This article originally appeared in the August, 2000, Number 11 issue of *spark.
Okay, let’s see if I’ve got this straight. An American court has decided that Microsoft is a monopoly. Microsoft says it isn’t, but even if it was, it can’t be broken up because that would cause the stock market to crash, followed by a worldwide depression. The Department of Justice ignores these dire predictions and–voilà!–Microsoft is to be divided into two separate entities.
And nobody seems to care. The story plays out in the dailies and sinks without a stone. The market as a whole doesn’t hiccup (although Microsoft itself is worth a few less billion on paper). Pundits (on either side) aren’t pontificating. Just one big shrug. Now, why do you think that is?
1) The break-up will never happen. Microsoft, with billions of dollars of spending money in its coffers, can afford to tie up the decision in the courts for years. Hell, the company would probably BUY the Department of Justice if it could figure out a way to leverage sales of justice through its operating system. This will give Microsoft a long time to prepare a strategy to continue milking whatever markets it happens to be in, even if
it is split up. Who knows? By the time, many years into the future, a break-up actually happens, Microsoft may be out of operating systems altogether. All we can say for sure is that it will still be huge and it will still dominate whatever market it’s in.
2) The break-up won’t change much. According to recent reports, Microsoft will be broken up into two companies: one will continue to manufacture its operating system, the other will manufacture…everything else. That means the Microsoft operating system will still be found on over 80 percent of the desktops in the world. As for everything else, that becomes an
interesting question. Microsoft has long argued that all of the programs on its desktop are integral to its operating system; removing Internet Explorer would seriously cripple Windows. Negotiations for what makes up “everything else” will likely further drag out the case, and there is no guarantee that what you and I might consider add-ons the Department of Justice won’t consider basics. If the government ultimately agrees with
Microsoft’s position, nothing in the future will keep it from using its dominance in the operating system from pulling an Explorer. (Quick recap for those who joined us late: Microsoft puts its Web browser on its desktop, making it next to impossible to install other browsers; rival browser Netscape’s market share plummets, forcing it close to bankruptcy and ultimate purchase by America Online.) If the definition of what is part of Microsoft’s operating system is too broad, the whole antitrust movement will be a hollow victory, indeed.
3) The break-up won’t last. Remember the last great antitrust case, AT&T? The telecommunications giant was broken up into seven pieces, the Baby Bells. Through mergers, there may soon be only four Baby Bells. Moreover, they have refused to compete with each other in their local markets since that was legalized; competition (which, you will recall from Economics 101, is the basis of capitalism) drives down product prices and lowers shareholder value. Can’t have that. It’s unlikely that Microsoft, once broken up, will be allowed to get back together again. If the two parts of Microsoft are allowed to work too closely together, however, breaking up the company will have been a pointless exercise in government muscle flexing.
4) The break-up goes against the prevailing tide. Now that the Microsoft issue has been (for the time being) settled, is the American government going to investigate Intel? Oracle? What about AOL Time Warner? Sure they will. When monkeys fly out of Bill Clinton’s ass. Throughout the antitrust case, Bill Gates has argued that he was being victimized by the Justice Department for doing whatever he could to maximize his profits, and isn’t that what capitalism is all about? (Obviously, I was wrong when I mentioned competition as the basis of capitalism above.) Without buying into his rhetoric of victimization (try living in Somalia for a year without your wealth, pal), one can still see that he has a point. It is fairly well known that capital accumulates. Or, put another way, the big get bigger. Companies will seek to monopolize an industry (either by buying or bankrupting their competition) because that is the condition
that will give them the biggest profits. Where monopolization isn’t possible, companies settle into cartels: loose organizations of small numbers of companies (like the Baby Bells) that essentially agree not to compete in order to keep prices high for all.
More and more in our current economy, although brand names seem to be increasing, the actual number of companies producing goods and services has steadily declined. This is not an accident. This is a product of the deregulation fetish of the 1980s and 1990s. Deregulation was supposed to spur competition, which would lead to lower prices, to the advantage of consumers. It hasn’t quite worked that way. In the first stage of deregulation, there is a short period of cutthroat competition. This invariably bankrupts the smaller players and seriously undermines the financial viability of the survivors. This is followed by a phase of mergers, which further reduces the number of competitors. Inevitably, there is a final phase of cartelization, where corporate identities and prices stabilize (the prices usually being higher than before deregulation, since companies have to pay off the debts incurred during the initial cutthroat competition phase).
In Canada, this happened in the airline and financial services industries. Obviously, I believe deregulation is a disaster that does not benefit individual consumers in the long run. However, that is a column for another time. The point in relation to Microsoft is: in this environment, everybody is engaged in anti-competitive behaviour. Why single out one
company?
The big shrug is undoubtedly due to a combination of these factors and perhaps others. It is also a measure of how far capitalism has come since its origins over 200 years ago. Adam Smith would weep.
Can’t get enough of *spark? For more intellectual stimulation, go to the source: *spark online.