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The Borking of Gates

May 1, 2000

In the May 1 edition of the Wall Street Journal, Robert Bork tries to rally support for the proposed breakup of Microsoft, an effort to which he has invested much political capital. Those of us who oppose the breakup are told to "pause for thought, [and] learn the economics of antitrust."

"A breakup is what the Justice Department called for on Friday, and it is better than the other alternatives," writes Bork. "Does anyone want to do to the software industry what the Interstate Commerce Commission did for the railroads and trucking? A body of necessarily complex regulation, moreover, would invite competitors to tie up and slow down Microsoft in endless litigation."

This is the condescending argument we frequently hear by those who support the government’s case against Microsoft. Joel Klein, the head of the Justice Department’s antitrust division, only desires the best for Microsoft. The Justice Department is only concerned with promoting the cause of free enterprise and the rule of law, something that is completely congruent with conservative principles. Microsoft has violated these principles, and therefore it must pay.

Oh Robert, we hardly knew ye.

Bork well knows that the Justice Department is calling for much more than the mere breakup of Microsoft into two competing entities. In fact, the government is calling for no less than the forced socialization of the firm. Declan McCullagh, writing in a recent issue of Wired Magazine, delineates some of the other penalties recommended by the DOJ, penalties that didn’t make it into Bork’s apologetic for state intervention. McCullagh notes that:

  • Microsoft wouldn’t be able to sell computer makers discounted copies of Windows, except for foreign language translations, but would be ordered to open a "secure" lab where other firms may examine the previously internal Windows specifications.

  • Microsoft wouldn’t be able to give discounts to hardware or software
    developers in exchange for promoting or distributing other company products. For instance, Microsoft would be banned from inking a discount deal with CompUSA to bundle a copy of Microsoft Flight Simulator with a Microsoft
  • Microsoft would have to create a new executive position and a new committee on its board of directors. The "chief compliance officer" would report to the chief executive officer and oversee a staff devoted to ensuring compliance with the new government rules.

  • If Microsoft hoped to start discarding old emails after its bad experiences during the trial, it wouldn’t be able to do so. "Microsoft shall, with the supervision of the chief compliance officer, maintain for a period of at least four years the email of all Microsoft officers, directors and managers engaged in software development, marketing, sales, and developer relations related to platform software," the government’s proposed regulations say.
  • Microsoft would have to monitor all changes it makes to all versions of Windows and track any alterations that would slow down or "degrade the performance of" any third-party application such as Internet browsers, email client software, multimedia viewing software, instant messaging software, and voice recognition software. If it does not notify the third-party developer, criminal sanctions would apply.
  • State and federal government lawyers could come onto Microsoft’s campus [in Redmond, Wash.,] "during office hours" to "inspect and copy" any relevant document, email message, collection of source code or other related information.
  • The same state and federal government lawyers would be allowed to question
    any Microsoft employee "without restraint or interference." If U.S. District Judge Thomas Penfield Jackson adopts them, the restrictions will last three years after his decision. The DOJ suggests that they take effect 30 days after Jackson rules, which trial observers expect will happen this summer.

So much for Bork’s concern for penalties that amount to hyper-regulation of the firm. If the Justice Department’s proposal is approved, it will serve as a blueprint for the operation of all tech firms wishing to avoid the notice of its antitrust lawyers. Profit margins will fall, innovation will necessarily be curtailed, and consumers will suffer. Big firms welcome such regulation because it forces competitors out of the market. This is the reason large firms embrace regulatory regimes in the first place. (This is called the capture theory of regulation in economics.)

But there is no reason in economic theory that high levels of profitability and innovation, coupled with falling prices, should only apply to the tech industry.

The success of Microsoft, and of the tech industry in general, illustrates how any industry can operate in an environment of low taxes and minimal regulation. Any "leveling of the playing field" should apply such an environment to all sectors of the economy. How different would our quality of life be—and how much more freedom would we have—if, over the last decade, the prices of food, housing, or automobiles fell at the same rate as computers? How much higher would our incomes be, in real terms? Consumers should demand this.

It would seem that, if the DOJ gets its way, it would impose on Microsoft the same standards of efficiency that we have come to expect from the post office. That Bork fails to mention these sanctions in his op-ed, while extolling the supposed moderation of Joel Klein, causes him to lose all credibility on the issue of antitrust, at least when it applies to the Microsoft case.

A market reform of journalism I’d like to see would require the Wall Street Journal to disclose not that Bork is simply a consultant to Netscape, but how much money Netscape has paid him for his services since hiring him. Was it six figures or seven? How much? If we knew, we might take his comments in a better context.


Christopher Westley teaches economics at Jacksonville State University. Send him MAIL.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

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