Klein Defends Federal Intervention in Free Market

Joel I. Klein J.D. '71, who leads the government's anti-trust case against Microsoft, yesterday defended federal intervention in the free market in an address at Harvard Law School.

Klein, who is the Assistant U.S. Attorney General in charge of the antitrust division of the Department of Justice, convinced a federal judge last week that the Microsoft Corporation had violated U.S. anti-trust laws.

Expanding on comments he issued the day of the decision, Klein said Microsoft was able to dictate to computer manufactures what software they could and could not include with their computers.

He said their tactic was simple: they manipulated the price of the Windows operating system to punish reluctant computer companies into complying with Microsoft policies.

"There's nothing new here. The tactics went back to classic anti-trust cases," Klein said. "This was straightforward intimidation."

Klein has faced criticism from business interests and academia.

They say Klein and his prosecutors have zealously targeted "new economy" businesses, even as prices dropped and consumer choice has increased.

Klein also faced criticism that technology improves so quickly the legal system cannot keep pace--changes in web browser and software technology may render any Microsoft remedy obsolete as soon as it is implemented.

Though Microsoft may have already won the browser war with Netscape, Klein says, its omnipresent operating system still gives tremendous leverage against future innovations.

"I want to hold the door open for the next Netscape," Klein said.

The antitrust division of the Department of Justice has maintained a far lower profile in the second half of the 20th century than it did in the first 50 years--which saw the break-up of U.S. Steel and Standard Oil monopolies.

Under Klein's tenure, which began in July of 1997, the division has greatly increased its public presence.

In the year before Klein arrived, the antitrust division of the Justice Department collected $40 million in fines each year. It now collects more than $1 billion.

The division costs only $100 million to run, leading Klein to quip "if I could, I'd take us private in a second."

Critics say Klein has increased the government's influence by prosecuting what some have termed "figmentary crime"--a technical violation of the law that has no social effects.

Klein defended his prosecutions by referring to a case where wheat giant Arthur Daniels Midland (ADM) acknowledged fixing prices.

"Technology changes, surely, and markets change, surely, but human nature doesn't really change. Businesses still have every incentive to collude and raise prices, and without the intervention of the government, they will do so," Klein said.

He played for the audience secretly taped meetings of top executives from ADM, the company that billed itself "The Supermarket to the World."

On the basis of those conversations, the Justice Department accused ADM of conspiring with other food producers to fix the price of lysine, an amino acid and an additive to animal feed. The tapes were released to the public last Friday, and showed the executives giggling as they discussed what the price of lysine should be in various markets.

In the tapes, the executives agreed to stagger their departures from the meeting so not to attract suspicion.

At one point, one of the executives joked an empty seat was being reserved for a FBI agent.

Listening to the tapes with the audience, Klein concluded the ADM case shows the need for strong governmental oversight of big business.

"What you were watching was by people who knew their behavior was illegal and posed substantial risks to the company. Can you imagine what they would do if it weren't illegal?" Klein said.

Klein insisted he did not want to be a naysayer, and said he believed the past two decades had proven the effectiveness of the free market system.

"We've come, as a society and a world, to understand that a free market economy works best for wealth creation and economic opportunity," he said.

Klein said, however, that free markets still required occasional government intervention when anti-competitive practices knocked them off-kilter.

"What Adam Smith recognized was that ultimately, the success of markets depends on their remaining competitive," he said.

Klein's talk yesterday was sponsored by the Harvard Law School Forum, a student-run organization founded in 1946 to commemorate the law school students who died in World War II.