Opinion Editorial | |
| Tuesday, November 9, 1999 | |
Will Government Lawyers Run (And Ruin) Microsoft? |
On November 5, Federal District Court Judge Thomas Penfield Jackson issued his long-awaited findings of fact in the Microsoft antitrust case. Although they do not constitute a final ruling, his words were so strong -- supporting the government's case on virtually every point -- that the Justice Department treated them as a victory. Looking at the giddy expressions of the government lawyers afterwards, one would have thought they had just jailed a Mafia kingpin.
Opponents of Microsoft piously proclaim that their only desire is to foster competition, stimulate innovation and lower prices. Microsoft, they say, is a corporate bully that has stifled competition, prevented the emergence of new technologies and gouged consumers. If it ultimately is broken up, they say, the result will be like the breakup of AT&T. The dismemberment of that telephone giant, which once had a virtually total monopoly on all telephone service in the U.S., led to enormously positive results. The telecommunications industry clearly is far more vibrant and innovative today than it would have been without the breakup.
The critics may be right. When AT&T devolved into the "Baby Bells" its shareholders ended up with stock in several different companies that together were worth more than their AT&T shares. Whether some baby Microsofts end up with a value equal to today's single Microsoft will depend on whether there are synergies or returns to scale existing now that will be lost, as well as the composition and viability of the new firms. It will also depend on how the breakup is accomplished.
The greatest danger here is that the Justice Department's lawyers are injecting themselves into the intimate managerial details of a company they cannot fully understand. After all, there are people called investment bankers who every day do what the Justice Department wants to do and they often make mistakes. Investment bankers are always looking for ways to buy a company and break it up into pieces that will be worth more in the market than they exist as one entity. Sometimes this works and sometimes it doesn't. Those who are successful get rich, those who aren't file for bankruptcy.
The point is that the Justice Department's lawyers are not professional business managers, nor investors seeking profit. Even if we assume that breaking up Microsoft ultimately is desirable from an economic point of view, the people who are doing it have no skill, training or experience at accomplishing such a huge task. Therefore, the possibility of mistakes being made is enormous.
The fact is that for every AT&T breakup that ended up working well, there are misguided antitrust cases that ruined successful companies, eliminated good jobs and destroyed shareholder value. For example, in 1947 the government went after the United Shoe Machinery Corporation, which then had a virtual monopoly in its market. At the time, the U.S. had a very viable shoe manufacturing industry. The government's actions, however, led to a rise in shoe machinery prices that not only destroyed United Shoe, but the entire shoe manufacturing industry. Today the U.S. imports virtually all its shoes.
Other once-successful U.S. companies whose demise resulted from misguided antitrust efforts include the Schwinn Bicycle Company and Pan American World Airways. Many others had unintended consequences that ultimately hurt the U.S. economy. Thus when the government prohibited RCA from licensing its radio technology to U.S. companies, it was licensed to Japanese companies instead. This essentially created Japan's electronics industry.
It is critical that the Justice Department tread carefully lest it kill the Microsoft goose that has laid so many golden eggs.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, November 9, 1999.
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