Whenever President Clinton needs to close a big money deal, he goes
to the bullpen and trots out ace central banker Alan Greenspan, the
authority on all things economic. He did it to sell his record 1993 tax
hike. He did it again last week to firm up support for granting
permanent trade goodies to China.
So why hasn’t Clinton wheeled out Greenspan to help his trust-busters
break apart Microsoft?
It turns out Greenspan has some pretty harsh views about the Sherman
Antitrust Act, a century-old law the Clinton administration is using to
topple one of the leaders of the new economy and the tech-driven stock
On Wednesday, U.S. District Judge Thomas Penfield Jackson is
scheduled to hear arguments on proposals to punish Microsoft for
breaking federal antitrust laws. But before he does, he might want to
take Greenspan’s views under advisement.
Known for his obfuscatory language, Greenspan doesn’t mince words
when talking about the 1890 Sherman Antitrust Act.
He calls it “utter nonsense” — “a jumble of economic irrationality
and ignorance,” based on “naive and unrealistic economic theories.”
Those theories, Greenspan asserts, confuse market leadership for
coercion and high profits for predatory pricing.
In a “free-capital market,” a long-time industry leader is only able
to maintain its dominant position by continuously cutting costs and
increasing productivity, Greenspan argues.
As soon as it tries to raise profits by jacking up prices, rather
than lowering costs, it invites lean, no-frills startups to compete for
its customers. And the capital will flow their way, as investors spy
higher rates of return. That much is “guaranteed,” he says.
Only government can turn such a leader into an illegal, “coercive
monopoly,” Greenspan asserts. “The necessary precondition of a coercive
monopoly is closed entry — the barring of all competing producers from
a given field. This can be accomplished only by an act of government
intervention, in the form of special regulations, subsidies or
franchises,” Greenspan said.
“Without government assistance, it is impossible for a would-be
monopolist to set and maintain his prices and production policies
independent of the rest of the economy,” he added. “For if he attempted
to set his prices and production at a level that would yield profits to
new entrants significantly above those available in other fields,
competitors would be sure to invade his industry.”
Yet U.S. antitrust laws are designed to target the industry leader
that climbs to the top, fair and square — without any help from
government. In short, the laws penalize the profitable company for being
too good a competitor.
“It takes extraordinary skill to hold more than 50 percent of a large
industry’s market in a free economy,” Greenspan said. “It requires
unusual productive ability, unfailing business judgment, unrelenting
effort at the continuous improvement of one’s product and technique.”
He added: “The rare company which is able to retain its share of the
market year after year and decade after decade does so by means of
productive efficiency — and deserves praise, not condemnation.”
Punishing such top performers hurts everyone, Greenspan argues.
The antitrust law “inhibits businessmen from undertaking what would
otherwise be sound productive ventures. No one will ever know what new
products, processes, machines and cost-saving mergers failed to come
into existence, killed by the Sherman Act before they were born,” he
“No one can ever compute a price that all of us have paid for that
act which, by inducing less effective use of capital, has kept our
standard of living lower than would otherwise have been possible.”
However, Greenspan added, “No speculation is required to assess the
injustice and the damage to the careers, reputations and lives of
business executives jailed under the antitrust laws.”
Microsoft’s lawyers couldn’t have put forth a more eloquent defense
of Bill Gates and the software empire he hatched years ago in his
college dorm room. (In fact, Microsoft Chief Counsel William Neukom and
John Warden, the company’s top hired defense attorney, may want to use
some of Greenspan’s material to mitigate the penalties Microsoft faces
at coming hearings.)
But Greenspan wasn’t opining on the Microsoft case. He was denouncing
what the government had done to the Aluminum Company of America — 40
years ago. At the time, he was an economic consultant and acolyte of
pop-capitalist Ayn Rand.
He first made the comments in a Sept. 25, 1961, speech at the
Antitrust Seminar of the National Association of Business Economists in
Cleveland. It was published the next year by the Nathaniel Branden
Institute in New York, an erstwhile outpost of Rand devotees. (In the
article’s footnotes, Greenspan salutes his old mentor: “I am indebted to
But it looks as if Microsoft will suffer the same fate as Alcoa:
In the 1945 antitrust case of United States v. Aluminum Company of
America, U.S. Appellate Judge Learned Hand, playing the part of
Judge Jackson, convicted Alcoa of violating the Sherman Antitrust Act,
and in effect stripped the successful aluminum maker of its market hold.
After the government sold plants to competitors Reynolds Aluminum and
Kaiser Aluminum, Alcoa’s market share dwindled to 51 percent from 80
Also, Alcoa shareholders were compelled to sell shares in Alcan,
Here was Judge Hand’s rationale for lowering the boom on Alcoa: “It
was not inevitable that it should always anticipate increases in the
demand for ingot and be prepared to supply them. Nothing compelled it to
keep doubling and redoubling its capacity before others entered the
field,” he said.
“It insists it never excluded competitors; but we can think of no
more effective exclusion than progressively to embrace every opportunity
as it opened, and to face every newcomer with new capacity already
geared into a great organization, having the advantage of experience,
trade connections and the elite of personnel.”
In other words, shame on Alcoa for running such a great business. It
committed the crime of building economies of scale to control costs so
it wouldn’t have to raise prices on consumers.
The nerve of Alcoa anticipating greater demand and embracing new
opportunities. How dare it take advantage of its experience and
connections with suppliers. How dare it hire elite personnel. That’s no
way to run a business, at least not according to the government. Tsk,
Likewise, how dare Microsoft embrace new Internet opportunities by
taking advantage of its connections with vendors. How dare it bundle its
products. How dare it try to protect the market share it carved out for
its popular operating system. What nerve!
As Alcoa was a half century before it, Microsoft is being pilloried
for being too smart, too efficient, too successful. The low-cost
producers — one of ingot, one of bytes — had no direct competitors for
the perfect reason they’d competed too well.
Roy Hunt, Gates’ counterpart at Alcoa, put it simply enough: “I think
we are being penalized for our successful free enterprise.”
The illogic of it all didn’t escape Greenspan back then.
“The antitrust laws in the United States have led to the condemnation
of the productive and efficient members of our society because they are
productive and efficient,” he wrote.
The harsh 1945 ruling narrowed the horizon of dreams for individuals
who shared Roy Hunt’s enterprising spirit. With Judge Jackson’s ruling
against Microsoft, the horizon just got narrower and could get narrower
still if he breaks apart the company. Will the Bill Gateses of tomorrow