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Capitol Comment

    Capitol Comment 228 - Walling Off Windows: Nationalization is a Hostile Takeover of Consumer Interests

    03/30/1999

    Ten years ago the Berlin Wall came tumbling down and government-planned economies were on the decline. Today, attorneys general from 19 states met with Microsoft to negotiate a settlement in their pending antitrust suit. Unfortunately, the state attorneys general have proposed the largest peacetime takings in history. They advocate a radical plan to take control and to nationalize the software industry in America.

    At its essence, economic regulation is a statement of belief. Regulators believe that they know more about what is good for consumers than consumers do.

    The world has changed a great deal in the last decade. Only eight years ago the Internet was first opened up to commercial activity, and just five years ago the first web browser was introduced. However, some people are slow to recognize change. Antitrust lawyers, led by the Department of Justice and joined by 19 state attorneys general have concocted a plan to micromanage our economy. In the Microsoft case, despite a lack of evidence to show consumer harm and a court of appeals ruling that found consumer benefit from the business practices now in question, the government proposes a takeover of the software company.

    While the case will not likely be settled for some time, an examination of the proposals that are already on the table is troubling. At issue is a government charge that Microsoft unfairly leveraged its position in the market for operating systems to corner the market for Internet browsers. However, rather than a proposal to address alleged wrongs in the way that Microsoft conducts business, the state attorneys general propose to take over the thriving software market.

    Although the proposal has not been publicly released, it has been widely reported that the attorneys general would require an auction of Microsoft’s core asset, its source code. The regulators’ spin is that this would be pro-competition and pro-market. This could not be further from the truth. A free market allows a firm to build and allocate resources to meet consumer demand. It is something else entirely for the government to decide who owns or has the right to use a firm’s assets. This is called nationalization. This was practiced on the other side of the Berlin Wall.

    The proposal reportedly goes much further, which is to say that it gets much worse. Not only would Microsoft have to give up its source code, it would be forced to bring on the government as a business "partner." The state attorneys general call for ongoing access to Microsoft’s internal e-mail and for veto authority over significant business decisions. On top of all of this regulation, the state attorneys general propose that all contracts between Microsoft and its business partners must be done on standardized – that is, government issued – contracts and that any changes to licensed software must receive "certification."

    Economic regulation bears a heavy burden of justification. With computer and software prices falling – more than a dozen browsers are now free – the government is hard pressed to explain how Microsoft has harmed consumers. The recent settlement proposal is a step toward a governmental Department of Microsoft and a step away from consumers’ control of the marketplace through their purchasing power.

    At its essence, economic regulation is a statement of belief. Regulators believe that they know more about what is good for consumers than consumers do. This belief leads to some indefensible conclusions. For example, the extreme proposal of the attorneys general presumes that they know the best way to organize the marketplace and how to combine various software programs. This is absurd.

    In the decade since the Wall came down, who has done more to expand opportunity for all consumers – the software industry or government regulators? The answer is so obvious that the only real question is how can we stand by while the government tries to nationalize an industry that has provided so much benefit to our country.

    Competition in a free market produces the best combination of quality, service and price while encouraging innovation. As a result, consumers benefit. American consumers can make choices for themselves. A man on the street knows more about his needs than any group of government lawyers. Pursuit of this new and harmful economic regulation will have drastic consequences. First among them is the destruction of the freedom to contract in a fiercely competitive marketplace. In addition, there would be ongoing regulation of an industry that has proven to be highly dynamic and the source of many beneficial products.

    The key business decisions and technological innovations of the American economy are made every day without the help of government planners. As regulators eye the technology marketplace with an urge to control, we must remind them that national planning is a failure. Consumers do not need protection from competition, only from regulators determined take the best of American innovation and wall it off behind a curtain of regulation.