- The Washington Times - Wednesday, October 4, 2006

Two weeks ago, European Commissioner of Competition Neelie Kroes arrived in the United States on a mission of economic cooperation. Increasingly, however, that cooperation is hard to find, especially for American firms doing business in Europe. More often than not, the European vision of cooperation is capitulation, with American companies forced to accept onerous conditions or else abandon the European marketplace altogether.

Recent history provides a clear view of Europe’s “not so competitive” competition policy. Apple recently ran into a buzzsaw in France over iTunes, and other European nations smell blood in the water. The European Union has blocked the merger of American companies such as GE and Honeywell and Sprint and MCI, and Microsoft has been under constant fire for its products in Europe. The problem is not that consumers are being harmed; rather, the problem is that European firms do not like the competition.

In the United States, the antitrust laws are premised on consumer harm. No consumer harm, no antitrust violation. Vibrant competition is the gold standard for U.S. authorities. Europe has a completely different take, as suggested by the fact that they require a “Commissioner of Competition.” For Europe, managed competition is the ideal, with regulators taking an active role in designing the market and products that consumers ultimately can purchase. Dominant firms can compete, but not too hard. This world diminishes innovation for the sake of protecting big business, leaving consumers to bear the cost.

This distinction between Europe and the United States is more than a cultural quirk. It has substantial implications for American companies trying to survive in a global economy and a significant impact on consumers. Rather than consumer sovereignty, the European market is ruled by a web of regulations that undermines the efforts of American firms trying to design better products that attract customers.

The software industry is vibrant and dynamic. New applications and new products are constantly developed to meet growing consumer demand. Within this environment, Microsoft must compete by innovating and incorporating new features into Windows. Regulatory micromanagement by the European Union makes this business strategy all but impossible, as EU bureaucrats determine which features are “pro-competitive” and which are “anti-competitive.”

Initially, European regulators determined that consumers would be better off if Microsoft did not bundle a media player with its operating system. Under orders from the EU, Microsoft stripped out the media player to release Windows N for Europe. The “N” might as well stand for “Not” — consumers had no interest in the downsized operating system, which accounted for only 0.005 percent of Windows sales.

Despite the lack of consumer interest in software designed by bureaucrats, EU regulators are threatening aggressive actions against Microsoft if it fails to incorporate its latest “designs” in its new operating system. As it prepares to launch its newest version of Windows, European regulators are again threatening to take action. Security problems have been a concern to anyone using the Internet, yet the European Union has warned Microsoft about bundling new security features with the products it sells to consumers. In a networked world, the diminished security capacity of computers in Europe would be felt globally. In addition, new handwriting recognition technologies in the operating system are being viewed as a threat, rather than a benefit for consumers.

Now, rather than worrying about innovation, Microsoft is bogged down in lengthy bureaucratic negotiations that threaten to delay the release of the new Windows. These regulatory skirmishes reverberate well beyond Microsoft, as computer manufacturers, investors and the broader technology industry hold their breath and await the outcome.

This issue gets to the heart of the European problem. The perceived threat is not to consumers, but to other companies that compete with Microsoft. When American companies begin to worry more about pacifying regulators than benefiting consumers, innovation takes a back seat to lawyers, legal fees and red tape. Firms become more adept at working the regulators than pleasing consumers, which may explain why European firms are struggling to compete for consumers in the first place.

Rather than listening quietly to European pleas for economic cooperation, U.S. officials should take the opportunity to expound on our own version of competition, which is a world dominated by consumers, not big business operating hand in glove with regulators. In an increasingly global marketplace, the United States cannot afford to capitulate to cooperate.

Dick Armey, who served as House majority leader between 1995 and 2002, is chairman of FreedomWorks.

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