The Wasteful Microsoft Case
Benjamin Franklin once declared that “in this world nothing can be said to be certain, except death and taxes.” With all due respect to one of our Founding Fathers, I have an addendum. That is, nothing in life is certain, expect death, taxes, and waste in government.
After more than 15 years of exploring and evaluating government actions past and present, from local school districts up to the federal government and into the international arena, there is no doubt in my mind that waste in government is a certainty in life. Like taxes, and unlike death, government waste varies only by degree.
Incentives in government promote bigger budgets, more patronage, and expanded power, so the certainty of waste should be obvious. For good measure, there is the simple fact that those in government are spending other people’s money – a scenario that does not exactly promote prudence in expenditures.
However, waste appears in various guises. It does not only manifest itself in fat salaries, padded payrolls, endless streams of dubious handouts, and destructive taxes. It also comes in the form of misguided and unwarranted regulatory escapades.
One such escapade apparently came to a close on June 30. That was when the U.S. Court of Appeals for the District of Columbia endorsed the 2001 agreement in the Microsoft antitrust case.
As a brief refresher, you may recall that the U.S. Department of Justice, 20 states and the District of Columbia brought a suit in May 1998 against Microsoft saying the company had monopolized the personal computer operating system market and was trying to monopolize the market for Internet browsers. In 2000, U.S. District Court Judge Thomas Penfield Jackson ruled against Microsoft, and actually ordered that the company be split in two. Fortunately, a bit of sanity crept into the case when the Court of Appeals in June 2001 overturned much of Jackson’s decision, including the proposed break up and the ruling that Microsoft tried to monopolize the browser market. But the Court mistakenly left in place the finding that the firm abused its supposed operating system monopoly.
Microsoft reached an agreement with the Justice Department and nine states later in 2001, including various restrictions on business practices, which was largely approved about a year later by U.S. District Court Judge Colleen Kollar-Kotelly. Eventually all of the states, except Massachusetts, came to a settlement with Microsoft. On June 30, the Court of Appeals ruled against Massachusetts, which had been joined by two groups largely representing Microsoft’s competitors, and the call for more draconian penalties on the company.
But the saga continues. Microsoft faces a similar case in Europe, as antitrust authorities there ruled that Microsoft must remove its media-player software from Windows and pay a record $613 million fine. That decision is now under appeal.
The waste in these Microsoft cases comes on different fronts. In the first place, it must be recognized that the government’s endeavors lack merit. Microsoft does not have a “monopoly” in operating systems or browsers or media players in any economically meaningful sense of the word. It must work hard and continue to innovate because it faces both current rivals (for example, including Linux and Apple in operating systems, and assorted other browsers), as well as future competitors. There certainly are no barriers to market entry in our high-tech economy.
To be clear, Microsoft gained market share by serving consumers, and must continue to perform well to maintain its success. It is consumers that should be the final judge and jury in the marketplace, not government bureaucrats, lawyers and regulators spurred on not by customers, but by complaints from rival firms who were not up to the competition.
So, the antitrust pursuit of Microsoft ranks as a venture in waste. Government wasted millions of taxpayer dollars. Competitors wasted resources trying to take down Microsoft through political and legal means, when those dollars would have been better spent on trying to improve their own competitiveness. Microsoft has been forced to waste resources by directing them away from invention and innovation, and toward legal and regulatory efforts.
In the end, the big losers in the Microsoft cases haven’t been any of the businesses involved, nor the politicians and government lawyers. The ultimate losers are consumers, including countless small businesses that utilize computers and the Internet every day. Karen Kerrigan, chairman of the Small Business Survival Committee, correctly observed: “Billions in investor dollars have been lost, and who knows how the case impacted the innovative capacity and productivity of Microsoft, its small business developers and the tech sector as a whole.”
In the name of taking on the so-called big bad Microsoft monopoly, the real achievement of the U.S. case was to restrain investment, research, innovation and consumer choices. The same goes for the European case. That’s ironic. That’s also a glaring example of the certainty of government waste.
Raymond J. Keating serves as chief economist for the Small Business Survival Committee.
