Commentary

Parasite Economy Latches onto New Host

This article originally appeared in The Washington Times on April 14, 1998.

Perhaps the biggest success story of the American economy in the past decade is the Microsoft Corp., which made a profit of $3.5 billion in fiscal 1997. Founder Bill Gates and a lot of other people in Redmond, Washington, got rich the only way you can in a free market: by producing something other people wanted. Hundreds of brilliant people worked long hours producing computer software that millions of people chose to buy, in a highly competitive market that offered lots of other options.

But in our modern politicized economy — which Jonathan Rauch dubs the “parasite economy” — no good deed goes unpunished. The federal government launched a Federal Trade Commission investigation, later compounded by a Justice Department investigation, of whether Microsoft has monopolized the software market. Microsoft capitulated, agreeing to restrictions on its contracting and pricing policies in order to avoid long and costly litigation. That wasn’t enough for the government, which went on to launch more antitrust investigations.

Whether Microsoft behaved monopolistically, however (the facts cast a lot of doubt on this claim), is less important than the way the government lured the software company into the political sector of the economy. For more than a decade the company went about its business, developing software, selling it to customers and innocently making money. Then in 1995, after repeated assaults by the Justice Department’s Antitrust Division, Microsoft broke down and started playing the Washington game — entirely defensively, it appears.

It hired 4 former members of Congress, 32 former congressional staffers or government officials and the former chairman of the Republican Party. It spent $1.9 million on lobbying in 1997, up 67 percent from 1996.

Of course, numbers like that still don’t make it a big political player. IBM spends more than $3 million a year on lobbying, and General Motors more than $5 million.

Indeed, Washington politicians and journalists have been sneering at Microsoft’s political innocence. A congressional aide says, “They don’t want to play the D.C. game, that’s clear, and they’ve gotten away with it so far. The problem is, in the long run they won’t be able to.” Journalists ask, what makes Microsoft think it can stick to its programming and stay out of politics? Politicians tell Bill Gates, “Nice little company ya got there. Shame if anything happened to it.”

And Microsoft gets the message: If you want to produce something in America, you’d better play the game. Contribute to politicians’ campaigns, hire their friends, go hat in hand to a congressional hearing and apologize for your success.

The number of pages in the Federal Register, where new regulations are printed, doubled between 1957 and 1967, tripled between 1970 and 1975, and grows by about 60,000 every year. No wonder so many corporations have opened Washington offices.”

The tragedy is that the most important factor in America’s economic future — in raising everyone’s standard of living — is not land, or money or computers; it’s human talent. And some portion of the human talent at one of America’s most dynamic companies is now being diverted from productive activity to protecting the company from political predation. The parasite economy has sucked in another productive enterprise.

The slowdown of our economic growth rate since about 1970 can be blamed in large measure on just this process — the expansion of the parasite economy into the productive economy. The number of corporations with Washington offices increased 10-fold between 1961 and 1982. Congressional Quarterly reports show that the number of people lobbying in Washington at least doubled and may have tripled between the mid-1970s and the mid-1980s.

Of course, all this investment in Washington reflected Willie Sutton’s observation about robbing banks: “That’s where the money is.” The federal budget has grown steadily over the past 60 years or so. Even if you don’t want to get a piece of that $1.7 trillion, the long arm of the government reaches out to affect you. The number of pages in the Federal Register, where new regulations are printed, doubled between 1957 and 1967, tripled between 1970 and 1975, and grows by about 60,000 every year. No wonder so many corporations have opened Washington offices.

In his online diary in Slate magazine, Bill Gates wrote, “It’s been a year since the last time I was in D.C. I think I’m going to be making the trip a lot more frequently from now on.”

And that’s what Janet Reno’s Justice Department is costing America: Bill Gates is going to waste his mind on protecting his company instead of thinking up new products and new ways to deliver them.

Dragging Microsoft into the political swamps is a tragic example of the diversion of America’s productive resources into the unproductive world of political predation.

David Boaz is executive vice president of the Cato Institute and author of Libertarianism: A Primer.