooled into thinking that we are locked into some pre-determined fate. The policy options ahead of us are about political preferences and whether the European Parliament and Commission can seize the moment.
The fundamental question, therefore, is whether these European institutions have the political will to modernise European competitiveness, transforming the continent to become the best place to innovate, invest and to do business.
In that context, advertising and marketing play a crucial role for the future of European competitiveness. We are integral to brand competition, product innovation, and fuelling economic growth. A previous economic study2 carried out by Deloitte, showed that every EUR1 spent on advertising, generated EUR7 for the wider European economy. At a broader scale, advertising makes up around 4.6% of the EU’s overall GDP through its direct, indirect and catalytic effects. Advertising not only funds the media, culture and sport, it also makes the internet free for the consumer.
The ongoing digital transformation is the most dynamic force in today’s global economy, with digital advertising serving as an important catalyst in the cycle of data-driven innovation. The development of personalised advertising has reshaped how business engage with customers, offering new opportunities for advertisers, including SMEs, giving them the ability to find new markets and reach new customers at scale; and charities to reach out to new donors. In addition, it is a key source of revenue for press publishers to refinance and invest in their content, allowing citizens in all economic situations to access professional journalism while supporting media pluralism and the diversity of the information landscape, to the benefit of society at large.
Above all, consumers have benefited from greater choice and better online experiences.
Despite the clear economic benefits the advertising sector can bring, it, like many other European industries, face enormous challenges such as the rapidly rising number of new legislations, the need to gold-plate regulation, a lack of proper and harmonised implementation of existing regulations, higher costs of compliance, and a fragmented Single Market.
For years now, entrepreneurs, start-ups, scale-ups inventors and businesses alike have voiced their concerns over the impact of inconsistent and too restrictive legislation on businesses. This was also highlighted in the Draghi report: “There is no EU company with a market capitalisation of over EUR100 billion that has been set-up from scratch in the last fifty years, while all six US companies with a valuation above EUR 1 trillion have been created in this period”. Furthermore, he stated that “30% of the unicorns founded in Europe – startups that went on to be valued over USD 1 billion – relocated their business abroad, with the vast majority moving to the US.”
If we were not alarmed before, we should be now.
This regulatory confusion is most apparent in the digital sphere where the recent rate of legislative activity has resulted in an increased number of regulations, often at the expense of enforcement or effectiveness assessment. The complexity of the legal framework in place, with its overlaps and inconsistencies creates a high level of uncertainty for businesses. And yet we are on the cusp of an AI revolution that Europe can ill-afford to miss out on especially as Europe failed to capitalise on the first digital revolution led by the internet –both in terms of generating new tech companies and diffusing digital technology into the broader economy.
The GDPR is a good example of European regulation suffering from fragmentation. The proliferation of various opinions, guidance and rulings across Member States as well as its implementation and enforcement actions continue to depart from the original spirit and aims of the GDPR. We are also seeing regulators giving priority to fundamental right to privacy, instead of balancing it with other fundamental rights, including the right to conduct a business, guaranteed by the EU Charter.
The draft Green Claims Directive further exemplifies the challenges of overly restrictive regulations with the proposed ex-ante verification system for environmental claims. The sheer cost of evidencing and verifying environmental claims is likely to be beyond the budgets of many companies, thereby discouraging all but the wealthiest and most resourceful businesses from making any green claims at all. The irony is that we already have existing legislation to prevent misleading claims in the form of the Unfair Commercial Practices Directive which is enforced by a network of advertising standards self-regulatory bodies and other associations.
Considering these developments, it is essential to slow the pace of adoption of new legislation and prioritise the strengthening of legal certainty for innovation and investment. The Draghi report calls for legislation that is streamlined, harmonised and focused legislation but we feel that industry standards, regulatory innovation and co- and self-regulation also have a strong role to play, and hence their benefits should be considered. The advertising industry’s self- regulatory system is a good example of how flexible and responsive oversight can provide robust levels of consumer protection. Most importantly of all, it has a high degree of industry buy-in. Instead of rushing to legislate, this ‘third way’ might provide valuable lessons for effective governance.
To conclude, the path forward for Europe requires a delicate balance between necessary regulation and economic dynamism. As we enter this new European mandate, we have a unique opportunity to reshape our regulatory approach—one that embraces innovation whilst maintaining appropriate safeguards. The advertising industry’s successful self-regulatory model demonstrates that effective oversight need not stifle growth and innovation. By learning from these experiences and adopting a more measured, harmonised approach to regulation, Europe can create an environment that nurtures rather than inhibits business growth. The stakes could not be higher: our ability to compete globally, drive innovation, and secure Europe’s economic future hangs in the balance. The time for decisive, yet thoughtful action is now.
1 The future of European competitiveness – A competitiveness strategy for Europe, Mario Draghi, September 2024, https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en
2 https://valueofadvertising.org/value-of-advertising/value-of-advertising-report/