http://www.mises.org/fullstory.asp?control=442
MS-Nationalization
By Thomas J. DiLorenzo
[Posted on Mises.org June 8, 2000]
When Judge Thomas Penfield Jackson "ordered, adjudged, and decreed" the
breakup of Microsoft into two separate companies he effectively replaced
Bill Gates with government lawyer Joel Klein as the chief decision maker of
the Microsoft Corporation. The Judge accepted almost verbatim the Clinton
administration's breakup proposal, authored by Klein and his colleagues in
the corrupt Reno "Justice" Department (with the help and advice of
Microsoft's competitors), effectively nationalizing the company.
There is no more competitive industry than the computer industry, where the
dynamic market process has produced a company like Microsoft, which
produces both a computer operating system and applications. The Soviet
central-planning style breakup scheme ordered by Judge Jackson abolishes
what the competitive market process has produced and in its place puts a
Byzantine regulatory regime that is to be administered by federal and state
government lawyers. There could not possibly be anything more damaging to
competition, economic rationality, and consumer welfare.
The judge's order effectively destroys Microsoft's ability to compete in
the Web browser market, thereby making that market less competitive, and
also prohibits the company from employing routine competitive devices that
are used by thousands of other businesses, such as exclusive-dealing
contracts and tie-in sales.
Judge Jackson even goes so far as to order a kind of forced labor by
commanding Microsoft to "use all reasonable efforts to maintain and
increase the sales and revenues of both the products produced or sold"
prior to his order and to "support research and development" for such
products.
Never mind that some of these products might become obsolete in the
meantime, as they frequently do in the high-tech world; the government
commands the company to keep on producing them, thereby wasting resources
and causing higher costs and prices.
Most businesses that develop close relationships with vendors or suppliers
frequently give preferential treatment to those business partners from time
to time in order to maintain a good working relationship. Microsoft is
prohibited from doing so with the applications side of its business, for
Judge Jackson has forbade offering it "terms more favorable than those
available" to any other business.
In a fit of egalitarian extremism the judge further decreed that all
computer manufacturers doing business with Microsoft must be offered "equal
access to licensing terms; discounts; technical, market, and sales
support," etc., etc. Such discrimination, based on merit and performance,
is a necessity for any successful business, but Microsoft is banned from
it.
The judge's order imposes a huge paperwork burden which will cost the
company (and ultimately, consumers) untold millions of dollars and wasted
man-hours each year. Every single agreement made between the operating
system and applications businesses will have to be reported in detail to
the government every three months.
The company is ordered to divert valuable management talent away from
producing better computer products and appoint a "Chief Compliance Officer"
who will report/genuflect to the government on a regular basis.
A Gestapo-style monitoring system is established whereby the government is
given "access during office hours to inspect and copy...all books, ledgers,
accounts, correspondence, memoranda, source code, and other records and
documents." Fat chance that this proprietary information will not make it
into the hands of Microsoft's competitors, who urged on the lawsuit, were
government witnesses at the trial, and who helped write the breakup order
that the judge ultimately accepted, which included this very directive.
A particularly creepy and totalitarian aspect of Judge Jackson's order is
his encouragement of an internal spying network within the Microsoft
Corporation with his admonition to "establish and maintain a means by which
employees can report potential violations" of the government's regulations
"on a confidential basis."
The source code--perhaps the most valuable asset possessed by
Microsoft--will be stolen with the help of the government. Microsoft is
required to establish a "secure facility" where virtually all of its
business associates will be permitted to "study, interrogate and interact
with relevant and necessary portions of the source code..." This would be
like forcing Coca-Cola to allow other businesses to "study" the secret
formula for Coke, effectively ruining its business.
Microsoft is ordered to produce "written reports" about its practices
whenever the Justice Department lawyers or any of the state attorneys
general want one, opening up the door to endless political extortion ("Give
us campaign contributions and we won't ask for a report.")
No central planning scheme would be complete without price controls, and
the Jackson/Klein scheme is no exception.
The "order" demands "equal access" to discounts offered to computer
manufacturers and, after each new product release, it must "continue for
three years after said release to license on the same terms and conditions
the previous Windows Operating System Product to any [computer
manufacturer] that desires such a license."
The high-technology revolution, led by Bill Gates and Microsoft, has
occurred precisely because, up to now, the computer industry has been the
least-heavily regulated industry in the world. All that will change
dramatically if Judge Jackson's order stands and the higher courts allow
Bill Clinton, Janet Reno, and Joel Klein to effectively nationalize the Mic
rosoft Corporation.
The rest of the world, envious of America's economic success (thanks in no
little part to companies like Microsoft), must be marveling at such a
stupendous act of stupidity and arrogance.
-------
Thomas DiLorenzo, Professor of Economics at Loyola College in Maryland,
serves on the senior faculty of the Ludwig von Mises Institute.
c) copyright 2000, The Mises Institute.
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