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The Wreckage of the Microsoft Case

November 7, 2001

Tags Big GovernmentCorporate WelfareLegal SystemU.S. EconomyFree MarketsThe EntrepreneurGlobal EconomyEntrepreneurshipMonopoly and Competition

I suppose it had to happen sooner or later.  Microsoft and the U.S. Department of Justice have finally agreed to a settlement in the infamous antitrust case against the House that Bill Gates Built.  It seems that everyone has an opinion about this thing, but, as Austrian economists might have expected, most people have missed the boat when it comes to assessing the damage that has been done by runaway government.

In this politicized atmosphere, the pundits are obsessed with "winners" and "losers."  During the Clinton years, it was "Bill Gates versus Joel Klein," and Klein seemingly won the first round, only to leave the DOJ and become an instant millionaire working for a law firm specializing in antitrust litigation.  (See my previous Mises articles on the subject of Klein and his resumé-building foray into the Microsoft case.)

However, before I even discuss the actual "settlement," let me first point out that while the politicians and their media allies prattle on about "winners" and "losers," they miss the larger story, one that has become a typical American tale: the ongoing assault of the Leviathan State upon the once free and productive business sector.  Even if one could justify antitrust laws--and there exists a large body of sound literature that tells us otherwise--even a most disinterested observer cannot help but see the wreckage left behind by the government's actions.

First, let us look at the transfer of billions of dollars from productive activities into the pockets of trial lawyers, not to mention the billions spent in what was essentially a human capital venture by Joel Klein and his fellow staffers at DOJ. On the government's side, the money came from taxpayers, many of whom were doubly hurt when the government's actions forced down stock prices on the NASDAQ exchange.[i]  Whenever the government seemed to be getting the "upper hand" on Microsoft, the stocks representing computer firms generally took a nosedive, which means that the DOJ was making things worse for everyone in that business sector, not just Microsoft.

Lest anyone think that only Bill Gates had his fortune damaged whenever computer stocks took a hit, please remember that the pensions and savings of millions of Americans, both wealthy and low-income, lost huge chunks of their value during this period of litigation.  Moreover, they did not have the personal wealth cushion that Gates enjoys.  So even if the government were actually "preserving competition" (which it was not), it came so at a huge price to individuals who did not have the deep pockets of the DOJ, nor the resumé of Klein and his minions.

In other words, a serious examination of the Microsoft case must include a look at who truly benefited, and who actually lost.  On the one hand, there were Klein and his merry band at the DOJ, news reporters covering this case, politicians such as Sen. Orrin Hatch (R-Utah) who beat the anti-Microsoft drum daily in Congress, private lawyers on both sides who have made millions of dollars in fees, economists and other "expert" witnesses who earned handsome consulting payments, and the state attorneys general who have put together a gargantuan state coalition case against Microsoft.  The European bureaucrats and politicians who are bringing the European Union case against the company also are benefiting.  Finally, there is Robert Bork, who was able to turn his own earlier writings on antitrust upon their heads in making the case that the government forcibly break Microsoft into three smaller firms.

On the other side, we find damaged shareholders not only of Microsoft stock, but also stock of other high-tech firms that took a hit as the litigation dragged on.  The Wall Street Journal reports that the ongoing three-year debacle has severely damaged morale at Microsoft, not to mention that it has drained billions of dollars from the company's coffers, money that would have been much better spent on research, product development, and the like.  This is a deadweight loss at its worst.  Since other high-tech firms, such as Netscape, drove much of the anti-Microsoft litigation, one can be assured that those firms also managed to waste millions that would have been better spent.

In other words, ever since the Clinton administration decided it would use tax dollars to promote jihads against firms that might seem to be unpopular, much of the high-tech economic landscape has been likened to a war zone.  While Alan Greenspan's follies at the Federal Reserve drove a boom that swept up NASDAQ stocks into that infamous bubble, there can be no doubt that the attempt by other firm--and Bill Clinton's Department of Justice--to use government as a weapon against Microsoft has severely damaged high-tech prospects for years to come.

Although it is clear that many of the firms whose stock is traded on the NASDAQ exchange were the recipients of huge malinvestments that ultimately had to be liquidated from the economy, the Microsoft case has also changed the political landscape for these firms for the worst.  Please remember that before Netscape and the DOJ began using the courts as a tool to bring down Microsoft, high-tech firms operated pretty much out of the rent-seeking sphere that controls national politics.  

Another way to put it is that most high-tech companies did not pay much attention to the political scene, and were not a major source of funds for political candidates.  For example, Microsoft and most other firms in that sector did not have a lobbying presence in Washington, D.C., preferring, instead, to use their earnings for true business-related expenses.  

The post-litigation scene, unfortunately, is much different.  Microsoft and other high-tech firms are now major players in Washington lobbying, and politicians have seen their personal coffers swell with political contributions from those companies.  Thus, we now see one of the most productive sectors of the U.S. economy having to pay what amounts to protection money so it will not be even more ravaged by the political classes.

Furthermore, it is also clear that while Microsoft has settled with the U.S. government, at least six of the eighteen states that sued Microsoft on state antitrust charges are still demanding that their case go to court. This should be further proof that the political animals who filed suits on behalf of their states--it is said that AG also stands for "aspiring governors"--are on a search-and-destroy mission with the hopes of further looting Microsoft in the same way they extracted billions of dollars from the tobacco companies (read that, individuals who choose to use tobacco products).

After reading the journalistic interpretations of the "settlement" itself, it should be clear that the original case itself was a joke, and the remedy only sets consumers farther back than before.  As the New York Times editorial page puts it,

Microsoft would be barred from entering into restrictive contracts and pricing deals aimed at using its Windows monopoly to unfairly undercut competitors, as it was found guilty of doing in the case of Internet browsers.  Computer makers would be allowed to remove features bundled into Windows and add those of competitors without fear of retaliation from Microsoft.  Microsoft would be forced to disclose more of its programming code and other technical data to enable other companies' media players, digital photography software and instant-messaging systems to interact as seamlessly with Windows as do Microsoft's own versions of these popular applications.[ii]

If one were to construct an analogy to the newspaper business, it might run like this:

 After having been found to have a monopoly on certain sources for its news stories, the New York Times agreed under pressure to share its sources with reporters from other newspapers.  Furthermore, the news giant will now have to let newspapers from competitors be sold inside the New York Times building, which previously had unfairly forbidden the sale of competitors' newspapers.  The Times will not be permitted to run news stories before any of its main competitors, including the New York Post, Daily News, and Washington Post.

While this analogy might seem silly to the editors of the Times and other journalists who have been beating the anti-Microsoft drums, there is essentially no difference in what I wrote and what the Times put in its editorial.  If the editors of that paper were to be consistent in their thinking (a big "if," I agree), they would have to admit they own a monopoly in news coverage that might keep consumers of news from finding out everything they might want to know when they would want to know it.

While the Times and other journalistic outlets are cheering this latest intrusion by the state into the private affairs of individuals and the firms they own, we should also remember that they are cheering confiscation of private property, and that they are demanding the diminishing of legally obtained wealth.  Microsoft has not engaged in theft; it has simply protected its own property in much the same way the New York Times expects its employees to do regarding that newspaper.

Although it seems unlikely that this unwarranted antitrust case is going to disappear anytime soon given the political proclivities of the parties seeking legal action, even if the settlement holds, it gives us no reason to cheer.  Once again, we have found that the political classes have engaged in wholesale looting, pillaging, and destruction, all in the name of "protecting consumers."


William Anderson, an adjunct scholar of the Mises Institute, teaches economics at Frostburg State University.  Send him MAIL.  See his Articles Archive. The Mises Institute is holding a Private Retreat with Austrian Economists, January 18-19, 2002.

[i] For an in-depth look at how the government's actions damaged NASDAQ as a whole, read George Bittlingmayer and Thomas W. Hazlitt, "DOS Kapitel: Has antitrust action against Microsoft created value in the computer industry?"  Journal of Financial Economics, 55 (2000), 329-359.

[ii] "Settling the Microsoft Case," New York Times editorial page, November 5, 2001.  Taken from the Internet.

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