April 5, 2000

April 5, 2000 | Commentary on Legal Issues

Microsoft Ruling An Inept Stab At Industrial Policy

The federal government's persecution of Microsoft is a travesty-the worst combination of third-rate economics and special- interest politics.

The ruling against the company may be a victory for envy-driven bureaucrats at the U.S. Justice Department, but it is a major defeat for American consumers and international competitiveness.

The government's "achievement" also is a loss for the American economy, including a record $450 billion nose-dive for the Nasdaq stock market.

Microsoft alone lost about $80 billion of value in just one day. Bill Gates will survive, but one wonders how many small investors and retirees took a big hit thanks to the legal vultures trying to destroy his company.

According to economics textbooks, monopolies hurt consumers because they lead to higher prices and reduced output. Yet this is the opposite of what Microsoft has wrought.

Computer software has become much more available and much less expensive. Indeed, one of the government's main complaints was that Microsoft was providing free copies of its Internet browser.

Only someone working for the government could conclude that free products are bad for consumers. Yes, Microsoft's success has been bad news for some of its rivals, but that's what competition is all about.

As consumers, we should welcome vigorous, bare-knuckle brawls for our dollars. It is this constant fight to make a buck that forces companies to be efficient and to offer the best products at the best prices.

By being so efficient, Microsoft has earned a dominant spot in the market, but this does not mean the company has "monopoly power." There are hundreds of other software companies, each eagerly hoping to take Microsoft's place by offering consumers even better products at better prices.

In fact, Microsoft already is facing heavy competition from the development of Web-based software that bypasses Microsoft's Windows operating system. Of course, no one really knows how the high-tech world will evolve, but that is all the more reason to keep politicians from trying to interfere.

America has the most prosperous economy in the world, in large part because we let markets and competition operate without too much heavy- handed intervention.

Do we really want to copy the industrial-policy mistakes that have caused stagnation and high unemployment in Europe and Japan? That's the inevitable consequence of letting government dictate the actions of private companies.

Microsoft's real mistake is its failure to play the Washington game. Unlike other companies, including many of the sore-loser companies that wanted Microsoft dragged into court, the software giant did not have a big Washington office filled with lobbyists.

It did not have a political action committee to buy off politicians. Instead, the company focused on serving consumers and creating wealth for their shareholders.

This created an opening for Microsoft's opponents. They twisted arms and distributed campaign checks in hopes of changing the rules of the game.

They succeeded, getting the Justice Department and 19 publicity-hungry state attorneys general to file suit against the company. In some sense, the actual facts of the case did not matter.

Antitrust law is such a mess that a company can be convicted of being a monopolist if:

It charges more than its competitors; that's supposed evidence of monopoly power.

It charges the same; supposed evidence of collusion.

It charges too little; supposed evidence of predatory pricing.

Needless to say, if the government can decide a company is a monopolist no matter how it behaves, then the rule of law has been replaced by selective and discriminatory actions.

Unfortunately, the future is grim. The recent court decision means Microsoft will have to spend millions of dollars and thousand of hours fighting to protect its right to compete in the marketplace.

Not only that, but the company now faces the prospect that trial lawyers will use the ruling to manufacture private lawsuits against the company. One of the government's hired-gun lawyers actually encouraged foreigners to file suits against Microsoft.

At best, the company will be forced to abide by demands issued by paper-pushers at the Justice Department. This result would be attractive to politicians, since it would ensure hefty contributions from Microsoft to see its business plans shepherded safely through the bureaucracy. In effect, the company will be subject to extortion.

At worst, the government may try to dismember the company. The scenario sounds insane but is possible: Politicians destroying one of America's most successful companies just to satisfy the demands of its rivals. If that happens, Bill Gates might want to consider sending the government a message by moving his company to another country.

Daniel Mitchell is the McKenna senior fellow in political economy at The Heritage Foundation,  a Washington-based public policy research institute.

About the Author

Daniel J. Mitchell, Ph.D. McKenna Senior Fellow in Political Economy

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