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Via Workers World News Service
Reprinted from the May 11, 2000
issue of Workers World newspaper
-------------------------Microsoft breakup
When anti-monopoly is really pro-monopoly
By Gary Wilson
What's behind the U.S. Justice Department's proposal to break up Microsoft? Has the government in Washington become anti-monopoly?
Hardly. The Clinton administration is not going after any other well-known monopolies, such as Intel Corp., whose monopoly on computer processor hardware is at least equal to Microsoft's monopoly on computer desktop operating system software. And Intel has been convicted in court for engaging in anti-competitive criminal actions against would-be rivals, such as AMD and Cyrix.
Nor is the Clinton administration even considering going after the media monopolies. Normon Solomon of Fairness and Accuracy in Reporting asked in his April 27 Media Beat column why the Clinton administration doesn't propose a Microsoft-like breakup of the six corporations that have a "hammerlock grip" on the media in the United States.
In fact, the Clinton administration's general policy has been to encourage monopolization. The Clinton administration has approved more big mergers than any previous administration in U.S. history.
According to Mergerstat (www.mergerstat.com), the biggest mergers in history have all been in the last couple of years:
* America Online's deal for Time Warner announced Jan. 10 for $165.9 billion.
* MCI WorldCom's deal for Sprint announced last October for $116 billion.
* Pfizer's bid for Warner-Lambert announced last November for $82.3 billion.
* Exxon's deal for Mobil announced in December 1998 for $81.5 billion.
* Glaxo Wellcome's deal for SmithKline Beecham announced Jan. 17 for $75.7 billion.
* SBC Communications' deal for Ameritech announced in May 1998 for $75.2 billion.
* Vodafone Group's deal for AirTouch Communications announced in January of last year for $62.7 billion.
* British Petroleum's deal for Amoco in August 1998 for $56.4 billion.
* AT&T's deal for MediaOne Group last April for $55.7 billion.
* Bell Atlantic's deal for GTE in July 1998 for $52.8 billion.
So why go after Microsoft?
Breaking up is good for business
The judge in the case--U.S. District Judge Thomas Penfield Jackson--was appointed to the federal district court by Ronald Reagan in 1982. He was the judge who sent Washington Mayor Marion Barry to prison in 1991. Jackson is a graduate of Dartmouth and of Harvard Law School, an Ivy League club member whom no one would describe as anti-big business.
In fact, his ruling will probably strengthen Microsoft. Jesse Berst, the editorial director of ZDNet--a Web publication directed to computer professionals--says that breaking up Microsoft is the only way to save the company.
Berst wrote this in a Jan. 13 column titled "Earth to Bill G: Wake Up and Break Up":
"Here's the irony. If Gates implements a break-up strategy now--and if he does it right--Microsoft will be better off. Here's why: Microsoft has become too big, too bloated, too territorial. It has brilliant people, but they're stifled by a ponderous corporate structure. Three or four leaner, meaner companies could react more quickly to competitors and market trends."
Breaking up a monopoly, thus, can actually increase its value when technological advancements dictate that the company must change or die. This is exactly what happened to Rockefeller's Standard Oil.
From 1870 to 1911, Standard Oil controlled almost all oil production, processing, marketing and transportation in the United States. Despite its gigantic size, the monopoly was not able to shift to introduce the changes needed to meet demand brought on by the introduction of the motor car. After the breakup ordered by a federal court in 1911, the new companies were able to respond to the technological advances.
In fact, "of the 38 progeny some were soon to become bigger, in terms of profit, than the original parent." ("The Seven Sisters" by Anthony Sampson, page 32)
The court-ordered breakup of the AT&T monopoly created companies that were better suited to the new telecommunications technologies and quickly generated bigger profits for shareholders than were possible before the breakup.
Swift changes in technology necessitated the breakup of AT&T. The continued existence of the AT&T monopoly in its old corporate framework was incompatible with the revolutionary new developments in technology.
The breakup of Microsoft could have a similar impact. Microsoft has been unable to fully shift into new emerging technologies that are expanding rapidly even as desktop computer systems appear to be stagnating.
Microsoft is desperately seeking ways to change direction. Bill Gates resigned as top corporate officer in order to head up a new division dedicated to this purpose.
Microsoft is not a dominant monopoly on the Internet or on Internet servers--computers that handle Internet traffic. After more than two years in development, it still has not introduced its application hosting server, considered to be the next generation technology for providing applications to desktop computers. It is expected that in the next couple of years application software will all be accessed from Internet-based application service providers. Users will no longer install software on their desktop computers, but will rather run the software from a server on the Internet.
Linux, a free operating system developed by volunteer programmers around the world, is based on Unix, the original Internet operating system.
Linux is the fastest expanding operating system in history. It is now the dominant server software on Internet Web servers and a close second to Microsoft on corporate file servers. Linux application servers will probably be available at about the same time Microsoft introduces its version.
The other area in which Microsoft has yet to make headway is its operating system for embedded computer processors. Ninety percent of the computer processors manufactured today are used in embedded systems, with only 10 percent used for desktop computers, where Microsoft dominates. This is quickly emerging as the biggest computer-related market worldwide.
Embedded systems are the equipment or devices that you don't think of as being computers, but whose operation depends on some sort of internal computer function. Embedded systems are all around--in cars, microwave ovens, stereos, home automation systems, elevators, cell phones, security systems, in-flight entertainment systems, automated tellers, vending machines, medical instruments, and so on.
There is no dominant operating system for embedded systems, but the competition is heating up. Microsoft has recently introduced two operating systems for embedded processors. However, the Linux operating system, which is virtually free, already has an edge over Microsoft in this area. But neither one has anything close to a dominant share of the market. Most existing embedded systems use custom-built software, but that is not expected to last much longer, with most turning to off-the-shelf software like Linux or Microsoft software.
More monopoly, not less
Another indication that the breakup of Microsoft is not really about ending predatory monopolies is the fact that the Justice Department's proposal would actually create two monopolies out of one.
ZDNet's Jesse Berst reported in an April 30 column:
"Ironically, [Microsoft will be] worth more as two companies. Remember, both of the new companies will still have monopolies(!!!). The [operating system] company would inherit a 90 percent share of the desktop operating systems. The applications company would get a 94 percent share in word processors and spreadsheets, and an 80 percent share in desktop databases." (Emphasis in the original.)
The Wall Street Journal concurs. Its April 28 report concludes that Microsoft shareholders will be the big winners, as they will end up with the shares of two rich and powerful monopolies instead of one.
One possibility is that with a breakup, the operating system monopoly will be freed up from having to concentrate on working with desktop applications and will then be in a position to shift more toward Internet technologies and embedded systems.
Marxism holds that the development of the productive forces, the new technologies, dictates changes in economic conditions. The Microsoft case is really a response to new economic conditions.
Monopoly is a tendency of capitalism that is never fully completed. Capitalist competition turns into monopoly, but contradictory trends keep competition in existence side by side with monopoly.
Big corporations grow and become monopolies only to break up, allowing new corporations to emerge that tend again toward monopoly. That's because finance capital tends to go to wherever the rate of profit is highest. However, it will just as quickly move on when the rate of profit stagnates or starts to decline.
Microsoft's profits are no longer expanding at the rate they had been for the last decade. In fact, its stock prices have been on a decline. Workers who are paid primarily in stock shares have been leaving the company.
The decline is starting to accelerate. Microsoft's losses on the stock market in the period between April 3 and April 24 are estimated at $140 billion.
Breaking up Microsoft may ultimately benefit Bill Gates and the company's other big shareholders most. It could also give a boost to some of Microsoft's competitors, though probably not as much as they hope.
A breakup will be of little benefit to those who aren't big capitalists. In fact, it is likely that a breakup could lead to higher prices for software and inhibit the development of standards for computer operating systems. And it won't end corporate greed, monopoly crimes or any of the rest.
This is definitely not an anti-capitalist development.
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