Angelo Mozilo wasn’t the only James Taggart at work in the era of corruption that led to the Great Recession. And as long as the world accepts the collectivist lies that disguise parasitism behind a curtain of high-minded social ideals, he won’t be the last Taggart—and the Great Recession won’t be the last crisis our economy has to face.
Chapter 5
The Persecuted Titan
Bill Gates as Henry Rearden, the businessman who created revolutionary technologies and was criminalized for his success
And yet—he thought—through all the generations of political extortion, it was not the looting bureaucrats who had taken the blame, but the chained industrialists, not the men who peddled legal favors, but the men who were forced to buy them; and through all those generations of crusades against corruption, the remedy had always been, not the liberating of the victims, but the granting of wider powers for extortion to the extortionists. The only guilt of the victims, he thought, had been that they accepted it as guilt.
—Atlas Shrugged
Who is Henry Rearden?
In Atlas Shrugged, Henry Rearden is a steel tycoon who refuses to join John Galt’s “mind on strike” until his business is utterly destroyed by corrupt politicians, fellow businessmen, and his envious wife.
Rearden came from poverty, assembling an empire over many years of relentless effort, managerial skill, and personal risk. At the peak of his career he invents a new alloy, both lighter and stronger than steel, and christens it “Rearden Metal.” The new metal is so revolutionary it threatens to displace the established industrial order, and Rearden finds himself blocked at every turn.
A single visionary industrialist—railroad executive Dagny Taggart, the main protagonist of Atlas Shrugged—places an order for the metal to build a high-speed track into Colorado, the only flourishing region of the economy. Rearden’s and Taggart’s ride together on the first train to use the new track is the most thrilling scene in Rand’s fiction, portraying the emotional pinnacle that can be reached by those who achieve business and technology breakthroughs.
The Taggart track proves the metal’s value, but this only intensifies Rearden’s problems. The government passes a law seizing patents, and at first Rearden refuses to turn over the formula for his metal. He relents when the government blackmails him with evidence of his affair with Dagny Taggart, begun in the exultant moment following their thrilling train ride. The government passes so many new regulations that Rearden’s steel mills become virtually state-controlled. Ultimately the government manages to stage a fake labor disturbance resulting in the mills’ outright seizure.
An unintended victim of the incident is a young government bureaucrat whom Rearden had befriended. As he dies in Rearden’s arms—in the most emotionally touching scene in Rand’s fiction—Rearden sees the evil of the collectivist system that destroys even its own adherents, and finally joins Galt’s strike.
The news hit him like a punch to the solar plexus on that blustery fall day in Redmond, Washington. Despite his unwavering fight against the forces bent on destroying him, Bill Gates was slipping ever deeper into his own personal hell. “U.S. Judge Declares Microsoft Is a Market-Stifling Monopoly,” blared the newspaper headline on November 6, 1999.1 In a bluntly worded 207-page “Findings of Fact,” Judge Thomas Penfield Jackson, a career public jurist and demonstrated technophobe—he didn’t even use e-mail—concluded that Microsoft had used its “prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft’s core products.” He added, “The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft’s self-interest.”2
For Gates, the finding was outrageous. The company he had dropped out of college to build from a ragtag crew of computer geeks into a world force in software development had always competed aggressively but fairly. Of course he had pursued his own self-interest—and vigorously advanced opportunities to create new products and exchange fair value with his customers. That’s what a free-market system is all about. “Who grew this market?” he asked himself. “We did. Who survived companies like IBM, ten times our size, taking us on?”3 In the process, like an early metallurgist at the dawn of human civilization, he created a brand-new substance called software that would power our society into the next level of permanent technological orbit.
On the day Gates was born in 1955, fewer than 500 electronic computers had ever existed in the entire world, their total retail value amounted to less than $200 million, and the term software had not yet been coined.4 By 1999, nearly half of all American households owned a computer,5 with annual global shipments exceeding 100 million units.6 Microsoft software ran on nearly all of them. Bill Gates had come close to realizing his youthful dream of a computer on every desk with Microsoft on every computer. But that success, while seemingly destined in retrospect, was in the beginning hardly guaranteed among the primordial soup of competitors in a chaotic personal computing field all vying for prominence—or mere survival.
Along the way Gates had lived the American dream. His own personal effort had made him the wealthiest person on earth with a net worth in excess of $80 billion7—the vast majority of it still at work invested in Microsoft stock, but an amount larger than the annual gross domestic product of the Philippines or Singapore.8 His company was an American success story that ensured the United States’ place as a leader in global technology for years to come.
And while it wasn’t his primary intent, Bill Gates himself was far from the main beneficiary of his industrial endeavor. By creating a de facto standard in computer operating systems, he unlocked widespread cross-compatibility of applications and files, which boosted global workforce productivity throughout the 1980s and 1990s to historically astronomic levels. The same work output that had previously required a bank of financial analysts poring over hand calculations or a pool of typists hammering away at carbon-copied memos could be accomplished by a single office worker in a fraction of the time, and then disseminated instantly to a worldwide audience using a compatible DOS or Windows-based PC.
A single $21 share from Microsoft’s 1986 initial public offering (IPO) would be worth more than $10,000 just 12 years later. A $1,000 investment on the secondary market even after Microsoft’s 40 percent first-week IPO pop would have grown to $483,000 by the end of the 1990s. Thousands of employees and investors alike made lifetime fortunes by taking a risk on Bill Gates and his competitive drive. For that matter, thousands of competitors, far from being shut out by Microsoft, in fact made fortunes for themselves, and improved the lives of their customers, only because Microsoft had created a stable and widespread computing standard in which their products could operate. And in an age when the American economy is faulted for being dependent on paper shuffling and burger flipping, Gates built his wealth by actually manufacturing something.
So what was Bill’s reward for his industry, foresight, and entrepreneurialism? Just like Henry Rearden, the brilliant inventor and industrial titan in Ayn Rand’s Atlas Shrugged, he was persecuted for his success. He was branded a criminal for not playing soft enough, for not allowing weaker companies a spot on the field, for capitalizing on his opponents’ mistakes to score points for his own business—in other words, for succeeding against all odds in a competitive marketplace. Now the market buzzed about possible penalties, including a forced breakup of the firm, confiscation and public dissemination of its intellectual property, or other conditions—like seating government appointees on Microsoft’s board—amounting to socialist nationalization of his business.
It’s as if Judge Jackson were channeling a passage from Atlas Shrugged in support of the “Equalization of Opportunity Bill” reading that “it was society’s duty to see that no competitor ever rose beyond the range of anyone who wanted to compete with him.” In other words, the best athletes should be hobbled so that the worst can keep
up. Gates should play nice, sacrificing himself, his employees, and his shareholders, and leave some room for others.
In turn, Atlas Shrugged’s Rearden, like Gates, having dealt only with the clean reality of technology and production all of his life, “had acquired the conviction that one had to concern oneself with the rational, not the insane—that one had to seek that which was right because the right answer always won—that the senseless, the wrong, the monstrously unjust could not work, could not succeed, could do nothing but defeat itself.” Gates liked to say, “The business side always seemed simple to me, you know, make great software, figure out a way to get it out there and get people to buy it.”9 But just as Henry Rearden found out in Atlas Shrugged, businesspeople who compete on their own merits—naively ignoring the parasites seeking to drain them—do so at their own peril. There is no record to suggest that Gates ever read Atlas Shrugged, or ever heard of Rearden. Too bad. It might have helped in the travails to come.
Storming the Gates
In 1988 after a full two years operating as a major public corporation, Microsoft employed just five attorneys on staff (by 2003 Microsoft’s legal staff had mushroomed to 300).10 When his senior executives urged him to boost the company image in mainstream media with a public relations campaign, Gates rejected the idea as distracting the company’s focus away from technology. “In the early days of the company I was very proud that we had no lobbyists ever, no PACs [political action committees],” Gates noted. “I had to spend more time in capitals of other countries than our capital. And, what a testament that was to America. You could build a company with great success without involvement in political activities of any kind.”11
Rearden felt the same way—right up until the government destroyed his business. “He knew that it was necessary to have a man to protect him from the legislature; all industrialists had to employ such men. . . . An inexplicable kind of distaste, part fastidiousness, part boredom, stopped him whenever he tried to consider it.”
Now, facing incessant attacks from the very government that was founded to protect his freedom and the products of his individual effort, Gates couldn’t comprehend why anyone could begrudge him for selling so much software. What could possibly be wrong with that? And what was he supposed to do instead? Should he fail to deliver what the customers demanded? Should he stop innovating, stop improving his products? In 1999 alone, he had spent $5.3 billion on research and development—more than the entire annual corporate profit of General Motors, Wal-Mart, or Boeing.12 Why was it his fault that smaller companies couldn’t afford to invest as much to benefit their own customers?
As far back as the late 1980s, certain industry players were already plotting against Gates. Instead of focusing their efforts on improving their businesses and doing the hard work needed to take on Microsoft openly, these so-called competitors chose to whine—and conspire—from the shadows. First, complaints against Microsoft were made to the Federal Trade Commission (FTC) along with a road map to help guide the agency to other disaffected companies whose spiteful grumblings might uncover more damaging evidence in support of their spurious claims. The Novell Corporation and its chairman, Ray Noorda, led the opposition, employing two Washington law firms and a well-connected Washington public relations firm in an effort to influence the FTC’s evaluation of Microsoft.13 Despite these poisonous tactics, the FTC found insufficient evidence of any wrongdoing and ceded the investigation over to the U.S. Department of Justice (DOJ).
Then, even more boldly, big names like Oracle, IBM, and Sun Microsystems together spent millions on government lobbying in part to convince the DOJ to take action against Microsoft.14 Urged on by this angry horde of collectivist interests armed with their quivers of money and political influence, the attacks would persist. As one reporter put it, the government “didn’t know what Bill Gates did—but they were sure he must have done something wrong.”15
Yet his customers clearly didn’t share the sentiment. In a poll, 77 percent of Americans believed Microsoft made quality products16—and for those who felt otherwise, well, just don’t buy them. Microsoft continued to improve its products, cut costs, and offer competitive upgrade options to newer versions—and the marketplace agreed with his approach, rewarding Microsoft with ever greater success.
“The FTC investigation was a lightning rod to bring computer people forward and say that it would be helpful if Microsoft was hobbled in some way,” Gates told Newsweek in June 1991.17 In 1994, Microsoft agreed to settle a Department of Justice case by making it easier for personal computer manufacturers to use Microsoft’s rivals’ software. It signed a consent decree that forbade it from using its operating system dominance that reputedly “choked off competition.”18
Still, Microsoft’s competitors did not let up, claiming that the software titan had achieved and then abused its monopoly status by forcing others to do business with it. Who could seriously think that Microsoft really had the power to force someone to buy its goods, as though at the point of some kind of figurative gun—and then argue that the police apparatus of the government ought to force Microsoft to desist at the point of an actual gun? Who, indeed? These were Gates’s supposed peers in the computer industry.
Grudgingly, Microsoft finally hired its first lobbyist in Washington in March 1995 to begin countering the political threat to its survival. From now on, Gates wouldn’t repeat the same mistake he made in 1994 when his reluctant capitulation signaled weakness to the scavenging hyenas who longed for a bite of the majestic beast. Next time, he would refuse to settle where other custodial-minded CEO pragmatists might cave in. For Gates, it was his company, and it was personal. He would fight any further government intrusions to the bitter end with all of his considerable might and intellect.
When the DOJ brought its antitrust suit against Microsoft in 1998, the case appeared to focus narrowly on a specific Internet browser issue. But it was much more than that. Apparently we like our capitalist system to produce success, just not too much of it. “We have people who think that we are more successful than any company should be,” Gates said.19
When called into a deposition by the government’s hired gun, attorney David Boies, Gates stubbornly made his opponent fight for every inch. Gates said at the time, “I gave totally truthful answers. I have a great memory. When [Boies] would ask imprecise questions I would simply point out to him the imprecise nature of the question.”20 But Gates did not merely “point out”—he mocked, he argued, he stonewalled—with a chip on his shoulder bigger than a mainframe. To wit:
Boies: Can you tell me, Mr. Gates, what question you’re purporting to answer?
Gates: Your last question.
Boies: Do you know what it is?
Gates: Could I make it as convoluted as you did? No.
In Atlas Shrugged, Henry Rearden finds himself on trial for a regulatory crime as trumped up as the one of which Gates was accused—and stonewalls just like Gates did. Rearden refuses to grant any legitimacy to the court by even answering its questions. Reardon tells the prosecutor,
“Your law holds that my life, my work and my property may be disposed of without my consent. Very well, you may now dispose of me without my participation in the matter. I will not play the part of defending myself where no defense is possible, and I will not simulate the illusion of dealing with a tribunal of justice.”
. . . “Are we to understand,” asked the judge, “that you hold your own interests above the interests of the public?”
“I hold that such a question can never arise except in a society of cannibals.”
Rearden gets away with it—the court is so flummoxed by his principled resistance that it lets him off with a suspended sentence. But it was only a temporary victory. There was more government intervention to throttle Rearden, and eventually it would destroy his business.
For Gates, there wasn’t even a temporary victory. While clearly in the right, his performance had done him no favors in a courtroom more amenable to defendants who
show deference to their persecutors, even when it’s not deserved. In the end, such intangibles would be the deciding factors. Judge Jackson would decide the case not on objective legal arguments, but on his own whims based on the personalities and theatrics of the various witnesses and counsel in his court. More than once, he was seen to fall asleep at the bench during proceedings. He shouted at Microsoft witnesses and took over questioning from attorneys when frustrated by their approach.21 He rolled his eyes and shook his head in response to testimony. He held confidential press interviews during the trial in which he likened Microsoft to “drug traffickers” and “gangland killers.” His actions would later be declared by an appellate court to be “deliberate, repeated, egregious and flagrant” violations of the judicial code of conduct.22
The government, Gates told himself, had no real case. It would get nowhere. He was sure of it. And yet the government persisted. Gates was infuriated—and surprised—that instead of conducting their case purely in the legal arena, the Feds were fighting with PR tactics—“Call me naive,” Gates said. And the press, as far as he was concerned, ate it up.23
His own hometown paper, the Seattle Post-Intelligencer, would refer to Microsoft with the oft-repeated epithet “Evil Empire.”24 Time magazine reported on “Demonizing Gates,” citing the thousands of diabolical references to him online as “the Great Satan” and “Beelzebub.”25 Newsweek ran a story on Gates entitled “The Whiz They Love to Hate.”26 Business Month ran a doctored image of Bill’s head on a muscle-bound body under the cover heading “Silicon Bully.”27 In the article one unidentified IBM executive said he would “like to put an ice pick in [Gates’s] head.” The endless water torture of persecution would become too much for even Gates’s inner fire to withstand. “It was in the press every single day,” says Bill’s dad, William Gates Sr. “His own government, suing him, that’s not chocolate sundae! He was concerned, he was angry, he was distracted from things he’d rather be doing.”28
Donald Luskin Page 16
