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Policy hackers threaten the economy

In a few weeks, a federal judge spurred by the Clinton-Gore administration will decide whether Microsoft should be broken up. If there is no settlement beforehand, the ruling could lead to appeals for years to come. But meanwhile, the message to the economy could be damaging: The government is willing to chance killing the golden goose of technology.
George Gilder, the techno-guru whose Gilder Technology Report currently reaches 50,000 investors, long ago anticipated our economic-political paradox. As Bill Clinton assumed office in 1993 – after a campaign that described the economy as “the worst since the Great Depression” – Gilder wrote that Clinton would be “the beneficiary of just the most explosive advance in technology in the history of the human race. It’s the one thing that could completely save Clinton. It could engulf his administration with prosperity in a way that would render many of his adverse policies irrelevant. A boom is most likely.”

With the technology boom already “rising on the horizon,” Gilder predicted, “The administration will claim credit. Al Gore will run out to a fence post and say cock-a-doodle-doo.”

Of course, if the Clinton-Gore administration could convince people that its rhetoric had caused the technology sun to rise, then who could object to its taking charge of the dawn? Indeed, Gore has famously announced that it was he who created the Internet. More recently, campaigning in Seattle, he took pointed satisfaction in speaking in favor of government regulation while on a visit to the Microsoft campus.

So, we now are in a presidential campaign that consists of one long administration cock-a-doodle-doo, amplified from the fence posts of the media.

Never mind that our 109-month-long boom began in spring of 1992 when George Bush was still president (though even Bush’s policies had little positive impact upon it). As Gilder kept proclaiming at the time, the boom in technology originated with the tax cuts and deregulation of the Reagan administration, consummating a movement toward deregulation that began under President Carter.

But the Clinton-Gore roosters are in imperial strut around the barnyard, having long ago abandoned mere preening on the fence post. Under Janet Reno’s Justice Department, they have taken to hen-pecking the technology economy. From a reluctant Federal Communication Commission to a perfervid Justice Department antitrust division, the administration has become a legalized version of the hackers that are lately assaulting the dot-com businesses on the Internet. Like the hackers, they make life unpredictable and unreliable in a high-growth industry that has become America’s economic mainstay.

Notably, says Gilder, a senior fellow of Discovery Institute, “The main case against Microsoft is arrant nonsense.” Speaking with colleagues in Seattle recently, he recalled, “Both Bill Gates and Jim Allchin (of Microsoft) told me in 1995 that they regarded the browser as `an extension of the operating system.’ It obviously is.

“Integration of new functions stems from Moore’s Law ordaining that the number of transistors on a microprocessor doubles every 18 months,” Gilder says. “This trend propels integration at the hardware heart of the computer and mandates complementary integration of the OS software immediately surrounding it. The government’s opposition to this process shows total ignorance of the dynamics of the technology economy that sustains it politically.”

What is worse, as Gilder says, “The unrelenting political attack against Microsoft is changing the climate of public opinion toward high-tech businesses and the business world in general.” The Internet hackers are at least partly a reflection of this culture of resentment, Gilder believes.

A policy of henpecking hapless businesses that happen to succeed will do nothing to bridge the digital gap between the new economy’s haves and have-nots. What is needed is a real opening of ownership in the means of production. The whole society needs to expand stock ownership to give all working people a future in the new economy. But allowing young people to invest some of their Social Security contributions in approved mutual funds, as Republicans propose, is also opposed by the Clinton-Gore administration. Yet, it is exactly that kind of reform that would give those outside the tech world a greater stake in the tech-driven productivity driving the new economy.

Meanwhile, the government assault on Microsoft in federal court is now contemplating yet a new way to stab Microsoft: slicing it up into three or four separate companies. Even a few conservatives have fallen for this perverse idea. It is possible, as the Progress and Freedom Foundation asserts, that three or four “Baby Bills” might actually make more money than one intact Microsoft. (And maybe not.) But that is irrelevant to the issue of allowing government to micromanage technology companies.

Gilder reminded his colleagues recently, “The government and Judge Thomas Penfield Jackson have no idea how to create technology or how to run a technology company. They certainly have no clue how to create several new ones.”

It would be unprecedented for the government to break up a large, existing, organically integrated company. (Standard Oil was a holding company, Boeing a conglomerate and AT&T a geographic company that could be divided by region.) Just to imagine how some federal bureaucrats would determine which employees – and managers! – went to which company is to contemplate more government direction of the economy than we have seen before.

Already, technological innovations and corporate mergers (notably AOL, which bought Netscape) have overtaken whatever original reasons existed for breaking up Microsoft. According to Gilder, the operating systems with the largest market share will soon be located not on desktop computers but in digital cell phones and teleputers. Now, the government is left merely with an opportunity for mischief.

History is full of stories of countries that sought help from a powerful outsider in subduing a domestic rival, only to have the initially helpful outsider take over and enslave everyone. Microsoft’s gleeful rivals (I did mention AOL, didn’t I?) ought to be thinking about that.

And why should ordinary citizens care?

Because an administration that demonizes businesses for votes and money will not just encourage Luddite fury in hackers. In time, it will undermine public confidence in the technology sector – and vice versa. Damage the tech sector and before very long at all, you will strangle this remarkable economic boom.

For what? To sustain the roosters’ conceit?

Bruce Chapman

Cofounder and Chairman of the Board of Discovery Institute
Bruce Chapman has had a long career in American politics and public policy at the city, state, national, and international levels. Elected to the Seattle City Council and as Washington State's Secretary of State, he also served in several leadership posts in the Reagan administration, including ambassador. In 1991, he founded the public policy think tank Discovery Institute, where he currently serves as Chairman of the Board and director of the Chapman Center on Citizen Leadership.