In Ayn Rand's famous 1957 novel, Atlas Shrugged,unconstrained politicians end up destroying the U.S. economy byregulating (among other things) invention and product innovation.In that vision, new products that would revolutionize anindustry-and put less efficient competitors out of business-have tobe controlled and even suppressed by government so that no companyhas an "unfair" advantage and everyone has an equal chance tocompete. Critics savaged Rand's thesis arguing that she hadportrayed regulators as political lunatics. The critics opinedsmugly that this sort of innovation regulation could never happenhere.
Well, tell that to Microsoft. For almost a decade, Microsoft hasbattled federal and state antitrust authorities over its right tofreely innovate in the marketplace by integrating its Web browser,Internet Explorer, with its proprietary Windows operating system.Microsoft claimed that consumers wanted integrated functionalitybecause it was easier and cheaper to use, while the feds maintainedthat competitors (such as Netscape) were put at a competitivedisadvantage by integration and could be injured by it. After acontentious trial and a recent appellate court decision, the basicantitrust issues are still unresolved.
The current innovation controversy is over Microsoft'ssoon-to-be introduced operating system, Windows XP, which hasfeatures that will steer consumers to Microsoft's own proprietaryproducts and allegedly injure rivals such as America Online andEastman Kodak, among others. The Senate Judiciary Committee hasalready scheduled hearings in September to consider, as committeemember Charles Schumer (D-N.Y.) recently put it, whether the designof Windows XP could cause "great harm to consumers, as well ascompeting companies."
Never mind that no one (including the government's expertwitnesses at the antitrust trial) produced a shred of evidence thatany of Microsoft's previous innovations injured consumers. Andnever mind that the antitrust laws are not intended to protectcompetitors from consumer-friendly innovation, and that to do sowould betray any alleged consumer-protection mission. Never evenmind that no law in the U.S. mandates that a firm must structureits innovation to make competitive life easier for its rivals. Putaside all of that and consider the following: Do you really wantthe likes of Sen. Schumer and Senate Judiciary Committee chairmanHerb Kohl (D-Wis.) writing your future computer software?
There are several reasons why the answer to that question mustbe an emphatic "no." The first is that the new Microsoft XPoperating system is Microsoft's property; Microsoft invented it,owns it, and has a moral as well as legal right to it. That rightallows Microsoft to determine what the software will do and whowill use (license) it and on what terms. Any government regulationof a company's right to use its own property in a peacefulmanner-and trade with consumers is entirely peaceful-is anillegitimate taking and a violation of the company's propertyrights.
Second, political control over product innovation is monstrouslyinefficient, as Ayn Rand illustrated in her novel. Sen. Schumer isconcerned about AOL and Kodak only because those firms (and jobsand votes) are in his political district demanding "protection"from Microsoft's newest innovation. The implication is that anytime competitors feel threatened by a rival's innovation, thepoliticians will hold hearings and threaten to regulate theoffending innovator. Under those terms, future productivity andgrowth in the U.S. economy will be held hostage to panderingpoliticians and politically connected corporations seeking shelterfrom the process of creative destruction-to advance an absurdpolitically correct notion of competition.
Microsoft's representatives have already been invited to appearbefore the Judiciary Committee hearings in the fall. As Ayn Randwould say, the government needs Microsoft's expertise andcooperation to help lend credibility to the regulation of WindowsXP, a "sanction of the victim" so to speak. To assert its rights,Microsoft should boycott the hearings and deny the feds anylegitimate sanction. Let's get the true nature of the "hearings"out in the open. Innovation regulation is a counterproductive andimmoral high-tech intrusion. Those about to be targeted need notcooperate.
(Additional Cato analyses of the Microsoft case include RobertLevy, "Microsoft Redux: Anatomy of a Baseless Lawsuit," September30, 1999, https://www.cato.org/pubs/pas/pa352.pdf;and Robert Levy and Alan Reynolds, "Microsoft's Appealing Case,"November 9, 2000, https://www.cato.org/pubs/pas/pa385.pdf.)