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Commentary

Social Engineering by Legal Brief


     
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If you can’t send in bureaucrats, you can send in lawyers. That seems to be the new strategy of the social engineers. Destroy the tobacco industry and gun makers through liability lawsuits. Ruin Microsoft with federal and state antitrust actions and assorted private cases. Set precedents to apply against any company in any market.

Antitrust law never had much to do with economics. For any law student with the slightest economic knowledge, antitrust class was invariably depressing. Ignorant lawyers importune officious judges to apply stupid legal precedents to complex economic circumstances. The result was never pretty.

At least by the 1980s, even the Justice Department stopped enforcing the dumbest laws, such as the Robinson-Patman Act, directed against “price discrimination,” which almost always reduced competition. Reagan antitrust chief William Baxter dropped the inane suit against IBM.

Indeed, the IBM case well illustrated the foolishness of attempting to micromanage fast-changing economic markets. “Big Blue” soon succumbed to a bevy of new competitors and has even given up producing personal computers. So much for supposed monopoly power.

The rise of Microsoft also demonstrates the power of competition. For instance, Microsoft launched its Excel spreadsheet in a market dominated by Lotus 1-2-3. But Excel triumphed. Between 1984 and 1994, Excel collected 28 winning polls and reviews compared with one for Lotus, report economists Stan Liebowitz and Stephen Margolis in their book, “Winners, Losers and Microsoft,” published by the Independent Institute.

Moreover, they write, on average prices dropped four times as fast in the major consumer software categories where Microsoft competed. Not only is there no evidence of price-gouging by Microsoft, an obvious test of monopoly power, but the company wins kudos for service. In a 1998 Computer Reseller News poll, 46 percent of respondents said Microsoft provided the best customer training; IBM followed with 14 percent, while arch-rival Sun Microsystems garnered only 4 percent.

It is tough to distill Judge Thomas Jackson’s 207-page opinion, let alone the entire Justice Department case, into one article. But perhaps most unappreciated by Microsoft’s critics is the growing competition facing the company. Not only is there Apple’s iMac, but also Unix and Linux.

In a market as fluid as that for software, Microsoft could also find itself displaced because of changing applications of Java and developments from the AOL-Netscape merger. Observes software developer turned legal scholar Robert Levy: “Microsoft is behaving not like a monopolist but like a company whose very survival is at stake. Its prices are down, and its technology is struggling to keep pace with an explosion of software innovation.”

Where the market is likely to end up no one knows. Certainly President Clinton’s antitrust chief Joel Klein has no idea. In its initial complaint, the government missed the role of Linux, now running on 8 million computers. The Justice Department warned that Microsoft was going to strengthen its monopoly by making deals with Internet providers, which have all turned out to be minor players compared with AOL’s various channels.

The government’s most spectacular misjudgment, say economists Thomas Hazlett and George Bittlingmayer, was the belief that Microsoft’s actions would suppress Internet investment. If money is lacking for Web start-ups, no one has noticed.

The biggest boosters of the Justice Department suit simply want to cripple Microsoft’s ability to compete with them. Fortune magazine headlined one recent article, “Scott McNealy’s plan to punish Bill Gates.”

Explained Mr. McNealy, head of Sun Microsystems: “All I need is five years,” during which time Microsoft should be barred from making any new business or product acquisitions. Then, he says, he would be ready to compete. But a free market does not - or at least should not - work that way.

Microsoft will undoubtedly appeal Judge Jackson’s final ruling, due in February, should it follow his findings of fact. But the judge has appointed appellate Judge Richard Posner as mediator to facilitate settlement talks.

The only proper settlement, however, would be for the Justice Department to drop its case - and for Congress to slash funding for the department’s antitrust division.

Until a few years ago, Microsoft proudly refused to open a Washington office. Oddly, New York Times columnist Thomas Friedman viewed this as demonstrating contempt for “rules and institutions.” Actually, Microsoft was demonstrating appropriate contempt for the sort of political manipulation of rules and institutions evident in the antitrust suit.

The final joke may be on the company’s enemies, however. Joel Klein says that the antitrust regulator’s job is to “reallocate resources between the producer and the consumer.” There’s no reason to believe that AOL, or Sun Microsystems, or any number of other Microsoft critics might not next end up in the government’s legal cross hairs.

Rampaging lawyers and meddling judges might enrich businesses desiring special protection. The rest of us inevitably lose.


Doug Bandow is Vice President of Policy, Citzen Outreach and author of Foreign Follies: America’s New Global Empire.






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