“The Independent Institute” was founded in 1985 and has become a well-known and respected participant in the discussion of political, social, business and foreign policy issues. In addition to producing widely distributed studies, the Institute sponsors conferences, forums, and media events that bring together scholars and policy experts to debate issues.

Considering the laudatory comments offered by the many illustrious personages listed on its Web site (www.independent.org), the Institute is clearly a significant force in the nation’s affairs.

As its name implies, the Institute’s credibility is heavily based on the perception it promotes of itself as objective and independent of any bias in its research. Its Web site states:

The mission of The Independent Institute is to transcend the all-too-common politicization and superficiality of public policy research and debate, redefine the debate over public issues, and foster new and effective directions for government reform.

Today, the influence of partisan interests is so pervasive that public policy debate has become too politicized and is largely confined to a narrow reconsideration of existing policies. In order to fully understand the nature of public issues and possible solutions, the Institute’s program adheres to the highest standards of independent scholarly inquiry. The Institute’s program is pursued to rigorous standards without regard to any political or social biases.

[...]

Through uncommon independence, depth, and clarity, The Independent Institute pushes at the frontiers of our knowledge of public policy issues and fosters new and effective directions for government reform.

Microsoft

One area of public policy concern is the important technology sector; the dominant position of a single software company, Microsoft; and the many credible allegations that have been made of illegal Microsoft practices -- practices that would be harmful to the productivity and efficiency of software developers, and computer users generally, throughout the U.S. and the rest of the world. In May, 1998, the U.S. Department of Justice and 20 state attorneys general sued Microsoft, charging that it illegally thwarted competition to protect and extend its monopoly on software. The suit is still pending (as of September, 1999).

Throughout the trial, a parallel public relations war has been waged involving not only the two parties to the suit but also a dozen or more institutes and lobbying organizations. The Institute was among them as an energetic proponent of Microsoft’s cause, producing several papers and a widely cited book, Winners, Losers and Microsoft: Competition and Antitrust in High Technology. The book attributes Microsoft’s software dominance to the supposed superiority of its products.

The Institute’s avowed impartiality gained it influence even within the courtroom, as its book was cited by Microsoft’s expert economic witness, Richard Schmalensee, an economist at the Massachusetts Institute of Technology, in his direct testimony.

On June 2, 1999, the day the trial resumed for its final month of testimony after a 3-month break, the Institute bought full-page ads in The New York Times and The Washington Post, and organized a heavily promoted news conference in Washington, to publicize an open letter to the President of the United States. The letter, signed by 240 economists, warned that the activities of the “antitrust authorities” were harmful to the nation’s interests. The publicity generated was such that David Boies, the government’s lead lawyer in the antitrust suit, referred to the letter in court on June 3.

Excerpts from the Letter

Antitrust is supposed to be about protecting consumers against higher prices and other consequences of monopoly power.... The current spate of heightened antitrust activism seems to suggest that anti-competitive business practices abound. Headline-grabbing cases against Microsoft, Intel, Cisco Systems, Visa and MasterCard, along with a flurry of merger investigations now under way, would appear to demonstrate the need for a vigorously enforced antitrust policy that will create checks and balances to eliminate consumer harm.

However, consumers did not ask for these antitrust actions -- rival business firms did.... High technology markets are among the most dynamic and competitive in the world.... Increasingly, however, some firms have sought to handicap their rivals’ races by turning to government for protection.

Where antitrust authorities respond to these protectionist demands, the workings of markets are short-circuited. Antitrust protectionism means that market decisions about how to compete for consumers’ favor are displaced by bureaucratic and political decisions. More of the energies of firms are directed to politics, less to production and innovation. Successful innovators are penalized, scale economies are lost, and competition is thwarted, not enhanced. Instead of preventing prices from rising, antitrust protectionism keeps prices from falling.

... many of the proposed interventions will weaken successful U.S. firms and impede their competitiveness abroad.... We urge antitrust authorities to abandon antitrust protectionism and refrain from such speculative enterprises when actual consumer harm cannot be shown.

Independent Institute President and Founder David J. Theroux stated at the time of the letter’s release: “Some of our country’s top economists, professors and authors find current antitrust activities to widely miss the mark for U.S. consumers. Instead of working to protect consumers from harm, these policies can only slow competition, raise prices, impede technological innovation and waste taxpayer dollars.”

Funding

The Institute’s Web site states: “The Independent Institute receives no government funding. Instead, it draws its support from a diverse range of foundations, businesses and individuals, and the sale of its publications and other services.”

The New York Times reports that Theroux has insisted that Microsoft is “just one of 2,000 members,” paying a fee of about $10,000 a year -- an inconsequential part of the organization’s overall budget. In an interview with the Times, Theroux also stated that the full-page ads promoting the Institute’s letter to President Clinton “were paid for out of our general funds.”

In fact, internal Institute documents provided anonymously to the Times show that Microsoft secretly contributed $203,217 during the Institute’s fiscal year ending June 30, 1999, the largest contribution from any outside individual or organization, and about 20 percent of the total outside contributions for the period. (Theroux’s own contribution of $304,725 is not included in the external contributions figure.)

Microsoft paid $153,868.67 to fully cover the costs of the ads publicizing the letter to President Clinton, as well as airline tickets for Theroux and a colleague to travel from San Francisco to Washington for the news conference. The economists who signed the letter were not informed that the ads would be paid for by Microsoft, and at least one contacted by the Times has said he would not have signed if he had known.

The documents provided to the Times include a note from Theroux to John Kelly, a policy counsel for Microsoft, saying “the airlines were heavily booked” and “we had to fly first class to D.C. and business class on the return,” in connection with an accompanying air travel expense of $5,966.

Theroux acknowledged to the Times that Microsoft had paid for the ads but said it made no difference. “The academic process we use is independent of sources of revenue.” Microsoft public relations manager Greg Shaw responded to a Times inquiry by saying: “We thought this was an important, substantive letter, and we were interested in contributing to making it visible.”

The above is based largely on Unbiased’ Ads for Microsoft Came at a Price, a September 18, 1999 article in The New York Times.

See also:

• Theroux’s response to the Times article, and my comments.

• Flack Journalist’s Defense Confirms Flackhood, another attempt to defend the Institute.

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