When the Elites become tone deaf

Source: Daily Telegraph

The #Brexit vote will have a major impact on Britain, EU, NATO and the West more broadly. The 52-48 majority voting to leave the EU — like many recent US presidential elections — shows a country deeply divided.

The Telegraph’s map shows how London and a few other city centers voted strongly for the EU, while the rest of England voted decisively against the EU. (As the Guardian notes, Labour voters at the edges of London and Liverpool voted against the city center).

Before the results were in (HT: NY Times), pro-EU columnist John Harris wrote Thursday in the Guardian

The UK is now two nations, staring across a political chasm
Leave voters aren’t lemmings jumping off a cliff, and the left urgently needs to understand their choices.
…
Two nations, in short, are staring at each other across a political chasm.
…
Even those who understand that something seismic is afoot among predominantly working-class voters are still too keen on the idea that they are gullible enough to be led over a cliff by people with whom they would actually disagree, if only they knew the facts. But most people are not really being “led” by anyone. In my experience, Farage, Boris Johnson and Michael Gove et al are viewed by most people with as much cynicism as the people fronting the remain campaign. Moreover, this argument is dangerously redolent of that lousy old Marxist trope of “false consciousness”, whereby people enthusiastically following the supposedly wrong cause are only a speech or poster away from enlightenment, and a sharp left turn.

We need to face up to two things. First, a lot of people want out of the EU because they are worried and angry about the consequences of the free movement of people, and in that sense they have made their choice rationally. Second, even if Farage, Johnson and Gove would doubtless use Brexit as an opportunity to further our journey towards an essentially sink-or-swim society, there are plenty of working-class voters who would probably go along with that.

Meanwhile, pro-Brexit James Bartholomew made a similar point today in the Spectator

Britain’s great divide
The referendum has exposed a huge rift between the metropolitan elite and the rest
…
Every election is divisive, but none has pitted rich against poor like this one. The social divide has been far more dramatic than the divide between the two main political parties. In general elections, the professional and managerial classes favour the Tories by a margin of four to three. The difference is nothing like as marked as the social divide in the referendum vote. As a generalisation, the split has been between the educated ‘haves’ on one side and the working class on the other. The Remainers found ways of making this point — casting themselves as cosmopolitan and ‘open’ against the crude and (presumably) closed-minded Leavers.

I came across quite a bit of scornful self-righteousness among the rich Remainers. In one street of private houses, a woman repeatedly shouted at us: ‘You’re all bonkers! Get out! You are not wanted here!’ A prosperous-looking man at the doorway of his private house informed us that immigration was a good thing and was economically necessary: the implication being that those who seek controlled immigration are both anti-immigrant and ignorant of the economics of the matter. His irritated parting shot was: ‘I hope you lose!’

The divide shows how changes brought about by globalisation and large-scale immigration have affected different classes in contrasting ways. For the ‘haves’, it has been a boon. The Notting Hill crowd now has cheap, highly qualified Polish builders, well-educated Polish cleaners and perhaps a Romanian nanny for their children. They go to Caffè Nero and are served by polite Italians. They feel deliciously international and open-minded while enjoying cheaper, better services than they otherwise would.
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At the other end of the spectrum was Gladys, who I met at the door of her council house on Monday. She was reluctant at first to say which way she was voting. She got her council house in 1975 after two years waiting for it. But now she worries for her sons and grandchildren. How are they going to afford somewhere to live? The cost of mortgages just goes up and up, she said.
…
Gladys was not xenophobic or racist. What bothers her isn’t immigration, as such, but the government’s inability to respond to immigration and the resulting shortage of housing and school and hospital places. The rich folk across the road could get round these problems. Hector and Harriet could go to a private school if necessary. If there was a two-week wait to see their NHS GP, they could go private. They have already got their own flat or house, which has gone up nicely in value, thank you very much.

Both reminded of whjat Peggy Noonan — a moderate Republican and former Reagan speechwriter — wrote in February:

Trump and the Rise of the Unprotected
Why political professionals are struggling to make sense of the world they created.
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I keep thinking of how Donald Trump got to be the very likely Republican nominee. There are many answers and reasons, but my thoughts keep revolving around the idea of protection. It is a theme that has been something of a preoccupation in this space over the years, but I think I am seeing it now grow into an overall political dynamic throughout the West.

There are the protected and the unprotected. The protected make public policy. The unprotected live in it. The unprotected are starting to push back, powerfully.
The protected are the accomplished, the secure, the successful—those who have power or access to it. They are protected from much of the roughness of the world. More to the point, they are protected from the world they have created. Again, they make public policy and have for some time.

I want to call them the elite to load the rhetorical dice, but let’s stick with the protected.

They are figures in government, politics and media. They live in nice neighborhoods, safe ones. Their families function, their kids go to good schools, they’ve got some money. All of these things tend to isolate them, or provide buffers. Some of them—in Washington it is important officials in the executive branch or on the Hill; in Brussels, significant figures in the European Union—literally have their own security details.

Because they are protected they feel they can do pretty much anything, impose any reality. They’re insulated from many of the effects of their own decisions.

One issue obviously roiling the U.S. and western Europe is immigration. … It is of course the issue that made Donald Trump. Britain will probably leave the European Union over it.
…
If you are an unprotected American—one with limited resources and negligible access to power—you have absorbed some lessons from the past 20 years’ experience of illegal immigration. You know the Democrats won’t protect you and the Republicans won’t help you. Both parties refused to control the border.
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Many Americans suffered from illegal immigration—its impact on labor markets, financial costs, crime, the sense that the rule of law was collapsing. But the protected did fine—more workers at lower wages. No effect of illegal immigration was likely to hurt them personally.

It was good for the protected. But the unprotected watched and saw. They realized the protected were not looking out for them, and they inferred that they were not looking out for the country, either.

The unprotected came to think they owed the establishment—another word for the protected—nothing, no particular loyalty, no old allegiance.
…
What marks this political moment, in Europe and the U.S., is the rise of the unprotected. It is the rise of people who don’t have all that much against those who’ve been given many blessings and seem to believe they have them not because they’re fortunate but because they’re better.

You see the dynamic in many spheres. In Hollywood, as we still call it, where they make our rough culture, they are careful to protect their own children from its ill effects. In places with failing schools, they choose not to help them through the school liberation movement— charter schools, choice, etc.—because they fear to go up against the most reactionary professional group in America, the teachers unions. They let the public schools flounder. But their children go to the best private schools.

This is a terrible feature of our age—that we are governed by protected people who don’t seem to care that much about their unprotected fellow citizens.

And a country really can’t continue this way.

In wise governments the top is attentive to the realities of the lives of normal people, and careful about their anxieties. That’s more or less how America used to be. There didn’t seem to be so much distance between the top and the bottom.
Now is seems the attitude of the top half is: You’re on your own. Get with the program, little racist.

My European history isn’t very good, but the French Revolution happened in part because the Elites became tone deaf. (IIRC it was also a factor in the Russian and Chinese revolutions, although both involved a well-organized grab for power by one faction against another). In a democracy, we get to have our elections via ballot box — as long as the system isn’t rigged. In that regard, such a vote is a triumph (and not a failure) of the system of democracy that England pioneered in the 2nd millenium.

Source: Financial Times

It was 20 years ago today

The Berlin Wall fell 20 years ago today, but you wouldn’t know it from US news coverage (or the priorities of the Administration). In my local paper, the lead story is about a 40 year Palo Alto guitar shop. (Sure, this is a story not otherwise commoditized by Google news, but half the front page?) Perhaps taking her cue from the administration, even the gray lady herself didn’t think it worth mentioning on its front page.

To its credit, LATimes.com listed it among the hot topics, along with the Lakers and the latest movie grosses, including a touching story about a mom born in 1961 (when the Wall as raised) and her son born in 1989. And the LAT website replated its lead (is it possible to replate a website?) to highlight the Berlin bash marking the festive occasion.
This seems like madness: 200 or 500 years from now, the fall of the Berlin Wall will be listed as one of the 4 or 5 most important events of the 20th century, along with D-day and perhaps Armistice Day, the death of Kaiser Wilhelm or the invasion of Czechoslovakia.

Just to remind the American people (and politicians) of the milestone, Angela Merkel only the second German leader to address a joint session of Congress. She used her speech in part to recall her own doubt that she would ever escape the wall:

In 1957 I was just a small child of three years. I lived with my parents in Brandenburg, a region that belonged to the German Democratic Republic (GDR), the part of Germany that was not free. My father was a Protestant pastor. My mother, who had studied English and Latin to become a teacher, was not allowed to work in her chosen profession in the GDR.
…
Not even in my wildest dreams could I have imagined, twenty years ago before the Wall fell, that this would happen. It was beyond imagination then to even think about traveling to the United States of America let alone standing here today.

The land of unlimited opportunity – for a long time it was impossible for me to reach. The Wall, barbed wire and the order to shoot those who tried to leave limited my access to the free world. So I had to create my own picture of the United States from films and books, some of which were smuggled in from the West by relatives.

What did I see and what did I read? What was I passionate about?

I was passionate about the American dream – the opportunity for everyone to be successful, to make it in life through their own personal effort.
…
I was passionate about all of these things and much more, even though until 1989 America was simply out of reach for me. And then, on November 9, 1989, the Berlin Wall came down. The border that for decades had divided a nation into two worlds was now open.

She thanked America for its role in bringing freedom to Central Europe:

I thank the American and Allied pilots who heard and heeded the desperate call of Berlin’s mayor Ernst Reuter as he said “People of the world, … look upon this city.”

For months, these pilots delivered food by airlift and saved Berlin from starvation. Many of these soldiers risked their lives doing this. Dozens lost their lives. We will remember and honor them forever.

I thank the 16 million Americans who have been stationed in Germany over the past decades. Without their support as soldiers, diplomats and generally as facilitators it never would have been possible to overcome the division of Europe. We are happy to have American soldiers in Germany, today and in the future. They are ambassadors of their country in our country, just as many Americans with German roots today act as ambassadors of my country here.

I think of John F. Kennedy, who won the hearts of despairing Berliners during his 1963 visit after the construction of the Berlin Wall when he called out to them: “Ich bin ein Berliner.”

Ronald Reagan far earlier than others saw and recognized the sign of the times when, standing before the Brandenburg Gate in 1987, he demanded: “Mr. Gorbachev, open this gate … Mr. Gorbachev, tear down this wall.” This appeal is something that will never be forgotten.

But after winning the Cold War, America has moved on. The people of Central Europe remember America’s leadership, but America (or at least the current ruling party) want to forget. The president flew to Copenhagen to lobby for one city’s Olympic bid but snubbed the Germans, declining to fly to Berlin to meet with America’s most important Allies (or hear the U2 concert).

Meanwhile, many problems lay unresolved, not the least of which are those of the former soviet republics (notably Ukraine and Georgia) which are not quite free, not quite vassals of their powerful neighbor. The FT (and other British papers like the Guardian) have run many stories over the past week that engaged these ideas, the ongoing challenges, the residual instability of the smaller (or less independent) countries of central Europe, and what might be done in the future.

The problems of Europe are not all solved, and they will come back again in a way that impacts Americans. In the meantime, Slavic studies are considered a marginal and unimportant field, the way that Arabic studies were a decade ago or Chinese studies 20 years ago.

Note on title: I realize the lyrics to Sgt. Pepper aren't exactly appropriate, but there's something appealing about the idea of the normally dour Merkel belting out the Beatles. Besides, the FT had already used “When the wall came tumbling down”.

Jobs solves one EU problem

As I’ve noted, French EU industrial policy is about picking on winners and cutting them down to size, so Apple’s iTunes Store was naturally in their sights.

Last year, Apple’s most visible EU regulatory problem was the switching costs created by its end-to-end control of the FairPlay DRM, and regulators’ attempts to force it to waive the competitive advantage to help latecomers. But the shift by Apple (and others) to DRM-free seems to be solving that problem.

Today Apple settled an older problem, about different prices within the EU between the Eurozone and not. Specifically, the gap is £0.79 UK and €0.99 in most of Europe, which at current exchange rates (€100 = £74.9) penalizes Britons by about £0.05. The AP claims it’s £0.09 but reporters are rarely good at math — this is probably an obsolete exchange rate.

Here’s what Apple said:

LONDON—January 9, 2008—Apple® today announced that within six months it will lower the prices it charges for music on its UK iTunes® Store to match the already standardized pricing on iTunes across Europe in Austria, Belgium, Denmark, Germany, Finland, France, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Sweden, Switzerland and Spain. Apple currently must pay some record labels more to distribute their music in the UK than it pays them to distribute the same music elsewhere in Europe. Apple will reconsider its continuing relationship in the UK with any record label that does not lower its wholesale prices in the UK to the pan-European level within six months.

“This is an important step towards a pan-European marketplace for music,” said Steve Jobs, Apple’s CEO. “We hope every major record label will take a pan-European view of pricing.”

The complaints of course came from British consumers who felt cheated. If the pound fell and Britons got better prices, would they complain too? Information goods lend themselves more to cross-border arbitrage of exchange rates than do cars or houses.

In addition to reducing intra-European transaction costs, a major goal of the Euro was to encourage crossborder price competition. I don’t quite get why Britons (who chose to keep another currency) are entitled to price parity with the Eurozone.

However, the fragmented nature of IP rights across Europe — with different copyrights, licensors, terms, etc. aligned to national boundaries — still remains. My news archives show concerns about this being the subject of a WSJ story back on Nov. 10, 2003. And the EC today acknowledged there are problems that remain beyond its ability to pressure Apple:

The Commission’s antitrust proceedings further allowed the Commission to clarify that there is no agreement between Apple and the major record companies regarding how the iTunes store is organised in Europe. Rather, the structure of the iTunes store is chosen by Apple to take into account the country-specific aspects of copyright laws.

The Commission is very much in favour of solutions which would allow consumers to buy off the iTunes' online store without restrictions, but it is aware that some record companies, publishers and collecting societies still apply licensing practices which can make it difficult for iTunes to operate stores accessible for a European consumer anywhere in the EU.

Frankly, (nominally) cheating British consumers 4p a song is small potatoes in both the context of the industry and EU industrial policy. The bigger unanswered issue is what will the recording industry’s business model be a decade from now? Particularly since the legal download business is anemic in Europe compared to the US.

EU considers Qualcomm as next Microsoft?

As predicted, the European Commission has wasted no time in going after another American firm using the anti-monopoly precedent established with Microsoft. This week, the target is Qualcomm. Still on deck are Intel, Rambus and Google.

The EC investigation of Qualcomm is following up on a request 23 months ago by Qualcomm’s two main chip rivals — TI and Broadcom — as well as European handset (and chip) makers Nokia and Ericsson, as well as Panasonic (Matsushita) of Japan. The investigation could take as much as two years, although the EC was careful to say the action “does not imply that the commission has conclusive proof of an infringement.”

The main issue is not that Qualcomm is blocking other firms from using its technology, but the price that it charges. Specifically, Qualcomm charges the same royalty (about 4-5%) for both major flavors of 3G mobile phones — cdma2000 and WCDMA. Its accusers — including the leaders of the WCDMA camp — argue that Qualcomm should charge less for WCDMA because they successfully added lots of other IP to the WCDMA standard and thus Qualcomm’s share is proportionately less. The WSJ [registration required] quoted these rivals as saying that the fee should be less than 2%.

The case may end up focusing on that most vaguely defined standardization concept, Reasonable and Non Discriminatory licensing terms, aka RAND aka FRAND (Fair, Reasonable and Non Discriminatory). Anyone who studies (or participates in) standardization knows that the term has been left deliberately vague as a way to win agreement among various parties. Rather than come up with a more specific ex ante definition to provide predictability for all concerned — something ETSI has notably shied from doing — key ETSI members want the chief EU regulator to impose an ex post definition based on its own judgment.

There are key differences between US and European law that make this action unlikely to succeed in the US. One is the (current) policy favoring patent holders in the US; the second is that US monopoly law requires demonstrating harm to consumers, while EU law considers harm to competitors to be an important issue. There is also the issue that the EC seems to be choosing unpopular defendants first — Qualcomm being the only company more hated than Microsoft in the European ICT industry — presumably to set a precedent. Once the precedents are established, they could be applied to other, less controversial firms (which today would still include Google).

Qualcomm faces other legal challenges, including its expired patent license with Nokia and its ongoing legal fights with Broadcom. Qualcomm hired a new general counsel Friday — Donald Rosenberg, formerly of Apple, and before that a 30-year IBM veteran. He certainly has his hands full.

Technorati Tags: 3G, antitrust, EU, Microsoft, standardization

A looming EU-US trade war?

After reading online yesterday about Microsoft’s big loss at the hands of EU competition authorities, I thought I had the full picture. But an article in the dead tree version of the WSJ added a few points.

First, real lawyers (not just journalists and pundits) believe that EU Competition Commissioner Neeli Kroes is going to use the Microsoft win as a precedent to go after other dominant US firms — Intel, Qualcomm, Rambus and Google. Others worry about the precedent. European lawyers see as this as promoting a policy split between the EU and the U.S., while the US Chamber notes that the move will embolden other countries to move against American firms.

Action by other governments to hurt American companies could spark trade friction, assuming any US politicians care (or want to seize an issue for cheap political points). The Journal quoted Rep. Robert Wexler (D-Fla.) as calling this a “new form of protectionism,” but Wexler’s website makes no mention of this — only his campaign against Rush Limbaugh.

Two other tidbits on the case: with penalties, the €0.5 billion fine has become €2 billion. And while Microsoft appears to be have been stalling, it has already licensed competitors access to its server technology (the heart of the case). The catch is that those licenses have been paid licenses — which obviously wouldn’t help open source developers — but the EU wants that information available for free. Perhaps the EU could rebate two days worth of penalties (€6 million) to cover a fully paid license for the whole world.

Technorati Tags: antitrust, EU

Incentives for innovation

This week my friend Kevin Short (former guest lecturer on drug discovery in my technology strategy class) introduced me to several healthcare blogs. The most interesting was “In the Pipeline” (referring to drugs under development) by Derek Lowe, a Ph.D. chemist who has worked for various pharma companies. Its average posts are as substantial (if not more so) than my longer posts, and it has the sort of dry humor that I enjoy.

There was a lot to enjoy. As an academic social scientist, I liked “Run! Anthropologists!” about the (decade-old) practice of hiring anthropologists to study corporate culture. As a former journalist, I relished how he skewers bad gonzo journalism in a visit by a wanna-be Hunter Thompson to the Genentech plant in Vacaville (about 80 miles north of Silicon Valley). Gonzo journalism is about 30 years out of date: at least imitating Hemingway (rather than Thompson) has some lasting value.

But the article most relevant to this audience bears on a core theme of this blog, the incentives for innovation. As someone whose business card says “innovation and entrepreneurship,” I think there is no more fundamental issue than who and why does someone develop important new innovations?

In the posting, Dr. Lowe talks about European Union efforts to stimulate more drug innovation. He quotes from a speech by Günter Verheugen, a commission official looking at pharmaceutical industry policy, acknowledging (very obliquely) the conflicting goals of containing prices and providing incentives for innovation.

After he praises EC for considering providing more financial incentive for European drug discovery, Lowe wonders whether that’s the major effect, instead pointing to cultural differences:

Perhaps I think this way because I used to work for a European company, and now work in Cambridge (home of a zillion startups). But I've long thought that there's a different attitude to research and development in this country, a greater willingness to try odd ideas and to put money behind them. I'm not saying that you don't find innovation in Europe, because you certainly can. But I think that innovators have, on the average, an easier time getting funded and being taken seriously over here. It’s not a huge difference, but it's a steady one, and it's been compounding over time.

In classical political and economic theory, the two issues are inherently related — encouraging risk-taking either reflects (or is reflected in) economic policies. The problem with such neat theorizing are the counterfactuals.

In the past decade, California has become one of the most redistributionist states in the country, and yet remains probably the most risk-taking. Cambridge (Mass.) is located in an even more redistributionist state, one that more than 20 years ago was dubbed “Taxachusetts” and yet still has the best concentration of biomedical research universities in the country. So will entrepreneurs continue despite regulation and taxation? Is there a lag effect? Or are the universities so important that California will always beat out Nevada, Arizona (or Utah) in entrepreneurial formation?

So as with any policy question, advocates on each side can only guess what would happen with a policy change. Would more generous payment for European drugs encourage innovation, or would it require a sea change in work attitudes and risk taking to make something happen? And will it ever matter if the Wild East (of Chinese coastal regions) boasts both low wages and high rates of industry growth and entrepreneurial opportunity, or if India becomes the preferred Anglo-American outsourcing venue for more than just I.T.?

Technorati Tags: biotech, EU, IP policy, industrial policy

Embedded OS technonationalism

When I was beginning my doctoral studies in the mid-1990s,
the U.S. was still worrying about global competition between technological rivals like Japan and Europe. Among a certain crowd, everything was about economic competition within the “Triad,” Ken’ichi Omae’s term for the US, Japan and Europe. (Obviously before the rise of Korea’s per capita GDP and China’s trade surpluses).

A few American scholars even talked about “technonationalism,” normally in the context of Japanese industrial policy that was aimed at the US (and that we should emulate). (I was briefly part of this crowd, and published my first few papers in 1994-96 quoting some of this work, but never made any significant contributions.) This was both fueled by and fueled the Clinton Administration’s foreign policy doctrine that war was obsolete and economic competition was the wave of the future.

One of the biggest pre-Clinton proponents of such arguments was Laura Tyson, whose treatise Who’s Bashing Whom? earned her a ticket from Berkeley to chair President Clinton’s Council of Economics Advisors. After the White House gig, Tyson went back to Berkeley’s Haas School as dean and then moved on to become dean at London Business School before returning to Berkeley. (There’s no record of her covering any Sting songs or even Blondie songs after either the CEA or dean gigs). Meanwhile, the economist passed over for the White House job has become a bitter New York Times columnnist who no longer does serious research.

All of this being a long forward to an odd article from the SJ Mercury that I read Tuesday morning on the plane (out to Philadelphia) about Japanese industrial policy for automotive embedded operating systems. The Japanese government kicked in $8.4 million [check yen] to help fund a consortium of 10 Japanese firms to develop said OS. It includes the big three auto makers (Toyota, Nissan, Honda) and major electronics suppliers like Denso (which as Nippondenso began life as was a Toyota division) and Toshiba. The story of the Japan Automotive Software Platform (JasPar) was also written up Sunday in Yomiuri (one of the big Japanese dailies) and PC World.

The money is coming from the Ministry of Economy, Trade and Industry, née Ministry of International Trade and Industry, the famed tsûsanshô of Japan’s postwar economic miracle. Spending $8m on embedded car software seems like a far cry from MITI’s glory days.

In fact, Chalmers Johnson’s book on MITI and the Japanese Miracle was required reading for budding technonationalists (or for anyone else in comparitive political economy) in the early 1990s. Listening to Chal’s night school class in 1993-1994 (and the associated office hours) had more influence on my becoming an academic than anyone else.

The MITI of the 1950s and 1960s used trade restrictions to build up Japan’s infant industries. Mark Mason studied how MITi delayed the TI integrated circuit patent in Japan long enough for Japanese firms to develop their own semiconductor capabitilies without having to pay royalties. Marie Anchordoguy (the inspirtiaton for my earliest Japan research) did her Ph.D. thesis at Berkeley (before it became Haas) on how MITI built up Fujitsu and other Japanese mainframe makers, using liberal financing in the domestic market to enable Japanese firms to undercut the prices of the the superior IBM computers.

It’s not just the Japanese, since nowadays the French view of industrial policy (dirigisme) has become the norm at the EU: after one success in a perfect storm of market timing and technology opportunity (GSM), the EC has spent almost two decades in a futile attempt to recreate that storm. (Tuesday’s report implied the Europeans also have their own automobile software consortium but I couldn’t find it, only their trade association.) Presumably the Koreans and Chinese will follow with their own national consortia, and then the US Big 2½ automakers will scream to Washington that they need their own subsidies.

But I can’t figure out what the deal is with embedded operating systems — it seems such small potatoes. The Mercury newspaper article parroted the Japanese press release “A standardized OS across the industry could have some big economic benefits, making it easier to bring new automotive technology into multiple models and bring down costs.”

Standardization has such benefits, but that doesn’t mean the Japanese carmakers have to go build their own. They could standardize tomorrow on an off-the-shelf solution from Wind River or MontaVista and get the same benefits — unless of course “bring down costs” is a code phrase for “stop paying foreign royalties.”

Don’t want royalties? Embedded Linux (or BSD if you dislike compusory sharing) is already available off the shelf for any firm. Why is the government involved? Is it that METI has to put up seed money to get Japanese firms to share and work together?

As industrial policy goes, it’s much less interesting than something major like TD-SCDMA. I suppose government industrial policy for an embedded OS is like the old line about the talking dog — what’s interesting is that he talks, not what he says.

Instead of responding with more technonationalism, perhaps MontaVista (or even Wind River) could put together an international open source coalition based on open source technologies. Given the popularity of open source in Scandanavia, they might able to peel off Saab and Volvo, which (this week at least) remain American-owned. If they did, the Chinese firms could choose to leverage the GPL technology while free-riding off the toothless enforcement of compulsory sharing in China.

Technorati Tags: compulsory sharing, consortia, embedded Linux, EU, industrial policy, Japan

AMD celebrates gift from Brussels

Catching up during a brief vacation, after a busy week of getting ready for the new semester.

Tuesday’s papers had a full page ad from AMD celebrating last Friday’s EC action against Intel. I saw the ad in the Wall Street Journal and the San José Mercury News, but I’d bet it also ran in the NYT, USA Today, and perhaps the Washington Post.

With a letter by CEO Hector Ruiz, the AMD ad trumpets

The European Commission reveals the truth about Intel.

Obviously AMD is grateful for a powerful ally in its bitter rivalry with Intel. AMD has been counting for a long time on antitrust efforts to help its fight, with (among other things) funding of a PBS documentary praising the value of antitrust enforcement.

According to the AMD summary of the European Commission allegations, Intel:

• Maintained its monopoly by paying substantial rebates to PC manufacturers on the condition that they do little or no business with AMD,
• Paid manufacturers to delay or cancel the launch of AMD-based products, and,
• Provided below-cost microprocessors for servers to prevent rival solutions from being chosen by strategic customers.

As with any lobbying or other public policy-oriented message by an interest group, AMD’s characterizations could be charitably construed as a selective presentation of the truth.

It’s not surprising that Intel’s woes sound like the Microsoft case — ongoing investigations and occasional allegations of monopolistic practices. In both cases, the European threat of action seems more severe than in the US. And of course, both tie to the Wintel duopoly.

However, as measured by market share Microsoft’s grip on customers over the past decade has been tighter than Intel’s. If anything, Intel’s problem is that it has a richer and more determined rival than Microsoft has had since AOL Netscape threw in the towel. Meanwhile, for the past decade, Apple has pulled its regulatory but not marketplace punches in a textbook case of co-opetition.

It’s also not surprising that those that defend Microsoft also defend Intel, including the very same WSJ that gladly pocketed AMD’s advertising dollars. On the same page that blasted EC attacks on Microsoft in March, an unsigned editorial entitled “Intel in Euro-Land” proclaimed:

Computer chips are getting faster and smaller, and prices are dropping amid fierce competition. So naturally the European Commission thinks this is the ideal time to lodge another antitrust suit against another American technology titan.

There are several problems with the logic of this sentence, but finding them is left to the readers as an exercise.

Still, there are two problems that the WSJ editorial raises that are not so easily dismissed away.

First, the potential sanctions of 10% of Intel’s global revenues would be unconstitutional in a country that had a rule of law. Intel is not headquartered in the EU, and so the EU does not (or should not) have jurisdiction over anything but its operations there. (What would happen if every country in the world decided to fine Intel 10% of global revenues? It would be a great way to print money until Intel went broke.) Sure, an antitrust decision by the EC not to allow a merger in the EU is equivalent to veto power for a global company, but the EC should have no more ability to fine Intel for non-EU operations than it can tax them.

Secondly, while the WSJ is predictably glib in dismissing sanctions over a fierce business rivalry, seriously engaging its arguments does raise a fundamental question: where does normal competition end and anti-competitive behavior begin? The WSJ seems to be in denial that predatory competition exists, but certainly there are historical existence proofs of firms trying to drive out competitors to raise their pricing power. If, as alleged, Intel sold chips below its costs, that is the standard used by the (US) International Trade Commission for sanctioning such competition.

On the other hand, firms are expected to compete for customer loyalty and (legally) maximize shareholder returns. (New York to Paris: we call it capitalism.) Two once-great American innovators — IBM and AT&T — atrophied during the 1960s and 1970s in the face of US government antitrust actions that caused firms to internalize such limits and, in effect, “pull their punches.” Eventually IBM came back, but it looks like AT&T never will. The US (and world) economy would be the poorer if Intel did not continue to invest heavily in fulfilling the 1965 prophecy of Moore’s Law.

Technorati Tags: antitrust, EU, Intel