David Frum May 19th, 1998 at 12:00 am
Two great powers are girding for war. No, not India and China; the U.S. and Microsoft.
After years of threatening to do so, the U.S. Department of Justice has filed an antitrust suit against Microsoft chieftain Bill Gates for monopolizing the software industry. To the consternation of Microsoft’s competitors, its Windows
operating systems come equipped with an Internet browser, an e-mail program, a fax program, a simple word processing program, a compact disk player, a calculator, and many other functions — all for less money than I paid for my first DOS program back in 1982. It’s a strange world in which a businessman is condemned for constantly reducing his prices and improving the quality of his product, but that is the world in which we live.
In fact, it’s the world in which U.S. business has lived for 100 years, and for a historical perspective on it, you might want to take a look at the best business book of the season, Ron Chernow’s dazzling biography of John D. Rockefeller, Titan. The parallels between the careers of Rockefeller and Gates are striking. Both men amassed the largest fortunes on the planet by achieving 95% monopoly control of the vital industry of their era: kerosene in Rockefeller’s case, computer operating systems in Gates’. Both were hated by their competitors for constantly slashing prices and thus driving their less efficient rivals out of business, and both found themselves on the wrong side of the antitrust laws as a result. Chernow is a gripping narrator and a brilliant portraitist and he makes the elusive, enigmatic Rockefeller come alive in his own eccentric way: a devout man, a generous man, a cunning man, a ruthless man – a creative genius who destroyed those who stood in the way of his creation.
In 1911, the U.S. Supreme Court ordered Standard Oil broken up into 34 separate companies. The company’s crime? Using its gigantic market share to force its suppliers — especially the railways that carried its products — to cut their
prices. That enabled Standard Oil, already the lowest-cost producer of oil in the world to cut its costs even further, thus enabling it to sell even more cheaply and undercut its competition that much more deeply. It was the daughter of a defeated Standard Oil competitor — the crusading journalist Ida Tarbell – who most successfully blackened Rockefeller’s reputation for posterity.
Despite (or perhaps because of) his career as the most engaging historian of business in the U.S., Chernow is no free market enthusiast and he takes the accusations against Standard Oil more seriously than they deserve. True, John D.
Rockefeller did not mean to be a public benefactor. He meant only to accumulate wealth by crushing his competitors into powder. But that did not make the benefaction any less real. Between the founding of Standard Oil Co. in 1870 and
the peak of its market dominance in 1890, the cost of kerosene plunged from US23 1/2 cents to US7 1/2 cents a gallon, slashing the cost of lighting and heating the world’s homes and farms. Likewise Gates, out of sheer brutal competitive instinct, has helped put amazing computing power on the desks of hundreds of millions of people around the world.
And just as Gates, by helping to deliver ever-cheaper computing power, has speeded the transformation of the individual computer into a subunit of the worldwide Internet, so Rockefeller, by driving down fuel prices, made possible the inexpensive motorcar. In 1908, Henry Ford introduced the first Model T. In 1910, sales of gasoline for the first time outdistanced those of kerosene. In other words, the U.S. government won its case against Standard Oil at the same moment Rockefeller’s petroleum monopoly was being destroyed by market forces. After 1908, demand for petroleum products rocketed far beyond the capacity of any one company, no matter how colossal, to supply. Instead of delivering cans of kerosene to hardware stores, oil companies had to set up networks of filling stations to pump gasoline into cars. It was a new world, and the old ways were obsolete. Rockefeller became richer than ever. But his market power drained away — at exactly the same time as if the government had left his industry entirely on its own.
It’s a lesson the lawyers prosecuting Gates would do well to learn.
Originally published in The Financial Post.