TechKnowledge No. 15

The Feds Want To Write Your Software

By Dominick T. Armentano
August 6, 2001

In Ayn Rand’s famous 1957 novel, Atlas Shrugged, unconstrained politicians end up destroying the U.S. economy by regulating (among other things) invention and product innovation. In that vision, new products that would revolutionize an industry-and put less efficient competitors out of business-have to be controlled and even suppressed by government so that no company has an “unfair” advantage and everyone has an equal chance to compete. Critics savaged Rand’s thesis arguing that she had portrayed regulators as political lunatics. The critics opined smugly that this sort of innovation regulation could never happen here.

Well, tell that to Microsoft. For almost a decade, Microsoft has battled federal and state antitrust authorities over its right to freely innovate in the marketplace by integrating its Web browser, Internet Explorer, with its proprietary Windows operating system. Microsoft claimed that consumers wanted integrated functionality because it was easier and cheaper to use, while the feds maintained that competitors (such as Netscape) were put at a competitive disadvantage by integration and could be injured by it. After a contentious trial and a recent appellate court decision, the basic antitrust issues are still unresolved.

The current innovation controversy is over Microsoft’s soon-to-be introduced operating system, Windows XP, which has features that will steer consumers to Microsoft’s own proprietary products and allegedly injure rivals such as America Online and Eastman Kodak, among others. The Senate Judiciary Committee has already scheduled hearings in September to consider, as committee member Charles Schumer (D-N.Y.) recently put it, whether the design of Windows XP could cause “great harm to consumers, as well as competing companies.”

Never mind that no one (including the government’s expert witnesses at the antitrust trial) produced a shred of evidence that any of Microsoft’s previous innovations injured consumers. And never mind that the antitrust laws are not intended to protect competitors from consumer-friendly innovation, and that to do so would betray any alleged consumer-protection mission. Never even mind that no law in the U.S. mandates that a firm must structure its innovation to make competitive life easier for its rivals. Put aside all of that and consider the following: Do you really want the likes of Sen. Schumer and Senate Judiciary Committee chairman Herb Kohl (D-Wis.) writing your future computer software?

There are several reasons why the answer to that question must be an emphatic “no.” The first is that the new Microsoft XP operating system is Microsoft’s property; Microsoft invented it, owns it, and has a moral as well as legal right to it. That right allows Microsoft to determine what the software will do and who will use (license) it and on what terms. Any government regulation of a company’s right to use its own property in a peaceful manner-and trade with consumers is entirely peaceful-is an illegitimate taking and a violation of the company’s property rights.

Second, political control over product innovation is monstrously inefficient, as Ayn Rand illustrated in her novel. Sen. Schumer is concerned about AOL and Kodak only because those firms (and jobs and votes) are in his political district demanding “protection” from Microsoft’s newest innovation. The implication is that any time competitors feel threatened by a rival’s innovation, the politicians will hold hearings and threaten to regulate the offending innovator. Under those terms, future productivity and growth in the U.S. economy will be held hostage to pandering politicians and politically connected corporations seeking shelter from the process of creative destruction-to advance an absurd politically correct notion of competition.

Microsoft’s representatives have already been invited to appear before the Judiciary Committee hearings in the fall. As Ayn Rand would say, the government needs Microsoft’s expertise and cooperation to help lend credibility to the regulation of Windows XP, a “sanction of the victim” so to speak. To assert its rights, Microsoft should boycott the hearings and deny the feds any legitimate sanction. Let’s get the true nature of the “hearings” out in the open. Innovation regulation is a counterproductive and immoral high-tech intrusion. Those about to be targeted need not cooperate.

(Additional Cato analyses of the Microsoft case include Robert Levy, “Microsoft Redux: Anatomy of a Baseless Lawsuit,” September 30, 1999, http://www.cato.org/pubs/pas/pa352.pdf; and Robert Levy and Alan Reynolds, “Microsoft’s Appealing Case,” November 9, 2000, http://www.cato.org/pubs/pas/pa385.pdf.)

D. T. Armentano (ArmentaD [at] irene [dot] net) is professor emeritus in economics at the University of Hartford (Connecticut) and an adjunct scholar at the Cato Institute. He is the author of Antitrust and Monopoly (Independent Institute, 1998) and Antitrust: The Case for Repeal (Mises Institute, 1999). To subscribe, or to see a list of all previous TechKnowledge articles, visit www.cato.org/tech/tk-index.html