TCS Daily

Monti's Sad Farewell

By Cécile Philippe - April 28, 2004 12:00 AM

World reaction to the European Commission's ruling against Microsoft (the official decision announced in March was released last week by the EU executive) has fallen along predictable lines. The record-setting fine -- €497 million -- is denounced as either excessive or a mere slap on the software giant's wrist. There is also, in this time of war, a growing belief, in the United States at least, that Microsoft has suffered in retaliation for American unilateralism in world affairs.

From my perspective, these issues are drowned out by the sad note this case sounds near the close of Mario Monti's career. On his better days, and there were many of them, Monti championed an enlightened vision that promises to bring Europe fully into the global economy. That was the legacy by which I had hoped to remember him.

The Monti I wanted to remember was the one who conducted a persistent campaign against Europe's longstanding anti-competitive impulses. It was Monti, let us not forget, who brought landmark changes in merger review. It was Monti who appointed a chief economist to review the work of the competition authority, and who supported rapid judicial review of Commission decisions. The idea of subjecting merger decisions to basic principles of market economics was common sense to many economists. To entrenched interests, however, it was anathema.

The Monti I hoped to remember was also the Monti who challenged state subsidies to favorite industries. Do you recall his pursuit of German Landesbanks -- and of pig farmers in Portugal? Yes, he was relentless and as a result was rightly feared by the old guard. Monti unveiled them and thus gave many of us hope that a new day was coming to Europe's under-performing economy.

There was something heroic in Mario Monti. He did not take the downhill path, for which he was reviled by bureaucrats and sometimes attacked ferociously by the Americans. But few Americans fully understood that his Commission had become the most important European institution for rooting out protectionism and building an economy that would increase prosperity in both Europe and the U.S. America failed to identify its true friend.

Yet the Americans can now reassert, with unfortunate correctness, that a partisan personality has triumphed in the most crucial test of Monti's regulatory career. Here, suddenly and sadly, we see the old ways return to the fore. Here we see state power preferring competitors over consumers. Here we see the innovative and successful attacked -- for being innovative and successful.

The Microsoft judgment can be seen in no other way. The Commission has taken the position that it should have the power to decide how software is designed and marketed. It has given itself veto power over which innovations will be allowed. The message is stark and unmistakable: If you are too successful, too innovative, the Commission will likely intervene. It will do so not at the urging of consumers, who widely embraced Windows, but on behalf of competitors who cannot innovate nearly so well as they can imitate... and intimidate.

Microsoft promises an appeal, and its directors have good reason to believe the Court of First Instance will send Monti into the sunset with a very black eye. It has found him in error before, most notably when rejecting the Commission's attempt to block the acquisition of Legrand Electric by Schneider and the acquisition of French bottler Sidel by Tetra Laval. Unfortunately, the Microsoft ruling is an even more egregious example of regulatory over-reach. It is also unfortunate that this will be the case by which Monti is best known.

Mario Monti had much to teach Europe about re-creating itself as a dynamic economic engine -- an engine that only runs well on the fuel of competition. I had hoped to remember him as an innovator, a crusader, and indeed an iconoclast of old European protectionism. Now he has taken a serious misstep, and as a result his legacy is deeply tarnished.

So goes another hero.

Dr Cécile Philippe is the Director, Institut Economique Molinari.


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