Government Tortoise, Tech-Industry Hare By Thomas A. Schatz

Journal of Commerce

July 23, 1999

Thomas A. Schatz is president of Citizens Against Government Waste , a 600,000-member nonprofit, nonpartisan organization.

Game over. The fat lady has sung. Case blown up and dismissed. That's the only conclusion that can be drawn from the news that America Online may be ready to buy its own PC manufacturer.

This latest shift in the high-tech sands is further evidence that the judge's decision in the U.S. vs. Microsoft case will be immediately overrun by events. And after spending $30 million to $60 million in tax dollars on this matter, how are consumers going to benefit?

When the courtroom drama began a year ago, there was no AOL/Netscape/Sun deal, MCI WorldCom did not exist, AT & T was not a major player in the cable market, and Yahoo did not own Geocities. The changing nature of the information-technology industry is almost incomprehensible, as are the astonishing increases in company stock, with Amazon.com up 838 percent, AOL up 555 percent, and Yahoo up 455 percent. Sun is up more than 200 percent and IBM is up 91 percent.If Attorney General Janet Reno and Assistant Attorney General for Antitrust Joel Klein were really concerned about taxpayers, they would have been investing that $30 million to $60 million into the industry itself.According to the Commerce Department, the information-tech-nology industry is helping to keep inflation in check and increase productivity, as well as employing more Americans at above-average pay. As Vice President Gore has said information technology is "driving the world economy," his administration has been attacking three of the most successful companies in the field: Cisco, Intel and Microsoft.

More than one-third of U.S. economic growth between 1995 and 1998 has been due to the digital economy. Why is the federal government attacking the engine of our success?

In addition to these economic factors, software is now so cheap, it's barely worth stealing. The Business Software Alliance reported last month that worldwide software piracy has continuously declined since 1994 for many reasons, two of which have particular relevance to the Microsoft case. First, there is more user support for the software. Second, the BSA notes, a stronger world economy, "combined with a continuing decline in world software prices, has made legal software more affordable."

It's not just the economics, trustbusters. It's also the fact that your key witnesses have hoodwinked you into doing their job for them.

When AOL merged with Netscape and created an alliance with Sun Microsystems, the troika said it had no intent to compete directly with Microsoft. That statement is looking less and less like the truth with each passing day.

Netscape's wooing of the Justice Department is well documented. Even Assistant Attorney General Klein called the current courtroom battle "a Netscape case." Scott McNealy, Sun's president, took the opportunity at a recent congressional hearing on the IT industry to not only bash Microsoft, but to demand that the company's recent Internet-related investments be undone.It's apparently not enough for Sun and its new partners to demand as remedies in this case that Microsoft be forced to include its competitor's browser on its operating system and that the company be broken up. They also want the government to open the door for them to monopolize the Internet well into the 21st century.

What a great group of government witnesses -- Netscape gets the government to do the dirty work at taxpayer's expense, AOL uses its resources to increase its dominance of the Internet, and Sun screams foul on every single act taken by Microsoft.

Establishing rabid desire to eliminate a rival is not enough to win an antitrust case. What should win a case such as the one now in court is demonstrating consumer harm. PC makers are providing more options on the start-up screen, and some companies are using Linux, the open operating system. Microsoft itself has reorganized to meet the challenges of the next century. The only consumer harm is being caused by the government's refusal to drop this case.

Microsoft Chairman Bill Gates knows what's coming up. He said there will be more changes in the world in the next 10 years than there were in the last 50. Microsoft is preparing for an Internet- everywhere world. So are its competitors. That's what led AOL to create alliances with 3Com and its Palm Pilot and to begin talks with PC maker Microworkz.

It is wasteful, misguided, unfair and a terrible precedent to let the government decide what Microsoft can and cannot do and who will win in the high tech industry. It is time to end regulation through litigation and allow the free market to work its will in the most vibrant sector of the U.S. economy.

©1999 The Journal of Commerce, Inc. Reprinted with permission from The Journal of Commerce.