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February 16, 2006

Does Microsoft Violate Your Rights ?

by Doug Mataconis

In the course of our exchanges yesterday about markets, monopoly, and morality, Eric made this comment on the impact that scarcity and monopoly power have on individual liberty:

Monopolies do impact Life, Liberty and Property. Specifically liberty and property. You argue that you can always choose not to buy from Microsoft. I argue that you no longer have that choice. And that PC’s are such an integral part of US culture and economy that it is impacting your Liberty. Monopolies never price things in response to market demand (i.e. scarcity) because the monopoly now controls scarcity. The monopoly artificially manipulates scarcity to increase their profit. Since money is a representation of wealth and property, it seems clear to me that artificial scarcity leads to an infringement on my property. If I have a choice, then you trying to maximize your profits doesn’t do that. If I don’t have a choice, it does.

This leads to what I think is an important question for those of us who believe in the free market; when talking about third party conduct as oppposed to state action, what exactly constitutes a violation of my rights ?

On the surface, this seems like a pretty simple question. If someone steals my property, they’ve violated my property rights. If they imprision me against my will and without authority, they have violated my right to my liberty. If they kill me, they’ve violated my right to live. Often, whether these actions constitute a crime, or determining what kind of crime they comprise may depend upon whether the act was intentional or accidental, but for the purpose of determining if a rights violation has occurred, it doesn’t matter if you intended to violate my rights or not.

So, does a monopoly or dominant market player violate my rights due to the fact that it has, allegedly, cut off competition and created scarcity that would not exist if competition had been allowed to play itself out ? I think the answer is clearly no.

If a corporation seeking to maximize its profits constitutes a violation of individual liberty, then doesn’t that mean that the entire capitalist system is one big violation of human rights? If Microsoft violates individual liberty by creating artificial scarcity in the market for PC operating systems, then can’t the same thing be said of Apple, which has retained exclusive control over the operating system for Macs ?

The existence of a company that sells something people want is the definition of capitalism. Unless you’re asserting that we all have a right to whatever products we want at the price we choose, then I think its stretching the definition of individual liberty to contend that my rights are violated because Microsoft charges “too much” for Windows or Office.

Corporations can violate individual liberty as easily as individuals can, but if all they are doing is selling a product that people want and trying to maximize their profits (which is, after all, what they are supposed to be doing), then the fact that they aren’t selling it on terms that we would prefer does not constitute a violation of anyone’s rights.

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21 Comments

  1. On a similar vein, the reverse is true when government mandates alter the free market. I touched on this in the second part of my article this morning.

    http://tfsternsrantings.blogspot.com/2006/02/can-you-say-reasonable-doubt.html

    Comment by T F Stern — February 16, 2006 @ 9:57 am
  2. Suppose, Doug, that it wasn’t a computer. Let’s suppose that, instead, it was a car. And you could buy a car from Chrysler, Ford, Toyota, Hyundai or BMW. And they all looked different and sold for different prices. However, underneath the body, each one had the same engine and drive train that was manufactured by GM. Now, 20 years ago, there were lots of engines and drive trains and every car manufacturer had a different one. But then GM started using certain government regulations to help them out. And they also used predatory pricing tactics in collusion with Saab. The only car manufacturer left that has their own engine is Saab. Saab represents about 3% of the total sales and doesn’t have the financial capability to expand their production lines if there were additional demand for their cars. Saab, in fact, has ended up using some GM parts in their cars, although you can “substitute” Saab or third party parts if you want to. However, Saab’s sales remain constant at 3% and they have introduced a very successful line of car stereos that you can add on to any car you buy with ease. Saab’s pretty happy because their profit margins are in good shape. Especially since you pretty well have to buy all the music for your Saab iStereo from them.

    Not only that, but GM actually stole intellectual property from Ford and incorporated it into their engine. Then, when Ford sued them they settled out of court for a nominal fee, but by the time it was all over Ford couldn’t afford to manufacture their own engines anymore and ended up buying GM engines. And Chrysler and GM had an agreement that GM could use their transmission technology as long as they didn’t modify it at all, because Chrysler’s technology was superior. A couple of years later it was discovered that GM had secretly modified Chrysler’s technology, in a fashion that made it perform worse, sold it in GM cars, branded as Chrysler’s transmission (because customers wanted that technology). And when they settled that lawsuit with Chrysler, they compelled Chrysler to agree to use GM engines for all cars that were sold to consumers rather than government and corporations. Not only that, but they forced Chrysler to sell their “fleet cars”, to governments and corporations, with the option of installing either a GM or Ford engine. This removed a competitive edge for Chrysler in the marketplace since they were able to sell more cars, given that GM engine had a tendency to stop working for no good reason until you went through an arcane ritual that involved turning off the car, stepping out into the highway, moving the windshield wipers up and down three times, then getting back in and restarting the car. If, however, you coupled the GM engine with a Ford transmission, this weird behavior happened much less frequently.

    Email and other forms of communication indicate that GM knew they were taking actions with other intellectual property that both infringed on the patents of the IP owner and violated the contractual relationship between the IP owner, Jeep, and GM. Some of the evidence indicates that Chrysler was involved in that knowledge and helped GM with violating the IP rights of Jeep. Jeep, ultimately, lost money because GM was using their IP without their consent and presenting it as GM’s. After a protracted legal battle Jeep was so weak that Chrysler was able to buy Jeep. And then promptly put a GM engine and transmission into Jeep.

    GM has made changes to their transmission and engine technology so that it is nearly impossible to use another gear shift lever with their transmission. Not only that, if you want to buy a third party starter, you have to buy an adapter from GM. There is a demonstrated technology out there that competes quite well with the GM engines and transmissions from Delorean Motor Company. In fact, some people have removed the GM parts from their Fords and Chryslers and put in the Delorean parts themselves. About 1% of the cars on the road now have Delorean engines. It turns out that anyone can build a Delorean engine because they have chosen to make the blueprints available in the public library. Delorean actually makes money by running garages that help people swap out the engines, rather than selling engines.

    GM has secretly threatened all the major car manufacturers with similar actions as described above if they sell cars with anything but a GM engine.

    GM claims the market is competitive. As evidence, they point to the 4% of the market that is not using GM engines and transmissions.

    Now, would you feel the same way about this issue if it was cars instead of PC’s? The above describes about 10% of what actually occurred during the past 20 years. The belief that Microsoft is just doing good marketing is one that they want you to believe. The reality is that they have used every underhanded, dirty trick possible, including outright theft of other people’s property, to win market share. They have blackmailed other companies, driven companies out of business through theft and much more. The only difference between them and the Mafia is that they aren’t using these tactics to corner the market on illegal narcotics and they don’t actually kill their competitors.

    I’ve assumed that you and Brad understood this history, but perhaps not. I’m all for fair markets. I have no problem with someone, through good business practices, gaining a large portion of the market. But this company is despicable. They use racketeering, blackmail and theft to gain their ends.

    I highly suggest reading Eric Raymond for even more interesting insights into this.

    Comment by Eric — February 16, 2006 @ 10:47 am
  3. By the way, just so you guys know. I used to hold similar opinions to yours until a few years ago. But the more I learned about Microsoft while I was trying to defend them, the more I discovered that they were a monopolistic business that used anything short of murder to gain their ends. Sorry guys, I can’t be on your side on this. At the same time, I can’t be on the side of the people that want the government to “do something” because that is what has created the problem, to a large extent.

    Comment by Eric — February 16, 2006 @ 11:55 am
  4. I’ve always defended MS as well, even though I dislike most of their products. I have thought perhaps they’ve had some shady dealings, but didn’t really know of them first hand.

    Comment by Kay — February 16, 2006 @ 12:13 pm
  5. Everything I wrote above has been disclosed in the press at one time or another. Substitute MS for GM, and various other computer manufacturers for the auto companies. Subsitute software products for the auto products, and you’ll have the story. It’s all there for anyone to find out. If they didn’t have hundreds of billions to use to influence corrupt politicians they would be in jail on RICO charges.

    Comment by Eric — February 16, 2006 @ 12:21 pm
  6. Eric,

    I am pretty familiar with the facts that you refer to because I was following the Microsoft Antitrust cases (which I opposed for the same reason I would oppose any antitrust case) very closely while they were going on.

    With regard to your GM analogy, with the exception of the fact that government regulation may have been used to restrict competition, I see little wrong with what GM (i.e., Microsoft) did from a libertarian point of view. The intellectual property issue is a tricky one, because patents and copyrights are entirely a creation of the state and there are some libertarian economists who argue that they shouldn’t exist at all. I haven’t decided where I come down on that particular issue.

    As for your statement about their influencing politicians, what the antitrust case actually revealed, I think, is that Microsoft’s biggest mistake over the years was not being more involved in the Washington game. While its competitors (specifically companies like Sun Microsystems, Apple, etc.) were giving tons of money to Republicans and Democrats alike and allying them closely with the Clinton Administration as well as the Attorney Generals of states like California and New York, both of whom were heavily involved in the antitrust case. Up until the mid-90′s, Microsoft’s lobbying office in D.C. was pitifully small considering the size of the company. Of course, that has changed in the past 10 years.

    If Microsoft, GM, or any other company, says to a supplier “I won’t do business with you unless you agree to my terms”, that’s not illegal or immoral coercion, its called doing business.

    Comment by Doug — February 16, 2006 @ 12:54 pm
  7. It is illegal and immoral when you threaten them with collusion, when you steal their property to avoid the issue, when you actively change their property in violation of your contract with them, and much more. Theft of intellectual property is theft of property, regardless of patents and copyrights. If I have created a book and tell you that you cannot use my original words without my permission, if you do so it’s theft. To view it otherwise is to hold that my creativity is not my property. All a patent or copyright does is memorialize property rights in a fashion that is enforceable within our social construct.

    Do you know that MS blatantly stole another company’s compression technology, put it in MS-DOS and pretended that it was their own? In the course of that, they destroyed that other company. Or that they modified Sun’s Java VM technology, in violation of their contract with Sun? Did you know that there is ample evidence that Microsoft threatened to use similar tactics against Dell when Dell began offering PC’s without Windows pre-loaded? Not just said they would pull their contract, but threatened them with attacks against their property and ability to compete.

    I still cannot understand how you can justify supporting a company that is, and has been for decades, willing to steal someone else’s property to improve their market position.

    Comment by Eric — February 16, 2006 @ 1:24 pm
  8. Well, it depends on what Microsoft was threatening to do. Threatening to do something that you have the right to do (like not sell your products to someone) isn’t illegal or immoral.

    I used to think about intellectual property the same way you do, but now I’m not so sure. The copyright laws, for example, give arists far more control over the disposition of their work than they would ever be able to enforce via private contracts.

    Additionally, patents are the ultimate government-sanctioned monopoly. If you believe in the free market, I think its hard to justify a law that gives someone the exclusive right to produce a product for 17 years.

    Comment by Doug — February 16, 2006 @ 2:13 pm
  9. “The copyright laws, for example, give artists far more control over the disposition of their work than they would ever be able to enforce via private contracts.”

    Yeah that. I’ve been struggling with the intellectual property thing for quite a while as well – frankly, I have a *little* talent in a few things, but I also have very little ego – believing that imitation is the sincerest form of flattery. I have friends and acquaintances who are much more talented – some who are very willing to help and share, and others who are very closed with their works and don’t want anyone to copy them at all. I can see both sides of those issues – but tend to come down on the side of the idea that there is truly nothing new under the sun – and while you may have a unique and original idea in your realm, somewhere, somebody outside your sphere of influence has done something *exactly* like what you’re trying so hard to protect. Whew. Did that make any sense?

    Comment by Kay — February 16, 2006 @ 5:08 pm
  10. Wait a second. There is a difference between the actual creation and the laws that protect it. The laws that protect are, in my opinion, used to create monopolies and artificial scarcity. The creation itself is, however, my property. It’s my choice what I do with it.

    Guys, to say otherwise is to contradict yourself. You can’t claim that MS may do as they please with their products but then claim that someone else cannot do as they please with their product. Ultimately, all wealth is the result of intellectual creativity. That creativity is my property and no one else’s. I may choose to hoard it away or share it freely. This has nothing to do with the laws that Disney and Sony have worked so hard to get passed to enable their monopolies (oh yeah, I forgot, Microsoft was part of that effort).

    The thing that is frustrating to me is that I really see no distinction between a concentration of power just because it is elected or created by some other means. Concentrations of power are dangerous, are used to maintain and increase power and lead to abuse of power. The entire point of the American Constitution was to break apart and set against each other concentrations of power in order to try and avoid the abuses while still allowing sufficient power to exist to accomplish something. Now folks who believe in that philosophy are saying that inordinate power concentrated in one group’s hands is okay and the abuses that stem from it are okay so long as they aren’t “the government”. What’s the difference?

    Comment by Eric — February 16, 2006 @ 8:33 pm
  11. Eric,

    There is a distinct difference between concentrations of power in the public and private sector, and that difference is that the public sector has the power to infringe liberty to a far greater extent than the private sector does.

    I still haven’t seen any argument that convinces me that Microsoft, or any other company similar to it, has violated my rights as an individual as they are understood from a classical liberal/libertarian point of view.

    Comment by Doug — February 16, 2006 @ 9:44 pm
  12. I see what you’re saying, Eric, which is basically “power corrupts”. And I would agree – it is generally true, and it has corrupted Microsoft. But they don’t have absolute power – so the second part of that old saying doesn’t fit (absolute power corrupts absolutely) and would only be true should all of us who use computers turn to them as the only source for our software. I still see MS as ultimately falling greatly – sooner rather than later.

    Comment by Kay — February 17, 2006 @ 4:05 am
  13. Doug, do you think labor unions are a bad thing and oppose them, in general?

    Comment by Eric — February 17, 2006 @ 6:43 am
  14. Eric,

    As they exist, I think that labor unions served a purpose at one time. I certainly have no objection to workers voluntarily joining together in a union, the problem comes when membership in the union is made mandatory.

    From an economic point of view, though, I think its pretty clear that today unions are doing more harm than good.

    Comment by Doug — February 17, 2006 @ 9:01 am
  15. From a purely economic perspective, whether it was 100 years ago, or currently, the purpose of a labor union is to create artificial economic scarcity in a labor market. Essentially, labor unions and large companies exist for the same purpose, to manipulate the resource scarcity in the market they are in.

    Comment by Eric — February 17, 2006 @ 11:28 am
  16. But that’s true of any voluntary organization of people that exists to provide an economic good. If two lawyers enter into a partnership together and have an agreed fee structure that each will charge, aren’t they essentially creating an artificial scarcity in the market they’re in ?

    In other words, what you say may be true but does it really matter ? Labor unions only truly became a menace when they got the power of the state behind them in the form of closed shop laws which required mandatory membership in the union. Leaving that out of the picture, if the workers at a particular factory all want to band together for the purpose of bargaining as a group with their employer, I don’t see anything wrong with that from a libertarian perspective.

    I know you’re not suggesting that people should be forbidden by law from entering into these types of arrangements, but given that I am not sure what the significance of this point really is.

    Comment by Doug — February 17, 2006 @ 11:45 am
  17. The first point I was trying to get at is that labor unions are no different from corporations in the sense that they are an organization that is designed to create resource scarcity to enhance their own profit. In a free market, with plenty of competitors, that isn’t an issue. Some other competitor is going to decide they won’t go along with the idea (if they all agree outside the market to manipulate the market, that’s collusion, and that’s a whole new problem). But, when there are no other viable competitors, then you have a monopoly. A monopoly is not a good thing, whether it is mandated by the state, or not. A so-called “natural monopoly” has quasi-governmental powers within their market. From that perspective, there is little difference between those two and a government. In other words, it’s not just the official government that is dangerous.

    On top of that, like the laws that enforce the union’s ability to create resource scarcity, there are laws that enforce and support a corporation’s ability to do the same. Look at the issues that Coyote details in trying to do business in Colorado as an example. And his experience is not unique to Colorado at all.

    Comment by Eric — February 17, 2006 @ 12:37 pm
  18. I guess I’m still missing your point. Even in a completely free market, people will be able to join together, whether it be in a labor union or a business association akin to a corporation, and create this so-called “resource scarcity”.

    Maybe that’s true, but so what ?

    If its indeed going to be a free market, then they are going to be free to do whatever they want.

    Additionally, isn’t it the very definition of capitalism that I have something to sell that you want to buy. The classic example is the sale of real property. As between a buyer and seller, there is a “resource scarcity” because each piece of property is unique. That’s just the way things are.

    Comment by Doug — February 18, 2006 @ 2:01 pm
  19. Doug, I think the issue here is that you feel that if it is a result of the market, then it’s just fine. But the market can allow mistakes because it isn’t perfect. The worst response to that lack of perfection is to throw government intervention at the market. That said, it doesn’t mean that the bad outcome is okay just because it happened within the market. And a monopoly is not a good thing. A monopoly allows a corporation or an individual to create more resource scarcity than the market would normally allow. This means that the market, in that area, is less efficient than it should be. And that isn’t good.

    It’s easy to argue that the consumer can simply choose not to purchase the monopolized resource. Unfortunately, that is not always a reasonable position. What if the monopoly is on heating oil and you live in Albany, for example?

    The market is better, by far, than any other means we have found, in practice, for efficient allocation of resources and decision-making. But it is neither perfectly efficient nor perfectly ethical. “Natural monopolies”, which represent concentrations of power, lack of efficiency and artificial resource scarcity are not good for the market.

    Comment by Eric — February 18, 2006 @ 11:42 pm
  20. Eric,

    That is precisely my point. If a so-called monopoly (and I still think we haven’t defined that properly) arises as a result of a purely free market, then there is nothing wrong with it. If it arises because of government action, then there is.

    I guess what I don’t understand is what you propose be done, within the confines of a free market system if a “monopoly” or business capable of creating “resource scarcity” arises ?

    Comment by Doug — February 19, 2006 @ 6:15 am
  21. A Final Word On Monopolies

    About two weeks ago, we had quite a spirited debate here about the question of monopolies in a free market system, and specifically the question of whether Microsoft, or any other supposed monopoly was a problem that libertarians and classical libera…

    Trackback by The Liberty Papers — February 27, 2006 @ 4:54 pm

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