Crying Silicon Tears

Crying Silicon Tears

February 28, 1998

If one set out to design vicious special- interest legislation to loot productive companies and distribute the spoils to lesser competitors, one could scarcely do better than the Nation’s antitrust laws.

Senator Orrin Hatch, Utah Republican and Chairman of the Senate Judiciary Committee, may have set back the efforts of defenders of free markets years with his March 3 hearings on "Market Power and Structural Change in the Software Industry."

Despite the antiseptic title, it was no mystery what the hearings were really about. An orchestrated public event signaling a neverending government campaign to cut Microsoft down to size, the hearing was a dream come true for a Justice Department seeking to expand its investigation of Microsoft.

Those watching the hearings were treated to an utter pounding of Microsoft by the Republican majority — the supposed defenders of free markets. Bill Gates’ insistence that his firm must "innovate or die" had little impact. This was dramatically confirmed by Hatch’s declaration that "they are now a monopoly and they will have to learn to live by the rules that govern monopolies."

By hurling the term "monopoly" at Microsoft with careless abandon, Republicans on the panel demonstrated their inability – or worse, unwillingness — to distinguish between economic power obtained through the voluntary consent of consumers, and real monopoly power obtained through government prohibition of competition (such as the Post Office, public schools, and utility monopolies).

Microsoft’s opponents on the panel stand to directly gain financially from antitrust action directed at Microsoft. Yet they are achieving their daylight public looting of Microsoft with their motives utterly unquestioned. Microsoft’s chief competitors, James Barksdale of Netscape and Scott McNealy of Sun Microsystems, sat there for four hours, just as Bill Gates did — yet there was not a single question from any Senator inquiring into

what they stood to gain from antitrust enforcement directed at their rival.

McNealy and Barksdale claimed they didn’t want any new regulation imposed on the computer industry – they merely wanted enforcement of the existing anti-monopoly laws. But rather than the "lock-in" of inefficient Microsoft technology, the real problem today is the lock-in of inefficient, outdated, malicious antitrust theories.

Though Republicans seem unable to articulate it, there is a proper free market attitude toward Microsoft. The bundle of goods that comprises the personal computer is not public property, and no one has a right to have it regulated on their behalf through government force.

All today’s attacks on Microsoft revolve around the company’s efforts to incorporate its Internet Explorer web browser into the Windows operating system. But despite similar "bundling," Microsoft was unable to "leverage" its operating system dominance to make its Microsoft Network trounce America Online. Similarly, the personal finance program Microsoft Money considerably lags behind market leader Quicken.

The failure of bad bundling ideas proves consumers do wield considerable power. Contrary to the impression created by its competitors, Microsoft does not operate in a vacuum, impervious to the world’s competitive gales. If Microsoft over-reaches with its Windows operating system, it invites retaliation not only from consumers but from its far mightier partners — computer makers Gateway, Compaq and Dell, as well as chipmaker Intel. Windows will not function in its cardboard box.

Since Microsoft needs its partners as much as they need it, markets routinely police themselves out of necessity. The Senate hearings, with their grandiose title, could have performed a profoundly valuable service by exploring such dynamics, but it squandered the opportunity.

Instead, Sen. Hatch chose to focus on Microsoft’s licensing practices — which prevent its Internet business partners from promoting its chief rival Netscape — and treat them as if they were a reprehensible crime.

Of course, Microsoft has every right to require that, in exchange for prominence on the Microsoft desktop, its Internet business partners not promote Netscape’s products. Hatch and the other Republicans apparently define a free market as one in which Microsoft sacrifices itself.

One wonders how the advocates of capitalism will recover from the spectacle of a Republican behaving as if private business contracts are objectionable. The implications are enormous, opening the way for government rewrite of everything from employment contracts to deals between retailers and manufacturers.

A real oversight hearing, would have adressed the following:

Is Microsoft too puny? The Senators and competitors derive momentum from the impression that Microsoft Windows seemingly dropped out of the sky unbidden, forcing us all to use it against our will. But competition in operating systems was unrelenting for years. Rival systems included Unix, Apple’s Mac OS, Sun’s Solaris, IBM’s OS/2.

Even today, Microsoft may be too puny. James Barksdale made the curious observation at the hearing that prices in the computer industry would be even lower if there were other competitors. That hardly makes sense. The number of households using computers has still yet to exceed 30 percent, and only a fraction of those use the Internet. Rather than harass Microsoft, Barksdale and the other raft of Microsoft competitors should pursue this extraordinary untapped market and offer the "lower prices" he invokes. Otherwise he needs to step aside and allow Microsoft to offer consumers what its rivals have failed to achieve.

Rather than allow such competitor pretensions to carry the day, there is plenty that Republicans could have asked the witnesses that would have rendered the hearing something other than an orchestrated pileup on Microsoft.

Are competitors interested in consumers — or themselves? There was no effort to ask Microsoft’s competitors to demonstrate that they were motivated by "selfless" concern for consumers as opposed to a desire to seize Microsoft’s customer base by force. Republicans should have noted with concern that, since Mr. McNealy and Mr. Barksdale clearly will directly profit from antitrust action preventing Microsoft from incorporating new features into the Windows operating system, they must convince the panel they are not simply trying to loot a successful competitor.

If applications independent of Microsoft are coming, why complain? Scott McNealy of Sun testified that "Microsoft has the power today to exercise predatory and exclusionary control over the very means by which we access the Internet."

That should have puzzled the panelists, because McNealy said in Fortune that he has discovered the "holy grail" in the form of the Java programming language, which frees programmers from the Windows/Intel architecture. McNealy noted, "Suddenly a world of possibilities opened up in front of us. If we developed Java ‘interpreters’ to run on all the major computers – Macs, PCs, workstations – and then gave them away, Java-powered Web documents could come alive on any computer. You could even surf the Net on a stripped-down $500 terminal. Remember, everybody has always wanted applications that were hardware and software independent."

Thus, contrary to what McNealy told the Senate, a non-Windows paradigm already exists which allows programs to execute on non-Microsoft software.

Sun wants to play both sides of the fence, profiting from potential success with Java, but branding Microsoft a monopoly and running to Uncle Sam if Java doesn’t pan out. McNealy should have been grilled for this two-faced behavior in the hearing.

Through this simple evasion, the most important element it the current competitive environment was all but ignored. A considerable amount of hearing time should have been spent on the fact that the very competitors attacking Microsoft brazenly claim that the Java computer language will allow programs to run independently of any Microsoft software.

It’s time we took McNealy’s word for it. If the ‘write once, run anywhere’ paradigm shift is underway, there is clearly no cause to worry about Microsoft, and no cause for implementing the most perilous lock-in of all – having government pick winners and losers.

Wait, aren’t you guys "bundling," too? Netscape’s behavior is as contradictory as Sun’s. While it accuses Microsoft of "unfairly" bundling a new product to one in which it holds a monopoly, Netscape did the same. When Netscape Navigator held an 80 percent-plus market share back in 1996, e-mail was bundled into Navigator. That was clearly bad news for the popular stand-alone e-mail program Eudora – just as Microsoft’s Explorer is bad news for Navigator. If bundling is OK for a "monopolistic" Netscape, why not for Microsoft.

Stripped of the pomp and decorum, Hatch’s extravaganza boiled down to one element: businessmen asking politicians for a handout. Since the only "service" politicians can offer is to transfer wealth, it is quite clear who can gain and who must lose.

On the part of free marketeers, the proper attitude toward any public debate of this type is to determine who’s attempting to use government force, and who’s not — and then oppose the party using force.

Bill Gates told the Senators that "no company owns the factory for ideas." He’s right. At bottom, the Internet’s fiberoptic network and computer chips come from silicon, one of Earth’s most abundant elements. Since about 4,000 miles of fiberoptic cable is installed in America daily, and since chips are expected to become as plentiful as scrap paper, it would have been interesting to hear Microsoft’s competitors explain just how it is that a monopoly in sand and ideas is even remotely possible. Maybe next time

Wayne Crews (cwcrews@cei.org) is CEI fellow in regulatory studies.