I want to address four issues regarding anti-trust as they apply to the Microsoft case.
Anti-trust Paralyzes the Thinking Process
In my research on the traits of great wealth creators (The Prime Movers: Traits of The Great Wealth Creators), I identified seven core traits. I want to focus on two of these today: (a) vision and (b) the active mind. Vision is the ability to see the future potential of a product, technology, or market. The active mind refers to the process of constantly looking outwards to discover new ideas, find ways to improve the company, see the relation of the parts to the whole, constantly asking questions and finding (not just solving) problems.
Anti-trust law undermines both of these. Because anti-trust law is non-objective, there is no method by which one can know in advance the legality of one’s actions. The standards of what constitute a violation are constantly changing because anti-trust policies are created after the fact. Every new idea, discovery, strategy or invention identified by a large company is suspect because, if these insights will lead to great and great success and market dominance, they may be illegal.
What types of ideas are safe? Poor ideas, mediocre products, trivial inventions, ineffectual or semi-effectual strategies. Anti-trust law paralyzes the best thinkers, those with the widest scale visions and most audacious plans. For what purpose? To protect “the little guy.” But the little guy is usually the guy with limited vision, drive and ability. In other words, the result is to paralyze greatness. Although not stated openly, this is also the goal of anti-trust law.
The Great Monopoly Myth
The government does not want to let anyone discover that there is no thing as a private monopoly. Only government edict can prevent competition by making it illegal for a new company to enter a field of business. AT&T was a real monopoly; the government granted it the exclusive right to be in the phone business. Decontrolling the telecommunications industry was a proper action for the government to take. (They should do the same with the post office’s monopoly on letter handling).
There is no similarity at all between the AT&T case and the Microsoft case. Microsoft earned its position through a combination of innovative products, attractive prices and aggressive marketing. The proper name for what it achieved is: market dominance. If a company has earned this position, it has the right to reap the rewards. But because new competitors cannot be kept out of its market by law, it can only maintain its position by continuing to innovate and satisfy customers. A company that fails to do this soon loses its dominant position, as IBM, Xerox, Kodak and US Steel found out — and as Ford Motor Company found out in the late 1920’s when a big chunk of its 50% share of the world automobile market was lost to more able rivals such as General Motors.
Anti-trust Law’s Static View of Capitalism.
Anti-trust law comes at the issue from a totally static perspective. Their view is “here now monopoly (market dominance);” there is no conception of the dynamic aspect of a free economy. A dominant position today can be gone tomorrow because competitors are always free to enter the field. Existing competitors can combine to thwart a larger rival. New technologies supplant old ones (as the Internet is supplanting windows). No one, least of all government bureaucrats seeking to assert their power, can anticipate new discoveries and how they will affect market dynamics. A “slice in time” is not a valid method of evaluating the consequences of any company’s dominant position. Dominance does not automatically breed more dominance. Most typically, it breeds complacency leading to subsequent loss of market share.
The trustbusters view competition as the Holy Grail of capitalism. However, in fact, competition is not the primary issue at all. Competition is a by-product of the freedom to act — meaning, that anyone can (legally) enter any market. Competition is the result; freedom is the cause.
Nor is it the case that maximum competition is always desirable. Usually it is not. The history of capitalism shows that in most new markets there are dozens or even hundreds of competitors. Inevitably most of these do not make money and go out of business or are bought by more efficient rivals. Gradually a smaller number of players — the most able, aggressive, farsighted — come to dominate the market. This can be very beneficial. Larger companies:
- Can benefit from economies of scale
- Have more bargaining power with suppliers
- Have greater cash flow to finance new products
- Can work out cheaper and more efficient methods of transportation
- Can better serve large customers
- Have the ability to set one standard for the industry which satellite companies can then build on.
There is no proven economic theory that shows that any one form of competition in an industry is always better than any other form. Small companies can be very innovative, but they also may be less able to get others to use their ideas because of their limited market clout.
What trustbusters should be protecting is not some arbitrary theory of competition but rather the foundation of competition: freedom of action in the market. (This does not assume everyone has equal economic power). The biggest threat to freedom in the market place is: anti-trust law. Thus the best thing that trustbusters can do to promote a healthy economy is to abolish their own jobs and anti-trust law along with it.
Dr. Edwin Locke, PhD. is a Senior Policy Analyst for The Center for the Moral Defense of Capitalism. This article was adapted from a press conference at the National Press Club on 29 June, 2000.
Visit the website of the Center for the Moral Defense of Capitalism.