This Is Not Capitalism

Yesterday, Google began an effort to lobby government to forcefully prevent Microsoft from acquiring Yahoo. Over the weekend, Microsoft had announced an offer to acquire Yahoo. The offer price was a generous one, amounting to a 61% premium for holders of Yahoo stock. This is a serious, attractive offer for Yahoo shares by a serious, deep-pocketed acquiror. Yahoo investors would receive either cash or stock in the new combined company.

Google wants to step in between this pending marriage-by-choice between Microsoft and Yahoo's shareholders. How do they intend to do it? Are they going to offer a higher price? Are they going to attempt to persuade Yahoo's shareholders that the deal is not in their interest?

No.

Google's first stop wasn't to its bankers to make a better offer to Yahoo shareholders or to its public relations experts to make the case to shareholders why the acquisition was not in their interest.

Google's first stop was to Washington. Google immediately instructed its lobbyists to concoct arguments against the merger that would persuade congressmen and regulators to scuttle the deal. This type of "persuasion" hardly costs Google anything. For the price of some hundreds of thousands of dollars in lobbyists' fees, fees that legally bribe congressmen in the form of campaign contributions, wine-and-dine them over dinners and soirees at expensive restaurants or through more nefarious contributions to designated "charities" and honoraria for "speaking engagements," Google can scuttle the potential Microsoft-Yahoo deal on the cheap. Certainly for a lot less money than having to top Microsoft's $42 billion offer for Yahoo.

Google will wrap all of this in some sort of argument about how a Microsoft-Yahoo combination will hurt "the public." That argument is expensive hogwash concocted by mercenary economists and lawyers. Even if Microsoft and Yahoo merged, their combined market share in Internet search would be a fraction of Google's. Google is the big gorilla in Internet search (a position they did earn legitimately) and they would remain the big gorilla even after a Microsoft-Yahoo merger. (Actually, it doesn't matter what Microsoft-Yahoo's market share would be. Even if it would far exceed Google's, it represents no harm to anyone. Such market share was earned in the marketplace and would have to be defended in the marketplace.)

Google earned its impressive leadership in Internet search and advertising by aggressively offering a more valuable service than its competitors. I use Google everyday and I marvel at the elegance and power of how they make the Internet useful to me. Google earned their position, but instead of keeping it through further entrepreneurship, they will use the same method the Mafia uses to keep its "market share": the pointed end of a gun.

The fact that this gun is legally held by the chairman of the Federal Trade Commission or by the Speaker of the House does not change its nature.

Capitalism is the system based on the opposite principle to the Google principle used against Microsoft and Yahoo. Capitalism is not based on force, but on voluntary trade. It is based on a person's right to his own life and the corollary of that right, his right to property. No one has the right to violate another's rights through the use of force.

That is exactly what Google wants to do. It wants to use the government's policing power to violate the rights of Microsoft's and Yahoo's shareholders to associate or not as they see fit.

Remember that Google's actions, in their essence, are no different than a Mafia chieftain who hires a street gang to tear up and destroy businesses that refuse to pay him protection money.

This is not capitalism; this is hooliganism.