How the American dream has come unstuck

On why the US has failed to deal with the problem of Bill Gates

There was an excellent piece in the New Yorker magazine this week about the US Justice Department's battle with Microsoft. Timed to coincide with renewed court hearings over whether Microsoft is abusing its position in the Internet browser market, this was the definitive article on the monopoly Bill Gates has managed to establish in personal computer operating system technology, and the way in which he is using this to dominate other key areas of the PC software market.

Up until very recently few have had anything but praise for Mr Gates. In the US he is an icon, the very personification of the American dream and the global triumph of American technology and its free market capitalist system.

Until recently that is. Now that image is beginning to sour, and in the process policy makers have begun to question why it is that both the self correcting mechanisms of the free market, and America's impressive battery of anti trust and competition laws, have been unequal to the task of checking the growing power of the Microsoft machine.

Worse, they wonder whether Mr Gates, for so long the man who seemed to epitomise the cutting edge of technology, is not now beginning to act as a break on technological development and change. And if that's the case, is there not a danger of the US eventually losing its present undisputed lead in computer technology and sales?

Before trying to answer these questions, it is worth making some general points about the nature of businessmen and monopolies. There is nothing particularly odd, new or surprising about the way Mr Gates operates or behaves. It would be wrong to view him, as some do, as an evil genius astride a war like empire set on world domination. That may once have been the model for the successful monopoly enterprise, but it isn't these days. In any case, Mr Gates isn't like that and nor is his company. On the other hand, nobody would quarrel with the contention that he has been particularly ruthless and single minded in the way he has developed, defended and exploited an original great new idea and market opportunity. This is what successful entrepreneurs do.

In a sense, it is the function of business to aspire to monopoly, for that is where the greatest likelihood of survival and spectacular profit lies. Businessmen who fail to keep uppermost in their minds that their whole endeavour should be bent on trouncing the competition, invariably end up getting trounced themselves.

Mr Gates, then, belongs to a glorious (or not so glorious depending on your point of view) tradition of inspired and highly successful businessmen, stretching from John Rockefeller in the late 1800s through Cecil Rhodes in the early part of the century to Rupert Murdoch today. On present showing, Microsoft looks as if it will out monopolise all these role models.

Monopoly can be achieved in a number of ways. The simplest is to buy it, either by acquiring the competition or by driving it out of business through price cutting - a method known as predatory pricing. In the developed world at least, the first of these routes is now more or less outlawed, though some big companies do still seem to get their consolidating mergers through regulators. The competition authorities both in the US and Europe are also getting better at stamping out predatory pricing, though again there is perhaps a way to go, particularly in Britain.

New industries and technologies offer the opportunity of an entirely different approach to monopoly. Copyright is a tradition as ancient as commerce itself. Hardly anyone would seriously dispute an inventor's right to profit from his own discovery, so international law has rightly been constructed to offer cast iron protection. What this does is to give the inventing individual or company an effective monopoly over the product, at least for a limited period of time. Generally, however, it's not long before the competition comes up with a new and hopefully better version of the same thing.

The trick that Mr Gates managed to pull off was to make his MS-DOS operating system, originally designed for IBM's onslaught on the personal computer market, into what became the industry standard. After that came Windows 95, which has piggy backed off MS-DOS into the same position. Mr Gates has thus achieved the holy grail of all entrepreneurs, for once the industry standard, everyone has do buy your product even when there are better and cheaper versions in prospect. The market has in effect been locked up. Mr Gates has achieved this, moreover, in the world's fastest growing industry, personal computers.

Quite how he managed it has been the subject of more column inches than the Gulf War. In part, it was simply the snowball effect. Because high tech goods have to be compatible with each other, a product can sweep all before it once a certain critical mass has been achieved. More and more other software products become captive to that standard, making it more invaluable still. Anyone with children who has gone the Apple Mac route to the desk top computer must be only too aware, for instance, of the impossibility of getting the latest wizzo computer games in anything other than Windows compatible form.

There is nothing illegal in any of this, but clearly it profoundly distorts the way in which free markets are meant to work. Arguably, there were better alternatives, both to MS-DOS and Windows, but none has come to occupy anything more than a small niche position. Obviously, there's something wrong here, but there's nothing either the market or regulators can do about it. Instead, the Justice Department has chosen to attack Microsoft on its attempt to lock up another area of the market, Internet browsers. Even before Microsoft launched Internet Explorer, there were growing signs of overtly anti competitive behaviour.

With Explorer, it became much more contentious. What Microsoft did, was directly to link its Explorer product with Windows, so that you could not have Windows without Explorer. Most browsers, which act as a gateway to the Web, are in effect given away, both by Microsoft and rivals. Even so, it is clear what Microsoft is up to here. The strategy is that of maintaining control over all aspects of the desktop, thereby preventing competitors from getting a foot in the door.

In the end, it is for the US authorities to deal with Mr Gates and the threat he poses to the free market system. We all have to use them, but these are almost exclusively US technologies, and it is primarily America's lookout if it fails urgently to address the problem. Obviously we are affected, however. And there is a parallel in Britain, if an inexact one. Rupert Murdoch's TV encryption technology occupies a similar position in subscription TV to that of Microsoft with the PC - you cannot offer pay TV without using his system. The consequent opportunity for abuse is obvious, though to be fair, there is as yet no evidence of him using it. As long as capitalism continues to flourish, there will always be those who aspire to monopoly. What governments and regulators have to be eternally vigilant in remembering is that monopoly is also capitalism's greatest enemy.