November 29, 1999

by Peter J.M. Orvetti

Here Comes The Judge
Low Tide For Crime Wave
Taiwan Goes Shopping

Here Comes The Judge

Judge Richard Posner of the Seventh U.S. Circuit Court of Appeals has been named mediator in the Microsoft antitrust lawsuit as trial magistrate Judge Thomas Penfield Jackson continues to press for out-of-court settlement in the case. Jackson left it to Posner to set "the manner and duration" of any settlement talks, AP reports. Jackson ruled that Microsoft maintains monopoly power over its rivals several weeks ago, a decision that left it highly likely that he would find against Microsoft in his final ruling.

The Cato Institute reissued Posner's 1969 essay Natural Monopoly and its Regulation earlier this year. In the Cato Policy Report Posner commented on his work thirty years later. "Posner has this to say about what he wrote three decades ago: 'What struck me most forcibly in rereading it while composing this foreword to the republished article is how tame it now seems.' At the time he composed the essay, Posner recounts, the focus of the literature on regulation of monopolies 'was on ways of improving the operation of the regulatory process to make it a more effective constraint on monopoly pricing, predatory pricing, and other supposed dangers of unregulated monopoly.' Deregulation wasn't a common term then, and it certainly wasn't on the policy agenda. Posner explains that 'at that time the emphasis on reforming rather than abolishing regulation reflected the fact that most economists and lawyers had considerable faith in government-and considerable distrust of free markets.'…"

Posner continues, "'[N]atural monopolies have crumbled; even the local natural monopolies, which are based on the inefficiency of duplicating a local grid of wires or pipes, may soon go the way of the former natural monopoly of long-distance telephone service.' Although Posner doesn't comment directly on the Department of Justice's case against Microsoft, he does say that 'the resources and energies of government should be directed to problems we know are substantial, that we think are traceable to government action, and that cannot be left to the private sector to work out. There are plenty of those problems and it is doubtful that natural monopoly is among them.'"

Robert A. Levy writes in the commentary "Why Microsoft Should Have Won": "Here's the lesson that high-tech companies can glean from Judge Thomas Penfield Jackson's findings in the Microsoft case: If you're sufficiently ambitious, competent, and hard-working; if you're willing to risk your time and fortune; if you succeed at rising above your competition by serving customers with better products; then watch out, because our government will come down on your neck with the force and effect of a guillotine. Jackson's knee-jerk recitation of the Justice Department's line is a mockery of objectivity, scornful of the facts, and congenial only to those who prefer a sterile marketplace in which vigorous competition becomes legally actionable. Let's start with the judge's big picture: an industry crippled because Microsoft's competitors are unable to innovate. Yet how to explain Netscape's $10 billion price tag, or continued market leadership by Microsoft arch-rivals Oracle, Intuit, AOL, Sun Microsystems, and RealNetworks? How to explain Apple's growth in both sales and profits? Sun's CEO, Scott McNealy, recently crowed that 'Windows is dead' when it comes to new software applications. McNealy may be right. Despite Judge Jackson's snapshot view of the software market, the Internet has profoundly and permanently altered the dynamics. Will Microsoft lose out to consumer electronics products? McNealy doesn't know, and neither does Jackson. But those products are out there, they're selling well, and they are competition."

The Cato Policy Analyses "Microsoft Redux: Anatomy of a Baseless Lawsuit", "Microsoft and the Browser Wars: Fit To Be Tied", and "Dismal Science Fictions: Network Effects, Microsoft, and Antitrust Speculation" all focus on the case as well.

Low Tide For Crime Wave

The number of serious crimes reported to police declined by 10 percent in the first half of this year, the FBI said Sunday. Murders declined 13 percent while burglaries were down 14 percent. The latest figures continue a seven and one-half year trend of decline in reported serious crimes, AP reports. Cato Institute Chairman William A. Niskanen wrote on "Crime, Police, and Root Causes" in a 1994 Cato Policy Analysis. The Expanding Federal Police Power (pdf) and "The Ominous Powers of Federal Law Enforcement" (pdf) are discussed in the Cato Handbook for Congress.

Taiwan Goes Shopping

Taiwan is negotiating to buy upgraded Patriot missiles and battle systems from the United States in order to build a low-altitude, anti-missile defense shield, AP reports. Taiwan wants to purchase PAC-3 air defense missiles and destroyers equipped with the Aegis battle management system. The annual meetings between Taiwanese officials and U.S. defense officials began in Washington last week and are scheduled through the end of the month. Taiwan is also again requesting submarines, which have been refused in the past due to strait tensions with mainland China. "The problem is that the PRC claims sovereignty over Taiwan, which became the home of the Nationalist government after its 1949 ouster during the Chinese civil war. Taipei, though no longer claiming to be the legitimate ruler of the mainland, maintains that it is an independent government. Between these two positions there is no obvious compromise, only an uneasy accommodation-the ROC acts independently but doesn't claim independence," wrote Doug Bandow in the commentary "Taiwan: Not Worth War, But Well Worth Arming". "Taipei, however, has grown increasingly dissatisfied with this situation. Taiwan is now wealthier than a number of European nations, one of the most important trading nations, and a major investor overseas. It has also successfully made the transition from autocracy to democracy. That, in turn, has loosed the force of public opinion, which is hostile towards Beijing's ambitions… Unfortunately, the ROC is vulnerable to attack from the mainland. The PRC probably does not have the capacity to successfully conquer the island-invasions like D-Day in Europe and Inchon in Korea require massive air- and sea-lift capacity and overwhelming military superiority. Beijing could, however, attempt to blockade Taiwan, with only the US Seventh Fleet obviously capable of lifting such a siege.

"Taipei is clearly counting on American support in a crisis… That the ROC deserves to be free from Chinese threats is clear. That Washington should court war with Beijing to preserve Taiwan's independence is not. Of course, many policymakers hope that the mere threat of US intervention will deter the PRC from taking aggressive action. But the island matters much more to the nationalistic and status conscious PRC than to America, and Beijing knows it. PRC officials may very well doubt that, in a crunch, Washington would risk war with another nuclear power over what is at most a tangential security interest. And, in fact, for this reason the US should not do so. Taiwan has no intention of invading the mainland; rather, submarines would help it deter aggressive action by the PRC. What would make sense, however, would be for the US to allow the ROC to buy the weapons necessary for its own defense… The Taiwanese have built a prosperous and democratic republic. They have earned the goodwill of Americans but not the blood of US soldiers in a conflict. The US should instead assist the ROC in developing a military capable of deterring aggression from across the strait."