Government Bureaucrats Don't Understand Entrepreneurial Specialists
AUGUST 01, 1998 by DONALD BOUDREAUX
Here’s a quiz. I’ll first give you background facts, then ask you a question. Please answer “yes” or “no.” Facts: I have no experience in, or knowledge about, running a dry-cleaning establishment. I’m an economist who has spent his career teaching economics. My only experience with dry-cleaning firms is that I use them to clean my suits.
Question: If you had $100,000 to invest, would you lend me this money to start and operate a dry-cleaning firm?
If you answered “yes,” stop reading and call me pronto. I want to talk with you about a variety of ways that you and I might do business together.
If you answered “no,” congratulations-you’re sane. You would be dimwitted to trust your wealth to someone who proposed to undertake an enterprise for which he has no knowledge, experience, or training.
It isn’t that running a dry-cleaning firm is unusually difficult or risky. Rather, the reason you would be crazy to trust me to put your wealth on the line in such an enterprise is that dry cleaning is not my specialty. With the many people who specialize today in running dry-cleaning establishments, someone without a jot of experience in this field will almost certainly be out- competed by dry-cleaning specialists. Even if you believe me to be exceptionally bright, energetic, and trustworthy, you will still refuse to trust your funds to me for this purpose because you rightly understand that I have no clue about any of the zillion tiny but important details about running a dry-cleaning firm.
When the subject is antitrust regulation, however, most people lose this commonsensical appreciation of just how important experience and specialized knowledge are to the successful operation of an enterprise. Consider the widespread applause that greeted the Department of Justice’s antitrust suit against Microsoft. In essence, this applause signals that a large number of Americans actively support the exercise by lawyers and bureaucrats of decision-making authority over business people who are highly specialized in their trades.
Recall that just days before the DOJ filed this suit, top antitrust bureaucrat Joel Klein spent hours negotiating with Bill Gates and his colleagues over the contents of Microsoft’s popular Windows operating system. Think about this. A lawyer was telling a software maker how to make software! Isn’t this ludicrous?
If Joel Klein were accosted with Bill Gates’s opinion on how best to cross-examine courtroom witnesses, Klein would surely regard Gates as an impudent busybody. As with most occupational specialties, successful lawyering requires a complex blend of detailed knowledge and skills that can be acquired only through trial-and-error experience. Even if Gates were the world’s most dazzling genius, he cannot hope to understand lawyering as well as any modestly intelligent and experienced lawyer understands this trade. Gates is unable to adequately second-guess or advise Joel Klein, Esq., on lawyering precisely because Gates devotes his time and mental efforts to designing and marketing computer software.
If it would be brazen for Gates to tell Klein how to practice law, it is equally brazen for Klein to tell Gates how to produce and market software. Because he is a lawyer, Klein cannot possibly appreciate the countless nuances that must be mastered to compete successfully in the software industry. And yet, antitrust statutes empower Klein to compel Gates and other specialized producers to change their ways of doing business so that these ways better conform to what Klein and his team of lawyers prefer.
Trusting bureaucrats with such power is to trust them with a big chunk of the nation’s wealth; it is to trust them to outperform Bill Gates & Co.—proven software specialists—at using Microsoft’s resources to satisfy consumers’ software demands. If you wouldn’t trust me to wisely use your resources in the running of a dry-cleaning firm, why would you trust Joel Klein to allocate resources in industries in which he is totally unspecialized? Not only will Gates be harmed—so, too, will consumers. To the degree that government lawyers have a say in how Microsoft produces and markets its products, the decisions of persons who know almost nothing about the software market displace the decisions of those who are proven to know most about this market (and who also have the greatest personal stake in using this knowledge effectively).
“But wait!” many will retort, “Isn’t antitrust necessary to ensure competition?”
No. Forget that economists—despite a century of antitrust regulation—have a tough time documenting cases in which antitrust has helped consumers. Forget also that the record overflows with instances of firms filing antitrust suits to hobble their more entrepreneurial rivals.
Markets will remain competitive without antitrust because entrepreneurs are forever scouring the economic landscape in search of profit and profit is highest where incumbent firms aren’t giving consumers the best possible deals.
If Microsoft really is such an enemy of consumers, imagine the profit available to private entrepreneurs who succeed in stripping Microsoft of its market share. It would be colossal! Entrepreneurial software specialists literally from around the world—would work tirelessly to better serve consumers. Entrepreneurs’ relentless quest for profits keeps markets competitive.
For example, software producer Pixel Co. recently announced a product called “My Screen” that makes it easier for users of Microsoft’s Windows to click on to applications that aren’t featured on the Windows desktop. According to industry analyst Rob Enderle, “Instead of just complaining about Microsoft’s control of the screen, this company has figured out a way around the problem.” This is entrepreneurship at work!
But a pessimist might ask, “Can we be certain that private entrepreneurs will always figure out how to dislodge ‘dominant’ firms from their entrenched positions?”
The correct response is that private entrepreneurial specialists (such as those at Pixel Co.) are far more likely to know just how best to take on so-called “dominant firms” than are bureaucrats and lawyers. There’s no reason under the sun to expect that government-employed attorneys are better positioned than are specialized entrepreneurs, operating in a free market, to evaluate existing market conditions and to know just what to do if corrections are needed.
If Joel Klein really is so sure that Bill Gates is abusing consumers, let him set up his own software firm to compete with Microsoft. But Klein should not be given the power to command that Microsoft conform its business practices to his lawyerly wishes. If Klein is unwilling to put his own wealth on the line in competition with Microsoft, we can be confident that he doesn’t know what he’s doing when ordering Microsoft about. Consumers should be saved from arrogant antitrust bureaucrats.