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How Europe overtook the US in championing free markets

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The deregulation of major U.S. industries like telecom and energy in the 1970s and 80s sparked competition that lowered consumer prices and drove product innovation between competitors. Europe, on the other hand, lagged behind with more expensive internet, phone plans, airline tickets, and more until around 2000 when a major reversal of this trend began. Strikingly, when the EU strengthened deregulation and antitrust efforts to open its markets to more competition, it was the U.S. that reversed course.

According to a new book by French economist Thomas Philippon, Americans’ view of their country as the world’s beacon of free market competition and Europe as an over-regulated region of lethargic corporate giants is out of date, and may be inhibiting our ability to recognize growing corporatism at home. Philippon, a professor of finance at NYU Stern who earned a Ph.D. in Economics from MIT, was named one of the top 25 economists under age 45 by the International Monetary Fund.

“If you have nothing interesting or relevant to say, you can always take a jab at European bureaucrats. It’s the political equivalent of complaining about the weather…”

Based on Organization for Economic Cooperation and Development (OECD) data, the U.S. now has more regulations for opening a new business than every EU country except Greece and Poland — a complete reversal since 1998, when only the UK had fewer rules than the U.S. Per capita GDP growth in the EU outpaced that of the U.S. over 1999-2017. On a purchasing power parity basis, Americans have experienced a 7% increase in prices (relative to EU residents) for the same goods, due specifically to increased profit margins of companies with reduced competition.

The reason for this divergence? According to Philippon, corporate incumbents in the U.S. gained outsized political influence and have used it to a) smother potential antitrust reviews and b) implement regulations that inhibit startups from competing against them. As a result, the U.S. regulatory system prioritizes the interests of incumbents at the expense of free market competition, he says.

Philippon makes his case in “The Great Reversal: How America Gave Up on Free Markets,” released this past Tuesday by Harvard University Press. The book builds an argument from extensive data and pre-empts likely critiques by investigating numerous potential confounding variables or differences in research methodology. It is a compelling read for those interested in the dynamics of the overall innovation economy or the political debate over antitrust and Big Tech.

Incumbents over startups

Philippon, who was na states upfront that he isn’t claiming Europe is a bigger startup hub. In fact, he writes that “the U.S. has better universities and a stronger ecosystem for innovation from venture capital to technological expertise.”

What he does do is ring the alarm about a systemic shift in market consolidation in the U.S. that results in a small number of large incumbents charging high prices, an economy-wide prioritization of share buybacks over investments in innovation and government policy that inhibits competition from new entrants.

An important take-away for readers: there’s a concerning trend toward more barriers to successful entrepreneurship, higher prices for countless goods and services that startups use, an overall decrease of corporate investment in new technologies and fewer potential startup acquirers.

There are half as many publicly-traded companies in the U.S. as there were in 1997, and turnover within rankings of the top five companies per industry has declined sharply since the late 1990s as well.

Market concentration isn’t due to superstars

“The Great Reversal” considers that increased market concentration could be the result of “superstar” firms whose increased productivity is a win-win for shareholders and consumers alike. This has indeed occurred during the 1990s but the correlation between increased concentration and increased productivity ended around 2000 (with the exception of the retail sector).

Corporate after-tax profits as a percent of U.S. GDP were stationary for decades at 6-7% but increased to 10% in the last two decades, highlighting increased “rent-seeking” that shouldn’t occur if the leaders in most industries were facing the same amount of domestic competition or increased international competition.

From the 1960s through the 1990s, American companies poured an average of 20 cents from each dollar of operating profit into investments (R&D, capital expenditures, etc.). Since 2000, that’s fallen to 10 cents per dollar. With reduced competition, large companies are focusing less on advancing their product offerings and more on extracting profits for shareholders out of existing business operations.

Big tech isn’t exempt

Major tech companies — specifically Alphabet (Google), Amazon, Facebook, Apple, and Microsoft — are the focus of multiple chapters of analysis by Philippon, who rejects the notion that these companies are somehow unprecedented relative to the leading companies of prior decades from an antitrust standpoint. They account for a smaller portion of U.S. GDP and stock market value, and they have similar profit margins. Network effects and accelerating economies of scales are not new concepts in economics — existing antitrust regulations are capable of dealing with these companies.

In our interview, Philippon said that leaders of monopolies typically claim they need to maintain their monopoly in order to have the means to invest in innovation. He calls it bogus — companies innovate when competition pushes them to find ways to offer a better product at lower cost. Admittedly, the tech community has perhaps bought in too much to the narrative that the dominance of Alphabet, Apple, and Facebook has provided more long-term R&D into endeavors that will advance humanity.

These companies’ “moonshot” projects act as effective marketing for this narrative, distracting from the many billions more dollars that would be poured into innovation investments in the economy if the markets they are in were more competitive.

America’s most important industries are among its least competitive

Philippon acknowledges that the heart of America’s problem isn’t its failure to effectively regulate Silicon Valley; it’s the failure to stop increased concentration in the industries that most shape consumer spending: healthcare, energy, transportation and telecommunications.

During our interview, he estimated that this “great reversal” in the U.S. has cost the median household an additional $300 per month in markups on goods and services — reduced competition has allowed incumbents to increase profit margins at the expense of consumers.

The lack of competition in these industries contributes to America’s deteriorating infrastructure. More than 700,000 Californians experienced blackouts in recent weeks due to Pacific Gas & Electric’s failure to make capital expenditures that maintained and improved its assets. Most of the 15 million people who live inside the utility’s service area have no where else to turn.

What makes Europe different

A critical factor in Europe’s relative improvements over the U.S., Philippon argues, is the greater independence of EU regulatory agencies like the Directorate General for Competition from corporate or political influence. In negotiating over the creation of these agencies, European politicians were more fearful of agencies falling under the control of other member countries than they were fearful of lacking influence over the agencies. Regulators have frequently intervened in mergers even when politicians from the companies’ home countries lobbied to permit the deals. In the tech industry, the EU has insisted on consumers retaining ownership of their data and the freedom to take it with them in switching to a competing software service.

Less tied to election cycles and specific political parties, the independence of EU regulators enables them to iterate when new regulations have unintended consequences. Philippon argues that U.S. regulators fail to act in the first place because of concerns that if they don’t craft the perfect policy upfront, there will be political repercussions.

Regulatory influence is for sale in the U.S.

Philippon makes the case that politicians’ survival is the U.S. has become more heavily tied to fundraising and the overwhelming majority of that fundraising comes directly and indirectly from corporate interests. The top 1% of donors account for about 75% of all political contributions (and the top 0.01% for 40% of all political contributions). Business lobbies are by far the dominant source of money in American political campaigns according to statistics he cites from the Center for Responsive Politics.

Benchmarked against antitrust reviews in the EU, Philippon finds that the decline in the number of antitrust actions in the U.S. (by the DOJ and FCC) has largely corresponded to increased lobbying spending that targets the DOJ and FCC. Each doubling of lobbying expenditures in the U.S. by a given industry corresponds with a 9% decrease in antitrust reviews in that industry, and such lobbying spend tripled overall from 1998 to 2008. He also cites a 2008 book by UVA professor Christine Mahoney finding that the majority of lobbying efforts in the U.S. by corporations and trade associations are successful whereas the majority of lobbying efforts by citizen groups and foundations fail.

What we should take away from “The Great Reversal”

I find “The Great Reversal” to be a timely analysis of the weakening of America’s regulatory regime for protecting free market competition. The recent rise of populism as the driving force in American politics has included resounding cries from activists in both parties that capitalism is broken, that free markets have failed us. Tying in the analysis from this book, the more accurate target for this criticism, however, should likely be the country’s embrace of corporatism over free market capitalism.

Citizens’ complaints about large companies abusing their power are often blamed on capitalism in general, when the issue is often regulatory capture that protects those companies from being held accountable by competitors. Companies that treat customers poorly don’t survive in competitive markets.

Within the circles of politicians and media pundits, policies are referred to as generically “pro-business.” The term brushes over the often conflicting interests of the country’s largest companies and the vast landscape of small and medium size businesses who compete with them. America’s political leadership has been pro-corporate at the expense of entrepreneurs.

It’s a case for political reform but also a case for the country’s entrepreneurs and venture capitalists to form a more unified voice in Washington separate from industry trade groups that primarily act on behalf of the largest companies in each industry.

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Blockchain security startup Hypernative bags $9M to prevent crypto hacks

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Blockchain security startup Hypernative bags $9M to prevent crypto hacks

Hypernative, a cryptocurrency security startup that focuses on protecting against hacks, today said that it has raised $9 million in seed funding to help Web3 companies prevent losses from cyberattacks.

The seed round was led by Boldstart Ventures and IBI Tech Fund, with strategic investments from cryptocurrency firms Blockdaemon, Alchemy, and Nexo, as well as CMT Digital and Borderless and a number of angel investors.

The company created a security platform that uses data both on and off blockchains to predict and prevent potential cyberattacks that target economic, governance and community threats in real time. The company calls its first product the “Pre-Cog” platform because of its ability to capitalize on signals before an attack happens using machine learning models to monitor incoming data.

According to the company, the platform has already detected over 764,000 risks and triggered more than 33,000 alerts on 14,000-plus monitored protocols. It uses its platform to allow its customers to react in real time to potential threats that could affect their crypto assets before or even while an attack might be happening to mitigate any damage that might happen.

“We created Hypernative early last year when we saw huge amounts of money getting stolen or phished or scammed in crypto,” said Gal Sagie, chief executive of Hypernative told Techcrunch. “We saw huge gaps between tools that existed and money being invested, so we wanted to create something to help prevent [attacks].”

According to a report from Immunefi, a bug bounty and security services platform for Web3, the crypto industry lost approximately $3.9 billion due to hacks, fraud and scams in 2022 with cyberattacks representing over 95% of that total. Although many of these attacks could have been prevented by proactively fixing vulnerabilities, it’s not always possible to catch every error or bug in the wild.

This is where Hypernative’s Pre-Cog platform steps in order to warn react and prevent attacks before or as they’re happening. It allows security teams at crypto businesses to receive alerts and act rapidly by exporting the alerts to internal application programming interfaces, Slack, email or Telegram so that engineers can know quickly.

The platform is designed for protocols to enhance security beyond auditing and proactive defense, allowing teams to monitor key metrics and anomalies. For asset managers and traders, it also detects risks in portfolios in advance and real time by identifying potential risks before a transaction is initiated, this means that users can be more confident about their activities. Hypernative is easily integrated into both protocol security controls and trading wallet automated trading systems.

“Until now, there are no systems that not only accurately predict and alert on hacks before they happen but also provide actionable advice to stop them,” said Ed Sim, founding partner at Boldstart Ventures. “The opportunity in front of Hypernative is massive as stopping zero-day attacks will go a long way towards rebuilding trust in the crypto ecosystem.”

Hypernative’s ideal clients include hedge funds, exchanges, asset managers, traders and market managers and anyone who interacts with crypto and blockchain protocols who might end up in a position where they need to react quickly to an attack or any other type of incident.

Photo: Pixabay

Show your support for our mission by joining our Cube Club and Cube Event Community of experts. Join the community that includes Amazon Web Services and Amazon.com CEO Andy Jassy, Dell Technologies founder and CEO Michael Dell, Intel CEO Pat Gelsinger and many more luminaries and experts.

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Top 10 Low Risk Tips For Starting Your Own E-commerce Company

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Top 10 Low Risk Tips For Starting Your Own E-commerce Company

Tech layoffs have hit hard. Starting in 2022, major brands including Spotify, Google and Microsoft have been laying off tens of thousands of workers. In the wake of the already tumultuous Covid-19 pandemic and rising inflation, many Americans have been thrust into a state of panic concerning their current and future employment.

The good news is, there are low-risk ways to start your own e-commerce company. For example, in 2021, more than 100,000 new American brands joined Amazon. Amazon’s U.S. selling partners have sold over 3.9 billion products – that equals 7,500 items every minute – and averaged about $200,000 in sales per seller.

“Today, Amazon is a preferred partner for nearly two million selling partners worldwide – most of which are small and medium-sized businesses,” says Claire O’Donnell, director of selling partner empowerment, communities and trust at Amazon. “Our selling partners are incredibly important to us, and we work hard to provide them with effective resources to run and launch successful businesses. We offer a robust suite of tools and services, lending programs, and free educational services like Amazon Small Business Academy and Amazon Seller University to make sure it’s easy for anyone to start selling in Amazon’s store and connect with a global customer base.”

Shan Shan Fu is the founder of Millennials In Motion, an e-commerce brand that sells products on Amazon, Walmart, Shopify, Etsy and Poshmark. She also serves as head of business development at Trivium, an award-winning Amazon advertising and management agency.

Here are Fu’s top 10 tips for starting an e-commerce company with her low-risk, low-investment method:

1. Look for products that have high demand and low competition. Using tools such as Helium 10’s Magnet, you can discover which keywords are being searched on Amazon. Look for products with at least 5,000 monthly searches and less than 1,000 competitors.

2. Create barriers to entry to avoid your product getting copied. Avoid “commodity products,” which are products that anyone can sell. Make your product unique with better features, better design, and/or better functionality. Patent your product, if possible. Work within a particular niche and expand from there.

3. Start with small and light products if you are low in initial cash investment. These products will cost less to ship and less to store than big, heavy, bulky products.

4. If you are on a tight budget, use your smartphone to take pictures and harness apps like GIMP and Canva to edit them. GIMP (similar to Adobe Photoshop) is a free app that allows you to cut out your product and paste it on a white background. Canva is a drag and drop website where you can create beautiful, poster-like images for your product listing pages.

5. Sell your own clothes and belongings on Poshmark in order to get the hang of e-commerce. Honing your skills by selling some of your own goods on Poshmark first will teach you about writing product descriptions, shipping and fulfillment, and customer preferences.

6. Launch on Etsy to test products before expanding your business. For Etsy, you don’t even need a barcode; only images and a product description are required. By testing first, you can save on the cost of launching. The bottom 80 percent of products will not survive.

7. Target your demographic with PickFu. PickFu.com allows you to ask your target demographic if they like your products for only $1 per response. Use it to test photos and product ideas so you don’t waste time or money on a bad product launch.

8. Once you have figured out the top 20 percent winners on Etsy and PickFu, then launch the product on Amazon’s Fulfilled by Amazon (FBA) service. It’s important to launch on Amazon using FBA because this will get you the “Prime” badge, which can significantly increase your sales. Plus, you will no longer have to deal with customer service or order fulfillment, as Amazon will handle it all for you.

9. Invest in Amazon advertising. The pay-per-click platform is a low-cost way to generate sales and increase your organic ranking.

10. Later, you can launch products on Shopify to build your brand and catch sales from influencers. The Shopify app called Shogun allows you to create easy drag-and-drop brand websites. Divert influencer traffic here because Shopify has the lowest fees.

Tracy Sun is the cofounder and SVP of seller experience for Poshmark. She has this to say about Shan Shan Fu. “Our community and their triumphs are the heart of Poshmark and Shan Shan Fu is truly a reflection of that. Her ability to grow her side hustle into a thriving full-time reselling career serves as inspiration to many. Her journey is a testament to the entrepreneurial freedom found through reselling. We are so proud she is a member of the Poshmark community.”

Fu’s parents immigrated to the U.S. from China in the 1990s. Although her father was trained as an engineer and her mother as a doctor, they were not able to pursue their professional careers once they arrived in America due to their degrees not being honored. They had to start from scratch. After working in grocery stores for a long time, Fu’s father decided to move to Mexico and start an import/export business. He met with great success. Since then, Fu felt called to follow in his entrepreneurial footsteps.

The greatest challenges of running her own e-commerce business, Fu says, are lack of stability and uncertainty. Also, for women’s clothing, a return rate of 20 to 30 percent is not uncommon. This can eat into your profit margins. You may face cash flow problems when you have to pay for inventory and advertising upfront, even though you may not sell the products until months later. That is why Fu recommends her “low-risk, low investment method.”

That said, Fu loves what she does and, she remarks, when you love what you do, it’s like doubling your lifespan. “Now, instead of enjoying just time after work and on weekends, you enjoy time during work,” she explains.

To people looking to tap into their life purpose by starting their own e-commerce companies, Fu offers this advice. “Self-reflection is the first step. Assess and rank your primary joys and drivers for happiness. When you understand what makes you happy, get ready to overcome your fear of failure, procrastination, and lack of progress by embracing the idea of being uncomfortable. When you are uncomfortable, that means you are successfully pushing yourself forward.”

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Streaming platforms will soon be required to invest more in Australian TV and films, which could be good news for our screen sector

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Streaming platforms will soon be required to invest more in Australian TV and films, which could be good news for our screen sector

Streaming platforms like Netflix, Amazon Prime Video, and Disney+ will soon face regulations to invest in Australian content, as Australian regulations catch up to other world players.

Nearly eight years since the launch of Netflix in Australia in 2015, redressing the “regulatory gap” between unregulated streaming platforms and regulated traditional television is front-of-mind for Arts Minister Tony Burke.

Streaming regulations in Australia

Announced as part of the Labor Party’s new National Cultural Policy, a 6-month consultation period will commence looking at the shape and intensity of new streaming regulations. The implementation deadline for the new streaming regulations will be no later than 1 July, 2024.

The regulation is shaping up as a revenue levy, where a percentage of a streaming platform’s Australian-derived revenues will be required to be spent on local television and films. Existing television regulations in Australia include the transmission quota of 55% local content on commercial free-to-air television, and the 10% expenditure requirement on pay-TV drama content. A revenue levy would be a new policy mechanism in Australia’s television regulation arsenal.

There is a particular urgency to regulating local content on streaming platforms for the government – in 2020-21, Australians for the first time were more likely to watch online video than traditional television. Major American streaming platforms now dominate the viewing landscape, with Netflix a mass service in Australia reaching over 50% of television households.

The government is concerned with the growth of online video that lacks cultural regulation, and fears this, combined with the prominence of American platforms, could contribute to a “drowning out” of Australian voices and stories. Regulating local content on streaming platforms is a way to underpin Australian cultural identity, to ensure Australians will continue to see themselves reflected onscreen, and to support the screen sector with jobs and investment.

Some industry stakeholders like Screen Producers Australia are on record arguing strongly for a high revenue levy of 20%. There are estimates a levy of 20% would result in around $500 million a year alongside 10,000 jobs in the screen sector.

However, some experts have warned such a high levy on local and global platforms could backfire and reduce the competitive edge domestic service Stan might have with Australian content. If every service is required to invest in Australian content, there is less to distinguish Stan’s place in the sector.




Read more:
How local content rules on streamers could seriously backfire


Opposition to the new regulation

Unsurprisingly, the major streaming platforms have previously expressed their opposition to new regulation, believing their current levels of investment in Australia are sufficient. The Australian Communications and Media Authority rapporterad Australian content expenditure from five major platforms at $335.1 million in the 2021-22 financial year.

While lobbying against new regulations, the streaming platforms have also been planning ahead for potential obligations. Amazon’s revival of Neighbours for instance would be a big help towards meeting future Australian content obligations.

The government has not been drawn on what percentage a revenue levy would be set at – that’s what the consultation period is for, they say. Nonetheless, no figure has been ruled out either.

Streaming regulations around the world

Some countries around the world have much more advanced regulatory frameworks than Australia for regulating streaming platforms. There are important lessons to impart from these countries, both in terms of seeing what sort of regulation is possible, but also understanding the pitfalls of potential regulation.

The European Union is widely considered the global leader in the regulation of digital platforms. The EU legislated a 30% catalogue quota for European works on streaming platforms in 2018 under the Audiovisual Media Services Directive, which was intended to come into force in 2021. However, several EU member states were slow in implementing this.

The catalogue quota considers the overall size of a streaming library and requires that 30% of these titles are European. For example, the average Netflix library in major markets was around 5,300 movies and TV shows in 2021, which would result in approximately 1,590 European titles. The catalogue quota uses a broad definition of “European” works which includes a range of countries across Europe beyond the EU itself, such as Turkey and ironically the United Kingdom.

Australia’s focus on a revenue levy on streaming platforms looks more like some of the additional regulations from EU member states legislated under the Audiovisual Media Services Directive. France, which has a history of strong cultural policy and “cultural exception”, has been aggressive in legislating a high revenue levy. The French levy of 20-25% is at the higher end in Europe and is also a country that Screen Producers Australia explicitly referenced when arguing for a 20% levy in Australia.




Read more:
Amazon’s resuscitation of Neighbours: can Aussie TV become good friends with streaming?


The French levy is not without quirks nor criticisms, and was even considered too high by the European Commission. Part of the 20-25% revenue requirement can be satisfied with spending money on generally European content (which again could include UK content), as well as investing in things like restoring archival footage, and subbing and dubbing of content.

The variety of expenditure options are worth keeping in mind when attempting to compare potential regulation in Australia to the French setting. There are a range of other percentages that have been implemented across EU member states – after extensive negotiations in Denmark, the level reached was 6%. The process in Denmark demonstrated some of the challenges that can come during negotiation of new regulation – during a difficult period, Netflix and other services stopped ordering Danish productions entirely in light of what the services saw as over-burdensome proposals.

As well as the importance of debating the intricacies of policy mechanisms for regulating streaming platforms in Australia, the forthcoming consultation period is a vital opportunity to reflect on the cultural dividend Australian content can pay, as well as how much of the raised money should go to drama, children’s, or independent production. So far, Labor has prioritised First Nations stories and perspectives as the first pillar of the National Cultural Policy, which is a worthy goal to consider for streaming and local content regulation.

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