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Reformat C:\Microsoft?

By William Saletan
Posted Wednesday, May 3, 2000, at 3:30 AM ET
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For two years, the U.S. Department of Justice told a story in court about a big, bad company named Microsoft. In the story, the bad company bullied smaller, good companies that were trying to give consumers more choices and better products at lower prices. The bad company threatened the good companies and beat them up when they got in its way. Last November, the court decided that the story was true. And last month, the court ruled that what happened in the story violated antitrust laws. Now comes the hard part. Having sold its story, the DOJ has to say what the court should do about it and why.

Last Friday, the DOJ filed its proposed remedy for these antitrust violations. It would break the company in half and restrict how each half could behave. The remedy, as its name suggests, is supposed to address the old story. It's supposed to repair what the bad company did to the good companies and prevent that from ever happening again. But the remedy also creates a new story. In this story, the question isn't what Microsoft has done to others, but what the DOJ will do to Microsoft. And while Microsoft may look strong, the DOJ, having whipped Microsoft in court, now seems clearly stronger. Depending on how each observer feels about the case, he or she now sees the government either as the aggressor or as the agent of change. Either way, the DOJ is up against a long-standing law of politics: Americans don't like aggressors and don't trust agents of change.

The political conflicts of the past decade demonstrate how much easier it is to describe a problem than to prescribe a solution. Bill Clinton persuaded Americans that the shortage of employer-provided health insurance was a scandal. But when Clinton tried to make employers provide that insurance, he became the aggressor. Opponents made his prescription the issue, and voters turned on it. In 1994, Newt Gingrich rode the anti-Clinton backlash to power, convincing voters that Democrats had mismanaged Washington. But when Gingrich tried to reverse the Democrats' policies and rein in the budget, he became the aggressor, and voters turned on him. In 1998, Ken Starr and the Republicans proved that Clinton had committed adultery with a White House intern and had lied under oath about it. But when they tried to throw Clinton out of office, they became the aggressors, and voters turned on them.

Microsoft will try to do to the DOJ's remedy what Republicans did to Clinton's health-care plan and what Democrats did to Gingrich's Contract With America. Microsoft executives say the proposal by "government lawyers" to "tear Microsoft apart" is "extreme," "drastic," "radical," "heavy-handed," and "risky." They warn that by making "computers less capable and more expensive," the plan would "hurt American consumers" and deliver "a major setback" to "the high-technology industry and the American economy." Tech stocks have collapsed since the court ruled against Microsoft last month. That collapse may be coincidental, but it has caused many investors to worry about what the government will do. Already, the DOJ's assertion that a breakup wouldn't hurt Microsoft's 3 million shareholders is under fire from economists. And Microsoft says it will ask the court to make the DOJ cough up every document related to its decision to pursue a breakup. Ken Starr understands this tactic all too well. The investigator is becoming the investigated.

Microsoft's prosecutors understand the natural biases against a breakup. Two state attorneys general who had joined the DOJ's lawsuit have dissented from its proposed remedy. One said a breakup wasn't necessary. The other argued that its effects were unpredictable and that a breakup, unlike restrictions on Microsoft's conduct, couldn't be reversed if it turned out to have been a mistake. In a Gallup Poll last month, Americans said by a margin of more than 3-to-1 that Microsoft should be left alone rather than split up.

The press, too, having cast a wary eye on Microsoft's behavior, is now casting a wary eye on the government's remedy. "PC Users Express Concern That Split May Hurt Them," warned the New York Times. A Times news story called the breakup a "drastic step" and suggested that there is "reason to hesitate before reshaping the software industry by court edict." A Washington Post editorial, cautioning that a breakup "might do more harm than good," likened it to an "atomic bomb that cannot be undetonated." On television this weekend, journalists pressed DOJ antitrust chief Joel Klein and his supporters to justify the breakup and to allay fears that it would create chaos for ordinary computer users.

So far, Klein has given three answers to these questions, none of them sufficient. First, he reverts from prescription to description, from the new story to the old one. When asked to justify what the government wants to do to Microsoft, he recites what Microsoft did to its competitors. This reminder strategy didn't work for Clinton, Gingrich, or Starr, and there's no reason to think it will work for Klein. Second, he promises that the government's plan will give everyone more of everything. "This decree will stimulate innovation throughout the software industry," Klein promised at a press conference Friday. "The result will be an exciting and innovative set of new products with more choices and lower prices for America's consumers." Clinton made the same kinds of promises about his health-care plan in 1993. He bet on hope, while his opponents bet on fear. His opponents won.

Third, Klein argues that other possible remedies are worse than this one. If the government were to restrict Microsoft's conduct rather than break it up, he suggested Friday, "the heavy hand of ongoing government regulation" would "decide what is in the best interests of consumers. … We're not in the business of trying to put burdensome regulation on companies or to try and get courts intrusively involved in regulating companies. We're in the business of letting the market produce the best goods and services for consumers." That's a powerful argument against the remedies Klein rejected. It may turn out to be equally powerful against the remedy he chose.

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William Saletan is Slate's national correspondent and author of Bearing Right: How Conservatives Won the Abortion War.
Illustration by Wes Miller.
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Reader Response from The Fray:


"Americans don't like aggressors and don't trust agents of change." The American President most closely identified with the introduction of anti-trust was Teddy Roosevelt, beloved of the American people, who set a record in his landslide re-election. Americans love agents of change they identify as acting in their genuine interests.

"Having sold its story..." None should buy your rhetorical attempt to reduce the government's case against Microsoft to that of an insurance agent's pitch for you to buy whole life instead of term. Trials entail persuasion. The need to persuade in order to win at trial in no way detracts from, or adds to, the actual truth of the case itself. Microsoft management, acting as proxy for its shareholders, broke the law, and the company's public trust, repeatedly, and remains unrepentant. Its shareholders should therefore take the consequences, which will manifest in terms of increased risk to their equity. Now they will know how the investors in STAC Electronics felt when Microsoft squashed 'em like a bug.

"The DOJ, having whipped Microsoft in court, now seems clearly stronger..." With the legal resources of the most highly valued company in American history at hand, Microsoft lost. My conclusion is that they lost not because they were "weak" and the DOJ was "strong", but because their case lacked merit. They broke the law, a lot.

"The DOJ's assertion that a breakup wouldn't hurt Microsoft's 3 million shareholders is under fire from economists..." Every stock analyst I have heard comment upon this has noted that shareholders of both Standard Oil and of AT&T ended up reaping financial windfalls from the process. It all depends on the extent to which the shareholder value of Microsoft until now has been derived from either a) the sum of the value of the company's products to customers, or b) the illegally obtained, purloined value of colluding to eliminate competition and actually quash competitors' innovations.

The real thing gotten wrong here is that this article is not ultimately about what has happened, or what should happen, or what will happen. It is about the appearances of things, their surface sheen, and whether the American public will see its purposes fulfilled in that mirrored surface, or not. It is as unsubstantial as its subject.

--Jack Baltimore

(To reply, click here.)


Your analysis tends to imply, or to lead the reader to infer, that political probabilities not only enter into the outcome of arguments of this nature, but that perhaps the People have it wrong and that perhaps these political views have no place in this case. I think the People are right, much more often than not, and especially so on the two issues you mention. Yes we distrust aggressors armed with government power, for we have found that the interests they serve tend not to be ours. And yes we are suspicious of change, especially of government-mandated change. The bomb that can not be undetonated is a good analogy. Wrong-headed government action is in principle hard to undo: its feedback mechanism--public outrage--is unwieldy. Market-based changes are less threatening: there is a greater likelihood of many small reactions serving to keep any large change from overwhelming things.

My other thought is that of the Old Story vs. the New. The reality is that we don't have Clinton Care, nor the Contract with America, and Clinton was not impeached, either. And the Anglo-Saxons invaded England and there is little chance of them being successfully expelled by the original inhabitants any time soon. Not only is the "Browser War" over, but it is not even where the action is. Computer-related happenings of great importance now include broad-band access, open source software, electronic commerce, and Internet access devices (your cell phone or refrigerator on the Internet). Microsoft is a big deal in none of these areas, nor will it likely ever be. Let the past, be the past. Enjoin Microsoft against product tie-ins and discriminatory pricing. Then it has to compete, and the competition can decide the future.

The court might also reconsider that in addition to finding some of Microsoft's actions contrary to law, the court has heard lots of evidence of Microsoft's propensity for identifying what consumers want, and delivering. This is especially true of Microsoft's activities to curry the favor of independent developers by meeting their needs. These activities in my humble opinion truly built the desktop monopoly. These kinds of activities I feel should not be punished by our courts.

--John Werneken

(To reply, click here.)


My question is, if Microsoft does get split in two, who gets control of Slate? I can see a ferocious battle breaking out, with each side insisting that the other take custody of Michael Kinsley & Co.

--Carl Remick

(To reply, click here.)

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