Crony Capitalism American Style

Steven J. Searle

Web Master, TRON Web

The U.S. Department of Justice versus Microsoft antitrust case finally reached completion on June 7, 2000, the day the judge issued his final ruling. Agreeing with the recommendation of the DoJ and 17 of the 19 state attorneys general, Judge Thomas Penfield Jackson has ordered that Microsoft be split into two parts: one part to specialize in operating systems, and the other in applications software, publishing, on-line services, etc. The judge accepted the DoJ's argument that rather than imposing fines or mandating more "conduct remedies" of the type that Microsoft did not adhere to in the past, this is the best way to punish the software giant for violating U.S. antitrust laws and to prevent it from using its operating system monopoly as leverage to push its applications in the market, in particular its Web browser. To the average person in the anti-Microsoft camp, this ruling is no big deal, since in essence it creates two mini monopolies that will continue to do very well, thank you. To Microsoft, however, it is an extremely radical remedy. Microsoft officials are livid, and not surprisingly pro-Microsoft government and media figures are coming to their aid. The results are astonishing!

In an opinion piece titled "Microsoft Muddle" that appeared on the Washington Post Web site on June 11, 2000, Robert J. Samuelson quotes an excerpt from a speech that U.S. Treasury Secretary Lawrence Summers gave on May 10, 2000. He quoted Secretary Summers as saying:

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.

In his opinion piece, Mr. Samuelson tells us that Secretary Summers is considered an "eminent economist," from which we are led to conclude he possesses some sort of "papal infallibility" in the "dismal science" called economics. Economics is called the dismal science because economists have never been able to predict what's going to happen next in a market economy with any degree of certainty. However, automatically assuming the statements of Secretary Summers afford us with some sort of predictability, Mr. Samuelson writes: "Companies need the prospect of market dominance to innovate; if they're denied that, innovation--and economic growth--slows."

In fact, the so-called goods of the information-based world are already given temporary monopoly power under existing copyright and patent laws. Using this existing temporary monopoly power, the U.S. motion picture industry, which also incurs those "high initial fixed costs," has succeeded in having DVD players designed and manufactured in a way not only to prevent illegal copying, but also to protect its "business model." [1] The players include regional codes that prevent owners of DVD players in Japan, for example, from viewing a film that was recently released in DVD format in the U.S. Moreover, Mr. Samuelson's contention that innovation, and hence economic growth, can only come from companies in possession of market dominance flies directly in the face of the well known facts of the history of personal computing in America. Oodles and oodles of innovations--most importantly the Internet itself!--have come from research laboratories and hobbyists, not monopolistic enterprises run by megalomaniac businessmen. He also seems to be unaware the Internet is filled with large amounts of useful data that are provided free of charge--much of it of high quality and created by hobbyists!--and it is those data, not anything that Microsoft has created, that are the main reason for accessing the Internet in the first place.

Most importantly, though, these statements are specious. Would Secretary Summers or Mr. Samuelson be making these outlandish claims about the supposed new economic realities of the information age if a Japanese or a European company, and not Microsoft, produced the operating system that is used on 90 percent of the world's personal computers? Would they be hinting at the recasting of existing antitrust laws if that Japanese or European company then tried to extend its personal computer operating system monopoly in a way that would allow it to control access to an open international computer network? Highly unlikely! Cooking up spurious theories to justify the continuation of the monopolistic practices of an American company smacks of "crony capitalism American style," and this is not going to be accepted as reasonable, logical, well intentioned, or even well thought out overseas.

As ludicrous as the above statements sound--outside the Beltway, that is!--they absolutely pale in comparison to the absurdity that was served up as an opinion piece on the ABC News Web site. Mr. Fred Moody, a denizen of Seattle who once worked with Microsoft, wrote an opinion piece titled "Judging the Judge," which appeared on the site on June 21, 2000. The following is an excerpt in defense of Microsoft.

The two [Judge Jackson and the DoJ] turned out to be conspiring, with increasing desperation, not only to break Microsoft into separate companies, force it to abandon its most lucrative and hardball business practices, and turn over its proprietary Windows source code to competitors, but also to deny the company some of its most fundamental rights. Microsoft, hoping at least to play by the rules in moving on to the next legal round, wants to appeal Jackson’s decision to the U.S. Court of Appeals for the District of Columbia Circuit, the court charged with reviewing Jackson’s “work,” and wants Jackson to postpone the business-practices constraints he has ordered until Microsoft’s appeal is heard. To no one’s surprise — particularly not to Microsoft’s — Jackson denied the latter, and tried to finesse his way out of the former.

If Mr. Moody has evidence that Judge Thomas Penfield Jackson colluded with the Department of Justice to deny Microsoft a fair hearing in court, then I suggest he immediately contact the Seattle office of the Federal Bureau of Investigation. Collusion between the judge hearing a case and the prosecutors prosecuting that case is a gross violation of due process. However, if he has no such evidence, the above statement is highly libelous. (Judge Jackson, by the way, is depicted above Mr. Moody's opinion piece in cartoon form as a kangaroo, so it seems libel was the intent!) This is because it impugns the dignity of a sitting Federal judge, which is not to mention that of Federal prosecutors who had previously tried to correct Microsoft's monopolistic behavior with a consent decree, i.e., a legal wrist slap. Mr. Moody should spend much more time thinking before he writes.

Of course, anyone who can begin a sentence with "Microsoft, hoping at least to play by the rules . . . " may have problems in the thinking department. Microsoft doesn't play by others people's rules--up to now, it has made the rules that others play by! If Microsoft likes playing by the rules so much, then why didn't the company faithfully follow the promises it made in the consent decree? In fact, the main reason Microsoft wants to have the trial routed through the U.S. Court of Appeals is to draw out the legal proceedings against it, for the longer the legal wrangling goes on the more likely it becomes that the case against it will be dropped. That was what happened in the IBM antitrust case, which lasted more than a decade. Judge Jackson knows this, which is why he has decided to refer the case directly to the U.S. Supreme Court. However, in a concession to Microsoft and contrary to what Mr. Moody claims above, Judge Jackson did suspend the business-practices constraints he placed on Microsoft.

Since Mr. Moody's opinion piece is libelous, biased, and inaccurate, one might ask why ABC News even bothered to post it on its Web site. That's a good question, and I hope the editors of that service tell us one day. In particular, I'd like to know the name of the editor who allowed a sitting U.S. Federal judge to be depicted as a kangaroo. From overseas, the sole value of this piece of writing seems to be that it helps spread the "disinformation" that American companies must be granted the right to conduct business using "lucrative and hardball" business practices. And this is where I would like to remind Mr. Moody that the "real software hero from the Seattle area," Gary Kildall who made tremendous contributions to the advancement of personal computing technology through his firm Digital Research Inc., was one of the first victims of Microsoft's lucrative and hardball practices. That's right, lucrative and hardball business practices can actually lead to the destruction of new technologies developed inside U.S. borders, which is injurious both to U.S. industry and U.S. consumers. That's exactly why the Federal government and 19 state governments are pursuing the antitrust case against Microsoft, and large numbers of Americans are now coming to realize such business practices have no place in their country or in any other country on the face of the earth.


[1] As is well known, the encryption system for DVD players was decrypted by computer "crackers," but that is a technical issue that has to do with engineering competency, not the rights of copyright holders. Moreover, it should be noted that in pre-DVD days, it was possible to copy movies and music either from television and radio or from purchased recording cassettes--and yet no one went out of business. Why? Copying is easy, but selling illegally copied materials on a massive scale attracts attention, the attention of those whose enforce the rights of copyright holders under existing laws. Existing copyright and patent laws work just fine.