In this new Money Morning article, “The Antitrust Curse: What Apple Can Learn From Microsoft, IBM,” David Zeiler wonders whether the antitrust lawsuit filed against Apple and several book publishers by the U.S. Department of Justice last week could open the door to a broader case against Apple or, at a minimum, simply become a major distraction to the firm and it’s ability to innovate going forward. He uses IBM and Microsoft as case studies in this regard and notes that, “the problem with being in the DOJ’s gunsight is that it distracts management, makes the company hesitant to innovate, and blemishes the company’s public image. While antitrust woes may not have been entirely responsible for Microsoft and IBM ceding their dominant positions in tech, they were clearly a major factor,” he says. “And worse for Apple, the e-book case could be just the beginning.”
Quite right. I raised the same concern in my recent
Forbes column,”Regulatory, Antitrust and Disruptive Risks Threaten Apple’s Empire,” which Zeiler was kind enough to quote in his essay. In that piece, I argued:
Even if Apple beats back [the eBooks] investigation, broader questions are being raised about the company’s power that could invite a much broader investigation. The danger for Apple is that antitrust becomes an omnipresent threat that must be factored into all ongoing business decisions. Antitrust is a particular danger to Apple because the firm is highly vertically integrated and that integration is the source of many of their innovations. As earlier tech titans like IBM and Microsoft learned, when antitrust hangs like the Sword of Damocles, every decision about how to evolve and innovate becomes a calculated gamble.
Regarding the earlier impact that antitrust Sword of Damocles had on Microsoft, Zeiler unearthed this terrific 2005 quote from Mark Kroese, a general manager of information services at the Microsoft Network, who described the impact of the MS antitrust case on innovation at the firm as follows: “Working at Microsoft today vs. five years ago is different,” Kroese said. “If anyone thinks the antitrust case hasn’t slowed us down, you’re wrong. If I want to meet with a products manager for Windows, there needs to be three lawyers in the room. We have to be so careful, we err on the side of caution. We are on such a fine line of conduct.” Regarding how antitrust chilled IBM, Zeiler cites veteran tech journalist Steve Wildstrom of Tech.pinions who noted, “Twelve years of litigation were an enormous distraction in a time of rapid technological and business change. IBM management became cautious and over-lawyered, constantly looking over its shoulder-a condition that persisted for years after the case ended. The antitrust case was almost certainly a major cause of the serious decline of IBM in the late 1980s and early 90s,” Wildstrom said.
Of course, it is impossible to scientifically determine to what degree antitrust harassment contributed to either IBM or Microsoft’s inability to innovate and adapt to the rapidly changing market conditions. And let’s be clear: both IBM and MS have found ways to rebound and innovate in other ways. But one wonders what was lost in the process as the threat of antitrust constantly loomed and potentially chilled innovative efforts that could have kept both firms on the cutting-edge. Continue reading →
[Note: This post is updated regularly as I discover relevant old or new material.]
“Regulatory capture” occurs when special interests co-opt policymakers or political bodies — regulatory agencies, in particular — to further their own ends. Capture theory is closely related to the “rent-seeking” and “political failure” theories developed by the public choice school of economics. Another term for regulatory capture is “client politics,” which according to James Q. Wilson, “occurs when most or all of the benefits of a program go to some single, reasonably small interest (and industry, profession, or locality) but most or all of the costs will be borne by a large number of people (for example, all taxpayers).” (James Q. Wilson,
Bureaucracy, 1989, at 76).
While capture theory cannot explain all regulatory policies or developments, it does provide an explanation for the actions of political actors with dismaying regularity. Because regulatory capture theory conflicts mightily with romanticized notions of “independent” regulatory agencies or “scientific” bureaucracy, it often evokes a visceral reaction and a fair bit of denialism. (See, for example, the reaction of New Republic’s Jonathan Chait to Will Wilkinson’s recent Economist column about the prevalence of corporatism in our modern political system.) Yet, countless studies have shown that regulatory capture has been at work in various arenas: transportation and telecommunications; energy and environmental policy; farming and financial services; and many others.
I thought it might be useful to build a compendium of quotes from various economists and political scientists who have studied the regulatory process throughout history and identified regulatory capture or client politics as a major problem. I would greatly appreciate having others suggest additional quotes and studies to add to this list since I plan to update it frequently and eventually work all of this into a future paper or book. [
Note: I have updated this compendium over a dozen times since the original post, so please check back for updates.]
The following list is chronological and begins, surprisingly, with the thoughts of progressive hero Woodrow Wilson…
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Just a reminder about this week’s event on the 50th anniversary of Ronald Coase’s seminal article, “The Federal Communications Commission.” As Jerry noted here before, Coase’s critique of the political allocation of radio spectrum, and his arguments for achieving efficient allocation by allowing the government to sell rights to the spectrum, has had a profound effect on the course of communications policy. This event will explore the impact of Coase’s ideas and the legacy of his article and life’s work on communications and media policy.
This event will take place on
Thursday morning at 9:00 in Hazel Hall, Room 121 (ground floor) at the George Mason University School of Law in Arlington. The event is being co-hosted by The Mercatus Center at George Mason University and The Progress & Freedom Foundation and Jerry Brito and I will be co-moderating the session.
Opening remarks will be given by
Commissioner Robert M. McDowell of the Federal Communications Commission and his remarks will be followed by a panel discussion that includes:
- Prof. Thomas W. Hazlett, George Mason University School of Law
- Dr. Jeffrey A. Eisenach, Empiris LLC & George Mason University School of Law
- Dr. Evan Kwerel, Federal Communications Commission
- John Williams, Federal Communications Commission
We hope you can make it!
Please RSVP here.
What’s the right way to allocate the airwaves? For years and years and years, the governing policy of federal communications was that the electro-magnetic spectrum was too “scarce” to be left to the devices of the marketplace. This kind of reasoning has always lacked substance. As I wrote in a piece occoccasioned by the rise of indecency enforcement:
Congress began regulating broadcasters in 1927 on the grounds of scarcity. In return for free and exclusive use of a given wavelength, broadcasters agreed to serve the “public interest, convenience, and necessity” — or at least to do what Congress and the FCC ordered. One element of this agreement was a ban on obscene, indecent and profane language.
This scarcity theory has always lacked substance. Nobel Prize-winning economist Ronald Coase’s reputation is based, in part, on a notable paper he wrote in 1959 that criticized the rationale behind the FCC’s command and control regime of licensing broadcasters. “It is a commonplace of economics that almost all resources in the economic system (and not simply radio and television frequencies) are limited in amount and scarce, in that people would like to use more than exists,” Coase argued in his seminal essay.
From Shouldn’t FCC Rules Over Indecency Just Grow Up? Reflections on Free Speech and Converging Media
The FCC eventually came to realize that it could endow electromagnetic frequencies with property rights-like characteristics. In 1993, under Bill Clinton and a Democratic congress, the United States finally moved to such a system — at least in those frequencies used by cell-phone operators. As in so many other ways, broadcasters have remained immune from historical trends.
This backdrop is important to understand our current moment in wireless policy. Tomorrow, on Wednesday, November 12, at 4 p.m., those near Washington will be able to gain insight into how other nations have approached radio frequency regulation. The Information Economy Project at the George Mason University School of Law (
Disclosure: I’m the Assistant Director at the Information Economy Project, a part-time position that I currently hold) will host its next “Big Ideas About Information Lecture” featuring an address by Dr. William Webb, a top policy maker at OFCOM, the U.K. telecommunications regulator.
OFCOM’s ambitious liberalization strategy, announced in 2004, permits the large majority of valuable frequencies to be used freely by competitive licensees, offering an exciting and informative experiment in public policy. Dr. Webb’s lecture, “Spectrum Reform: A U.K. Regulator’s Perspective,” will offer a timely progress report for the American audience.
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The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.