From the May 27, 2009 Financial Times
May 27, 2009
by Irwin Stelzer
For once, America is running at top speed to catch up with the European Union. In levying a record fine against Intel, the world's largest chipmaker, the EU competition authorities have let it be known that a dominant company's efforts to crush rivals by threatening customers or rigging a price schedule will not be tolerated. President Barack Obama's new team is in the early stages of saying "we agree". After years in which the Bush administration allowed dominant companies to just about do as they pleased, Christine Varney, the president's new antitrust cop, is running around Washington telling business groups that the enforcement hiatus is over.
Which is of special importance to high-tech industries. The new shift "will be bad news for heavyweights in the tech industries – companies like Google and Microsoft", says Herbert Hovenkamp, a professor of law at University of Iowa College. He might be right. If he is, any believer in the ability of free, competitive markets to produce a rapid rate of innovation and prices that do not include monopoly profits can only add: "Good thing."
I studied and wrote about the benefits to society of vigorous competition for decades before I became a consultant to Advanced Micro Devices; and I was not directly involved in that company's legal challenges to Intel. Consumers benefit from fair prices and unimpeded innovation, and society benefits from the social mobility provided by rags-to-riches entrepreneurs who often gamble their personal savings on a new idea. But in recent years, the high-technology industries have persuaded US enforcement officials that they are different – that all that antitrust stuff is fine for "smokestack industries" but not for them.
Leave aside the question of just how to define a high-tech industry. After all, the robots and software in any auto plant hardly cause smoke to come out of the stack. Concentrate instead on what society needs from enterprises of the kind found in Silicon Valley. It needs rapid innovation. That comes from newcomers, either directly when they enter a market, or indirectly from the pressure they put on incumbents to innovate, surrender market share or, worse still, pass from the scene.
Surely, the need to keep entry open, to prevent coercion of customers, to penalise anticompetitive pricing and other practices is as great, or perhaps even greater, when we deal with the innovative sector of the economy. The venture capitalists who often provide backing for new entrepreneurs know this – without some assurance that the newcomer will not be unfairly squashed, they will zip their wallets.
This is why the Obama administration's new tack, in effect a repudiation of the soft settlement that the Bush administration negotiated with Microsoft, is so welcome. Nervous executives and their lawyers are saying that all of this is nothing more than a response to whingeing competitors that, unable to compete in the marketplace, try to win in the courtroom. There are, of course, such instances. But surely Ms Varney can winnow the wheat from the chaff and pursue only those complaints that appear to her to be based on legitimate concerns about anti-competitive practices. The fact that a complaint comes from a non-dominant company is no reason to dismiss it out of hand.
So this frequent critic of the EU bureaucracy, its tendency to regulate when markets are best left to work their efficiencies, has to raise two cheers to Neelie Kroes, the competition commissioner. But only two. She may have erred in claiming that Intel's fine will benefit EU taxpayers. That has given critics reason to complain that she is, in effect, taxing an American company to ease the plight of over-taxed Europeans. Ms Kroes should, instead, have found a way to distribute any funds she might obtain to the consumers injured by the practices she has found illegal – perhaps making payments to consumers in proportion to their purchase of Intel chips. Not administratively easy, but helpful in winning support in the US for more vigorous antitrust enforcement.
Take it from a conservative economist who prefers less to more government: if markets are not competitive, or if they are otherwise failing to function properly, it takes the long arm of government to protect the invisible hand. Let us hope that this view is shared by Mr Obama's Supreme Court nominee, Sonia Sotomayor – and that she is prepared to take on the formidable and otherwise estimable Justice Antonin Scalia, who has little use for the antitrust laws.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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