Word has leaked out that the Justice Department might demand that Microsoft break up into three companies as part of any settlement agreement in the government’s antitrust suit against Microsoft. The idea is that consumers would be better off with three companies competing against each other than with one big “monopolistic” company to deal with.
During the age that preceded the Industrial Revolution – the Age of Mercantilism, it was customary for the king to grant select individuals or companies special privileges that enabled them to provide particular goods and services to the citizenry. The reason that the privilege was so special was that everyone else was prohibited by law from entering into competition against the person who had received the “monopoly.” If a person ignored the law and began competing, he faced the prospect of punishment, not from the monopolist but rather from the king.
Thus, everyone once understood the true nature of a monopoly – a government-granted and government-enforced privilege that prohibited everyone else, on pain of fine and imprisonment, from competing against the monopolist.
One of the driving forces that brought an end to the Age of Mercantilism was the terrible animosity that average people in England and Europe had against monopolies. People not only despised the arrogant attitude that characterized monopolists, they also hated the shoddy products and poor services that the monopolist customarily provided the citizenry. After all, since the monopolist was legally secure from the threat of competition, he had no incentive to satisfy his customers. He knew that if people wanted the product or service, they would have to deal with him.
The publication of Adam Smith’s Wealth of Nations in 1776 planted the revolutionary idea of economic liberty in the minds of the English people. Smith suggested that consumers would be economically better off if monopolies were repealed and everyone were free to compete in the marketplace in the supplying of goods and services. Within just a few decades, Smith’s ideas triumphed, and the Industrial Revolution ushered out the Age of Mercantilism and its monopolistic practices.
Later, economists explained the dynamics of economic liberty. In an unhampered market economy, the consumer, not the supplier, is sovereign. That is, in order to succeed in business, a businessman, faced with the ever present threat of competition from others, must continually satisfy his customers. Therefore, the more a business succeeds in satisfying its customers, the wealthier it becomes.
What happens if a company fails to satisfy consumers? It loses market share and might even go out of business, all on its own, without the assistance of the government. For example, Swift and Armour (remember them?), Numbers 5 and 7 on the original Fortune 500 list in 1954, ultimately disappeared from the list, in large part because of fierce competition from a newcomer named Iowa Beef Packers. In fact, well over 300 companies on the original 500 list in 1954 were gone from the list 40 years later. Some monopolies! And about 90 companies on the 1995 list, including Microsoft, FedEx, and Home Depot, weren’t even “born” when the original list was published but ultimately succeeded in knocking off “monopolistic” old-timers on the list. (“Forty Years of the 500” by Carol J. Loomis, Fortune, Vol. 131, No. 9, May 15, 1995 [www.northernlight.com/fortune/])
Imbued with the spirit of both The Wealth of Nations and the Declaration of Independence, our American ancestors, by and large, had no use for monopolies. Nineteenth-century Americans, of course, believed that life, liberty, and property are fundamental, inherent rights that preexist government. But they understood something equally important – that “liberty” encompasses the right to engage in any enterprise freely, that is, without governmental interference or restriction. Thus, since a monopoly precludes a person by law from competing freely in providing a particular good or service, it was anathema for our ancestors.
Unfortunately, the true meaning of “monopoly” gradually became corrupted, in no small part because of the teachings in public (government) schools and universities. Today, people honestly believe that a large company that has gained its wealth by successfully satisfying consumers, such as Microsoft, is a “monopoly” and, therefore, bad. And they also honestly believe that real monopolies, such as the Postal Service (first-class mail delivery) and the Federal Reserve System (supply of money) are necessary and good.
Yes, it’s true that breaking up Microsoft would result in more competition. But more competition is not freedom. As our ancestors understood so well, freedom entails the right to enter the marketplace freely by offering consumers your products and services. It entails the right to compete freely for their business by constantly responding to their ever changing whims and demands. And it entails the right to accumulate the fruits of success without fear of later being punished by the state.
Breaking up Microsoft would not only break up the most successful company in history. It also would accelerate the breakup of freedom, and that’s worse.