Obama Stands By while Europe Loots Intel

On May 13, the European Commission fined Intel €1.06 billion (about $1.45 billion) for alleged monopolistic abuses in marketing its microprocessors and computer chips which form the core of most PCs. The Europeans have their own favorite multinational, Intel's primary competitor, AMD. AMD has filed suit in both the US and Europe against Intel claiming it was a victim of the latter's monopolistic practices.

It seems to us that Europe was not the proper venue for this suit. In July 2007 the European Commission approved Germany's gift of about $360 million to AMD in order to expand its production in Dresden Germany. Over the years, Germany and the EU have invested billions in an attempt to create, artificially, a German Silicon Valley near Dresden. Unfortunately, this has been of little help to AMD which continues to report losses.

In her statement announcing the Intel fine, European antitrust chief Neelie Kroes bragged that she was raising money to support the European taxpayer. She said:

I would like to draw your attention to Intel's latest global advertising campaign which proposes Intel as the sponsors of tomorrow. Well now they are sponsors of the European taxpayers, so to say.

So far, the Obama administration has not objected to the new Intel fine, nor is it likely that it ever will. Christine Varney, head of the anti-trust division of the Department of Justice, has views that are almost identical to those of Neelie Kroes.  She is expected to pursue anti-trust actions against Intel in the near future. Each will attempt to outdo the other in their bleeding of successful American businesses in order to support their welfare states.

When he ignores the European action against an American business, President Obama is simply following the precedent begun when President George W. Bush let the European Commission loot Microsoft of $578 million in 2004, $383 million in 2006, and $1.2 billion in 2008.

The European Commission's claim that it is protecting the consumer is patently phony. The consumer is hurt when competitors agree to fix prices, or combine with each other in order to eliminate competition, or give one another exclusive control of a geographical area. We approve the EU's action in 2008 against European automobile glass makers that resulted in total fines of €1.3 billion for conspiring to fix prices. That fine was justified since consumers were indeed hurt. But according to the European Commission, Intel's crime was that it lowered its prices too much through what Intel claims were legitimate quantity discounts.

When Theodore Roosevelt used the Sherman Antitrust Act to break up trusts that had been set up in order to eliminate competition and raise prices, that action was legitimate. But more recent government prosecutions of US Steel, Alcoa, IBM, and AT&T do not stand up as well to scrutiny. In each case, the US government weakened an innovative American corporation. As the US Supreme Court has ruled, mere size does not constitute a monopolistic practice. Alan Greenspan once wrote:

No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible.

When companies have a near-monopoly due to their technological lead in a field, they should not be broken up. New technologies are being developed all of the time. In order to keep their lead, the dominant companies must engage in a tremendous amount of research to stay on top of the new developments.

The silliness of anti-trust actions against companies with a technological lead is illustrated by a suit against IBM in the 1950s for monopolizing the machines that punched the data cards that computers use. Technological innovations soon made those data cards irrelevant!

The Austrian economist Joseph Schumpeter was the first to perceive the benefit to society of letting such technological-monopolies be. He pointed out that the research done by such companies drives economic growth and their monopoly does not last long. Recent history provides many such examples:

  • AT&T invented the semi-conductor.
  • IBM tremendously improved the computer.
  • Xerox invented the computer mouse.
  • Microsoft provided a consistent platform for software development.
  • Intel has given us one improvement after another in computer speed.

Economists have incorporated Schumpeter's theory into what has become the dominant economic theory of long-term economic growth, known as the "endogenous growth model."  According to this model, every new invention decreases the cost of future inventions. Companies that achieve a near monopoly due to their technological leads provide many of the key inventions that others build upon. All governments need to do is keep out of the way.

It will be bad enough if the Obama administration is so foolish as to destroy our golden geese. But to let the European Commission bleed our golden geese is simply criminal! Many reporters predict that the European Commission will target Google next. It really doesn't matter what Google does. After all, Google is big, dominant, and American. America desperately needs a president with the spine to stand up to such acts of economic warfare.
The authors maintain a blog at tradeandtaxes.blogspot.com, and co-authored the 2008 book Trading Away Our Future: How to Fix Our Government-Driven Trade Deficits and Faulty Tax System Before it's Too Late, published by Ideal Taxes Association.