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Anti-Trust, Microsoft, and Corporate Equal Rights
by Eyler Robert Coates, Sr.
Debate over Anti-Trust usually centers on issues of fairness to the consumer, and the encouragement of innovation through competition. But the fundamental issue involved here is not just one of convenience and social benefit, but of equal rights and the dynamics of a free society as it affects the every-day life of every individual, and of individuals grouped together in a common pursuit within a free society.
Ours is a people-oriented society, founded on the principles of self-government at every practicable level. Self-government in this country means that every citizen has the right to participate in the life of American society on an equal basis, and no despotic force, whether initiated by civil government, by some other institution, or by an individual, can justly deprive him of that right. This is what has made this nation great: it's reliance on the incentive, the ingenuity, and the productive capacity of a whole nation of people, each pursuing their happiness by participating in the work of society to the extent of their abilities, ambitions, and interests. And these people participate in society's work, both as individuals and as groups of individuals associated together as partnerships and corporations. But whether as individuals or as groups, they all possess equal rights that enable them to participate in society's work fairly and justly. It is essential that groups of persons have the same rights as individuals, otherwise those individual persons would lose their equal rights merely because they joined with others in a common endeavor. Jefferson was unacquainted with the structure of modern corporations, but he fully recognized the necessity that groups of people in a free society must be able to enjoy the rights that each would be entitled to as individuals.
"What is true of every member of the society, individually, is true of them all collectively; since the rights of the whole can be no more than the sum of the rights of the individuals." --Thomas Jefferson to James Madison, 1789. ME 7:455
A moment's reflection will reveal that groups of individuals, including those organized as corporations, must be able to claim the same rights that each individual member can claim, otherwise our liberties become meaningless in a modern society where the major portion of work is pursued at the corporate level. A free society is hardly such if liberty and equality are not characteristic of the way that whole society is organized.
It is the ability of every person at every level -- whether rich or poor, whether individually or in groups -- to participate in the work of society on an equal basis, limited only by their own individual capacities, that has made the American economy the strongest, the most dynamic, and the greatest the world has ever seen. This, then, is the picture: a whole nation of people, both as individuals and as groups, all working to produce a thriving economy, as opposed to those economies in some other countries which are controlled by a small segment of the society, and which takes whatever steps necessary to maintain their exclusive control. The former opens up unlimited possibilities to talent and ability wherever it may occur in society. The latter suppresses those random occurrences of talent, and buries progress under the oppressions of the few.
Unfortunately, there are always forces at play, forces that must always be opposed, that would pervert the American system of equality in order to promote their own private interests and to deprive other individuals and institutions of the equal rights to which they are all naturally entitled. It must be remembered that ALL tyrants and despots believe in "freedom," "liberty," "opportunity," and all those good things that foster growth and development. But despots believe in that for themselves and their associates only, not for every member of society, and certainly not, in the business world, for their competition. Their wish is, "Liberty for me, but not for thee." A Free Society, therefore, necessarily means that these despotic forces that are always with us in human society, that always seek their private gain at the expense of the rights of others, must be kept in check, and this must be done at every level of society so that the equal rights to life, liberty, and the pursuit of happiness of every citizen is maintained. Moreover, it must be remembered that it is not only the government of a nation that can become despotic; institutions, corporations, even individuals, can adopt the spirit of despotism and attempt to prevent other institutions, corporations and individuals from exercising the very same rights that they exercise for themselves. This cannot be allowed to prevail, however, in a free society founded on self-government by its members. Every despotic force is a threat to the people living in that society, and the society must take steps to protect its members from this intrusion.
When we consider Anti-Trust legislation, we are looking at governmental efforts to prevent the forces of corporate wealth and power from assuming despotic control in our society over the lives of the members of society, whether individuals or other corporations. Whatever the stated or implied goals, the real goals of Anti-Trust legislation are to insure that this society continues to be a free society, and that corporate power does not gather to itself sufficient control to become a despotic force in its own limited, but ever-expanding, segment of this society's economy. As is generally true with all despots, these will continue expanding their wealth, power, and control, until stopped. They are guided, not by respect for the rights of others, but by whatever they can legally get away with in the pursuit of their own ends. Regulation of capitalist enterprise, therefore, is absolutely essential in order to maintain a free society. Laissez-faire Capitalism, which on its face poses itself as the embodiment of freedom and unlimited growth, inevitably leads to corporate despotism, which itself engenders an adverse reaction, since all men naturally rebel at the thought of being subject to a despot. As Jefferson's motto stated it:
"Rebellion to tyrants is obedience to God." --Thomas Jefferson: his motto.
With equal significance, one might state it as "Rebellion to tyrants is obedience to Nature," because it is only as free individuals that we can fulfill the potential of human nature. This rebellion manifests itself in various ways. In this country, in the latter part of the 19th century, it manifested itself in the form of Anti-Trust legislation.
The Blessings of Self-Government
When this nation was founded, there was no question but that its people, or the greater part of them, desired self-government. For centuries, men had been laboring and suffering under the tyrannous government of others. The Founders determined to make an experiment that was daring and tremendous in scope: it was to found a nation based on the self-government of its own people, not that of self-appointed rulers. They believed that man had a natural right to govern himself.
"Every man, and every body of men on earth, possesses the right of self-government." --Thomas Jefferson: Opinion on Residence Bill, 1790. ME 3:60
They were not certain the experiment would work, but they considered it worth a try.
"The event of our experiment is to show whether man can be trusted with self-government." --Thomas Jefferson to Gov. Hall, 1802.
Self-government was not only the principle upon which the national government was founded, but it was a principle that pervaded the whole society, down to and including the individual.
"Circumstances denied to others but indulged to us have imposed on us the duty of proving what is the degree of freedom and self-government in which a society may venture to leave its individual members." --Thomas Jefferson to Joseph Priestley, 1802. ME 10:324
Freedom and self-government are not absolutes, however. As expressions of human liberty, they are limited by the equal rights of others.
"Of liberty I would say that, in the whole plenitude of its extent, it is unobstructed action according to our will. But rightful liberty is unobstructed action according to our will within limits drawn around us by the equal rights of others." --Thomas Jefferson to Isaac H. Tiffany, 1819.
This equality, indeed, is the ultimate boundary on all our rights, including that of self-government.
"No man has a natural right to commit aggression on the equal rights of another, and this is all from which the laws ought to restrain him." --Thomas Jefferson to Francis Gilmer, 1816. ME 15:24
The right of self-government, in an atmosphere of respect for the equal rights of others, was correctly seen as the ultimate source of blessing and happiness in a developing society.
"We contemplate [our] rapid growth, and the prospect it holds up to us, not with a view to the injuries it may enable us to do to others in some future day, but to the settlement of the extensive country still remaining vacant within our limits, to the multiplications of men susceptible of happiness, educated in the love of order, habituated to self-government, and valuing its blessings above all price." --Thomas Jefferson: 1st Annual Message, 1801. ME 3:330
Nothing in any of this suggests "laissez-faire." Indeed, self-government is not something whose practice will come to us naturally, requiring only that people be turned loose in a state of freedom with only an admonition that they not do injury to one another. The standard that one avoid injury to another is too vague, and subject to various interpretations. What constitutes an injury? It would be better stated that one respect the equal rights of another. Some persons might easily think that it does no overt injury to another to prevent that other from exercising a right which one assumes for oneself. Self-government is much more than avoiding torts and breaches of contract. Self-government in a society based on equal rights focuses on much more than an isolated individual's rights. It means that persons do not take steps to prevent others from enjoying the same rights that they have. It means that individuals maintain a certain respect for the rights of others, not just their own rights. It does not come easily, and requires a long process of assimilation.
"The qualifications for self-government in society are not innate. They are the result of habit and long training." --Thomas Jefferson to Edward Everett, 1824. ME 16:22
While the principles self-government are in opposition to the centralized control intrinsic to socialism, the principle of equal rights is opposed to the license for despotism intrinsic in laissez-faire capitalism.
Capitalism and Monopolies
Capitalism is a form of economic organization whereby a nation of people look after the production and distribution of goods and services for themselves, with only that minimal governmental interference necessary to assure that the principles of a free society -- equal rights to life, liberty and the pursuit of happiness -- are maintained for all. Regulated capitalism, therefore, is a natural development in a free society that practices self-government. It is the people running their own affairs, employing government to assure that the rights of all participants are protected. This power invested in the people to manage their own lives in every appropriate manner is fundamental to the government of American society.
"The true foundation of republican government is the equal right of every citizen in his person and property and in their management." --Thomas Jefferson to Samuel Kercheval, 1816. ME 15:36
All individuals, as part of their right to pursue their own happiness, are free to create and develop the economic means of enhancing their existence. They are free to have dealings with others, enter into contracts, buy, sell, and trade, as permitted by law, provided they do nothing directed at preventing others from exercising their equal rights to do the very same thing.
There are some exceptions to that rule, however. Monopolies are granted in certain situations, and at certain times, when it is clearly in the public interest, and when normal competition would create impractical outcomes, or possibly prevent a needed development altogether. Though the general rule is opposed to such special advantages, exceptions are recognized.
"To special legislation we are generally averse lest a principle of favoritism should creep in and pervert that of equal rights. It has, however, been done on some occasions where a special national advantage has been expected to overweigh that of adherence to the general rule." --Thomas Jefferson to George Flower, 1817. ME 15:139
Patents, which are, in effect, monopolies are granted in order to encourage inventions, though Jefferson was not certain that even these were really necessary.
"The saying there shall be no monopolies lessens the incitements to ingenuity, which is spurred on by the hope of a monopoly for a limited time, as of fourteen years; but the benefit of even limited monopolies is too doubtful to be opposed to that of their general suppression." --Thomas Jefferson to James Madison, 1788. ME 7:98
There is no natural right to possess a monopoly, but patents can be granted by a society in order to foster its own best interests.
"Inventions... cannot, in nature, be a subject of property. Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody... The exclusive right to invention [is] given not of natural right, but for the benefit of society." --Thomas Jefferson to Isaac McPherson, 1813. ME 13:334
Thus, certain kinds of monopolies may be permitted for the good of society, but their use is always strictly limited. As a general rule, however, monopolies are detrimental to the public interest.
The Reason for Anti-Trust Legislation
The reasons cited for Anti-Trust regulations are often based in the public interest: monopolies give the public a single provider instead of a choice; monopolistic corporations are inefficient and stifle innovation; being anti-competitive, they result in higher prices and poorer service to the consumer. But all of these explanations overlook what should be the real and essential justification for anti-trust legislation: it prevents the violation of those equal rights to participate in a free market which are the foundation of both a free society and its free enterprise system. It enables individuals to enjoy the equal rights which are the foundation of a such a society, both as individuals per se and as individuals working together as corporations. Anti-trust regulation should be aimed at the non-governmental despotism that can arise in an ostensibly free society. Its purpose should be the securing of a free society for all.
Corporations that engage in unfair monopolistic practices seek to prevent other corporations or enterprising individuals from exercising their natural right to exercise self-government and to participate in the society's economy in competition with those monopolistic corporations. These are rights to which every person and every corporation are entitled, and their violation, tends to undermine the free society itself. As strange as it may sound, a free people must assert that the rich owners of rich corporations have equal rights along with everyone else. The detriments to the public interest -- lack of choice, higher prices, stifled innovation, poorer service -- are only the results of this despotism. They are the same kinds of results that are obtained from socialism, which also denies the rights of individuals and corporations to pursue these aspects of self-government. Thus, monopolistic corporations are as much an enemy of liberty, democracy and self-government as are communistic governmental institutions. The only difference is, the latter embrace all, or nearly all, of the commercial enterprises in a country, whereas the former represents only one enterprise.
The denial of equal corporate rights can assume many different forms, and legislation that seeks to outlaw specific forms only invites those inclined towards despotism to invent new forms and evasions of the old. It is the despotic attempt to deny the equal right of participation in a competitive economy to other possible participants that is at the heart of anti-trust violations. It is not that they have gotten "too good" or that they are just "better businessmen"; it is that they are attempting to take measures that deliberately attack the existence of their competitors on bases other than the quality of products and services. This principle applies, for example, to take-over bids, just as it applies to contracts that force customers to refuse doing business with competitors. If the purpose of the take-over bid is to create a monopoly, to squeeze-out competition, and to gain advantages from trade which only the combined corporations will be able to serve, then this swallowing up of other corporations is obviously contrary to the principles of a free market. If, instead, the purpose is to increase competition, and to make the combined corporation better equipped to meet established competition, then it is obviously not a restriction of participants in a free market. Each situation must be examined carefully. But in assessing the dangers, it is important not to be swayed by claims of "better service to the customer," or "greater efficiency." All monopolies, all combinations in restraint of trade, can make such disingenuous claims.
The Microsoft Case
The chief violations in the Microsoft case consist of their efforts to prevent their competition from participating on an equal basis in our society's economic self-government. Many of the results that usually ensue from anti-trust violations are either less obvious or non-existent in this particular case. Nevertheless, the injuries are there: Netscape is being prevented from doing business by strong-armed tactics, instituted by Microsoft, that force customers to avoid using Netscape products. The result is a classic violation of equal rights that is characteristic of all true anti-trust violations. The fact that some of the detrimental effects stemming from this form of despotism are not present is irrelevant. By eliminating competition by tactics unrelated to the quality of the goods offered, the right of a corporate competitor to participate in the economy of a free society as an equal is being denied.
Microsoft's Monopoly. The first step was the acquisition by Microsoft of a monopoly with its operating system. As they are fond of advertising, "The world runs on Windows." And indeed, it apparently does. About 90% of personal computers use Windows. But it is important to note this: according to our equal rights criteria, there is nothing wrong with this! If Microsoft became a monopoly in the free and open market because they had a great product at a good price, who can complain? What is wrong with almost everyone choosing a decidedly superior product? No one's equal rights are being violated. Not even the ordinary results of anti-trust violation that impact on consumers is evident: consumers aren't worried about a lack of choice, because the only alternative is a poorer product; prices seem reasonable -- Windows is priced far below expectations; Microsoft is famous for its innovation; service apparently is excellent. But most importantly, there are no known underhanded deals to prevent competition from marketing a different operating system if they wish. Microsoft is a monopoly because their product is excellent. Just because they could indulge in price gouging should not be held against them. If they tried, it is likely that competition would arise to offset it.
The truth of the matter is, Microsoft apparently was not content to rely on the excellence of its Windows operating system in order to create a natural monopoly. Testimony indicates that IBM was threatened and intimidated into holding back the development of its OS system so that it would not compete with Windows. Some have suggested that this is just a hard-ball way of doing business. If it is, then we have abandoned the principles by which all members of society participate in their equal rights to self-government -- the principles that, though frequently violated, are responsible for the open competition and free market that has made the American economy as great as it is. The main problem here is that Americans are not fully aware of the great principles upon which their own nation is founded. With the technological change, and the growth and development this country has experienced over the last 200 years, the basic principles that made all that progress possible are easily lost sight of. And this is a great danger, because as Jefferson wrote:
"It behooves our citizens to be on their guard, to be firm in their principles, and full of confidence in themselves. We are able to preserve our self-government if we will but think so." --Thomas Jefferson to Thomas Mann Randolph, Jr., 1800. ME 10:151
and
"Lethargy [is] the forerunner of death to the public liberty." --Thomas Jefferson to William Stephens Smith, 1787.
Bill Gates claims that Microsoft is not a monopoly, but that is just malarkey. He made the disingenuous argument that Microsoft is not a monopoly because the software industry changes radically every six to eighteen months. What does that have to do with anything? Presumably, that is supposed to mean because their system must be redesigned almost yearly, they are compelled to re-enter the market for operating systems as though they were a newcomer. That is like Standard Oil saying they don't have a monopoly because they have to keep discovering new sources for oil. Microsoft is a monopoly because they do not have any significant competition. But there is nothing wrong with being a monopoly if that status was gained because the product is excellent, and not because they manipulated the market and forced their customers (the PC manufacturers) to accept their operating system and not someone else's. We know that if the product stopped being excellent, competition would spring up almost over night as long as there was nothing underhanded going on to prevent that from happening. No one's rights are being violated, and the public interest is not harmed by a natural monopoly. There is no substantial reason why such a monopoly should be disallowed. Nevertheless, when a company finds themselves in a monopoly position due to the excellence of their product, such companies should adopt a certain noblesse oblige, and not try to leverage their position into ruthlessly forcing out competition in other related areas. Apparently, noblesse oblige was something foreign to the Microsoft corporate culture.
The Browser War. Granted that Microsoft is a monopoly, and that there is nothing wrong with that because it is based on an excellent product, the whole situation changes when we come to Microsoft's Internet Explorer. When Microsoft introduced its Internet Explorer, there was already an excellent browser on the market. This meant there was real competition: excellence pitted against, perhaps, a new form of excellence. This is a tough one. What is Microsoft to do? There are two possibilities: they could wow everyone and make a much better browser than Netscape, or they could use their monopoly status in the almost universally used Windows operating system in order to force their customers to accept their browser instead of Netscape. Microsoft, apparently, chose the latter course, and put itself in violation of anti-trust regulations by attempting to squeeze Netscape out of the market because they told their Windows customers (i.e., almost everybody), If you don't promote our Internet Explorer over Netscape Navigator, you don't get our Windows operating system. And since "the world runs on Windows," without that operating system, the customers would be up the creek without a paddle. His ability to sell his products would be seriously curtailed. Microsoft had him over a barrel. Yield to pressure, or die.
What Microsoft chose to do was a market manipulation tactic, just as reprehensible as the Standard Oil tactics that drove small oil producers out of business. It moved its focus from creating a great product, to rigging underhanded deals that would mean that their competitors would be denied their equal right to participate in American self-government and in the free market just like Microsoft was doing. In that one part of the free market which is a tiny part of the American society's vast economy, the market was no longer free. Strings were pulled and deals were made to deny a corporate body the same right that every American should hold as his birthright. By rights, contracts with customers and software vendors should have no reference at all to the products of competitors.
Bundling. The move that might deliver the coup de grace to Netscape is the bundling of Internet Explorer with the Windows operating system. This would mean that the two pieces of software are inseparable, and Internet Explorer would be required as part of the Windows operating system. It is questionable whether this actually represents an innovative advance, and some have asked whether it might not create technical problems. Only a court could decide whether this was done as a technical advancement, or whether its purpose was to eliminate competition. But it does add further complications to an already sticky case. Bundling appears to be a way of forcing Internet Explorer on customers that will replace the contractual exclusions of Netscape that are clearly a violation of anti-trust. A fair handling of the matter would have Microsoft offering both versions, with and without the bundled Internet Explorer, and then let the market decide which it wanted, i.e., which was a true innovation and a superior product. That allows the possibility that Microsoft would sabotage the unbundled version in order to assure the success of the bundled version; but it seems doubtful they would try such a tactic while under the close scrutiny that this case has brought on.
The problem with prosecuting Microsoft because of bundling arises because it must be shown that bundling harms the consumer. The possibility that bundling was introduced to drive out a competitor cannot be a part of the prosecution under existing legislation, and this points up an inadequacy of the legislation as it now exists. Moreover, what is intrinsically wrong with a company producing a product that "harms the consumer," i.e., is less good than it might be? If companies were prosecuted for producing lousy products, how many would still be around? This again reveals the inadequacy of legislation that does not address the real roots of the problem.
But even if Microsoft were successful in leveraging its monopoly over operating systems into a total control of the browser market, and therefore of the Internet itself, the natural resistance to despotic control and oppression that always exists in any society, not least in the American society, would inevitably arise and force some kind of regulatory control that would wrest this despotic domination of the free market away from Microsoft. Try as they might, these tactics cannot win -- not in a free society. They would be wiser not to go this route.
Old Laws, New Tricks
It has been suggested that changing technology has made the more than 100-year-old Anti-Trust legislation obsolete, or at least no longer applicable. But time is irrelevant when it comes to a matter of essential human rights. The basic charter of our freedom was written over 200 years ago. The Sherman Anti-Trust Act, however, was not phrased in terms of rights. Its operative provisions are as follows:
SECTION 1 Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal....
SECTION 2 Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony...As is evident from the above, the act is phrased in terms of specific kinds of actions that are prohibited. There is no mention of the persons or corporate entities these actions are directed against. The first section forbids actions in restraint of trade. The second section forbids monopolies outright. Since neither section goes to the heart of the problem, i.e., the right of any person (or corporation) to participate on equal terms in the nation's economy, but rather focuses on specific kinds of action that usually have that result, the outcome is bound to become confusing over time. For example, Microsoft claims that they are not a monopoly as that term is understood today, yet they have clearly used their domination of one segment of the operating system market in order to prevent Netscape from exercising its equal right to participate in that market. The reason Microsoft claims they are not a monopoly is because they produce only 5% of the software used worldwide. But this is a grossly disingenuous argument. Yes, Microsoft produces 5% of the software, but they produce nearly 90% of the operating system software! That is what counts! So, defense becomes a game in which the defender defines monopoly broadly enough to escape the provisions of the law. But that bit of legerdemain only illustrates the inadequacy of the way the legislation is stated. Nevertheless, even if Microsoft is not defined as a monopoly under existing legal definitions, they still were apparently in violation of Section 1 of the Act.
Fortunately, the anti-trust legislation, and the case law which has grown up around it, are not totally without effect. The provisions covering contracts in restraint of trade are just barely sufficient to outlaw the former Microsoft practice whereby their customers were forbidden to have dealings with competitors, and this may be the most effective part of the Act. The blanket prohibition of monopolies is more problematic, because it introduces the problem of defining a monopoly, and it ignores the social benefit that occurs when a monopoly comes about naturally, simply out of outstanding excellence in a field. We should never have a provision in our law that will curtail excellence in the absence of a violation of the equal rights of other participants in the market. Moreover, there are certain creative uses of apparent monopoly that are perfectly productive and that harm no one, such as franchise and license agreements and public utilities limited to certain geographic areas. The legislation has problems, and these are mostly centered on its failure to define violations in terms of the equal rights of competitors.
Anti-Trust legislation is indispensable in a free society, if free markets and open competition are to be maintained. Those who oppose it on ideological grounds fail to realize that this legislation is, or should be, designed to protect the rights of all market participants, since such opposing persons usually acknowledge that protecting rights is a proper function of government. In general, the rule should be that companies are free to innovate and perfect their products without limit, but that they are strictly prohibited from devising practices directed against competition that is designed to prevent that competition from freely entering the marketplace. Contracts such principal companies make with customers and with makers of related software should contain no references whatsoever to their dealings with competitors of the principal. The suggestion that laissez-faire capitalism will itself eliminate actions in restraint of trade is little more than an ideological fantasy, and has about as much validity as the utopian proposition that man's life would be improved if we eliminated all law and government and put all responsibility for moral action on the shoulders of each individual. It is like "Voluntary Taxation," and as someone so aptly remarked, anyone who believes in Voluntary Taxation either doesn't know the meaning of the terms, or has never met a real, live human being.
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