He spoke with a very thick Sicilian accent. “Ah, young fellow,” he said to Vito. “People tell me you’re rich. You and your two friends. But don’t you think you’ve treated me a little shabbily? After all, this is my neighborhood and you should let me wet my beak.” — The Godfather, Don Fanucci tries to shake down Vito Corleone
In the mid-1990s, Microsoft stood atop the hi-tech world and its founder and chairman, Bill Gates, had guru status among his fellow Americans. Microsoft had recently come out with its own Windows program, allowing it to compete with Apple Computer’s system and giving his company a huge advantage in the cutthroat world of technology. Gates was interested in furthering Microsoft’s fortunes, not its political ones. Michael Kinsley writes:
For many years before the lawsuit, Microsoft had virtually no Washington “presence.” It had a large office in the suburbs, mainly concerned with selling software to the government. Bill Gates resisted the notion that a software company needed to hire a lot of lobbyists and lawyers. He didn’t want anything special from the government, except the freedom to build and sell software. If the government would leave him alone, he would leave the government alone.
At first, this was regarded (at least in Washington, D.C.) as naive. Grown-up companies hire lobbyists. What’s this guy’s problem? Then it was regarded as foolish. This was not a game. There were big issues at stake. Next it came to be seen as arrogant: Who the hell does Microsoft think it is? Does it think it’s too good to do what every other company of its size in the world is doing?
On May 18, 1998, the US Department of Justice, under Janet Reno, and the attorneys general of 20 different states filed an antitrust suit against Microsoft, alleging that the company was illegally bundling software on its Windows program, and giving it away for free. Moreover, by making its internet browser, Explorer, available for free, thus undercutting the $80 Netscape browser. (I remember that price because that is what I paid for it when I bought it that year so I could have dial-up internet access on my Apple clone).
On the news and in the halls of academe, this was very serious stuff. Indeed, Microsoft Windows adorned what seemed to be nearly every personal computer in the workplace, which supposedly was to be cause for alarm, since that meant Microsoft had a monopoly, which was supposed to be very bad. As for the browser, I remember having a passionate discussion with a female student at Mises University who insisted that Microsoft was in the wrong because Netscape “IS A BETTER BROWSER!” It was unjust for Microsoft, just because of its unfair and illegal monopoly position, to give a browser away for free and rob Netscape of the revenue it deserved for making a superior product.
Other arguments (that I cannot recall their 28-year-old links but clearly remember) went like this: Whoever controls the internet controls the world, and so if Gates is permitted to get a monopoly on his browser, he will control the world. Given the history of browsers since then, these claims of doom seem downright silly, but in 1998, we supposedly faced a life-or-death situation in which nothing less than the fate of humanity was at stake.
While it might seem to many of us that Microsoft was doing a public service by offering valuable products for free, Washington and its academic and media echo chamber insisted the DOJ and its allies were protecting us from the rapacious monopolist, Bill Gates. (Bernie Sanders had not yet arrived on the scene to denounce the billionaires). In a short time, Gates went from being a heroic entrepreneur whose wisdom was sought by media high priests like Tom Brokaw to being Sauron, Redmond becoming Mordor, and Internet Explorer being the Ring of Power that had to be destroyed in the fires of the DOJ.
Washington Politicians Demand Protection Money
Although very serious people insisted that the sole purpose of the government’s antitrust suit was to right the economic wrongs Bill Gates was unleashing, it would seem that the answers might lie elsewhere. The opening portion of this article notes that Microsoft (and most of the other companies in the burgeoning hi-tech sector) was not a major political player, and not being a player meant Microsoft didn’t send campaign money to Washington.
Of course, corporate money corrupts the political system, or so we are told. Fred McChesney writes:
In the popular rendition of politicians’ taking “special-interest” money, it is the private party who initiates the game and the politician who accedes. Besides, it’s all part of a process protected by the First Amendment. The money may be spent for “access” to politicians, but it is protected speech. The Supreme Court has said so. If, after hearing the special interests’ side of the story, the politician agrees to preferential trade treatment for some group, it is all part of a political process laid out by the Constitution. And of course, the Founding Fathers understood that this was an inevitable cost of democracy: not laudable, but nonetheless tolerated. So goes the orthodox journalistic account.
Social scientists studying politics also tend to work with models in which private interests purchase special treatment from politicians. In the now-orthodox version of the “economic theory of regulation,” popularized (if not pioneered) by George Stigler, would-be private beneficiaries demand government favors and politicians supply them. Thus, the market for political favors is like a private market, with consumer sovereignty in full operation. The standard phrase “campaign contributions” bespeaks the perceived process: special interests enter the market with money to exchange and politicians respond.
One can understand why both journalists and economists nearly always view political transactions in this way. For the media, the story fits their preferred view of the world, in which government would operate for the public interest but for the corrupting influence of private interlopers. Thus but for that pesky First Amendment, the solution would be just to drum out private access to government whenever money is involved. (So-called public-interest groups that can deliver services rather than money-unions, the American Association of Retired Persons, and so forth-would have untrammeled access, however.)
Politicians like Bernie Sanders and Elizabeth Warren would agree with the above paragraph, insisting that large donations of private money corrupt the democratic process. But McChesney writes that a more accurate way of looking at political money is something more familiar with organized crime: buying protection. Writes McChesney:
But a politician has an alternative for raising money: selling protection. He can agree not to do something that otherwise he says he would do, something that would reduce the wealth of the potential donor. The most obvious burden that can be threatened is a tax, but there are any number of others that a politician can propose and then withdraw for a price. A private citizen will be just as willing to pay for a special favor worth $1 million as he will to avoid a $1 million tax. (This assumes constant marginal utility of wealth; with declining marginal utility of wealth, a citizen will pay more to avoid the $1 million loss than for the $1 million gain.)
This, then, is the essence of the political protection racket. Superficially, selling special favors and selling protection do look the same: payment is made to the politician in both cases. But in the extortion racket, citizens are made to pay, not for special favors from Uncle Sugar, but to protect private wealth that they have earned the old-fashioned way, outside the political process.
Murray Rothbard had something to say about government as a predatory institution, writing:
The State, in the words of Oppenheimer, is the “organization of the political means”; it is the systematization of the predatory process over a given territory. For crime, at best, is sporadic and uncertain; the parasitism is ephemeral, and the coercive, parasitic lifeline may be cut off at any time by the resistance of the victims. The State provides a legal, orderly, systematic channel for the predation of private property; it renders certain, secure, and relatively “peaceful” the lifeline of the parasitic caste in society.
Government in this view, be it democratic or authoritarian, is an entity that claims a monopoly over coercion and violence, and the rest of us are supposed to hold it in a certain awe and respect. What that means in reality is that government takes upon itself the power to confiscate private wealth (while condemning those that accumulate that wealth in a market setting) and then to demand protection money from its victims, all the while denouncing the very payments that the government demanded in the first place.
In order to make their threat realistic, governments at times will destroy or attempt to destroy the “goose that laid the golden eggs” if only to send a message to everyone else to keep making payments. McChesney writes:
. . .the political threats must be credible. If private individuals think a threat is just a bluff, they have no incentive to pay. Thus, politicians may sometimes be forced actually to legislate; as Gordon Tullock puts it, “politicians may sometimes have to enact legislation extracting private rents from owners who do not pay up, just as the Cosa Nostra occasionally burns down the buildings of those who fail to pay its protection levies.” If payment ultimately is forthcoming, politicians can always repeal the legislation.
In the case of Microsoft, the government sought to break the company in two, which is what the district court ruled. On appeal, that decision was overturned, but ultimately the George W. Bush administration agreed to settle with Microsoft, which kept the company together and also resulted in Microsoft spending much more money in Washington. Kinsey writes:
It (Microsoft) moved its “government affairs” office out of distant Chevy Chase and into the downtown K Street corridor. It bulked up on lawyers and hired the best-connected lobbyists. Soon, Microsoft was coming under criticism for being heavy-handed in its attempts to buy influence. But the sad thing is that it seems to have worked. Microsoft is no longer Public Enemy No. 1. No one blamed it for the recent Japanese tsunami, for example, or demanded hearings on its role in the housing industry collapse.
He continues:
Warren Buffett famously said that the thing is to learn from other people’s mistakes, not your own. Google learned from Microsoft. It did not dis Washington. It has had a Washington lobbying operation almost from the very beginning of the company, way back in 2003. In 2008, Google opened a glamorous new D.C. office, described by Google’s senior manager of global communications and public affairs as “a showcase of the company and what it means.” The very fact that Google has a senior manager of global communications and public affairs suggests that Google might not be quite the noncorporate corporation it sees itself as.
And, like Rothbard and McChesney, Kinsey agrees that the Microsoft case was not about protecting consumers or even protecting “better browsers,” it was about a money grab:
As the Microsoft example suggests, the Washington culture of influence peddling is not entirely, or even primarily, the fault of the corporations that hire the lobbyists and pay the bills. It’s a vast protection racket, practiced by politicians and political operatives of both parties. Nice little software company you’ve got here. Too bad if we have to regulate it or if Big Government programs force us to raise its taxes. Your archrival just wrote a big check to the Washington Bureaucrats Benevolent Society. Are you sure you wouldn’t like to do the same?
Conclusion
Media pundits and mainstream academic economists debated the merits of the government’s antitrust suit against Microsoft, the real issue was not whether free software and browsers harmed consumers (they didn’t), but the real purpose of this action in the first place had nothing to do with the claims coming from the Bill Clinton DOJ. Like Don Fanucci, who demanded that Vito Corleone and others in the neighborhood pay him to continue their livelihoods, the government saw vast riches in companies like Microsoft and engaged in an old-fashioned shakedown.
Murray Rothbard had passed away three years before the Microsoft suit took place, but there is no doubt he would have seen through the rhetoric. Nearly 30 years later, most of the tech companies pay tribute to Washington and have been permanently co-opted into the surveillance-military-industrial complex. This is not an unintended consequence of the Microsoft suit; it is the government’s preferred outcome.
