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Baseball, Microsoft, and Antitrust Tyranny

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Congress’s efforts to meddle in the Major League Baseball strike and the Department of Justice’s harassment of the software giant Microsoft are just the latest reminders that the American economy badly needs to be liberated from the century-long tyranny of antitrust law. (The Sherman Antitrust Act was passed in 1890.)

Through a quirk of jurisprudential history, baseball has been exempt from the antitrust laws since 1922, when the U.S. Supreme Court ruled that it is not interstate commerce. But now there is talk in Congress about canceling the exemption, which would allow the players’ union to ask the courts to stop the team owners from coordinating their salary policies. The players, of course, favor lifting the exemption, but, strangely, they do not oppose the antitrust exemption (allowed for in the Clayton Act) for organized labor. In other words, only the players should be free to coordinate their bargaining strategy. The rumblings in Congress about yanking the exemption are intended to put pressure on the team owners to end the strike and save the 1995 baseball season.

Microsoft rose to software dominance by being a highly competent pioneer in this still young industry. Its operating system, MS-DOS, runs seventy percent of personal computers, and Windows is on its way to becoming the standard interface. It is hard to buy an IBM-compatible computer that does not come loaded with DOS and Windows. Microsoft’s applications, programs for word processing, spreadsheets, databases, and so on, hold strong positions in the market.

The Federal Trade Commission considered bringing a case. But after four years, the commissioners were unable to agree, and the FTC dropped the matter.

Then the Department of Justice’s Antitrust Division decided to take a crack. Eventually, Microsoft decided that a settlement would be less disruptive and expensive than a prolonged trial. The company and the Justice Department last year submitted a consent decree to the court in which Microsoft agreed to change some of its practices with respect to the licensing of its operating system. A federal judge shocked the business world in early 1995 when he rejected the decree as being too easy on Microsoft. The matter is under appeal.

What was Microsoft’s crime? It was too demanding in setting the conditions under which it allowed others to use its property. For example, when it negotiates licensing agreements with computer makers who wish to package MS-DOS with their machines, it allegedly demands that manufacturers pay Microsoft a fee for every computer sold whether or not DOS is included. That, says critics, puts Microsoft’s competitors at a disadvantage. Another offense allegedly includes requiring software companies to sign broad nondisclosure agreements before they receive advance copies of new versions of DOS. Microsoft is also said to announce new products so early that it discourages consumers from buying rival products.

Notice something about those charges: they all involve Microsoft’s control of its own property. Microsoft is not charged with stealing from anyone. It is not charged with setting rival plants on fire. The company’s sole crime is that it asks terms for the use of its property that upset its competitors. If no one valued its products, no one would care what terms it asked. But it has “market power,” that is, its products are very popular. And therefore, the antitrust advocates say, Microsoft cannot have the freedom the rest of us have. Does that sound like an exaggeration? Listen to a spokesman for Novell Inc., maker of WordPerfect, a Microsoft rival: “Microsoft is in a unique position in the industry. They’re so big they can control the pipeline, so they ought to be required to play by rules that others aren’t.” So much for the rule of law.

Here is the crux of the case against antitrust: It violates the right to control one’s property; it assaults the rule of law; and it punishes success. Because private parties can bring antitrust actions against competitors, antitrust law permits businesses to gain through government what they cannot gain through the market. (Most antitrust actions are privately initiated.) Antitrust also gives the government immense power over the marketplace. It is nonobjective law. You do not know you have violated it until the government hauls you into court. It has been noted that under the antitrust laws you can be prosecuted for charging more than your competitors (monopolistic intent), less than your competitors (predatory pricing), and the same as your competitors (collusion).

All antitrust law sabotages the competitive free market. The laws should be repealed. As economist Dominick T. Armentano demonstrated years ago, antitrust law is premised on a badly mistaken vision of the competitive marketplace: the textbook world of static equilibrium, a lifeless universe where knowledge is perfect, preferences are unchanging, and products are undifferentiated. In the dynamic world of rivalrous competition, imperfect knowledge, time, and subjective consumer preferences, antitrust makes no sense. In that world — our world — antitrust is anticompetition because it interferes with entrepreneurial activity. Judges and other government officials are in no position to know what market arrangements will best serve consumers. Only the market process can reveal that information. Even a single firm faces potential competition. As long as government barriers to entry are absent, the great bugaboo of abusive monopoly power is impossible.

Armentano has pointed out that antitrust law not only protects the status quo against innovation; it also interferes with the cooperation that is as important a part of the market process as competition. The market is a trial-and-error learning process in which people formulate plans aimed at their achieving their well-being by enhancing the well-being of others. When plans conflict, well-being is degraded. So there is an incentive to coordinate one’s plans with those of others. In a world that is constantly unfolding before our eyes, no one can predict what configuration of plans will mesh and which will clash. Thus, people need the freedom to improvise unburdened by the heavy hand of bureaucrats. “A plan-coordination theory of market efficiency can easily encompass agreements among businesses, agreements that have always been suspect for, according to conventional analysis, restricting competition,” Armentano writes. “In a plan-coordination theory, rivalry and cooperation are neither antagonists nor opposites but simply different elements in an entrepreneurial process of discovery and adjustment. . . . [Plan-coordination theory] undercuts the presumption that antitrust regulation can have any genuine scientific justification.”

Antitrust is not only anticompetition in theory; it was anticompetition in origin. As a new book, The Causes and Consequences of Antitrust: The Public-Choice Perspective (edited by Fred S. McChesney and William F. Shughart II), shows, the laws were passed not at the urging of public-spirited officials or consumers but at the behest of interests that did not like competition from more efficient firms that better served consumers. The antitrust laws were also a sop to free traders who complained that the tariff, by stifling foreign competition, would help create domestic monopolies. Since its inception, virtually every target of antitrust — including the despised Standard Oil Trust — has been a firm that persistently expanded output, lowered prices, and improved consumer welfare. That’s what the American people have been protected from.

McChesney and Shughart write:

In short, antitrust is one of the few remaining examples of a public-policy process in which it is still widely assumed that government is motivated by the goal of serving the public interest. . . . The public-choice model questions whether public policy toward business is in fact driven by the goal of promoting competition so as to enhance some vague conception of the “public interest.” It suggests instead that public policy emerges from political bargains in which special-interest groups purchase protection from the forces of unfettered competition, benefiting both themselves and politician-suppliers of protectionism at the expense of other groups.

In other words, antitrust is like any other government intervention. Congressmen and bureaucrats, functioning like political brokers, use their power to help particular people by thwarting the liberty of others. In a free society, there is no antitrust. If we are really headed toward a radical reevaluation of the role of government in society, one of the early targets should be antitrust.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.