Remember to keep an eye on the monopolists

January 14, 2000|By Jeff Gates

LIKE Br'er Rabbit tossed into the briar patch, Bill Gates must be laughing at his predicament in the Microsoft antitrust case, particularly the mindlessly narrow scope of suggested remedies. Who could blame him?

Both the Justice Department and U.S. District Judge Thomas Penfield Jackson missed the point of antitrust. It should come as no surprise in these market-myopic times that the case turned on the narrow issue of competition. Yet that confuses the means with the end.

The trust-busters of the 1890s had no idea how markets would be dominated a century later. That wasn't the issue. The target was not the monopoly but the monopolists -- the economic royalists with their kingly prerogatives -- and the keen dangers they pose to democracy. That's why they urged that monopolies be broken up and their forbidden fruits dispersed.

Thomas Jefferson and James Madison were similarly insistent. They warned about monarchical tendencies in the marketplace and the impossibility of maintaining a robust democracy alongside an economic oligarchy. Yet that's what today's market-obsessed perspective has wrought.

The financial wealth of the top 1 percent of Americans now exceeds the combined net worth of the bottom 95 percent, according to New York University economist Edward Wolff. Mr. Gates' wealth alone exceeds the net worth of the bottom 45 percent.

The personal assets of Microsoft co-founders Paul Allen and Mr. Gates plus Berkshire Hathaway's Warren Buffet exceed the combined gross domestic products of the world's 41 poorest countries. So much for being a beacon of hope for democracy.

Wired, the online magazine, reckons that if the value of Mr. Gates' Microsoft stock continues to grow at the same torrid pace as it has since Microsoft's 1986 initial public offering (58.2 percent a year), he will become a trillionaire in March 2005, at the age of 49, and his Microsoft holdings will top $1 quadrillion (that's a million billion) in March 2020.

By comparison, last year's gross world product was $39 trillion. It's easy to pick on Mr. Gates. But he's just the most visible tip of this nation's plutocratic iceberg. The wealth of the Forbes 400 richest Americans grew by an average $940 million each over the past two years. That's while the modest net worth of the bottom 40 percent shrunk by 80 percent between 1983 and 1995.

For the well-to-do, that's an average increase in wealth of $1.3 million per day. If that run-up in riches were wages earned over a 40-hour week, that would be $225,962 an hour.

Over the past three years, we've seen $3.7 trillion in mergers in the United States alone, topped by this week's $163.4-billion blending of America Online and Time Warner. Monday saw Time Warner Vice Chairman Ted Turner's net worth jump by $2.53 billion.

Why would we allow our 400 richest citizens to monopolize assets equivalent to one-eighth of the gross domestic product? Meanwhile, as of 1997, the median household financial wealth (net worth less home equity) totaled $11,700, $1,300 less than in 1989.

So now we've allowed unfettered markets to undermine not only democracy but also our fiscal well-being as well, leaving 76 million baby boomers with votes yet virtually no assets, a certain formula for a politically fractious future.

Microsoft must be forced to divest its key components, including breaking up the operating system division into several firms. It's tempting to impose a conduct remedy akin to saying: Go out and sin no more. Or to simplistically order a spinoff of its operating systems division. That's about what I'd expect from today's market-obsessives. Yet the only remedy consistent with anti-trust's market-taming intention is a structural one that not only breaks up the monopoly but also reallocates wealth from the monopolists' ill-gotten gains: Microsoft could be ordered to sell off its components for one-third their appraised value.

Major shareholders could be required to accept in payment a non-interest-bearing note, with the principal paid solely from future sales generated by those independent operations. In truth, that may be too generous, as it would allow the monopolists to retain a huge component of their loot along with the ability to recover the balance to the extent that the successor companies can succeed.

Yet any more traditional bust-up would further reward the offending parties, while conduct remedies are even worse. Contrary to the misplaced focus of the current debate, antitrust isn't just about monopolizing markets. It's about redressing the anti-democratic results that accompany abuse of the market.

To address only the means while leaving intact the gains mocks the very rationale for antitrust. Microsoft's breakup should include financed-stakes that foster widespread ownership of this market-dominant behemoth.

Preferred stakes should be reserved not only for employees and independent contractors but also for those employed by suppliers, distributors and even those customers and competitors who make up the Web of this company's much-abused market relationships.

Jeff Gates is author of "The Ownership Solution." (Addison Wesley, 1998). He wrote this for the Los Angeles Times.

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