The Microsoft antitrust saga teaches us more about human nature than about technology, economics or the law. We have had a test of wills–among Bill Gates, the government’s antitrust lawyers and Judge Thomas Penfield Jackson–and none of the major protagonists deserve our sympathy or respect. This is a compelling drama, but it’s a lousy way to set policy for the “information economy.”
Look, for example, at the pictures of the top government antitrust lawyers: Justice Department antitrust chief Joel Klein, litigator David Boies and Connecticut Atty. Gen. Richard Blumenthal. As often as not, they’re beaming. The celebration is understandable. The campaign against Microsoft long ago ceased to be a simple exercise in public policy. It became a highly personalized contest, and the victors can’t suppress their glee. WE BEAT GATES.
But the gloating is misplaced. Here’s the government deciding to disassemble one of the most successful companies in recent history. The task’s complexity suggests humility. The pictures, by contrast, show litigators on a giant ego trip. The conventional image of high-minded public servants, concerned only with the larger national interest, is outdated.
Equally misplaced is the picture of Gates as victim. He brought this on himself. Microsoft is a company founded by adolescents who, in many ways, haven’t grown up.
As people mature, they usually learn to understand the other guy’s point of view. Gates hasn’t made this leap. He wants to obliterate competitors and control customers. In a small company, with less market power, this obsessive need to dominate might simply have created commercial ill-will. But Microsoft had huge market power, and this made Gates’ position much different.
In 1994, Microsoft accepted an antitrust consent decree with the Justice Department. This notified the company that its behavior was being watched. A prudent manager would have curbed the company’s most offensive practices and realized that it was a bad gamble to taunt the government. Gates continued as before. Some of Microsoft’s tactics in the “browser war” with Netscape were outrageous abuses of market power.
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Punishment now looms, because Gates mismanaged his company. He misinterpreted a major force influencing its future–the government. In this sense, he’s getting his just deserts.
The trouble, of course, is that this isn’t only about Gates. There’s also the “public interest.” Microsoft has created immense public benefits. Personal computers have generally standardized around one operating system. Simplification cut learning costs for computer users. Innovation has flourished. Against these gains are possible losses from Microsoft’s unfair competitive behavior.
A judge is supposed to sift through all the conflicting claims for the public good. Judge Jackson didn’t. He made no attempt to balance the public-welfare gains from Microsoft with the losses. Nor did he consider how new technologies may alter traditional views about market dominance. Some economists argue that knowledge-based industries inevitably–and desirably–tend toward dominant firms. In a May 10 speech, Treasury Secretary Lawrence Summers, an eminent economist, put it this way:
“An information-based world is one in which more of the goods that are produced will have the character of pharmaceuticals or books or records, in that they involve very large fixed costs and much smaller marginal costs [i.e., it costs a lot to write software but not much to make an extra copy]. … [This] means that the only incentive to produce anything is the possession of temporary monopoly power–because without that power … the high initial fixed costs cannot be recouped. So the constant pursuit of that monopoly power becomes the central driving thrust of the new economy.”
Hmm. Is technology itself, as some economists think, a check on monopoly power? The constant threat that someone else will innovate forces companies to innovate. Or can antitrust rules be crafted to make technological competition more fair?
Jackson ignores the theories and dodges the questions. His view, if upheld, means that the antitrust laws are disconnected from any larger concept of public interest. They’re simply a device to protect competitors against a dominant firm. As for Microsoft’s proposed breakup, he admits he merely adopted the plan of the Justice Department and 19 state attorneys general. “[They] won the case,” he writes, “and have some entitlement to a remedy of their choice.”
If this makes Jackson sound intellectually lazy, he confirms the impression. In an astonishing interview with The Washington Post, he says that he personally didn’t favor a breakup but felt overwhelmed. “I am not an economist,” he says. “I do not have … any significant ability to be able to craft a remedy of my own devising.”
So, the judge won’t exercise independent judgment.
What we have is a good drama: ambitious prosecutorial power; arrogant corporate power; and mediocre judicial power. What we don’t have are sensible principles for governing a knowledge-based economy–or perhaps even a way of reaching them.