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Microsoft, Macroconfusion

Don't like the case against Bill Gates? Blame the law, not the Justice Department

Nov 22, 1999, Vol. 5, No. 10 • By JAMES HIGGINS
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THE FIRST PART of the decision in U.S. v. Microsoft is in. Judge Thomas Penfield Jackson excoriated Microsoft as a bullying monopolist in his findings of fact released November 5. These findings came as a surprise to some, although it is difficult to discern why they should be at all surprising to anyone who followed the trial. Judge Jackson evidently became more and more fed up throughout the trial at Microsoft's antics: a falsified product demonstration, chest-thumping internal e-mails, and Bill Gates's Clintonesque suggestion in a videotaped deposition that he did not know what he meant by some of his own e-mails.

Most conservatives who believe in free markets, starting with the redoubtable editorial page of the Wall Street Journal, have expressed scorn for the government's case against Microsoft. Believers in free markets quite reasonably view the Clinton administration -- the people who would have given us HillaryCare -- as pathological liberals who want to bludgeon Microsoft for the very reason that the company and its founder have been so successful. But a minority of conservatives (including such knowledgeable commentators as Judge Robert Bork, former FTC chairman Daniel Oliver, and WEEKLY STANDARD contributing editor Irwin M. Stelzer) have argued that the government's case is well founded.

Why is there this division among conservatives, and why has the division caused more heat than light?

For decades conservatives have proclaimed a dedication to the rule of law. Liberals have, to great and infuriating effect, used activist courts to subvert laws that were otherwise unlikely to be changed. For example, it is hard to imagine any state that would have adopted quota and preference schemes legislatively. It is even harder to imagine majorities in both houses of Congress and in three-quarters of the state legislatures concurrently approving a constitutional amendment that would have created Harry Blackmun's phantasmagorical "right to privacy." So liberals secured these things through the courts.

It would be unfortunate if conservatives started succeeding at the same game: securing favorable court rulings based not on what the law says but rather on what they believe it ought to say. This tension between what the law does say and what it ought to say underlies the full-throated differences among conservatives on the matter of Microsoft.

It is not widely recognized that the notion of "free and competitive markets" has two distinct meanings and origins. On most policy questions these two meanings lead to identical conclusions: for free trade, against taxation, against price controls, against market-distorting regulations. But the two meanings do not lead to the same conclusion in the Microsoft case.

The first meaning, the one probably most familiar to believers in free markets, is laissez-faire. The empirical case for this view was best put by Adam Smith with his famed argument that the "invisible hand" would guide even the most selfish and predatory competitor toward behavior that is good for the larger society -- even if that competitor has no such good intentions himself.

The second model of a market is what economists call "perfect competition" -- leading, in principle, to maximum economic welfare. This may sound like the same thing as laissez-faire, but it isn't. "Perfect competition" has a number of technical attributes, but the ones most salient to the Microsoft case assert that under "perfect competition," everyone selling a good or service is a "price-taker." In other words the overall market has so many sellers and buyers that no individual participant can affect price levels, leaving each seller the choice of selling at the market price or not selling at all. That model does not describe the existing market for personal computer operating systems, where Microsoft's market share has been estimated to be as high as 97 percent.

United States antitrust law has its roots in the pursuit of "perfect competition," not in the spirit of laissez-faire. The Sherman Act of 1890 states quite clearly that "every contract, combination . . . or conspiracy, in restraint of trade or commerce . . . is . . . declared to be illegal." The Sherman Act goes on to outlaw "monopoliz[ing], or attempt[ing] to monopolize . . . any part of . . . trade or commerce." Those are exactly the things that the Justice Department alleged and that Judge Jackson found Microsoft to have done.

Whether Jackson found the facts correctly in this case will be the subject of debate for decades. But in reading his findings, it's hard to escape concluding that he is indeed measuring Microsoft's actions against the statutes as they stand.