We are now in the phony war phase of the government’s antitrust trial against Microsoft.
On August 10, 1999, the first of a series of closing arguments was made by Microsoft and the government’s legal team. On September 10, each side commented on the other’s filing. Oral closing arguments were made on September 21. By the end of 1999, presiding judge Thomas Penfield Jackson will issue his findings of fact. This ostensibly will shed light on his ultimate ruling, expected in early 2000.
With new mergers, acquisitions, products, and inventions relevant to the case being announced on a daily basis, one suspects the judge desperately hopes for a settlement. Any ruling issued now will be anachronistic a mere few months down the road.
With only intermittent action in the court room, verbal skirmishes have lit up the media, from the pages of The New Yorker (negative toward Gates and Microsoft) to the cover of Newsweek (sympathetic). It’s no wonder that this rhetorical battle is being waged for the hearts and minds of the public at large: Despite the avalanche of publicity surrounding this case, most people still aren’t sure what to think about its merits.
Why Was Microsoft Attacked?
Why has the government, the institutionalized instrument for doing what is best for the commonweal, turned so aggressively against Microsoft, one of the most successful business organizations in human history?
The search for an answer is not easy. But after crawling across the deserts of disingenuousness and wading slowly through the swamps of hubris, we find ourselves at the confluence of four forces that explain the event–and not incidentally, the status quo in our society.
The Department of Justice (DOJ) antitrust prosecutors claim to be protecting the people and their economic interests. There may be a few young and naive true believers in the lower ranks of the Anti-Trust Division who think that, by slaying the Microsoft dragon, they will be making the world safer for the humble peasantry. However, for Joel Klein and higher-ups in the Clinton Administration, all of the high-minded talk about competition in the marketplace and protecting consumers’ interests serves only to mask raw political calculation rooted in careerism.
The government’s lawyers, like many other educated members of society, benefit tremendously from the technology created by Microsoft and its brethren. Yet, while paying lip service to the wonders wrought by the high-tech revolution, the government’s prosecutors would have no problem hanging Bill Gates’ scalp on their wall as long as their own legal and political careers were advanced in the process.
The antitrust lawyers at DOJ, having cut their teeth on the Microsoft case, will ineluctably go on to become pro-trust lawyers once the Clinton Administration fades away. In that mode they will be fighting for Microsoft et al., and not incidentally, earning exponentially higher pay. The notion of “where you stand, depends upon where you sit” has never been more apropos.
The recent controversy arising from the decision by the U.S. Commerce Department to eradicate the National Technical Information Service (NTIS) vividly illustrates this point. NTIS, which charged money for a wide array of government reports, could no longer compete with free delivery of the same information over the Internet. The Republican congressman from northern Virginia who represents the agency’s 260 employees is seeking to save NTIS. A few years ago he and his colleagues sought to dismantle Commerce altogether. Obviously, retaining political power is worth more to this congressman than the ideals of freedom, efficiency, and limited government.
In even more basic terms, the government’s lawyers have also arrogantly disregarded the basic free market principle that the buying public is able to make informed choices about what it needs or wants to procure legally for its own legitimate purposes. Microsoft’s prosecutors say instead that, while they respect the many benefits of the high-tech sector, they must be ever vigilant lest a company like Microsoft reduce the competition to dust and place the entire population in its thrall. This is arrogance pure and simple, an example of what historian and economist Friedrich Hayek would call “the fatal conceit” of would-be tyrants and central planners throughout history.
Their arrogance is compounded by their economic ignorance. If they understood even elementary economics, the DOJ’s Anti-Trust Division–and other parts of the government–would be most interested in protecting and promoting the economic and legal interests of the American people, including the corporations and other organizations for which they work. When people who work for corporations are organized efficiently, they can invent, produce, distribute, and sell goods and services productively and with results that transcend their core purpose of making money. Microsoft, particularly in the last dozen years, has become a very, in the truest sense of the word, popular–corporation. It has directly and indirectly benefitted millions of people, not only in the U.S., but all around the world.
Clearly, “the people” have neither attacked nor ignored Microsoft in the marketplace. Rather, they have lionized it. It is highly ironic, even incongruous, that an elite group of lawyers, claiming to be representing and protecting “the people,” would try to destroy what the people have decided Microsoft does very well indeed.
Recent polls have shown that the government’s cynical case has begun to tarnish Microsoft’s once-sterling reputation. However, it is encouraging to note that, although Microsoft may be down in the polls, it continues to set revenue and earnings records. That would indicate that in the only poll that really matters, the people continue to support Microsoft.
Microsoft has two related problems on the envy front. The first is envy on the part of the nation’s intelligentsia and the liberals who run the Clinton Administration. The second is the envy of Microsoft’s competitors, who have fed the media and government beasts for their own cynical purposes.
Envy is indeed a deadly sin. It can lurk insidiously in the hearts and minds of rational people before emerging, snakelike, searching out a victim to strike. There is a well-recognized invidious tendency in this country to begrudge success. This is particularly true when a company like Microsoft succeeds beyond anyone’s wildest dreams. When a company’s top management, key employees, and anyone else with the prescience or luck to purchase a certain number of its shares at an early stage get rich, the critics begin emerging on their bellies from the high grasses, hissing something that sounds like “unfair.”
Never mind that many people involved in such enterprises, personified perhaps by Bill Gates and Paul Allen, richly deserve to get rich. Bill Gates in particular is by all accounts an extraordinary person: extremely competitive, win-oriented, focused, tough-minded, and prescient, among other things. Like Vince Lombardi, Gates believes “Winning isn’t everything; it’s the only thing.” (Lombardi, interestingly, met his demise in the nation’s capital shortly after taking the reins of the Washington Redskins.)
Others who invested early on might have been lucky, or they might have made a calculated guess on the company’s future. Microsoft, though powerful, never was and never will be a sure bet for discerning investors. Microsoft would undoubtedly opt for intelligence, speed, and efficiency, rather than sheer size, if such a choice were somehow possible. However, part of Microsoft’s public relations problem (which is what this whole thing is ultimately about) is the fact that it has managed to achieve size while remaining quick on its feet. As Muhammad Ali might have said, Microsoft “floats like a butterfly and stings like a bee.”
Gates, Allen, and the early investors risked their own money (not ours) when they invested in Microsoft. What claim to the reward, then, have we who risked not our own precious coins? Risk must have its rewards, or else investing will stop and we will all be the worse for it. This is truth, though many in the intelligentsia, who pride themselves on being philosopher-kings rather than industrious ants, would prefer that it not be that way.
Microsoft has done far more than most successful companies to discourage and deflect envy by encouraging a large percent of its work force to participate in its success. Entire cities on the west coast, it seems, are peopled by “Microsoft millionaires,” those engineers and technicians who were richly rewarded for devoting a decade or two of their careers to Microsoft. To the intelligentsia, though, too many of Microsoft’s rank and file are spoiled, high-tech, apolitical over-achievers. In other words, they’re not the ground-down, disrespected, deserving-poor sort who would be looking to government programs and unions to save them when times get tough.
The envy of Bill Gates’s critics is a particularly potent weapon given the times we live in. Microsoft’s success has come at a time of unprecedented disparities in income and wealth. This has been due to the globalization of markets, technological innovation, greater investment in schooling (human capital), and entrepreneurial risk-taking. No wonder the government would resort to fanning the embers of envy and class warfare in an attempt to grapple with this issue.
Microsoft’s competitors, who likely comprise 75 percent by number and 99 percent by economic influence of those who support the government’s case against Microsoft, are greedy as well as envious. They are embittered by Microsoft’s success, but see in it a way to satisfy their own avarice. It is very troubling, though understandable in a Machiavellian sense, that the Justice Department would so readily step forward to do their dirty work.
As many have pointed out, Microsoft’s supposedly tattered and destitute competition, including the strident Scott McNealy of Sun Microsystems, have all been doing extraordinarily well. Only one thing can explain the poor mouthing we hear from a group of millionaires and billionaires, running companies with market capitalizations that often exceed those of the biggest manufacturers and banks in the nation. Like a choir of four-year-olds at a birthday party demanding more ice cream, they simply want more. How much would be enough? They cannot say. This is greed, plain and simple.
In setting the scene for an all-out frontal assault on a behemoth such as Microsoft, the government needed to personalize the opponent, conceal the greed of its competitors, and find a way to exert control. Beginning about four years ago, a slow drumbeat of opinion began to be heard and seen in certain media–one might call it liberal–that Bill Gates was not doing enough with his billions to create a better society or put more crassly, contribute more aggressively to liberal political and social causes. In the classic style of the Big Lie, we are told that it is Bill Gates, not his competitors, who is greedy.
Most people can distinguish between genuine philanthropy and pandering to politically correct special interest groups, so there has been no great public outcry for Microsoft and other high-tech firms to become more “progressive.” Genuine philanthropy would include the kinds of charities that Gates and Microsoft have begun to support, including technology-deficient school districts and organizations doing research on children’s diseases. Many more are lining up every day. Moreover, Bill Gates was already donating millions to worthy causes. His sin was being circumspect in his contributions and not supporting enough of “the right causes.”
We hardly need to point to his charitable activities to defend Bill Gates from the charge of being greedy. If he were driven by greed, wouldn’t Gates spend his billions far more lavishly or conspicuously? Yet this is a man who wears jeans and inexpensive clothing, who still works long hours, and who has not used his wealth to become a national celebrity. Contrast Gates to Michael Jackson, famous for his personal zoo and surgical make-overs, or even to Hillary Clinton, anxious to stay in front of the cameras and on the political scene beyond the end of the Clinton Era, and ask yourself: Who is greedy? Yet we seldom see Jackson or Clinton described in this way.
Emerson could have had Gates in mind when he wrote: “To thine own self be true,.” Leaders like Gates and Lombardi reach for great accomplishments not to feed their own appetites, but to feed the aspirations and hopes of other people to accomplish worthwhile things. Their motivation is to create something–a team, a record, a legacy–that transcends their own efforts and desires and lifetimes. Many accomplished people do become consumed by greed, but this seems not to be the case for the likes of Bill Gates, Vince Lombardi, and other great leaders.
The public relations problem for Gates and his company–like most of Silicon Valley during the 1980s and 1990s–is that they thumbed their high-tech noses at Washington–the capital of income (and capital) redistribution. Investing in the political process was not the winner’s way in high-tech. Let coal and steel and banana producers fight for restrictions on free trade and tax privileges. High-tech could fly without safety nets.
Bill Gates and Microsoft have stayed true to that libertarian vision of how the world works. Their competitors, even the self-styled “libertarian” Scott McNealy, have not.
Why Microsoft Must Not Lose
For the good of the future of American business, let us hope most people ultimately see the government’s case for what it is: an ill-advised, politically and socially motivated attack on a genuine meritocracy and paragon of free-market capitalism. The attackers–an unholy (and unruly) coalition of Microsoft’s greedy competitors and an invidious cabal comprising elites from government, the law, academia, the media and, for want of a better term, intelligentsia–might have the slight advantage at this point with the Washington, D.C.-based judge.
Against such formidable opposition–and having managed to survive more or less intact this far into the trial–Microsoft might be tempted to try to reach a settlement with the government. It might even look like the right short-term move. Let’s hope the company doesn’t settle, because in the long term it would be disastrous. There are several reasons why.
The Future of Antitrust Law Is at Stake
In a saner world, the U.S. government would refrain from treating antitrust law as if it were chiseled onto two sacred stone tablets . . . and even consider rewriting it. Of all the laws affecting the U.S. economy, this one must change to take into account the many new circumstances of the U.S. and global economies.
The market for software and computer technology is unlike any market we have ever seen. Because of the acceleration of innovation, new products, and strategic alliances within the industry–including some between Microsoft and its most vocal critics–the market cannot easily be defined for any length of time. The market is truly ensuring the survival only of the smartest, the most nimble, the most adaptable–not the biggest. While Microsoft is truly big, so was IBM in 1977, the year that marked the beginning of the end of its market domination due to accelerating, proliferating technological transformations.
In the case of Microsoft and high-tech generally, we are facing an entirely new and uncharted realm–the undiscovered country–that no one could have conceived of or anticipated a scant decade ago. In such an environment there is an overriding need not so much to apply laws in a flexible manner–but to step back, consider the bigger picture (including global competition) and try to understand the nature of the beast you think you are going to slay–and then not apply the laws at all.
As we have seen in the Microsoft trial, the laws can’t be applied because they simply don’t apply. It is abundantly clear at this point in the Microsoft deliberations that the government’s case has done no good (except perhaps at the margin for Microsoft’s competitors) and brought no good to anyone except perhaps the DOJ’s lawyer-wonks and their hired guns such as the misdirected David Boies. One must wonder, in the case of the DOJ lawyers, if prosecuting such a case is really a career-enhancing move given the case’s intrinsic wrong-headedness.
The government is not so much stubborn in the Microsoft case as it is deliberately and cynically lashed to an inflexible, ideological mast. It is curious that an administration that would play so fast and loose with commonly accepted definitions of perjury and obstruction of justice should be so rigid when it comes to the application of antitrust law. By now, however, it is abundantly clear that the government’s last concern in this case is whether antitrust law “applies to the software industry,” as prosecutor Boies blithely put it.
A lot of time, money, and talent has been wasted testing that theoretical construct. With the trial in its denouement we are no closer to knowing the answer, much less caring about it, than we are to knowing how many angels can dance on a semi-conductor.
The Negative Impact on Innovation
If the government scores even a partial victory in its case against Microsoft, the result will be less innovation and more regulation for business. A government victory would break up a company whose only crime is being bigger and faster than its competitors, sending a plain message to entrepreneurs who might aspire to create similar companies. It would send a message heard ’round the world that the United States of America places more value on outdated laws, bankrupt economic theories, bureaucratic rewards, and politics than it does on highly productive invention, innovation, and inspiration.
If Microsoft settles, the company may survive, but the values and moral code it stood for will be diminished forever. The government will be emboldened to try similarly misguided cases in the future. This is not good news for budding geniuses and assorted entrepreneurs who share the notion that America is the land of opportunity in which ingenuity, inspiration, and perspiration will be rewarded rather than maligned, slandered, and put on trial.
One way to look at the Microsoft trial is to compare the basic reasons for being of the U.S. government and Microsoft. The government’s raison d’etre is to provide necessary services such as national security, interstate highways, health care for the poor and elderly, and Social Security. Its ability to provide those services derives from the peoples’ ability to generate wealth and efficiencies in the commercial world, and government’s ability to take some part of that wealth through taxes and regulation. Governments do not produce anything of value, they only redistribute wealth created by the private economy. In short, the U.S. government is the world’s most prodigious cost center.
Microsoft, on the other hand, is a world-class profit center. It produces, in a very efficient manner, goods and services that people clearly need and want. The company’s products have redefined the meaning of “intellectual property.” Microsoft creates value for its customers, shareholders, employees, suppliers, distributors, retailers, and the world at large. Microsoft and all of its above-cited constituencies are a major source of revenue for the U.S. government, the proverbial golden-egg-laying-goose, as it were.
Microsoft is a big and powerful company but, until the government decided to bring its antitrust case, there was no public outcry to “break it up.” Most people, unlike their government, appear to sense intuitively that sheer size is unimportant in an economy characterized by constant innovation, reinvention, speed, dexterity and adaptation in all phases of commercial activities. “It’s no longer about the big beating the small,” as Larry Carter, CFO of Cisco Systems has said. “It’s about the fast beating the slow.”
More so than any other big company today, and in striking contrast to government bureaucracies, Microsoft is fast. So people excuse its size, believing (correctly so) that the market will quickly serve Microsoft its just desserts if it fails to keep up with its consumers’ demands and competitors’ offerings. People do not excuse obesity and gluttony in government, believing (also correctly) that the absence of competition and choice in the public sector protects and even rewards waste and excess.
While the implications of the so-called New Era Economics are revolutionary in nature, they are evolutionary in how they have been introduced and embraced. The seeds for this new era were planted during IBM’s salad days in the 1960s, but did not truly begin to flower on a grand scale until the late 1980s. Indeed, we are only on the threshold of a continuing age of innovation in the information and communication worlds. More people every day are “wiring up and logging on” to new ways of communicating and doing business. The revolutionary new technologies will continue to be embraced in an evolutionary way for years to come.
Microsoft may be the epitome of success in this new era. For it to lose a high-profile battle with the government, its virtual opposite in so many ways, would be a stunning defeat for the innovator and entrepreneur, and an equally stunning victory for lawyer and bureaucrat. It could delay, distort, even de-rail an economic transformation that has been fairly compared with the discovery of the internal combustion engine and dual-entry accounting.
If Microsoft loses, the cost centers of society, which produce nothing of value themselves, which live off the discoveries and wealth created by others, will have brought down one of the great profit centers of all time. The victory of lawyers and bureaucrats over inventors and risk-takers would be a compelling story retold countless times, rather like the stories one occasionally reads of a moose brought down by a persistent cloud of gnats. Such stories teach values and create expectations. Countless inventors and entrepreneurs will be (figuratively) killed in their cradles, taught from the earliest ages that cost, not profit, and redistribution, not production, are the core values of the society into which they are being brought.
The Negative Impact on the Global Economy
A third reason Microsoft must win concerns the position of the U.S. in the global economy. The success of the American economy since 1983 has inured people to the fact that we still live in a highly competitive global economy. The world is not going to become any less competitive.
The likes of China, India, Indonesia, Brazil, Mexico, and Poland are just getting warmed up. Japan will roar back any year now, and sooner or later even Russia will get its act together. When the U.S. government attacks one of its greatest success stories, it energizes American competitors in both the government and private sectors abroad.
The European Union is certainly reviewing its legal options against Microsoft. In 1997, as a potential precedent, the EU used the threat of legal action (with regard to market dominance) against Boeing in order to promote the sales of Airbus, a British-French consortium in whose success all of Europe has a stake. Microsoft’s domestic and foreign competitors are likely making false claims about Microsoft’s travails and claim to misinformed overseas customers that Microsoft is guilty of all sorts of horrible business practices and will be shut down by the U.S. government.
Worst of all, any semblance of a U.S. government victory in this case will convince rival governments and companies that the U.S. doesn’t have the will to compete on the world economic stage. The notion of the U.S. government attacking Microsoft should have been as alien a concept as Japan attacking Honda, France attacking Michelin, or the UK attacking British Airways. Unfortunately, the U.S. also leads the world in innovative and daring legal concepts–however far out on a limb they may take prosecutors.
In an international political context, the U.S. government’s case against Microsoft is also deeply troubling because it so clearly puts our own government on the wrong side of the longer term and more crucial debate over capitalism and human freedom. Microsoft and the high-tech sector from which it sprang are the fresh, vibrant faces of a free-thinking and free-speaking America to the vast, youth-oriented developing countries and “big emerging markets” of the world.
Microsoft, Sun, Oracle, AOL, Intel, inter alia, are similar to the U.S. Olympic Team in the message about American values they communicate to the rest of the world. No one doubts that the globally broadcast images of African-Americans, Asian-Americans, and Fill-in-the-blank-Americans competing side-by-side, congratulating one another in victory and consoling one another in defeat, enormously advanced the cause of racial harmony. So too, our exciting and fast-growing high-tech companies are America’s global advertisements of its commitment to free markets and free minds.
More than a political or social force ever could, the wonders wrought by Microsoft and other high-tech innovators have united people in all parts of the globe by allowing them to communicate with each other across national boundaries, to the growing dismay of various despots and controlling elites who recognize a juggernaut when they see one. The world’s “democracy-challenged” governments know they cannot and never will be able to compete with the power of Microsoft’s message and the efficiency with which it is delivered.
While the U.S. government does not seek to control, China-like, the dissemination of communications technologies or the information transmitted by them, its case against Microsoft is characterized by a similar Luddite-type thinking. Fearing a loss of power and prestige, our government bureaucrats seek to erect barriers to communications technologies that would empower people in ways no one could have imagined even five years ago.
Empowered people tend to seek and find answers to problems by themselves and for themselves and their loved ones. In this kind of society, the marbled halls of Washington and the lacquered walls of Beijing–and the people who inhabit them–become increasingly irrelevant.
The attack on Microsoft started softly, in whispers really, with critical comments on National Public Radio and in The New York Times concerning Bill Gates’ wealth, the size of his new house, whether or not he gave sufficiently to charitable causes, and the like. Then, the voices grew louder as Microsoft’s competitors joined the fray and revealed how ruthless Microsoft was in the marketplace. The Clinton Administration, while paying lip service to “the information super highway,” couldn’t abide the magnitude of Gates’s and his company’s success, particularly since it wasn’t clear whose side they were on. Soon society’s greatest cost center had declared war on its greatest profit center.
In retrospect, it should be clear that Microsoft was on the side of people who would allow it to innovate, create, produce, and compete on the global stage as unfettered as possible. Gates likely figured that he and his company were already significant forces for social good given the size of the company’s payroll, the taxes its pays, the suppliers it keeps in business, and the innovation and efficiency it helped bring at a time when the U.S. economy was looking for leadership and for winners. The amount Microsoft and its employees contribute to the Social Security program alone must be astronomical. The company’s impact on the Seattle area is even more striking.
For all of the benefits and wealth Microsoft has brought to the local, national, and global economies, and for all the achievements it has garnered, the thanks it gets is to be granted an all-expenses unpaid trip to The Great Potomac Swamp for the pleasure of doing battle with a phalanx of dogmatic, careerist antitrust lawyers so removed from the real world of high-tech commerce that they don’t know the difference between bits and bytes.
If the U.S. is going to continue to lead the world in high-tech development, everyone in Washington, from DOJ trust-busters to turncoat congressmen should get in the habit of supporting and promoting winners, not comforting losers. Given rabid global competition, we no longer have the time or the luxury of defending every last widget plant and government agency that can no longer compete or offer real economic value.
This is not a cold-hearted approach. People are going to be hired, fired and rehired no matter what field they are in. But we’re all better off if we go with the kinds of industries and jobs that have a future. The opportunities in high technology are virtually limitless. An attack on the company that is synonymous with this field for the past decade is an attack on our future as a leader in the global economy.
With so much at stake in the Microsoft case, one expects to hear many voices raised in the company’s defense. Where is the chorus of prosperous investors? The solos of entrepreneurs and inventors? The drum-beat of people whose productivity has been extraordinarily advanced by Microsoft products? Where are the maestros of freedom and peace when their greatest friend and exemplar is led to a ceremonial execution?
It is asking too much, of course, that a group of popular entertainers would come together–as they did for farmers, AIDS victims, and world hunger–to write and sing a song celebrating the freedom, peace, and prosperity that Microsoft represents.
Or is it? Does the fate of the digital revolution mean less to Americans than the fate of the family farm? Is the creeping disease of statism any less a threat to our health and well being than the dreaded AIDS epidemic? Have not entrepreneurs and the free-enterprise system done more to feed the hungry–and clothe the naked, and give shelter to the homeless–than all the charities at all times in known history?
Isn’t Microsoft, in short, worth singing about?
Jim Regan is a policy advisor to The Heartland Institute, a nonprofit think tank based in Chicago, and a consultant specializing in international marketing, trade, and investment issues. Regan is a principal with The ProAction Group, a Chicago-based firm specializing in supply chain management and logistics consulting. He previously oversaw international business development for Anixter Corp. He can be reached by email at [email protected]