How Competition Legislation Destroys Businesses

Although a federal district judge has only issued findings of fact in the Microsoft case, the final ruling may well entail the break-up of the software leader. For many observers, that prospect is filled with danger signs. Here are some of their worst fears:

  • The greatest danger is that Justice Department lawyers are injecting themselves into the intimate managerial details of a company they cannot fully understand because they are not professional business managers.

  • Even investment bankers with great business savvy who buy up companies and break them into pieces -- hoping that the parts will be more valuable than the whole – sometimes wind up with corporate disasters on their hands.

  • In its zeal, the federal government destroyed the American shoe industry when it went after the United Shoe Machinery Corp. in 1947 -- and today the U.S. imports virtually all its shoes.

  • Things also went awry after the trustbusters attacked Schwinn Bicycle Corp. and Pan American World Airways.

    Many other antitrust cases had unintended consequences that ultimately hurt the U.S. economy.

    The possibility of the federal government making mistakes in the case of Microsoft are enormous -- particularly in light of the fact that those who are on the attack have no skill, training or experience at micromanaging.

    Source: Bruce Bartlett (National Center for Policy Analysis),
    Micromanaging Microsoft, Washington Times, November 9, 1999.

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    South African Note:
    The competition division of the Department of Trade and Industry is preparing to act on the new competition legislation enacted by the South African Parliament. In adopting the legislation, Parliament ignored warnings that the legislation would have a detrimental effect on the South African economy. Will they also ignore what has happened in the USA?

    The type of destruction caused in the USA by its trust-busting activities – giving foreign competitors an advantage over US companies - persuaded the Justice Department, for a time, to moderate its behaviour. The lessons have apparently been forgotten as they move in on Microsoft. Is the competitive advantage over foreign software producers to be thrown away to satisfy the complaints of Microsoft’s competitors who are unable to compete? Will the South African bureaucracy behave in a similar manner?

    A task the Competition Tribunal could usefully perform is to examine government legislation, regulations and activities and root out anything that is damaging economic growth. There is a long list of items for investigation: statutory monopolies, excessive taxation and government spending, inefficient use of taxpayers funds in the provision of services, failure to provide sound money, the maintenance of counter-productive exchange controls, exacerbating unemployment. The list goes on and on. If the job were done properly it could transform the economy. What is done by businesses to try and get an edge on their competitors is a drop in the ocean compared to the damage caused by government intervention in the economy. The US Department of Justice and the SA Competition Tribunal are set up to look in the wrong direction if they are intended to ensure that the consumer gets a better deal.

    Eustace Davie, Director

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