Cuomo vs. Intel and Son vs. Father

Sound naive? Hey, give me a break: I was a teenager and an idealist. And I was living under a Republican president who had been in office since the very moment I had become politically aware. I was proud to be from a state with a leader who thought differently and didn't apologize for it, and I liked the idea that he might run for President himself.

But it was Bill Clinton who won the Whitehouse and he named Andrew Cuomo as his secretary of Housing and Urban Development. I was hopeful for the new Cuomo, who would be fighting for urban concerns in the Federal government. But I soon became disillusioned. I really felt Andrew was trying to fill his dad's shoes, and I think that very motivation thwarted his progress.

Now the younger Mr. Cuomo is my state Attorney General and he's trying to fill not one set of shoes, but two. In addition to achieving the home-state, Cuomo-recognition that is uniquely his, Andrew Cuomo is also trying to live up to the image of Elliot Spitzer's Attorney General persona and record. Despite Spitzer's infamous, scandal-ridden gubernatorial stint, as AG he made a name for himself as the man who took on Wall Street and won. And despite Spitzer's resignation in disgrace as Governor, he still defined a standard as AG that, clearly, Cuomo believes his own record must meet.

And I fear this explains much of Cuomo's motivation in suing Intel for anti-trust violations. Maybe I'm being naive again, but I find no other explanation possible. While it's tempting to believe that Intel strong-armed large OEMs, like Dell, HP and IBM, into using Intel CPUs exclusively, the accusation seems a bit wild to me. Are all three of those companies truly bully-able? And, even if you answer yes, would you agree with Cuomo that Intel stifled innovation in the CPU market and caused customers to pay more for computers?

By my own observation, PCs have continued to fall in price. Compare today's entry level machines with those of a few years ago. Or compare mid-range or high-end units. Today's machines are more powerful and cheaper than their predecessors. While Intel's Itanium chips (whose architecture actually originated at HP) were less than impressive compared to AMD's offerings at the time, that competition from forced Intel to come up with rock-solid, 64-bit Core 2 chips that were consistent with its x86 architecture, and to introduce an innovative, low-end product like the Atom line, which powers most netbooks. The Atom is so cheap that it cannibalizes sales of conventional CPUs. And it yields less profit. Would a monopolist introduce such a product?

Another issue Cuomo raises is that of rebates paid by Intel to OEMs in exchange for exclusivity or near-exclusivity. Cuomo likens these rebates to bribes and it all does sound kind of sinister at first blush. But, in many industries, fees paid for exclusivity are not uncommon and would thus appear legal, or at least openly accepted by regulators. It would seem then that the best way to prevent the practice would be through broadly applied regulatory processes, or influencing industry-wide agreement. Meanwhile, accusing a single company of creating harm through its use of rebates, and asking it to abstain from the practice, while implicitly allowing competitors to use it, seems unfair, unwise and by definition imposes a double-standard. Given the cover provided by Asian and European regulators who have been pursuing similar action against Intel, Cuomo's entire motivation seems political. Such opportunism is not exclusive to one party: Cuomo's lawsuit mirrors similar politically-motivated actions taken against Microsoft, by then Republican NY State AG Dennis Vacco, in the late 1990s.

The fact is that government regulation of industries can have at least a short-term negative impact on efficiency and usually a long-term negative impact on innovation. Government oversight slows industries down and can create the very dysfunction Cuomo purports to be fighting.

That doesn't mean all oversight is wrong. We know from the financial crisis that such oversight was lacking on Wall Street and we'd likely all be better off had it been more vigilant. But it does mean accusations of monopolistic behavior, and any application of penalties, need to be used sparingly, prudently and not politically. It's hard to fix anything by disrupting it, and it's absurd to try doing so with something that's not really broken.

Macho Liberal is one thing. Aggressive bullying is something quite different.

Posted by Andrew J. Brust on 11/06/2009