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The Real Enemies of Silicon Valley
How calls for government intervention by Microsoft’s competitors threaten to destroy the computer industry.

By Robert W. Tracinski

The antitrust crusade against Microsoft has been fueled by the myth that Microsoft’s “market power” threatens to destroy Silicon Valley. That theme was echoed in Judge Jackson's "finding of fact," in which he declared that Microsoft had "stifled" innovation in the computer industry.

The tragic irony, however, it that it is not Microsoft but its competitors who have unleashed the one force most lethal to the industry: government regulation.

Up to now, Silicon Valley has thrived in an environment of benign governmental neglect. This is largely because of the resistance of many industry leaders; the view of most in Silicon Valley has been that the best thing the government can do is to stay out of the way, leaving computer manufacturers and software publishers free to set their own standards and choose the best products on a free market.

Almost everyone who supports the assault on Microsoft pays lip service to this idea. At the Senate hearing in March of 1998, for example, Sun Microsystems CEO Scott McNealy declared: “I fundamentally believe that the regulation of the software industry would be bad. We’re not asking for that. I hope it never happens.” Netscape’s Jim Barksdale chimed in with a call for “the least possible intervention” by the government. McNealy and Barksdale want to have their cake and eat it, too. They want to ask the government to intervene in the computer industry—but to do so only against Microsoft, and only for today.

Legally, McNealy and Barksdale are pinning their hopes on a double standard of justice. Microsoft is a monopoly, they claim, and therefore should be subjected to unique restrictions. Barksdale puts it succinctly: Microsoft, he says, has to “play by a different set of rules.” But this legal distinction is entirely untenable. Microsoft has won the dominant share of the market for desktop computer operating systems. But what is to prevent the government from interfering in the markets for other products? It is common for companies to pioneer a new technology or application and thus dominate the market for that product. Not so long ago, for example, Netscape “controlled” an overwhelming majority of the market for Web browsers, and it still has a large market share. Or consider Sun Microsystems. At the same time that McNealy screamed for controls on Microsoft, he loudly boasted that Java will become the new standard and that its operating system will replace Windows. Since Java is owned—lock, stock, and barrel—by Sun, McNealy is setting up his own company for future antitrust prosecution.

The logical implication of the antitrust laws is that any company that distinguishes itself by unusual success in any area is a potential target for prosecution. And since virtually no private company can afford to defend itself against the federal government (even Microsoft signed a “consent decree” in 1995), most victims will be forced to submit to regulation by the Justice Department, or by the Federal Trade Commission, or by the courts—or by all three. They will be forced to seek permission for mergers with other companies, for the terms of their sales contracts, and, above all, for any attempt to “leverage” their success in one area to help sell other products.

But that’s nothing compared to what self-appointed “consumer advocate” Ralph Nader has in mind. Nader has helped Sun and Netscape sell their attack on Microsoft as a crusade in the “public interest.” But Nader has also called for the appointment of a permanent government overseer to monitor the activities of any company that has more than a 50% share of any market, and he has called for the de facto nationalization of Windows on the grounds that “nobody can own the alphabet.” If Nader has his way, any company that produces software so good that the majority of customers in a given market freely choose to buy it will have a regulatory parole officer appointed to look over its shoulder. And if it is so unfortunate as to have its software become the industry standard, that company will lose the copyrights to its own creations.

How long could the software industry operate under these kinds of rules? How long can it continue to attract the innovators who drive its breathtaking growth, when they know they will face government persecution as their reward?

It is not Microsoft that Silicon Valley has to fear, but the myopic pragmatism of the anti-Microsoft crusaders. In a blind rush to destroy what they see as the immediate obstacle in their path, the leaders of the computer industry are working to establish a beachhead for the very government regulation that they know would destroy their own companies.

Don’t let them take the rest of the industry with them.

Robert W. Tracinski is editor of the Intellectual Activist.


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