Microsoft and the EU's Experiment in Socialism

European lawmakers are now considering sweeping and unprecedented proposals for regulating Microsoft's future behavior that could have immediate ramifications on the global PC industry. One is the possibility of having PC makers stop installing any operating system on the machines they sell in Europe. How serious are these proposals, and does the EC have enough backbone to enforce them? BetaNews discussed the possibilities with industry analyst Carmi Levy.

It was a rare and captivating moment in history, to witness Microsoft - the modern symbol of American capitalistic prowess - literally speechless as an organization in the wake of the European Court of First Instance's decision on September 17. To this day, it isn't exactly clear what the company intends to do at this point - rather than deflect attention away from the topic - in response to the CFI's ruling that Microsoft abused its dominant position by producing a server operating system without fully publishing its interoperability protocols.

It is strange, and perhaps more than a little unnerving, to see signs of Microsoft becoming anachronistic, something that represents a part of American culture that may very well be passing into history. Not that Microsoft will ever cease to exist as a company, and even as a big company; but in the same way that General Motors or General Electric or even the company currently called AT&T are seen as throwbacks to another era, fully functioning and yet still relics. Microsoft appeared to have begun that transformation last week, and it may yet abort that transformation before it completes its awful work. But the first signs of that virus that has afflicted so many other American corporate giants did start to appear: an inability to define itself in a vastly changing global context of business.


The victor last week was an ideal that, when laid out on an open table for all to examine, and with the attribution to Microsoft wiped clean from it, would seem un-American at least to some: the notion that any company that finds itself in a dominant position among its competitors must throttle back its desires, scale down its ambitions, and wait for everyone else to catch up. On the other hand, it certainly does seem honest, fair, even sportsmanlike. Yet it raises the question of why victors must be punished for overreaching after they've attained success, as well as the subsequent question of whether success is truly worth achieving if the reward is, by definition, such punishment.

It is a concept that is less unappealing on its face to Europeans than it is to Americans, many of whom are still reeling from the tailspin of the Cold War: socialism. But historically, in our times of greatest need, socialist principles have saved America. For us, it's like a medicine best taken in small doses, and only in cases of emergency. Last week, an American corporate icon received a stronger dose of this medicine than our free enterprise system typically allows itself, and judging from the recipient's initial response, the taste of it has sent it into a temporary state of shock. Socialism is a foreign object in the American system of capitalism, but in an increasingly global economy, it may have to learn to tolerate more of it.

Earlier this week, BetaNews spoke with our frequent analyst, AR Communications Senior Vice President Carmi Levy - a Canadian who keeps close watch over the American technology industry. First, we brought up the topic of a prospective remedy suggested by a close friend of the European Commission, the Brussels-based Globalisation Institute think tank. The suggestion: Equalize the playing field among operating systems by forcing manufacturers to only sell PCs to European customers without operating systems installed.

SCOTT FULTON, BetaNews: Let's assume that some major country, or a conglomerate of countries - be it here or there, US, Canada, European Union, Somalia, someplace - establishes a law saying that if you are a software producer, and you intend to do business in our country (and if you're on the Internet, you're doing business in our country) -

CARMI LEVY, Senior Vice President, AR Communications: That's right.

SCOTT FULTON: - then you may not for any reason leverage your success in one product category to sell a product in another category.

CARMI LEVY: It essentially levels the playing field for smaller vendors that previously might not have ventured forth, and it gives them an opportunity where opportunity never previously existed.

Essentially what the EU is saying is that you will no longer use closed, proprietary architecture. Open architecture, open standards, no monopoly...Which essentially is a much more open world than companies like Microsoft, Apple, and Intel have grown up in. What the EU is saying today [to businesses] is, "We're not a closed, proprietary-to-one-vendor type of market any more. And we will be less friendly to you than the United States market has been, so govern yourself accordingly and change your business model accordingly, because the business model that allowed you to grow and become dominant in the US, and by extension dominant in the global space, is no longer an acceptable mode of behavior in the European Union."

SCOTT FULTON: Well, it would seem to me that an analogy for this...would be a kind of Dr. Seuss-style metaphor, where if a company manages to climb higher into the sky by virtue of being able to extend its ladder higher than it's already extended, the king comes along and says, "Nobody can build ladders any more. You can't extend your future position based on your current one." And sure, that levels the playing field for all the small players, but doesn't that a) make it much, much harder for the small players to establish a foothold in any business they get a toehold in; b) punish them for their success if they do establish a toehold someplace?

CARMI LEVY: I couldn't agree more. It's interesting because this is a political showdown as much as it is an economic and a legislative one. It pits the prevailing forces of socialism against the prevailing forces of capitalism in the United States.

Of course, capitalism is, "Do whatever it takes to win at all costs, and if you win big, then you win big." Whereas in Europe, there is a general disdain for companies, and for institutions and individuals as well, who have too much more than those around them. The socialist ethic tries to level the playing field almost as a default mode of behavior.

In the EU, this has always been the case. Europe has always been that kind of society, but only recently has the EU become a political power in and of itself, a continental entity [that] had the clout to actually do something about it. Before the rise of the European Union, the European political landscape was too fractured to do anything about it. So even though you had socialist islands within each country, there was no centralized political entity that was large enough to take on Microsoft, or one of these large American companies, in any kind of antitrust action that would stick. But once you got everyone together on a continent-wide basis and you built this infrastructure, you suddenly had the backing of what is now the largest economy in the Western hemisphere.

So this is now an arms race, an economic arms race between Europe and North America, and guess what? The EU is swingin' for the fences.

Next: The EC's bid to become the alternative US appeals court

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