Trust on Trial.

THE U.S. COURT'S JUDGMENT AGAINST Microsoft for monopolistic practices is more than a legal indictment against a large corporation. Also on trial is the way in which the federal government applies antitrust laws, says Richard B. McKenzie, who tackles the subject in his polemic book Trust on Trial.

The economist and professor of Business and Society at the University of California-Irvine begins his book with a copy of U.S. anti-monopoly laws, devised about a century ago, then shows how the economy of the late 20th century bears little resemblance to the economy of the late 19th century It's true that both periods saw a surge in monopolies, but the two economies are very different; one was based on real products--food, clothing, cement, oil--while the other relied on intangible or "unreal" products, such as information and services. The latter "products" have changed the nature of capital--consummating transactions and transporting goods in a speed and manner unthinkable a century ago. That's why, the author says, it's impossible to compare Microsoft to Standard Oil and Bill Gates to John D. Rockefeller.

In this book, McKenzie wonders whether anti-monopolistic laws work as well for companies in the New Economy as they did for companies a generation ago. The answer that recurs throughout the book is a resounding "no:' Moreover, McKenzie believes that enforcing those laws hurts the consumer because the results--in this case, the dismemberment of Microsoft--would tend to push up prices for computer software products. He then proceeds to explain in clear and powerful language why Microsoft isn't a monopoly. For one thing, when Microsoft products enter a market, software prices drop. The company also faces a huge number of competitors, including IBM, Sun Microsystems and Oracle in a merciless arena.

But even McKenzie seems to forget that in the new global order of things, breaking up monopolies does not necessarily mean lower prices for customers. The privatization of state-owned monopolies in developing countries, for example, has in many cases driven up the prices of goods and services instead of forcing them down.

For McKenzie, the lawsuit and ensuing judgment against Microsoft is the result of a conspiracy of competitors with lots of influence in Washington. These competitors, he posits, have bought politicians to see Bill Gates' company sit on the defendant's bench. The author also insists that, "The Microsoft case has shown--and not for the first time--how politics can taint the antitrust enforcement process.

Unfortunately, McKenzie doesn't name the allgedly "bought" politicians, and that omission weakens the punch of his serious accusation of corruption on the shores of the Potomac. "The Microsoft antitrust case is historic in proportion," McKenzie says. "It has pitted the legal power of the United States government against the legal power of the Microsoft Corporation, which also has the highest market capitalization of any company in the world."

In the book's final chapter, "Antitrust Ironies," McKenzie suggests that one of the unforeseen consequences of the law-suit and judgment will be an increase in Microsoft's power and influence throughout the United States and the world. That's thanks to a process that has taught Gates and his management team that to win the economic battle, you have to maintain a vigorous presence in Washington, with a fat budget to curry favor with politicians and sway their decisions. "...A company's market prowess can be transformed into political prowess when the firm has been awakened to the realities of modern politics and the advantages of political competition," McKenzie writes.

McKenzie believes that in the new era of information technology, the Justice Department should be more aware than ever of the possible resurgence of monopolies. But he contradicts himself at one point, saying it might have been wiser never to awaken the "sleeping giant." In reality, this book embraces laissez-faire policies, which is ultimately a sign of the times. And McKenzie proves to be a product of the era.

Excerpt from Trust on Trial

"What's remarkable about the history of antitrust enforcement is how often the political system has heeded the chants of offended market rivals for antitrust prosecution. This is reason enough to scrutinize the political maneuvering of market rivals in the Microsoft case. There's a lot of evidence that Microsoft's rivals worked together to try to stop Microsoft, and it is clear that their collusive efforts didn't work."