The View From 1776

The tightening grip of EU bureaucrats in Brussels has been most evident to the rest of the world in the regulatory ukases of EU antitrust head Neelie Kroes.

Her diktats are driven by socialist doctrine that aims to redistribute wealth equally among the proletariat, with the ultimate aim of completely expropriating the wealthy capitalists.  Free-market competition is abhorrent, because the companies with the best products tend to be more successful than other companies and because such competition creates many different brands of the same sorts of products.

Bureaucratic socialist planners believe that they should have unilateral authority to decide what products will be offered to consumers and at what prices.

Results of this secular religiosity have always and everywhere been less favorable to the proletariat than the rising standards of living associated with free-market capitalism.  Yet the liberal-progressive-socialists soldier on. 

What can explain such behavior other than the superstition and ignorance of a benighted secular religion?

Ronald A. Cass’s article in the Wall Street Journal describes the resulting morass.

Cowboy Socialism
By RONALD A. CASS
March 6, 2008

While socialism is retreating in nations like China and former Soviet satellite states, it is gaining in the bureaucratic heart of Western Europe. Among those leading this socialist charge is EU antitrust chief Neelie Kroes. All too often, she unilaterally sets the terms of competition for the world, a power that she clearly takes pride in. Other nations, though, should be as offended by this “cowboy socialism” as Europeans are by America’s supposed “cowboy capitalism.”

Ms. Kroes’s high-profile decisions as head of the European Commission’s competition directorate suggest that the regulator’s job is to see that successful firms are not too successful for too long. Ms. Kroes has mandated disclosures of proprietary information and product designs that help competitors. She is openly skeptical of aggressive price competition and of intellectual property rights. Her decisions threaten to supplant vigorous market competition with centralized management. The means of production may not be owned collectively, but they may as well be if the state makes the critical decisions about them. That’s the essence of socialism.

Certainly, Ms. Kroes is no single-minded opponent of property rights-based markets. She has challenged cartels (zipper makers and copper-fittings firms, for instance), tried to inject competition into Europe’s energy markets (recently bringing Germany’s E.On to heel), and forced some EU member states to stop protecting national champions. This is the market-promoting side of competition law.

Her push to treat successful businesses as regulated utilities, however, marks the path toward a socialist resurgence—and not just for Europe. Cases have been filed or are pending against leading technology firms such as Intel, Qualcomm and Rambus, not to mention two new cases against longtime whipping boy Microsoft. The Commission is also pursuing the most successful pharmaceutical firms, including Pfizer, Merck, GlaxoSmithKline and Sanofi-Aventis. All of these cases have questionable underpinnings, seeing property rights as threats to competition rather than as building blocks.

Although these cases primarily target American firms, two other factors seem more important. First, all of the companies have been highly successful for extended periods of time. Second, they all operate in markets that, while fiercely competitive, tip heavily toward winning technologies for some period of time. Yet those are precisely the markets where regulators should have least concern about individual companies’ success.

Many companies have risen to dominate an innovation-dependent sector for a time, only to be swamped by the next technological wave. Think, for instance, of video-game maker Atari or computer manufacturer Wang—both of which are blips on the radar now compared to the powerhouses they were in the 1970s and ‘80s. Dynamic competition invites investments of time, industry, intelligence and instincts in building a better mousetrap. A world where two college kids can think up an algorithm that within a decade grows into a firm the size of Google shouldn’t be afraid of market leaders.

Intellectual property rights are the foundation for competitive success in this realm, spurring a shift of investment and energy every bit as important as gold rushes of the 19th century. This new “gold rush,” however, does more for our future. More players can stake IP claims than could stake claims to gold, and far more human progress derives from success in this arena. Markets based on intellectual property are quintessential examples of Schumpeterian competition, where companies that succeed longest tend to have the best IP investment strategies.

Yet Ms. Kroes has cast a jaundiced eye on firms that invest heavily to keep ahead in their corner of that world, seeing sustained success as a sign of abuse. Balancing the chances of rival players has become a paramount goal, supplanting reward of investment. Belief that consumers benefit from competitive markets has morphed into faith that government can specify how best to assure the “right” outcomes among market rivals.

Ms. Kroes’s statements and actions against Microsoft provide the most visible evidence of a shift from protecting property rights and market competition to a more socialist agenda of government control. Her predecessor, Mario Monti, started proceedings against Microsoft, culminating in a 2004 ruling against the company’s practice of “bundling” its Media Player with its ubiquitous Windows operating system and its refusal to grant rivals free access to the code that could make other server operating systems interchangeable with Windows. But Ms. Kroes has made the case her own, hitting the software giant repeatedly and aggressively for failing to comply fully with Brussels’ directive to turn over vast amounts of the firm’s intellectual property to rivals.

While Microsoft’s appeal of that 2004 decision was still pending, Ms. Kroes levied noncompliance fines of €281 million. She asserted last summer that Microsoft should reduce already low royalty charges for access to its proprietary information. In her view—which apparently counts more than that of patent authorities and courts around the world—the innovative content of Microsoft’s intellectual property was not worth the charge.

After an appeals court deferred to the European Commission on the substance of the initial case last September, Microsoft agreed to provide all the information its rivals and Ms. Kroes sought and to lower its royalty charges dramatically. Yet last week Ms. Kroes imposed another fine, this time of €899 million, or more than $1.3 billion, for Microsoft’s failure to comply sooner with her command. This punishment came just a few days after Microsoft announced it would provide access to its most important intellectual property free of charge and make even more available for a nominal fee.

While the public has largely focused on Ms. Kroes’s Microsoft policy, with these principles no successful company is safe. The goal of Ms. Kroes’s brand of central planning is a world where competition creates not winners and losers but equals. That command-and-control approach inevitably will reduce investment, innovation and incomes for Europe.

That many of her targets are U.S.-based firms that do most of their business outside the EU gives Ms. Kroes no pause. Nor does the fact that more than a hundred other competition authorities around the globe could assert jurisdiction over global companies—including European firms. Would Ms. Kroes and other EU politicians be as sanguine if China, which has a new competition law coming into effect in August 2008, were setting the pattern for European companies?

Ms. Kroes’s cowboy socialism will offend other nations. But it should be most offensive to European businesses and consumers. Their voices, ultimately, must rein in their homegrown cowboy.

Mr. Cass is chairman of the Center for the Rule of Law, dean emeritus of Boston University School of Law and senior fellow at the International Center for Economic Research in Torino, Italy.