TCS Daily

Courting Disaster

By George A. Pieler - January 7, 2005 12:00 AM

With a preliminary victory over Microsoft in its never-ending antitrust prosecution, the European Union aims to assume an ever-larger role in the global economy. Will 2005 witness the emergence of Europe as a true economic superpower?

There can be no doubt that Europe wants to give the U.S. serious competition for the role of the world's economic leader. On December 20, 2004, when Judge Bo Vesterdorf of the European Court of First Instance handed the European Commission a preliminary victory in its procedural wrangling with Microsoft, the judge (by design or not) tilted the regulatory playing field strongly in favor of Europe and its recently departed antitrust czar, Mario Monti. This touching, if belated, tribute seems to have so profoundly affected Monti that, according to the AP, "A Commission source said Monti was so happy to hear the news, he wished he was working for the Commission again." Or running it, perhaps?

The salient point made by AP reporter Raf Casert, however, is that Europe's procedural victory over Microsoft "will bolster the EU's position in holding off any approach from Microsoft for more settlement talks. And it raises the possibility that EU regulators may be able to force Microsoft to scrap other features as well if competitors file complaints."

Exactly so. Those competitors are no longer constrained from shopping for legal forums to combat Microsoft only in the US, where Microsoft settled with only limited sanctions from federal antitrust authorities. Europe, Asia, and any other market where Microsoft (or any US-based company) has a presence can come up with their own legal penalties, justified or not (yes, sadly, the regulatory process is a very political one!). So, for that matter, can the various states in the U.S., many of which are pursuing claims (and further settlements) with Microsoft long after the federal settlement was reached.

Further, let no one think that financial penalties and intrusive code-busting sanctions from Europe will have an impact only in the European market. Once Microsoft opens up its code, it is available to all comers. Similarly, now that Microsoft has to market a non-media version of windows (a product no one in his right mind wants) in Europe, its product line changes worldwide as well. This "unbundling" requirement from the European Commission may have little consequence by itself, but the precedent it sets for political manipulation of markets and products in the technological sector should send more than a small chill through the R & D community.

By the same token, the record financial penalties Europe extracted from Microsoft may be pocket change to the software giant, but they send a clear message to aggressive regulators and tin-pot dictators alike: there are very, very deep pockets at your disposal, if you use the right legal and regulatory tricks.

One day in December doesn't foretell the course of the global economy in 2005, nor does it ordain a European triumph in the global economic competition. In an era when the Euro dominates the dollar around the globe, there is a tendency to assume today's trends are the way of the future. But for all its regulatory prowess, Europe as a political entity remains seriously constrained from achieving the economic power it wants. It is highly dependant on the US (and its taxpayers) for providing its military defense, and Europe, which has indeed begun to understand the virtues of lower taxes for the corporate sector, cannot really break out of its high-tax and pro-regulation regime without abandoning its commitment to massive welfare state spending. That it will not do, at least not until the states of the New Europe from the east and south of the continent are able to wean political power away from France and Germany.

The fact is, for all its regulatory braggadocio, Europe's superpower status is more image than reality. With the US and Asia driving world economic growth, Europe is living on borrowed intellectual and entrepreneurial resources, and in that sense is deeper in debt than the US is in fiscal terms. Europe's Microsoft victory is a major symbol of Europe's ambitions, and a foreboding of what could happen if America and Asia fail to reassert the primacy of market forces against global regulation. Maybe Europe needs to "unbundle" its commitment to 19th century socialism from its 21st century economic ambitions. If it does, the US could have a real competitor to deal with.

George Pieler is a Visiting Scholar at the Institute for Policy Innovation, and author of IPI publication, "Europe vs. US".


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