Constitutional Opinions: The Microsoft Moral
Levy, Robert A.
by Robert A. Levy The Microsoft Moral Repeal the antitrust laws, for starters. M icrosoft's shareholders may be frustrated by the company's inability to negotiate a settlement with Joel...
...argument is that it leads directly to paternalism, to the idea than an elite corps of government experts knows onr interests better than we do-and can regulate our affairs to satisfy those interests better than the market does...
...It's certainly not that breaking up Microsoft will transform the software industry into one that is more competitive and efficient...
...Microsoft attained its present size and dominance primarily through internal development...
...Under antitrust law, the proper litmus test for government intervention in private markets is whether barriers to entry foreclose meaningful competition...
...Moreover, the cost of misguidedly dismembering Microsoft is huge...
...The assumption of wouldbe regulators- that a customer's concern about compatibility can lock him into an inferior product-is a myth...
...it's not just the $3 ~ billion estimated outlay for re-programming associated with fragmentation of the Windows operating system standard...
...rest and court-imposed remedies take hold, ROBERT A. LEVY is a senior fellow in con- the marketplace will have changed in ways stitutional studies at the Cato Institute...
...But unlike AT&T, Microsoft isn't a government-protected monopoly...
...For those enormous costs, we get no benefits in return...
...Remember thai President Nixon, when he wanted to browbeat the three major TV networks, used the threat of an antitrust suit to extort more favorable media coverage...
...Economic losses from excessive regulation can do great damage to producers and consumers...
...But more important, here are seven reasons why antitrust should have no role to play, period: 1: Antitrust debases the idea of private property...
...The problem with tha...
...Profits from market power are the engine that drives the economy...
...As expected, Judge Thomas Penfield Jackson's conclusions of law portray the company as an intractable monopolist...
...New York Attorney General Eliot Spitzer pulled no punches...
...But the battle is far from over...
...Much ink has been spilled in defense of Microsoft...
...By the time this litigation is put to...
...Never mind flaat thc pinch hitter carries a .zoo average...
...offices...
...Ib be sure, when a company advertises, lowers prices, improves quality, adds features, or offers better service, it may discourage rivals...
...Nor should competition be politicized to advance the private, parochial intcrests of favored competitors...
...Anti~ust law rests on a false model of perfect competition...
...Likewise, when government grants exchlsive licenses to cable, electric, and telephone companies, monopolies arc born and nurtured at public expense...
...When we permit govemment to make such decisions for us, and we allow those decisions to tromp the subjective choices of consumers, we abandon any pretense of a free market...
...or unambiguous proof that the antitrust laws are flawed to their core and should be repealed...
...They point to the splitting up of AT&T and Standard Oil as models for Microsoft...
...Exhibit A is before us at the moment...
...The American Spectator _9 May 2ooo 57...
...Consumers rule, not producers...
...Instead of focusing on new and better products, disgruntled competitors will try to exploit the law--consorting with members of Congress, their staffers, antitrust officials, and the best lobbying and public rclations firms that money can buy...
...We must not allow antitrust to be used as an anti-competitive subsidy to prop up unsuccessfid and less successful firms...
...If the antitrust bureaucrats ran the team, however, McGwire might find himself tiding the bench...
...Unlike in most other areas of the law, guilt can hinge entirely on motive...
...The obvious answcr--which has little to do with antitrust-is for government to stop creating those barriers...
...More than ~'o centuries ago, in lhe Wealth o[Nations, Adam Smith observed that "People of the same trade seldom meet together...but the conversation ends in a conspiracy against the public or in some contxivance to raise prices...
...Why do you suppose that many of Microsoft's archrivals are pushing for divestiture...
...Rather, it's the non-quantifiable cost of discouraging future companies from taking similar risks and committing similar energy and resources, knowing that the outcome could well be government control of their intellectual output...
...If new technology is to be declared public property, future technology will not materialize...
...Even companies, like Microsoft, that were originally reluctant to play the political card have beefed up their Washington, D.C...
...That triggered an announcement by two attorneys general and HUD Secretaw, Andrew Cuomo that they would consider an antitrust suit against the disobedient manufacturers...
...The goat, he gloated, is to "squeeze manufacturers like a pincers...
...True barriers arise not from private power but from government misbehavior-special-interest legislation or a misconceived regulatory regimen that protects existing producers from potential competition...
...Yet what is a "barrier...
...And consumers can unseat any product and any company no matter how powerfid and entrenched...
...5: Antitrust law is wielded most often by rent-seeking businessmen and their allies in the political arena...
...Some purported advocates of the free market endorse that foolishness, evidently oblivious to the destructive implications of stripping private property of its protection against confiscation...
...Normal business practices--price discounts, product improvements, exclusive contracting--become violations of law...
...4: Antitrust remedies are designed by bureaucrats who don't understand how markets work...
...Economist'lhomas Sowell reminds us that thc St...
...And unlike Standard Oil, we are not breaking up a conglomeration of companies that were originally separate entities...
...Astonishingly, Connecticut Attorney General Richard Blumenthal-also a major player in the Microsoft suit--has issued subpoenas for documents, despitc conceding that he had no solid evidence other than a post-settlement industry meeting and criticism of Smith & Wexson by other gun makers...
...But it cannot bar them...
...Noncthcless, antitrust advocates assert that government planners can tell us which products should be withdrawn from thc market, no matter what consumers actually prefer...
...Conccrned citizens who are troubled by huge corporations dominating private markets should be even more fearful if those same corporations decide that political clout better serves their interest...
...In making that decision, thc proper comparison is with the marketplace that will evolve if the antitrust laws, by punishing success, eliminate incentives for new and improved products...
...Our game here is solely political...
...nor are we dealing with physical capital that can easily be divided along geographic boundaries, like "baby Bells...
...Instead, Microsoft is essentially intellectual capital, which knows no boundaries and has no physical dimension...
...Some observers insist that divestiture will work...
...Government seeks to transform a company's private property into something that effectively belongs to the public, to be designed by bureaucrats and sold on terms congenial to rivals who are bent on the market leader's demise...
...Coming from the father of laissez fake, that warning has been cited ad nauseam by antitrust proponents to justify all manner of interventionist mischief, qhose same proponents, whether carelessly or deviously, rarely mention Smith's next sentence: "It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with libefly and justice...
...Indeed, when companies aren't being accused of monopoly price gouging for charging too much, they are accused of predatory pricing for charging too little...
...7: Antitrust will inevitably be used by unprincipled politicians as a political bludgeon to force conformity by recalcitrant companies...
...In either case, the wisdom and utility of antitrust law is also on trial...
...Barring a resurrected settlement, either of two outcomes is likely: a resounding victory on appeal for Microsoft...
...Ihe remedy most often cited, of course, is a breakup of the company...
...In real markets, sell56 May 2 o o o _9 The American Spectator ers seek to carve out mini-monopolies...
...As far as screwing the networks, I'm very glad to do it...
...Yes, that's what the proponents of dismemberment would have you believe, but that's not what they really want to happen...
...If technology is to be proprietary, then it must not be expropriated...
...6: Barriers to entry are created by government, not private businesses...
...It's not just the expense of disrupting and restructuring a $600 billion corporation...
...Quite the conffary, Microsoffs rivals will be happiest with an industry led by a disabled, less efficient and less innovative company...
...If Nixon were the only culprit, that would be bad enough...
...Following the recent agreement by Smith & Wesson to cave to the extortionate demands of city mayors, state attomefi general, and the Clinton administration, ,several gain makers denounced the so-called settlement...
...Thus, what might happen in a utopian, perfectly competitive environment is irrelevant to the question whether government intervention is necessary or appropriate...
...They too will become successfifl at currying favor with the politicians...
...2: Antitrust laws are fluid, non-objective, and often retroactive...
...Because of murky statutes and conflicting case law, companies never can be quite sure what constitutes permissible behavior...
...Once expropriation becomes the remedy of choice, the goose is unlikely to continue laying golden eggs...
...That's why antitrust has no role to play in the Microsoft case...
...3: Antitrust is based on a static view ofthe market...
...Louis Cardinals don't send in a pinch hitter whenever Mark McGwire strikes out...
...If a company cannot demonstrate that its actions were motivated by efficiency, conduct that is otherwise legal somehow morphs into an antitrust violation...
...The real issue is not whether one product is better than another, but who gets to decide-consumers, declaring their preferences by purchases in the market, or specialists at the Justice Department rating the merits of various goods and services...
...Just ask WordPerfeet or Lotus or IBM...
...M icrosoft's shareholders may be frustrated by the company's inability to negotiate a settlement with Joel Klein and his minions at the Justice Department...
...And the rest of us ought to be delighted that the trial will move ahead...
...Market share will then be up for grabs-not because competitors have become more creative but because the government will have neutered the market leader...
...If antitrust litigation follows, it will supposedly be founded on a boycott of Smith & Wesson products organized by its rivals...
...On a recently released tape, Nixon told his aide, Chuck Colson, "Our gain is more important than the economic gain...
...Yet government moves forward in the name of correcting market failure, apparently without considering at all the possibility of government failure...
...Markcts move faster than antitrust bureaucrats could ever move...
...Antitrust is bad law', bad economics, and bad public policy...
...that Judge Jackson cannot imagine...
...But in his 1996 book, Abuse of Power, former New York Times reporter David Burnham establishes that pre~dents from Kennedy through Clinton routinely demanded that the Justice Department bend the roles in pursuit of political ends...
...It deserves an ignominious burial--sooner rather than latcr...
...Rather than rehash those familiar arguments--persuasive though they are--here are a few brief comments on the upcoming remedies debate, followed by . seven compelling reasons why the antitrust laws belong in the dustbin of history...
...That could be trouble for the company in phase three of the trial--the remedies phase--and in private litigation that builds on the judge's assessment...
Vol. 33 • May 2000 • No. 4
