Exactly what is going on with Microsoft and Bill Gates? They seem to be under constant attack by the US government and are accused of monopolistic practices. Not long ago I saw an interview on CNN with James Barksdale, CEO of Netscape. He said he was an advocate of “limited government” and that he was really a libertarian. That caught my attention. He then surprised me by announcing a new libertarian theory. He said Microsoft was violating US antitrust laws and these laws ought to be enforced. I must confess, after being involved with free market organisations for twenty-five years, that I’ve never run across this theory before.
Barksdale didn’t qualify his comments. It seems he meant all laws must be enforced if they are on the books. That means good laws – including laws that destroy productivity and free markets and which violate individual rights. I might be wrong but I always attributed that sentiment to authoritarian thinkers not to libertarians.
Losers often cry “monopoly”
I was not happy with Mr. Barksdale claiming to be a libertarian while promoting authoritarian ideas. And I was particularly upset by the fact that I was using Netscape at the time. But one thing I’ve learned is that many individuals have political sentiments that are reasonable but which they abandon the moment they are facing a financial crisis. So I’m not surprised that Mr. Barksdale, the free market advocate, came to love government regulation when his bottom line was affected.
Mr. Barksdale is upset because Bill Gates offered a better product. Netscape made many mistakes and they lost out in the very competitive software market. Netscape lost it’s dominant position in the web browser market and now wants the government to rip apart the upstart who displaced them.
Lower prices and improved service
The issue supposedly is that Bill Gates established a monopoly through uncompetitive practices. But the facts don’t support this theory. The fundamental nature of a monopoly is rising prices, poor service, and product stagnation – like government monopolies.
What about Windows? When it was introduced in 1990 you needed Windows 3.0 along with DOS for a combined price of $205. When Windows 98 was introduced the price had dropped to $169 and this included numerous features which previously had to be purchased separately. Stan Liebowitz, in The Wall Street Journal, revealed an interesting fact. Markets dominated by Microsoft saw prices drop by 65 percent while non-Microsoft dominated markets only fell 15 percent. In fact when WordPerfect was the dominant word processor prices rose 35 percent but when Microsoft Word dominated prices fell 75 percent. So the fact is that the major trait of monopolies, rising prices, doesnt exist.
A service industry survey was done by Computer Reseller News. They found that Microsoft lead the pack in providing quality service to customers. Mr. Barksdale’s Netscape didn’t even make the list. No wonder he’s upset.
Contrasting behaviour
Then there is this charge of “bundling.” This means that when Microsoft sold Windows to a computer manufacturer to be installed on the system they also required the inclusion of their web browser. But they didn’t forbid the inclusion of other web browsers as well. Nor can they prevent consumers from downloading other browsers off the net and installing them themselves. Even a star witness for the US government’s case against Microsoft admitted that this practice didn’t really harm consumers.
Government obviously wasn’t trying to protect consumers as much as it was trying to give Netscape a free lunch. During 1998 under Microsoft’s alleged monopolistic reign Netscape delivered 150 million copies of their browser. Even today they control 42 percent of the browser market but this is a far cry from the 90 percent domination they once held. Isn’t it odd that when Bill Gates has about half the market Jim Barksdale cries monopoly but when he held 90 percent he was silent.
Compare Microsoft’s behaviour to that of Netscape at the time it held a near-monopoly. Then computer manufacturers were offered payments by Netscape if they shipped computers without Microsoft’s Internet Explorer. So just a few years ago Netscape controlled 90 percent of the browser market and it paid manufacturers to keep Bill Gates out of the market. But that wasn’t a monopoly in the mind of Jim Barksdale. Now that Microsoft controls half the industry and doesn’t restrict manufacturers from including Netscape Jim Barksdale has rediscovered one of the favourite theories of economic interventionists: antitrust.
How did Bill Gates succeed over Netscape? First, he expanded his research department to produce a better browser. Then he charged a very low price: nothing. And finally he bundled it with Windows so that consumers would see it and have the chance to use it. He didn’t act like Netscape and the result is that he knocked Jim Barksdale off his throne. Bill Gates got where he is because he offered a better product. And that doesn’t make him a villain.
If Jim Barksdale and the politicians get their way, the consumer will be worse off. There are two ways that businessmen get favours from government. One is a direct subsidy and the other is using the power of government to hinder your competition. Neither method is the method of an advocate of limited government and free markets. And in the end this outlines nicely the difference between a free market and political intervention.
Free markets vs interventionism
In a free market one succeeds by production. In the politicised world one succeeds through political pull. You get where you are through the manipulation of politics and not through merit. You succeed not by out-competing the others but through political impediments and favours.
When you see businessmen and politicians sitting down together to plan the future don’t assume that the outcome will necessarily be one conducive to freedom. The free market doesn’t protect business owners from competition. It does just the opposite. It causes every business that isn’t vigilant for shifts in consumer demand to lose out. In a free market the consumers win in the end.
