The Free Market 9, no. 7 (July 1991)
Dear Sir:
I noticed the following headline in the New York Times recently: “Earnings Plunge at IBM—Quarterly Sales Fall Across Most of Line.” Another Times story reports that IBM “has been pushed out of the personal computer and software spotlight by its software partner, the Microsoft corporation.” A third article reports that 21 computer makers are forming an alliance—Advanced Computing Environment (ACE)—to create new standards for computer work stations in direct competition with IBM.
Poor IBM. Apparently big isn’t necessarily better in the relatively free computer market. How will IBM ever get the public to buy its fancy, expensive personal computers or pick its new operating system—OS/2—over the more popular Windows which is selling ten times faster? How can IBM stop ACE?
I have an idea. Why doesn’t IBM do what other business giants have done when they can’t get their way in the market—get the government to clobber its competitors? The u.s. sugar industry did it. Harley Davidson did it. The legal profession does it to the paralegal profession. The medical profession does it to the nursing profession and the pharmacists. In fact, it’s been the American way since at least the turn of the century.
This is what IBM should tell the public:
“There is a dangerous gap in our consumer protection regulatory structure. What is perhaps our most important industry is almost entirely unregulated, governed only by the Darwinian laws of laissez,faire economics. The computer industry, which makes those little gadgets that run our technological society, has thus far escaped regulation and control.
“In no other regulatory arena is there so little concern for the consumer. Unlike lawyers or doctors, computer manufacturers and retailers need no license. There is no regulatory commission overseeing their activities. Unlike the banking and securi, ties industries, just about anyone is free to set up shop and start making and selling computers. There is no plain language law for computer manuals. Computers need not be tested or approved before they are sold. There are no uniform standards mandated by law. The same computers sell for different prices in different states and cities. Many consumers are unwittingly buying more powerful computers than they really need, while others are buying models that are already obsolete. There are no price controls on computers, so those who intro, duce new models can charge far more than their competitors and reap grotesque windfall profits. Slick and seductive advertising creates a demand for products that most people could live without. Worst of all, foreign computers are flooding American markets, stealing jobs in the process.”
This familiar rhetoric should convince the public to support the creation of a Federal Computer Control Commission (FCCC). The same public that believes that buildings would collapse without building codes will believe that computers will malfunction without government regulation. IBM will reap a huge public relations gain by “selflessly” leading the fight for regulation. The FCCC will begin promulgating and enforcing these regulations on computer manufacturers and retailers.
With the right guidance from future and former IBM executives, the FCCC will quickly overburden the hundreds of smaller computer companies that have been eating away at IBM profits with the kinds of regulations and taxes that have kept many of our other important industries stagnant for years. Particularly devastating would be a “necessary and effective” requirement like the “safe and effective” standard the FDA now enforces for drugs. Each and every megabyte would have to be justified in lengthy public hearings as necessary to meet the consumer’s needs. Such a requirement would raise costs, stifle innovation, and cripple small companies with paperwork and legal fees. The lawyers will support you: they know a “Lawyers Full Employment Act” when they see one.
The FCCC will, of course, have the power to reform the chaos of the market and create mandatory standards for computer hardware and software—with the guidance of an IBM-stacked advisory board. OS/2 will catch up to Windows fast once it is ensconced in the United States Code as the required operating system for all U.S. computers. ACE’s effort to establish new computer standards will be challenged as “restraint of trade” under antitrust laws. Finally, the FCCC will have “emergency” powers to limit the number of computers we can import from the pesky Japanese.
After a few years of FCCC control, IBM should have a lock on the computer market for decades. Most of the smaller companies will have been killed off and new companies will be rare, given their enormous start-up costs. IBM’s profits will rise. Computers will be prohibitively expensive, of course, but that creates another opportunity. What about government-guaranteed computer loans for the middle class, and computer stamps for the poor? Everybody wins: IBM, the retailers, the hackers, the bureaucracy, and the politicians who thought up the brilliant idea in the first place.
So that’s the scam. Let’s do lunch and iron out the details (my consulting fee, for example). One more thing, please commit this memo to your memory and your shredder. After all, you have an image to protect.
Sincerely,
James Ostrowski
“Computer Czar”
