Goodbye, Joel Klein

Joel I. Klein, leader of the government's antitrust crusade against Microsoft Corp., announced recently that he will resign as chief of the Justice Department's antitrust division.

Goodbye, Joel, and good riddance. I say that without an ounce of personal animosity. I like Joel Klein and actually consider him a friend. He is a smart, dedicated, personable guy.

But, in filing an unwarranted lawsuit and pursuing it with typical Kleinian fervor, he did enormous damage—not just to Microsoft itself, but to the entire high-technology sector, and to the economy. He has been, in short, a menace to the New Economy.

When it became clear that Klein would win his case at the district level and that the judge would order Microsoft broken up, the value of what was then the company with the world's largest market capitalization fell $200 billion. That is not just a theoretical figure; it is a loss of real wealth by real investors. However, it was not just Microsoft that suffered, but nearly the entire technology sector.

In a column Sept. 20, Dan Gillmor of the Mercury News said that Klein deserves the nation's thanks. I'll agree that Klein should be congratulated for his victories in price-fixing cases involving vitamins and graphite electrodes. But on the bigger matters—on Microsoft, on the current Visa-MasterCard case and on important high-tech mergers—Klein is on the wrong side of history and economics. He has cost society a bundle.

Gillmor writes that Klein stuck up firmly for competition. Actually, in the Microsoft case, he did precisely the opposite. Vicious competition is tough on the competitors, but it is wonderful for consumers, and it has been the general state of affairs in high technology for the past two decades. Rough-and-tumble competition is the reason that more than half of Americans have access to the Internet and that, adjusted for quality, computer prices have dropped by more than 90 percent in 10 years. Such glorious returns were reaped without the Justice Department's help, thank you.

In high tech, dominant market shares are extremely precarious, which is why Microsoft always held its prices down—hardly the activity of a traditional monopolist. And at the time the government filed suit, Microsoft was beginning to effect a remarkable—and dangerous—transition to the Internet. Its management understood, as Klein apparently did not, that computer operating systems were not the wave of the future.

But my intention here is not to fight the Microsoft case. (I think the company will win on appeal and did win a victory in a Supreme Court ruling last week.) Instead, it is to assess Klein's tenure. Gillmor lauds Klein's hard line. His predecessors, in Democratic and Republican administrations, had done little or nothing to stem the rising tide of anti-competitive behavior. The truth is, the decline in aggressiveness from the antitrust division correlates nicely to extensive economic research that shows that firms with large market shares do not necessarily harm consumers. Indeed, it is difficult to point to any monopoly, or near monopoly, that has lasted. And with good reason: In a high-tech age, with global trade, the barriers to entry in an industry are low and getting lower.

In other words, government hasn't acted on antitrust because it had no need to act. And what are the results? The strongest economy the world has ever seen, with rapidly growing wealth and income.

The point is not to get rid of antitrust enforcement altogether, but to be extremely wary of wielding the power of government, especially in a high-tech economy—and to be conscious of the natural desire of bureaucrats to expand their turf and make names for themselves.

A fellow Democratic appointee, William Kennard, the chairman of the Federal Communications Commission, said it best in a speech last year: If we've learned anything about the Internet in government over the past 15 years, it's that it thrived quite nicely without the intervention of government. He added, In a market developing at these speeds, the FCC must follow a piece of advice as old as Western Civilization itself: first, do no harm. Call it a high-tech Hippocratic Oath.

Joel Klein didn't take that oath. His successor should.

This article was published Sunday, October 1, 2000, in the San Jose Mercury News.