Donald Luskin

by I Am John Galt

  Yet not all competitors bought in. In 1990 a Federal Trade Commission investigator, tipped off by others in the industry, approached Scott Cook, chairman of Intuit, whose flagship Quicken program was facing stiff competition from Microsoft Money after a period of information sharing between the two companies. Cook said he told the FTC it was wasting its time investigating Microsoft. “They are pestering one of the best run companies I’ve ever seen,” he said, “a company that should be the model for American industry. . . . [W]hen you lose to Microsoft, it’s because you snooze.”56

  Meanwhile, Gates was flying commercial around the world with no entourage. No pretense. He dined on hamburgers and milkshakes. And unlike a lot of corporate executives, Gates was able to put his ego aside, look at himself honestly, and learn from his errors. “The process of identifying the mistake, figuring out the problem and fixing it is what makes Bill Gates different,” wrote one industry observer. “I’ve watched him do it over and over again.”57 Like a true Randian hero, Gates dealt with objective reality, not wishful thinking. “If he really believed in something, he would have this intense zeal and support it and push it through the organization and talk it up, and whenever he met with people talk about how great it was,” said Scott MacGregor, a Xerox manager brought over to guide Windows development. “But if that particular thing was no longer great, he’d walk away from it and it was forgotten. A lot of people have a hard time doing that. It made him incredibly agile in a business sense. . . . People usually fight to the death long beyond when it is the right thing to do.”58

  Oft-quoted industry analyst Esther Dyson said Microsoft was hated because it was so successful. “They’ve gotten where they are by doing a good job,” she said. “Doing a good job isn’t illegal.”59 The government, egged on by the cabal of industry whiners, would try to prove otherwise.

  Gates through the Looking Glass

  No less a personage than Alan Greenspan once wrote that “The world of antitrust is reminiscent of Alice’s Wonder-Land: everything seemingly is, and apparently isn’t, simultaneously. . . . [T]he entire structure of antitrust statutes in this country is a jumble of economic irrationality and ignorance.”60 This is where Bill Gates—perhaps one of the most supremely and economically rational men who ever lived—found himself transported at the height of his success. At the antitrust trial, Gates must have felt he was dealing not with the American justice system but with Alice’s Queen of Hearts proclaiming, “First the sentence, and then the evidence.”

  The century-old Sherman Antitrust Act passed by Congress in 1890 was designed to protect powerless consumers against huge corporate interests that might use nefarious means to monopolize a market, then artificially raise prices and stop improving their products to the economic detriment of society. The solution, in nineteenth-century logic, was to break up big companies to ensure vigorous competition, which would supposedly result in better products at lower prices thanks to a more efficient marketplace.

  One hundred years of subsequent economic thinking calls the whole premise of antitrust law itself into question. In most instances economies of scale achieved only by the largest companies reduce operating costs and benefit consumers, and breaking them into smaller, inefficient pieces would cause more harm than good. In addition, market forces, left to their own devices, will likely displace an overcharging monopolist anyway, since eager upstarts will find ways to cut into the rich profits through creation of substitute products or other innovations. What’s worse, antitrust law is inherently subjective—there is no rigorous definition of monopoly. Nevertheless, the law is still the law, and such ambiguous legislation will inevitably become fertile soil for collectivist weeds to take root. And for Microsoft, take root they did.

  At the heart of the government’s case in 1998 was whether Microsoft violated a 1994 consent decree and used monopoly power to stifle competition by giving away its Internet Explorer browser for free as part of its operating system, while competitor Netscape Communications was trying to charge a separate fee for its browser. On the face of it, it’s hard to see how consumers are harmed by getting something for free. It’s as silly as a bottled water company lodging a complaint against a municipal utility for installing drinking fountains in the public park. And if the water bottler truly had a superior product—or could convince the consumer it did—it would have a willing base of paying customers readily offering value for value.

  In the case of Netscape, a ludicrous irony is that, in the beginning, it gave away its browser for free, as a come-on to build an installed base of consumers so that it could sell its server software to corporate clients. In the end Netscape’s problem wasn’t Microsoft doing the same thing; it was that Netscape behaved incompetently, made bad decisions, missed deadlines, alienated customers, and (most important) failed to create a compelling business model.61 As Gates once told his own small team working on Internet initiatives in the midst of the dot-com bubble, “What you are doing isn’t that hard. This is a feature. This isn’t a company. It isn’t even a product. It’s just a feature.”62 But Netscape apparently missed out on a fundamental lesson of commerce: don’t try to sell people something that they can get for free, especially when you yourself conditioned them to expect it for free. If Netscape couldn’t muster the strength and insight to create a profitable business on its own, it would play the poor disadvantaged kid beaten up by the big bully, and plead for public sympathy in the name of altruism.

  Just like the looting businessmen in Atlas Shrugged, Netscape could have hardly been more aggressive in harnessing the power of the state. To start with, CEO Jim Barksdale personally had at least six meetings with trustbusters and sent the agency at least two white papers on the subject of Microsoft’s supposedly predatory tactics, urging the government to take action. His company would later circulate an internal document describing the government’s resulting antitrust suits against Microsoft as an “opportunity for Netscape.”63 On the witness stand, Barksdale’s clever one-liners and folksy banter laced with Mississippi charm would be eagerly received by Judge Jackson over a marathon week on the witness stand, in stark contrast to Gates’s independent intransigence.

  Judge Jackson himself had little business presiding over a case on free-market commerce in the technology sector—or perhaps any case at all, for that matter. Jackson didn’t use e-mail and had little or no familiarity with computer technology. In 1999, he insisted that there was no “best of breed” in browsers and none was likely to emerge “at any time in the immediate future.” From his lofty view atop the bench, he acknowledged the exponential growth of the Internet and then fantastically asserted that it “would have no impact on consumers or operating systems for the next few years,” and went so far as to argue that many consumers would not even want a browser on their computers.64

  For Judge Jackson, Microsoft’s crime was hubris, not monopoly. Jackson found Gates and his crew “obstinate.” “I think he has a Napoleonic concept of himself and his company, and arrogance that derives from power and unalloyed success,”65 he’d later say of Gates. The case became one not of legal merit, but of forcing Microsoft and its proud, individualist CEO to submit to the implied guilt thrust forth by the collective, of which Jackson had appointed himself representative.

  David Boies, the government’s prosecutor, opened the case with excerpts from Gates’s videotaped deposition testimony. These “greatest hits” showed Gates’s style at it social worst. Slumping in his chair, wearing a baggy earth-toned suit, he appeared sullen and annoyed. He occasionally rocked back and forth broodingly. His responses came across as petulant, arrogant, obstinate, and snippy. “Did you actually read what was in there?” he jabbed back when posed a question about the definition of Microsoft’s Web browser. “It seems strange that if you’re trying to use a dictionary you might as well read what it says,” Gates smirked.66

  Judge Jackson later told Ken Auletta of the New Yorker that throughout the trial “he couldn’t get out of his mind the group picture he
had seen of Bill Gates and Paul Allen and their shaggy-haired first employees at Microsoft.” According to Auletta, he went on to say, “[W]hat [I] saw was a smart-mouthed young kid who has extraordinary ability and needs a little discipline. I’ve often said to colleagues that Gates would be better off if he had finished Harvard.”67

  After 18 grinding months of trial, Jackson released his Findings of Fact using the following analogy about a North Carolina mule trainer to describe his own methods: “How do you train the mule to do all these amazing things? Well, he answered, I’ll show you. He took a 2-by-4 and whopped him upside the head. The mule was reeling and fell to his knees, and the trainer said: You just have to get his attention. I hope I’ve got Microsoft’s attention. . . . But we’ll see.”68

  In late 1999, Jackson’s “Conclusions of Law” were still months from release, hanging like a sword of Damocles ready to deliver the judge’s decapitating penalties. Given the damning Findings of Fact, there was a tremendous incentive for Gates to settle. By this point, the struggling Netscape had been gobbled up by America Online in a stock swap valued at a whopping $4.2 billion—not bad for a company supposedly hobbled by Microsoft’s unfair practices. The market was sorting things out by itself, but the government was still concerned that Microsoft would continue to bundle new features like voice recognition into its operating system or create deliberate third-party incompatibilities to advantage its own suite of applications.

  Earlier proposals suggested forcing Microsoft to bundle rival Netscape’s browser along with its own in a remedy Gates equated to “telling Coca-Cola to bundle three cans of Pepsi in every six-pack.”69 Other proposals during the ensuing months of negotiations included signing over Microsoft source code in a move akin to declaring the formula for Henry Rearden’s hard-won breakthrough technology, Rearden Metal, a public good—and literally blackmailing him into “giving” it as a “gift” to the nation. Gates was uncharacteristically amenable to certain softer provisions, including a “detachable” Web browser, but ultimately rejected the more extreme technical definitions being proffered. Soon it became impossible to bridge the gap between the stubborn Gates who insisted he had done no wrong and his government persecutors out for blood. The settlement talks fell apart.

  Jackson’s eventual ruling that Microsoft be broken apart—which when it was announced in April 2000 caused a stock market crash, and was arguably the trigger event that derailed the boom in tech stocks—was later overturned by the D.C. Circuit Court of Appeals. An eventual settlement with the DOJ contained some minor concessions but kept Microsoft intact and largely free to continue its own software development on its own terms.

  The same couldn’t be said for Gates himself. Years of legal grinding and public persecution had depleted his inner reserves. Gates had gotten into the business to build great software, not defend himself in a war of attrition against an ever-changing landscape of scavenging looters. He had had enough.

  Gates Puts His Mind on Strike

  In January 2000, Gates relinquished almost all of the operational decision making at Microsoft by turning over the CEO duties to Steve Ballmer. Instead, he would ostensibly focus on strategy and software development in a far less public role. It was at this point of transition that Microsoft stopped playing to win and started playing to be nice.

  Ballmer made it clear that an excessive zeal had permeated the culture and gotten the company into one legal tiff after another. The zeal had to be tamed. “Providing value to customers,” Gates and Ballmer wrote to shareholders in 2003, “means not only building great products, but also listening carefully to customers, responding quickly, and being more transparent and accountable.” It was as if Microsoft’s leadership were saying, “We’ve always thought of ourselves as good guys. We don’t think we did anything wrong. But all of you think we’re not that great. So now we have to convince you that we truly are good guys.”70

  By 2003, Microsoft’s legal staff had mushroomed to 300 to handle the protracted legal avalanche threatening to bury it. In January 2004, Microsoft had 13 lobbyists in the nation’s capital and another seven in state capitals. Goldman Sachs analyst Rick Sherlund estimated that the lawsuit lopped off as much as $175 billion from Microsoft’s market capitalization. The once singularly focused Gates would become more and more comfortable spending time away from Microsoft pursuits. Where previously he would obsess over computer code or the latest elements of Windows—subjects about which he was the world’s foremost expert—his conversations would now turn just as frequently to matters of philanthropy such as infant mortality statistics or malaria in the third world—subjects about which he has no expertise, indeed no experience whatsoever.

  His early attitudes toward philanthropy were dismissive at best. Business came first. “He thought the most important thing to do,” his father said, “was to have the business succeed.”71 When his mother tried to convince him to be more charitable, he responded that he had employees to pay and deals to do in a very competitive market. He just didn’t have the bandwidth to deal with yet another management hassle like a foundation, and certainly not one that didn’t produce any economic value.

  After the DOJ trial, he did a complete 180. He started the Bill & Melinda Gates Foundation and would join with the likes of Warren Buffett to publicly announce a Giving Pledge that would funnel a huge portion of his wealth to this behemoth charity. Eventually he would be counted among the world’s most generous philanthropists. The press that once skewered him in demonizing terms of self-serving greed now lauded his turnaround. They had hated him for making his money, and now they loved him for giving it away—never mind that he had to have made it first.

  He had seemingly capitulated to the collectivists. Or had he? Some might say his operational and mental departure from the company he founded was his own surreptitious strike of the mind. The high-profile charity would be a misdirection to distract the public from the most salient consequences of Gates’s move—he was withdrawing his intellect from the parasites who had sucked value from him through the decades. He walked away in full public view, leaving his creation to stagnate under societal demands of fair play . . . and nobody even realized he did it.

  It was nothing so dramatic as Henry Rearden vanishing by dark of night from his ruined steel mills to join John Galt’s revolution. Nevertheless, Microsoft investors have already felt it where it counts: in the pocketbook. As Figure 5.1 shows, a $100 investment in Microsoft would have turned into over $48,000 over the 15 years Gates was at the helm. From the day Gates accepted society’s demands and became a generous philanthropist instead of a greedy monopolist, that same $48,000 would have shrunk to $33,600 by today.

  Figure 5.1 Microsoft (MSFT) Stock Price

  Bravo, Mr. Gates. Like Henry Rearden, you fought long and hard. Society will miss your contribution—whether or not it ever knows it.

  Chapter 6

  The Central Planner

  Barney Frank as Wesley Mouch, the politician who meddled in the economy and almost destroyed it

  “Fact is,” said Mr. Weatherby primly, in a statistical tone of voice, “that in the twelve-month period ending on the first of this year, the rate of business failures has doubled, as compared with the preceding twelve-month period. Since the first of this year, it has trebled.”

  “Be sure they think it’s their own fault,” said Dr. Ferris casually.

  “Huh?” said Wesley Mouch, his eyes darting to Ferris.

  “Whatever you do, don’t apologize,” said Dr. Ferris. “Make them feel guilty.”

  “I’m not apologizing!” snapped Mouch. “I’m not to blame. I need wider powers.”

  —Atlas Shrugged

  Who is Wesley Mouch?

  Wesley Mouch is one of the key antagonists in Atlas Shrugged, a government regulator who destroys the economy while attempting to control it. But he’s no super-villain—he is not portrayed as consciously evil, or even as especially ambitious. He is only a bumbler who ends up almost by accident with extraordina
ry powers over the economy, which he finds cannot be exercised without unleashing unintended consequences.

  Mouch first achieves political power as a pay-off; he is a lobbyist in the employ of industrialist Henry Rearden, one of the central heroes of Atlas Shrugged, whom he betrays by not warning him of impending regulatory legislation. But that is the only overtly corrupt or ambitious act Mouch carries out. After that he is shown as a buffoon who nevertheless acquires more and more powers—in a vicious cycle in which additional powers are granted at each stage of the economy’s collapse, which his own regulatory powers caused in the first place.

  As Top Coordinator of the Bureau of Economic Planning and National Resources, Mouch wields tremendous power. Yet it was only mistakenly “concluded that Wesley Mouch was a man of superlative skill and cunning, since millions aspired to power, but he was the one who had achieved it.” He was, in fact, only “the zero at the meeting point of forces unleashed in destruction against each other.”

  Through Mouch, Ayn Rand shows that while virtue is powerful and requires relentless competence by the virtuous, evil—even very effective evil—is small and impotent. Unlike all the other main characters in Atlas Shrugged, heroes or villains, we never hear from Mouch an exposition of his guiding philosophy. It seems he doesn’t have one, suggesting that in Rand’s view the absence of a philosophy is a form of depravity.

  In a December 2006 article from the Congressional Quarterly Weekly entitled “A Roof over Every Head,” Congressman Barney Frank of the 4th District in Massachusetts is quoted proclaiming, “The problem is that the market is producing too much inequality.” The solution? Use government leverage to provide affordable housing as one way to bridge the widening gulf of U.S. income disparity. A new approach to housing policy can be a hallmark of the Democrats’ efforts to redistribute wealth, he says.1