By Gregory Palast for The Observer/Guardian UK
It was computer Kristallnacht, the sound of Windows shattered by marauding government bureaucrats.
All good, responsible news outlets announced that Judge Penfield Jackson’s judgment of Microsoft meant that Bill Gates’ corporate corpus would be torn limb from limb.
The New York Times gassed on about the ‘break-up’ of the Windows monopoly and the Wall Street Journal scared small children by declaring the government would, ‘turn Microsoft into a public utility’. The editor of PC Magazine described a future world of computing on Gates-free Linux machines.
But they are dead wrong.
This is what actually happened. Jackson concluded that Microsoft has a monopoly in PC operating systems. Then, after telling us what we already knew, he added what we already believe: Microsoft has every PC owner by the short-wires, but for the average computer user there’s no measurable harm.
Instead of blasting Windows’ domination of the operating system market, the judge ruled that Microsoft’s civil crime was the use of that monopoly to smother competitors of the company’s other products.
Manufacturers who dared to put Netscape’s little Navigator icon on the Windows ‘desktop’ were informed that ‘Mr Gates was unhappy’, and told that Windows would be ripped out of their machines.
This is nasty stuff, but pretty narrow. Instead of crimes against computing humanity, the judge named only a short list of victims, themselves niche monopolists: AOL (owners of Netscape), Sun Microsystems and Intel. The findings reduced the over-hyped battle to a squabble between Ã©lites over desktop turf.
Jackson, by giving the Windows operating system monopoly his grudging blessing, eliminates any threat that in the next phase of the trial he will pry open the core monopoly to competitors such as Linux.
The stock market got it right – Microsoft shares stayed aloft because the ruling leaves Windows, the empire’s money-machine, intact.
For the fact that the court sheathed its sword, Gates owes thanks to Joel Klein, head of the US Justice Department’s anti-trust division.
Microsoft’s PR machinery likes to portray Klein as a brigand on the road to the future. Klein revels in this image: it helped him squeeze nearly $1 billion in fines from price-fixers in his two years in office. In his initial complaint against Microsoft, he raged like a tiger, but in his summarising argument he appeared more like a pussycat.
Klein subtly signalled this backing down in his own draft ‘findings of fact’ and confirmed it in August: ‘The acquisition of the Windows monopoly we do not challenge,’ he said, reversing the entire thrust of his original case.
Klein had the facts, the law and the public on his side. Nevertheless, he knew eliminating the comforting uniformity of the Windows monopoly would create havoc for PC-users who have made peace with Gates’ cyber-army of occupation.
He quoted Rex Harrison: ‘I’ve grown accustomed to its face.’
The pussycat is now content to curl up on the window sill and take a few languid swats at Internet Explorer.
Klein’s chief trial lawyer, David Boies, is hailed as the big winner in the case. But privately, he has to be a bit disappointed. In August, he told The Observer that Gates’ monopoly allowed Microsoft to charge way above any reasonable price for Windows. But, at around $50 a pop, not many customers scream ‘Stop thief!’
Boies found himself arguing that Windows is overpriced while claiming that Microsoft made the software so cheap no competitor could stay alive.
The judge was lost in this maze, writing: ‘It is not possible to determine whether the price that a firm with monopoly power would charge for Windows 98 comports with the price that Microsoft actually charges.’ Potentially big claims by individual PC users and manufacturers went down the tubes.
But the knife came close and Gates can expect a haircut. The judge gave enough ammo to AOL, Sun, IBM and a few big players to bring separate claims under America’s unique anti-trust compensation laws. But even if damages reached $10bn, that would take only 2 per cent off Microsoft’s market value.
Of course, we can imagine a sly Gates settling the whole shooting match with a flim-flam reorganisation, taking his cue from AT&T, which in the 1980s proposed and designed its own profitable break-up.
While anti-trust experts such as Professor Norman Hawker have proposed creating several ‘Baby Bills’ – each licensed to sell Windows in competition with each other – Gates can be expected to propose spinning off his web browser and applications divisions, thereby establishing two or three companies, each carefully preserving their unique monopoly.
Gates does have to fret over one wild card. The US government does not have the final word on settlement. Few understand that the case was brought by 19 state attorneys general, not the Justice Department. These are the public’s consuls, elected by direct vote of the people in each state and therefore not constrained by the Clinton administration’s yearning for approval from the business community.
It is lucky for Microsoft that Bobby Abrams, who instigated the suit, no longer leads the group.
But legally Microsoft is safe. So why the hysterical press reports? We have to attribute them to Gates himself, with his statements that any ruling that did not propose his beatification meant the sky was falling. This is, after all, the man who is reported to enjoy dressing up as Jay Gatsby.
Microsoft president Steve Ballmer, Gates’ old college chum and co-conspirator, writes: ‘When Bill Gates and Paul Allen founded Microsoft they were inspired by a simple but powerful idea: that technology could improve peoples’ lives.’
Ballmer says Jackson threatens the ‘freedom that is driving our economy, creating millions of jobs’.
What galls this billionaires’ boys’ club most is that while the judge did not demolish Microsoft, he thoroughly destroyed the Microsoft myth: the fairy tale of Gates the Entrepreneur.
Once, capitalists and bosses owned industries. These have been replaced by entrepreneurs; forward-thinking innovators. Jackson put a pin in that one.
Over 207 pages he details Microsoft’s widening dominance in computing by means of vicious, illegal bully-boy tactics, from coercion to sabotage. Gates did not capture the market by inventing the better mousetrap but by turning into the nastiest rat.
Jackson’s back-from-the brink ruling has implications beyond preserving the wealth of the Great Gates-by. The decision left America’s Microsoft economy unmolested. This came to me when listening to Gates talk about his concern for, and pride in, Microsoft’s 30,000 employees.
What a strange statement. A heck of a lot more than 30,000 people work for Microsoft. Thousands toil for the Redmond plantation writing code or cutting hedges as temps, independent contractors and leased workers. These 14,000-plus so-called ‘orange badges’, their faces pressed to the windows, watch the privileged ‘blue badges’ feast on stock options. They are the orphaned legions stranded in the wage-freeze sweeping Cyberia.
The Microsoft ruling came down the same hour the US Department of Labour announced that average hourly wages for the quarter had risen only one penny.
Despite the supposedly bad news of the Microsoft ruling, the market leapt in response. The New York Times called this ‘favourable news’ for the economy – which is true if the economy excludes the 60 per cent of American families who do not own a single share of stock.
The rise of Gates and Microsoft tracks 25 years during which US productivity per worker leapt while the real hourly wages of those workers gained exactly nothing.
But there is no surprise there. Think of the cash registers at McDonald’s, with pictures instead of numbers. Computerisation has reduced the skills expected of, and wages paid to, the working majority. It fosters a nomadic and anxious workforce: 9.9 per cent of US workers are ‘non-traditional’ employees, a veritable sub-nation of orange badges.
The Microsoft economy has automated the largest upward transfer of wealth in American history.
So after all the courtroom sound and fury, US v Microsoft came down to this: one, you will now be able to buy Internet Explorer separately from Windows; two, the cyber-pharaohs will continue to collect their outsized software rents; and three, the fruits of rising technological productivity will continue to shift from workers to owners. The road to the future is now clear. So just move along, get out of the way – or get run over
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Gregory Palast’s column “Inside Corporate America” appears fortnightly in the
Observer’s Business section. Nominated Business Writer of the Year (UK Press
Association – 2000), Investigative Story of the Year (Industrial. Society – 1999), Financial Times David Thomas Prize (1998).