- The Washington Times - Monday, January 31, 2000

The federal and state government plaintiffs in the antitrust suit against Microsoft are now reportedly demanding a breakup of the company as the final remedy. But is this going to benefit consumers, or just advance the careers of some hot dog state attorneys general and federal prosecutors?

According to the reports, the government lawyers are seeking to break up Microsoft into two or three smaller companies. One company would sell the Windows operating system. The second would sell software applications. Perhaps a third would handle Internet sites and services, such as the Microsoft browser Internet Explorer.

But before we deal so cavalierly with a company owned by millions of Americans, many through stock in their retirement plans, we should ask exactly how this is supposed to benefit consumers.

Microsoft has greatly served consumers by developing an operating system that is easy to understand and use. It is also inexpensive. As a result, Microsoft provided the foundation for the personal computer and Internet revolutions, and all the resulting incredible reverberations.

Just what is the breakup of Microsoft going to add to this? Is it going to reduce prices? Microsoft has consistently reduced prices and costs for consumers. It's Windows operating system costs only about 5 percent or 10 percent of the total price of a personal computer. And Microsoft forced the price of Internet browsers down to zero, from about $50 charged by the market leader before Microsoft entered the market.

Is the breakup going to enhance innovation? Innovation in computer and related services has already been advancing at a pace too dizzying for consumers to keep up. Even industry leaders often find themselves trumped by new, unanticipated developments. Microsoft has been a major leader in this innovation. How is breaking up Microsoft going to improve innovation to the benefit of consumers?

The government claims Micro-soft uses its market power to retard innovation incompatible with its services. But innovations continue apace that threaten Microsoft's core market base. The new Linux operating system is soaring in popularity among businesses and sophisticated consumers. Moreover, the Internet itself is developing into a deadly alternative to Microsoft, ultimately offering a full range of programs and services on line at very low cost. The new AOL/ Time Warner behemoth threatens to accelerate this process sharply. Microsoft can't stop innovations that benefit consumers.

Indeed, the Findings of Fact issued by U.S. District Court Judge Thomas Penfield Jackson fail to demonstrate any real, significant consumer harm caused by Microsoft. Instead, it shows Microsoft competing fiercely against a wide array of threats just to hold on to its core businesses.

Microsoft's great crime targeted in this case was its Internet browser war with the former industry leader, Netscape. Microsoft supposedly abused its market power in this battle. But the result of that war was to break up Netscape's monopoly over browsers, leaving each company with 50 percent of the market, and, again, to drive leading browser prices down from $50 to zero. No harm to consumers there. If only the Justice Department had ever been so effective in aiding consumers.

Even Judge Jackson was compelled to find that, "The debut of [Microsoft's] Internet Explorer, and its rapid improvement gave Netscape an incentive to improve Navigator's quality at a competitive rate. The inclusion of Internet Explorer with windows at no separate charge increased familiarity with the Internet and reduced the cost to the public of gaining access to it, at least in part because it compelled Netscape to stop charging for Navigator. These actions thus contributed to improving the quality of Web browsing software, lowering its cost, and increasing its availability, thereby benefiting consumers."

The truth is that the government has no idea how to rearrange the computer industry to enhance consumer welfare, an industry being remade by the market even in the months since the government first brought its case. The government's proposed breakup of Microsoft is not going to increase innovation, nor reduce prices. It will probably do the opposite.

But consumer welfare is not the real point of this lawsuit. It was the 18 state attorneys general joining in the suit who pushed of the breakup. Their motivation is simply the big headlines and a trophy head that they think will help them pursue higher office. The federal prosecutors, who at first seemed to have better judgment, ultimately could not resist these same enticements, and have now joined the headhunt.

So the proposed breakup of Microsoft represents yet another abuse of government power in our increasingly corrupt legal and political systems. What exactly does this mean to you? It means if the government can do this with the hard-earned property of millions of Americans invested in Microsoft, tomorrow it can diminish, demolish or take away any of your property as well, merely to advance the narrow self-serving interests of various career politicians and bureaucrats.

Peter Ferrara is general counsel and chief economist at Americans for Tax Reform.

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