Thursday, June 28, 2012

Short Memories and Lasting Consequences

The US Supreme Court is due to rule on the PPACA today, and you can expect a post on that subject tomorrow. But today, I want to talk about anti-trust law and its consequences on the private sector. Let's start with the last major anti-trust litigation brought on by the Justice Department: United States vs Microsoft.

In May of 1998, Justice filed a set of legal actions against Microsoft, alleging wrongdoing under the Sherman Anti-Trust Act of 1890. The issue primarily revolved around the bundling of Internet Explorer with Windows. In hindsight, the affair seems ridiculously misguided. But the case serves as another reminder of the power that the Federal government has to make or break the largest corporations.

 A year later, a Federal judge ruled against Microsoft and later ordered the breakup of Microsoft into two separate companies. Microsoft appealed the ruling and spent more time in court to avoid the fission of the company. Later, under the Bush Administration, Justice announced its intention to allow Microsoft to remain as one entity and instead settled with Microsoft out of court.

A sector of the economy that was mostly unregulated suddenly became incredibly regulated. The case in the US spawned similar action in the EU, and Microsoft wound up spending multiple years and hundreds of millions of dollars in litigation fees. Other companies began buying up patents both to protect themselves against litigation and to litigate other companies. The door had been kicked open, and on the other side was an incredibly expensive and litigious new world.

Again, with the benefit of hindsight, we can see how foolish the issue was. Apple, now the largest and most influential tech company, exerts a much greater degree of control over the integration of its operating system, hardware, and auxiliary software than Microsoft ever did. And Microsoft's dominance in the internet browser market has been steadily eroded if not completely shattered by competitors like Firefox, Chrome, Safari, and Opera.

The problem with anti-trust legislation and litigation is that the government (among many others) is absolutely terrible at predicting the future. Nobody can reasonably ascertain which industries and companies will dominate the corporate landscape in any long term time frame. When the government can exert that much control over the affairs of corporations, who can blame the corporations for trying to lobby the government to achieve a desirable outcome?

This brings me to Citizens United vs FEC, where the USSC ruled that corporations could spend unlimited amounts of money trying to influence political campaigns and the government. Many people criticize the ruling with hyperbolic proclamations such as it being the death knell for democracy. But what they overlook is the fact that corporations are only as political as they have to be.

A company such as Exxon-Mobil won't bat an eye spending millions upon millions of dollars lobbying Congress and the regulatory agencies to implement policy that benefits their company. But as a company, there is literally nothing they can do to influence, with reasonable certainty, the actions of a sitting President. The President has many constituencies that he must answer to, oil is just one of them.

It's much easier to influence a Congressman or a Senator in an oil friendly state/district. And it's even easier to work through the bureaucracy, where a lowly government official can be swayed by a nice dinner, promises of a cushy consulting job in the private sector after their public career is over, and just the feeling of importance by being courted by a huge special interest.

Ultimately, it's government that holds the keys to the kingdom. And when it has the power to legislate or regulate companies into and out of existence, it has to exercise extreme caution lest it ruins the confidence of the private sector. The modern economy is built almost entirely upon perception and trust. And when government breaches that, it takes so much effort to get back to the status quo ante.

Government has to be careful, especially when it wants to compel a person or organization to do something that they don't want to do. Their actions have far reaching consequences, even if they forget about it in a few years.

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