By Greg Holmes

With Republicans and Democrats bickering inanely in an attempt to grab credit for our robust economy, it is easy to lose sight of the fact that the principal engine driving our economy is technology, especially the Internet. With innovations like just-in-time delivery, inventory control, and organization-wide communication, the Internet has vastly improved America and the world’s productivity.

But since government is by nature parasitic, it invariably seeks to take from the most productive in an effort to win the support of the less productive. Indeed, the Internet golden goose is under serious assault by the politicians. There is no surer way of killing that goose than the taxes, regulation, and outright spying on innocent private citizens being carried out daily by numerous government agencies. Perhaps the most tragic current example of government’s war on the successful is the Clinton Administration’s politically motivated jihad against Microsoft.

The ongoing Microsoft litigation, initiated by the current Administration, is a solution desperately in search of a problem. The prevailing view of the antitrust laws is that they are primarily intended to protect consumers by ensuring the continued existence of vigorous competition and market conditions that foster innovation and creativity. As it happens, these are precisely the conditions that have existed, actually growing in intensity over time, since Microsoft first came onto the public scene more than two decades ago. It is undeniable that during that same time, software prices have plummeted, the versatility and usefulness of software have dramatically improved, the Internet has experienced explosive growth, and our economy, now in large part technology driven, has become a veritable engine of dynamic prosperity. Far from being a classic monopolist, able to use its market share to increase prices and stifle innovation, Microsoft has instead contributed to a lively software market characterized by falling prices and prodigious innovation. Indeed, the Government was only able to concoct a superficially plausible antitrust case against Microsoft by contorting the definition of the “relevant market” to exclude operating systems developed by Apple and other Microsoft competitors. Having artificially defined the relevant market in a manifestly misleading way, the Government could then claim with a straight face that Microsoft has a “90% share” of the operating systems the government itself chose to place at issue.

The current Administration is misusing the antitrust laws to render unfair assistance to Microsoft’s competitors. Over the years, Microsoft’s many competitors have steadily lost market share owing to Microsoft’s unparalleled ability to innovate, to improve its products, and to reduce the prices consumers are charged for those products. Unable to defeat Microsoft in the free market, many of these competitors made the unfortunate and ultimately self-destructive decision to invite the federal wolf into the technology tent. Given this year’s battering of technology stocks in the capital markets, a battering that coincided tellingly with the district court’s ruling in the Microsoft case, these competitors may even now be regretting their decision to involve the federal government in their industry. But the purpose of our antitrust laws is to protect consumers, not competitors. It is a dangerous and disturbing precedent for any administration to be permitted to use the force of government to try to pick winners and losers in any industry, let alone an industry as innovative and vital to the growth and health of our national economy as high technology.

A parallel example of the politicization of the antitrust laws is the recent litigation, initiated by the Clinton Department of Justice, against Visa and MasterCard, a case brought at the explicit behest of American Express, the principal competitor of now Defendants Visa and MasterCard. Just as with Microsoft’s competitors, American Express found that it could not defeat Visa and MasterCard by competing against them in the free market. Needless to say, it was ever so much more convenient to run to the federal government, lobby the Department of Justice and the Whitehouse, finally persuading them to use the force of the federal government to engineer the defeat of its competitors that complainant American Express had singularly failed to achieve.

With the coming into being of a new administration effective January 20, 2001, there will be a great opportunity to right the politically motivated wrong perpetrated against Microsoft by the federal government. This wrong can be righted by dismissing or (less desirable) at least drastically curtailing the scope and severity of the antitrust lawsuit brought against Microsoft. There is precedent for such a change of direction to right a previous wrong upon a change of administrations. In 1982, a little more than a year after the Reagan Administration came into office, the Reagan Department of Justice took steps to bring to an end the federal government’s ill-conceived, decade-long antitrust litigation against IBM. There are other striking parallels between the Microsoft and IBM cases. For one thing, when the federal government initiated the IBM litigation in the early 1970’s, there was a widespread belief—at least in antitrust circles—that IBM was threatening to dominate the computer and high-technology industries and that, failing government intervention, competition and innovation would be extinguished. By the time the IBM case was mercifully brought to a sensible end in 1982, IBM was itself being given a sound thrashing in the free market by such upstarts as Apple and other American and Japanese firms. In the case of Microsoft, so rapid and unpredictable is the course of technological progress that many vital aspects of Microsoft’s business are already changing beyond the narrow parameters contemplated by the Clinton Department of Justice and Microsoft’s business competitors in commencing the antitrust litigation in the first place.

But the most tragic and disheartening lesson that Bill Gates and Microsoft have been taught by the ongoing antitrust assault is that it is essential for any successful business in the United States to have a political presence in Washington. This lesson of crony capitalism has been understood for a long time by the businessmen of the Far East, a region in which any company that grows beyond a certain point had better recognize the political realities and devote a substantial percentage of its money, personnel, and time, not to pleasing its customers and earning good returns for its shareholders, but instead, currying favor with various powerful politicians who wouldn’t know a microchip from a microwave!

The relentless government-orchestrated campaign against Microsoft carefully ignores the company’s essential and positive role in driving down and keeping down the prices consumers pay for high-technology products and services. No doubt this beneficial effect explains why it is Microsoft and Bill Gates who are overwhelmingly popular with the American public, not the Government.

Microsoft’s ability to have a significant impact on the cost of software and other advanced devices and systems (what legal scholars and economists call “pricing power”) illustrates a fundamental benefit of freedom, a free and responsive market in which prices are determined by supply and demand. Through freely established prices, consumers receive uniquely valuable information about the products and services they want—and even those they do not want. Prices that are set independently of government regulation tell consumers the precise value of a thing in terms that are meaningful to them. Through innovation and aggressive pricing, Microsoft has wisely and helpfully informed world consumers, while appealing to their enlightened self-interest in the process.

Available data clearly show that Microsoft has even played a key role in mitigating the harmful side effects of the recently successful international battle against inflation. Alan Greenspan, Chairman of the Board of the Federal Reserve System, has noted the often overlooked fact that technological innovation, spearheaded by companies like Microsoft, has served as a safety valve, enabling central banks around the world to “squeeze” excess liquidity out of the world’s economies. Over the past two decades, central bankers have largely vanquished the serious inflation that threatened to undermine market-oriented economies a generation or so ago. In Europe, intolerance for inflation and a commitment to price stability have gained widespread acceptance.

Chairman Greenspan identifies as one of the two most helpful developments of roughly the past five years contributing to the struggle against inflation what he terms the “serendipitous emergence” of a once or twice in a century surge in technological progress. Without this salutary surge, with its accompanying boost of productivity, the anti-inflation measures taken by central bankers might have led to the kind of social unrest that has characterized other such periods in history. We note parenthetically that the other positive trend pointed to by Chairman Greenspan has been the long-awaited, long-overdue commitment by the federal government to a balanced budget.

The paragons of legal and ethical virtue in the Clinton Justice Department are now in federal court, seeking Draconian antitrust penalties against Microsoft, history’s premier developer and producer of computer software. Despite an intensely competitive market marked by falling prices and prodigious innovation, the Government continues to allege that Microsoft has a monopoly position in the software market and has used that position to stifle its competition to the detriment of consumers. It is interesting to note that the presiding judge in the Microsoft litigation, a liberal Republican assigned to the case by the Democrat Chief Judge of the United States District Court for the District of Columbia, has a track record of unbridled hostility to Microsoft and more importantly, also has a track record of being reversed on appeal in antitrust cases.

But although the factual conditions of the software market make the Government’s case against Microsoft abysmally weak and unconvincing, there are malefactors in our society, unmitigated monopolists all, whose predatory and anticompetitive practices are undeniable. By suppressing competition, driving up prices, and limiting consumer choice, these monopolists have the power to manipulate and control markets to a degree Bill Gates could never hope to achieve in his wildest dreams. Of course these monopolists are the federal, state, and local governments, each of which has established and ruthlessly enforces total or near total monopolies in diverse fields of endeavor from the delivery of first-class mail to the practice of medicine, from the taxicab business to garbage collection, insurance to banking, from the education of children to the practice of law, selling real estate to cutting hair. In each of these arenas, governments jealously guard their raw power to decide who may compete and even whether competition will be permitted at all. For unlike any private business arrangement, these monopolies are kept in place through government’s unique power to use “lawful” force to fine, imprison, or even kill any violator of its monopolies who is sufficiently insistent about it.

Absent force or fraud, free market advocates tend to regard as fundamentally immoral any government interference with the right of individuals to dispose of their private property as they see fit. This is because we have learned through long experience that free societies are inherently more benign and more economically efficient than unfree societies or even partly free societies. This principle of liberty shapes our attitude toward Microsoft and every other business enterprise. There are certainly those-–mostly his competitors, plus some politicians and antitrust bureaucrats—who strongly dislike Bill Gates. Technology consumers, on the other hand, overwhelmingly view Microsoft and Gates with unqualified approval, as demonstrated by virtually every poll and survey and more decisively, by the outcome of the everyday struggle in the software market.

Congress should revisit the antitrust laws to address the real monopolists in this country, federal, state, and local governments. Unlike any private business arrangement, involving Microsoft or any other company, governments at all levels have the unique ability to use lawful coercion, the threat of fines or imprisonment, to enforce the monopolies they like. By suppressing competition, driving up prices, and limiting consumer choice, these untouchable government monopolies do far more harm to the public than any private business.

The most cursory examination of the case against Microsoft reveals that the Clinton Administration’s position lacks any serious factual or legal merit. But true or false, all the allegations against Bill Gates and Microsoft pale by comparison with the routine anticompetitive actions of governments at every level. In other words, whatever you may think of him, Bill Gates cannot put anybody in jail!