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.

A Shotgun Blast for Competition

The chairman of the Federal Communications Commission, Kevin J. Martin, has announced that all contracts between owners of apartment buildings and cable providers for exclusive service in their buildings will be nullified. The chairman's blast of his regulatory shotgun, if upheld by the courts, will shred thousands of contracts across the land.

The justification for this assault on the sanctity of contract and property rights is "competition." Somehow, by denying apartment owners the right to negotiate terms with cable companies for service in their buildings, the chairman will be enhancing competition among cable companies. Exactly how this will transpire is not clearly stated. He doesn't have to explain it, since the real justification for his action becomes clear when he says, "cable prices have risen about 93% in ten years," and adds that high cable prices disproportionately affect low income people, particularly Hispanics and blacks, who more often live in apartment buildings.

So, the real reason for this contract shredding has nothing to do with promoting an undefined "competition," but with a desire to forcefully transfer wealth from apartment owners and cable companies to politically favored pressure groups.

The doctrine of altruism states that the purpose of a man is to live for others. He does not have a right to his own life. The shredding of these cable contracts is altruism enforced by the cruel hand of regulation. To hell with property rights if it means providing HBO for less to poor people. The appeal to "competition" is an afterthought thrown in as a meager attempt to justify this action.

Unsurprisingly, not only is the FCC chairman's action immoral, but it will not "help" the poor or anyone else. The key to understanding this is the observation of the cable industry association that "cable companies were often granted exclusive rights to buildings after agreeing to make major capital investments in upgrading systems." Thus, a principal reason for these exclusive deals is so that apartment owners can negotiate with cable companies to pay for the wiring of their buildings. A wiring upgrade means higher bandwidth, and therefore more channels, faster Internet service, and enhanced telecommunications service. Strike down the exclusive deals and you cut out future wiring upgrades and the enhanced services it brings.

Unfortunately, in a literal sense the FCC chairman is correct. His action will reduce the cost of cable service, but the apartment residents will be getting exactly what they pay for: slow Internet speeds, fewer channels, fewer telecommunications options. In other words, they will get cheap service that is lousy.

In direct opposition to fostering "choice" or "competition," the FCC's action will be taking away the free choices of customers and cable companies to get the level of service that they mutually agree to and want. Instead, the FCC chairman singlehandedly interposes himself between these thousands of voluntary agreements and declares, wittingly or not, that no one shall have relatively expensive and high quality cable service.

Competition is an anti-concept. Used by the FCC chairman, it only refers to competition on price, but in an unfettered market competition exists on more dimensions than just price. There is competition in innovation, competition in quality and variety, and competition in price. The chairman of the FCC, by allegedly promoting price competition, is actually destroying competition, if that term has any meaning at all.

He does all this to hand out the goods, goods that aren't his to hand out. Such is the nature of pressure group warfare and the thinly veneered legalized lawlessness it spawns in a mixed economy.