By any measure, Microsoft is capitalism's greatest success. In July, the company announced plans to distribute $75 billion in dividends to shareholders over the next four years. One executive, in a morale-boosting internal e-mail, recently called Windows the most successful product in history. Even Googling "corporation" returns Microsoft at the top of the search results. But what has been best for Microsoft's shareholders has not always been best for Washington taxpayers and our community.
ABOUT THE AUTHOR
Former Microsoft employee Jeff Reifman builds Internet tools for nonprofit organizations as director of technology at Groundspring.org. He also writes for the progressive political blog IDEAlog.us.
Every time Microsoft hires someone in Washington, it creates 3.5 new jobs here. According to the company, Microsoft created an estimated 117,620 new jobs in Washington between 1990 and 2001. But while Microsoft promotes the positive impact of success, all this growth has placed a heavy burden on our schools, roads, and overall livability.
Recently, Forbes ranked Seattle as the most overpriced city in the country. Our school class sizes are the fourth largest in the nation. Washington's percentage of residents enrolled in college ranks 46th out of 50 states. Seattle teacher salaries rank 97th out of 100 major cities. Our traffic is the 17th worst in the country. And let's not forget more than 167,000 Washington children without health care and the growing ranks of homeless citizens staking out highway off-ramps in search of handouts.
Most of us accept on faith that what's good for business is good for our state. Our Legislature spends much of its time trying to make Washington a competitive choice for businesses. But it's about time we started asking hard questions about where our competitiveness is taking us and who is pushing the agenda. How is it that with one of the richest corporations in the world in our backyard, our state has become less livable?
Tax exemptions are the mantra of Washington's Legislature. As Seattle Weekly reported earlier (see "$64 Billion Falls Through the Tax Cracks," Feb. 18), the state has amassed 503 business tax breaks valued at $64 billion per biennium budget. Cheered on by corporate lobbyists, including Microsoft's, Gov. Gary Locke and lawmakers implemented $20 billion of those exemptions in just the past four years. Last year, the state granted an additional $3.2 billion in breaks over the next 20 years to entice Boeing to locate the 7E7 assembly plant in Everett instead of some other state. Meanwhile, Forbes reports, Seattle ranks in the bottom fifth of major cities in job growth, income growth, cost of living, and housing affordability. And the state is predicting a $3 billion deficit by the end of the decade. As Microsoft's shareholders begin to reap their $75 billion dividend, they leave a growing infrastructure deficit in Washington.
That's the result of good times. Until now, Microsoft has enjoyed tremendous financial success. But it's entering a new era of software competition. It won't be able to rely on the dominance of the Windows operating system to be profitable. In fact, Microsoft's dependence on revenue from Windows and its other flagship product, the Office suite of applications, makes it vulnerable to new and increasingly popular alternatives to those now-ubiquitous programs. The free market is responding to the monopoly in Redmond. It's going to get tough. Meantime, last week the company said it plans to become far more active in Washington politics than in the past, citing the business climate, education funding, and transportation as areas where the state can do better. These aren't improvements with which Microsoft wishes to help. These are areas of concern the company wants remedied at taxpayer expense. If you want to anticipate how Microsoft might approach these and other local issues as the software business becomes more challenging, you need to study the company's track record with competitors and others during its heyday. It might also be good to know what Microsoft is already doing to gain advantage in its home state.
Let's start with how Microsoft has behaved when times are flush. Last year, according to the Seattle Post-Intelligencer, Chief Executive Officer Steve Ballmer told an audience of Eastern Washington University alumni: "Taxpayers in the state have to come to grips with the notion that we need to invest in higher education." It was a warning shot of sorts from the most influential CEO in the state. Ballmer had to know, however, that Microsoft wouldn't be footing much of the bill if taxpayers increased education funding. Seven years ago, Microsoft opened a small office in Reno, Nev., to collect the money it got from PC manufacturers that installed Windows and Office on the computers they sold. In the years since, Microsoft has sheltered more than $60 billion in royalty revenue in Nevada, a state with no corporate income tax, costing Washington an estimated $327 million in unrealized tax revenue.
Ballmer's remark wasn't the only time Microsoft has been hypocritical about taxes and education. In 1999, Senior Vice President and General Counsel Brad Smith raised the subject of lost state tax revenue in a press release promoting stricter state antipiracy laws. "To put in perspective the impact of software piracy on our taxes alone, consider that we've lost 41 times [$41 million] the amount already donated to the John Stanford Book Fund—and could have purchased well over a million new books for our schools," Smith said.
What Smith didn't say is that Microsoft's domestic "off-shoring" of royalty revenue—making the transactions in Nevada instead of Washington—cost the state $75 million in the first two years of the company doing business in Reno. Since the move, Microsoft has annually saved an average of $40.8 million in Washington taxes.
Despite a commitment on its Web site to communicate openly about business practices, Microsoft does not disclose how much revenue it diverts to Nevada. I determined Microsoft's estimated tax savings by multiplying the software royalty tax rate of 0.484 percent by the company's publicly reported worldwide royalty revenue. I checked this against aggregate figures released by the state. (By law, the state cannot disclose the tax records of individual corporations.)
For example, state Department of Revenue spokesperson Mike Gowrylow says Washington collected $16.1 million in taxes on software royalties of $3.3 billion for all companies over the past four years. Yet Microsoft reported that it earned more than $34 billion in revenue from PC and device manufacturers during the same period. Had Microsoft paid taxes on this revenue in Washington, it should have generated $164.5 million for the state—far more than the $16.1 million collected on software sales by all companies. There is no correlation between Microsoft's royalty revenue and Washington's tax collection. Microsoft isn't paying taxes on a significant portion of the revenue it generates from the products it makes here.
As Microsoft's royalty revenues have grown, I estimate that the company has saved more than $105 million by eluding Washington taxes over the past two years. Says General Counsel Smith, the senior executive Microsoft made available to answer Seattle Weekly's questions: "There have been times when people in state government have mentioned to us the issue of whether we might move that back to the state of Washington. The reality is that in the scheme of things, the impact is not very significant—either for the company or for the state government or the state economy. . . . The law is actually structured in such a way so as to permit a company to do precisely what we are doing."
Democratic state Rep. Sharon Tomiko-Santos of Seattle, who sits on the House Finance Committee, disagrees. "One hundred million dollars more for schools could go a long way toward improving teacher compensation, reducing class size, or directing some targeted dollars to those struggling schools and students who might be able to use additional resources," she says. "It would seem to me that we could add a significant number of slots on the basic health care plan if we had $100 million. A hundred million biennially is a significant sum of money."
When I referred to the Nevada operation as a tax-minimization strategy, Microsoft's Smith responded, "I would take issue with the word minimize, because there are many other steps that a company could take to reduce even further payment of taxes in Washington state. While there might be one or two or three things that we do, there are many other things that we've never even contemplated."
This one thing seems to be plenty to contemplate: Microsoft has more than 400 employees in Reno and 40 registered Nevada corporations. For comparison, Boeing has seven registered corporations in Nevada, Starbucks has three, and Enron peaked at 20.
So Microsoft is doing a lot, if not everything it can, to reduce its own tax burden. Fair enough. But echoing Ballmer's comment of 2003, the company is telling voters that they need to pay more. In June, Chairman and co-founder Bill Gates donated $150,000 of his own money to Citizens for the Education Trust Fund to promote Initiative 884, which is on the ballot in November. I-884 would increase the state sales tax by 1 percent to raise about $1 billion annually for education. Microsoft followed Gates with a $200,000 donation of its own. Education certainly could use more funding. But Seattle's sales tax rate would rise to an astounding 9.875 percent with passage of I-884. According to Citizens for Tax Justice, a nonpartisan research group, Washington already has the most regressive tax code in the nation—meaning it unfairly taxes the people who can least afford it. As long as Microsoft continues to use Nevada to minimize its local tax bill, it's disingenuous for Gates and the company to promote an initiative that would require lower-income people to disproportionately shoulder public education costs. Perhaps Gates should direct Microsoft, too, to pay its full share of taxes on revenue from products it builds in the state.
Influence in Olympia
While Microsoft can afford to set up operations in Nevada to reduce its tax bill, most small businesses cannot. Nor can they afford the extensive lobbying that Microsoft uses to push its agenda in the Legislature. Over the past five years, Microsoft has spent more than $1.5 million on state lobbying. And there's a revolving door of sorts between Olympia and Redmond. Microsoft recently hired the governor's former top aide, DeLee Shoemaker; Locke's brother-in-law, Judd Lee; and his information services director, Stuart McKee.
The company is also an active member of the Washington Competitiveness Council, founded by Locke to engage the business community in advancing a competitiveness agenda. The first recommendations, in 2001, were to preserve existing tax exemptions and incentives. The governor and the Legislature implemented more than half of the council's first 99 recommendations. According to the council's Web site, "This is a significant achievement given the considerable cost associated with many of these proposals and the current budget crisis." In other words, during a time of great sacrifice, corporations like Microsoft benefited at the expense of less influential taxpayers. But Microsoft says there is more to do. Last week, Smith told the Association of Washington Business: "There's a need to streamline rules, to quicken decision making, and to bring cost-benefit analysis into the regulatory decisions that our state government makes."
OK, but let's make sure the cost-benefit analysis includes the needs of Washington citizens, not just wealthy corporations. Sometimes it's hard to tell what benefits whom.
For example, over the past decade, Microsoft has likely saved an additional $172 million from a state incentive program called the Research and Development Tax Credit. While the state cannot disclose how much Microsoft saved, the company has applied for more than $152 million in sales tax exemptions on $1.85 billion in building construction costs and is eligible for another $20 million in tax credits. Between January 2003 and February 2004, Microsoft spent $666,190 lobbying the Legislature, in part to push for the program's successful renewal for another 10 years. Unfortunately, few legislators question why our state should continue to subsidize the growth of a company able to distribute $75 billion to shareholders while we're struggling with the problems its presence creates.
Earlier this year, as budget cuts threatened to increase the number of children in Washington without health care, Microsoft's lobbying to renew the Research and Development Tax Credit provoked compelling testimony by outraged social service groups. Said Ellie Menzies of the Service Employees International Union: "If this bill truly reflects the priorities and values of the state of Washington, then we'd have to conclude that our state's mission is to enrich the wealthy, impoverish the poor, attack the vulnerable, and deny health care and education to those most in need."
Again, the company responds, the tax credit is there for a reason. Says Smith: "If you look at the competitiveness of Washington state and you compare it to California, Massachusetts, Texas, or North Carolina, Washington state lags behind in terms of the competitive opportunities here as well as the educational infrastructure, and I appreciate that there can sometimes be a tension between something like a tax credit and building up the infrastructure." Former state Sen. Dino Rossi of Issaquah, a Republican who is running for governor, agrees. In a 2003 Seattle Post-Intelligencer guest editorial, he wrote, "Without tax exemptions to help keep us competitive, we'd see fewer businesses staying in Washington, fewer people at work, and a devastating effect on our revenue base."
Yet a Washington Department of Revenue study of the impact of the R&D tax credit found no consequent growth in the state's share of high-tech jobs, and few companies reported relocating to Washington for the incentives. Separately, the University of Washington's Evans School of Public Affairs reported that income for the lowest 20 percent of wage earners actually declined by 9.4 percent during the booming 1990s, while their working hours and reliance on multiple jobs increased.
The Economic Policy Institute, a Washington, D.C., think tank that focuses on the working conditions of low- and middle-income workers, says that legislators too often embrace lowering taxes and creating tax incentives as their chief economic development tools. In a recently released study called Rethinking Growth Strategies, the institute "finds little grounds to support tax cuts and incentives—especially when they occur at the expense of public investment—as the best means to expand employment and spur growth. . . . All state and local taxes combined make up but a small share of business costs and reduce profits only to a limited extent. Indeed, the costs of taxes pale in comparison to many other location-specific costs, and numerous location factors—including qualified workers, proximity to customers, and quality public services—can be more critical than taxes." In fact, the report says, "Tax increases used to enhance public services can be the best way to spur the economy. By stimulating growth, generating jobs, and providing direct benefits to residents, improvements in state and local public services can be one of the most effective strategies to advance the quality of life of citizens."
If the next Microsoft emerged in Washington today, we'd be overwhelmed by the growth. Democratic state Rep. Jim McIntire of Seattle, who chairs the House Finance Committee, acknowledges that our tax policy hasn't captured the income and wealth generation of Microsoft. We've missed that opportunity.
Washington's Office of Financial Management forecasts that state revenue is expanding at only 85 percent of the rate of the overall economy. "This 'structural deficit,' or the gap between state revenues and demand for state expenditures, will persist after the economy rebounds from the recession," says Marilyn Watkins of the Economic Opportunity Institute, a progressive think tank based in Seattle. "The gap will grow each year, becoming an ever greater problem." Bill Gates Sr., father of the Microsoft chairman, headed a committee to study the problems with Washington's tax system and told the Seattle Post-Intelligencer in 2002: "I think we are in crisis mode."
"Is anything going up in government except tax breaks?" asks former Bellevue City Council member Maria Cain. "The people engaged in profit making go for what they can get. It's the elected officials whose responsibility it is to be the ultimate arbiter in deciding who gets what and how much. We have allowed the merging and blending of public and private interests," she says.
It's time we dispel the myth that tax breaks for businesses improve the health of our community or the behavior of corporations. Certainly, we shouldn't continue to subsidize a company wealthy enough to distribute $75 billion in profits to shareholders.
But if Microsoft has its way, we will. In his speech last week to the Association of Washington Business, Smith said the company plans a greater role in state public affairs. He said we don't have "a world-leading economy in Washington state today." The state lags other states and other countries in business incentives. To compete, "we are going to need to address some important priorities," Smith said. Presumably, that means Microsoft's priorities, not those of the average taxpayer.
At its best, Microsoft allows people with good hearts to do good. Though not directly linked to the company, the Bill and Melinda Gates Foundation has given more than $1 billion to Pacific Northwest charities. Gates plans to donate the $3 billion he will receive from the $75 billion stock dividend to the foundation, as well. Microsoft employees gave nonprofits more than $16 million last year, which the company generously matched—up to $12,000 per employee per year. The company also donated software with a retail value of $224 million to nonprofit organizations last year, although the actual cost to the company was much less.
Microsoft purchases more than $1 billion in local goods and services every year. According to the company, it accounted for one-sixth of the total gain in state employment between 1990 and 2001. Today it employs 28,007 people in the state. Combined, employees take home more than $2.4 billion in income, much of which is spent in the community. And it has created more than 10,000 millionaires from stock options, including me. (I worked for Microsoft from 1991 to 1999 as a technology manager.) Distribution of wealth to employees on this scale is unprecedented. So yes, there is an upside to having Microsoft here.
Rep. McIntire says, "If Microsoft were to announce today that they were looking for another place to create a home, most of the rest of the world would fall all over themselves trying to get them." Many legislators remember when Boeing laid off 19,000 people in the 1980s, triggering budget shortfalls. They're afraid that if they don't do Microsoft's bidding, the company might leave. They're not wrong to be concerned. Says McIntire, who has a doctorate in economics: "The investors in these companies have become less and less locally concentrated and have become more and more global. And so the global investors have less concern about looking out for the well being of any particular local economy." Due to a universal business concept called fiduciary duty, Microsoft executives must do what's in the best interest of shareholders. The surrounding community's needs are subservient.
"Corporations are not democratic institutions—their directors and managers owe no accountability to anyone but the shareholders that employ them," writes author Joel Bakan in the recent book The Corporation. This rule is reflected in the laws of Washington, where Microsoft is incorporated, and other states. Ballmer does everything he can to maximize Microsoft's profits because it is his legal responsibility. Lately, that's meant placing shareholders above employees.
In May, Microsoft announced $80 million in cuts to employee benefits. When employees asked why the company couldn't dip into huge cash reserves instead, Ballmer, in a July memo, brushed them off: "The cash is shareholders' money, so we need to either invest in new opportunities or return it to them." Historically, Microsoft's generous benefits and employee stock options have been pretty good for shareholders, too. The company might one day regret Ballmer's pound-foolish approach to morale. But according to Ballmer, Microsoft needed to be "prudent now so we avoid severe measures later." Later in July, Ballmer announced plans for the $75 billion stock dividend for shareholders, the payout of which will be worth nearly 1,000 times as much as the employee benefits that were to be cut. So much for prudence.
In another blow to employees and the Seattle economy, Microsoft is investing in a new technology center in Hyderabad, India. As hiring in metropolitan Puget Sound slows, the company is preparing to ramp up in India, where it can save as much as 70 percent on labor costs. Yet, according to Marcus Courtney, organizer of WashTech, a union for technology workers, there's an oversupply of labor locally. "Microsoft made those profits off our universities and our infrastructure. They have an obligation to us," he says.
Do they? Not under the concept of fiduciary duty. As companies grow and their shareholders become far-flung, there's less reason for them to call one place home. If most of Microsoft's shareholders live elsewhere, why should the company favor one community—ours—over another, if that isn't in the best interest of the owners?
Linux: The Next Airbus
Many people forget that the U.S. and the European Union have convicted Microsoft of antitrust violations. According to University of Maryland law professor Robert Lande, more than 137 antitrust cases have been filed against Microsoft in the U.S. alone. It's a reminder that in search of profits, Microsoft routinely walks the line between ethical, aggressive business practices and unethical, sometimes illegal behavior. And just because the company is putting most antitrust troubles behind it doesn't necessarily mean it has learned to play nice. There's still plenty of loathing of Microsoft out there. The ill will is motivating emerging competitors. It's not clear Redmond will always be the dominant force in computing, and that has implications for hometown Seattle.
Many of Microsoft's competitors are finding ways to benefit from the success of so-called open-source software. Open source is software no one person or company owns outright. It is essentially free, developed cooperatively over the Internet by programmers who openly share their improvements. They make money by helping businesses use the software. So instead of profiting by making an operating system or core applications, many businesses today, including IBM, Novell, and HP, profit by helping companies use open-source software they have enhanced. The Linux operating system is the most noteworthy example of open source.
Microsoft has not embraced this emerging business model and has, in fact, waged an aggressive disinformation campaign against it. In a recent visit to Asia, Gates said, "If you don't want to create jobs or intellectual property, then there is a tendency to develop open source," according to Asia Computer Weekly. Gates knows that competitors are taking in billions of dollars in open-source-related revenue.
Meanwhile, over the past three years, Microsoft has funded nearly a dozen think tanks that have released papers attacking open-source software in hopes of slowing its success. The company seems to have borrowed a page from big tobacco in these attacks. According to Tim Lambert of LinuxWorld.com, some of the same think tanks received funding from Philip Morris to wage attacks on the credibility of the Food and Drug Administration in 1995, to prevent the regulation of nicotine in cigarettes.
In July, Wired published an investigation of allegations that Microsoft might be indirectly backing legal attacks on open-source software through SCO, a company that claims that Linux contains program code it owns. Nearly bankrupt, SCO licensed some intellectual property to Microsoft for $13 million just as SCO was suing IBM and battling other companies in court over use of Linux code. Open-source enthusiasts believe Microsoft would like nothing better than to see SCO succeed in efforts to undermine the free distribution of Linux.
According to Mitch Kapor, designer of the pioneering Lotus 1-2-3 spreadsheet application and co-founder of the Electronic Frontier Foundation, a nonprofit that advocates for civil liberties in cyberspace, Microsoft's continued attacks on the open-source community have turned a generation of technologists against it. "They have an enormous deferred liability, which is not on their financial balance sheet but on their social balance sheet. They have incurred the undying enmity of a very large number of people," says Kapor. "Right now, people don't see alternatives, or they don't know exactly what to do, but if that ever changes, Microsoft will be shown no sympathy. None. Zero."
Nowhere is the potential clearer for open source to inflict damage on Microsoft than in Asia. There, Linux sells three times faster than in the U.S. China, Japan, and South Korea have agreed to collaborate on further development of open-source software as an alternative to Windows. And recently, pressure from Linux competition forced Microsoft to price a slimmed-down version of Windows XP significantly lower for Thailand, Malaysia, and Indonesia. While just a few years ago Microsoft could bully PC manufacturers into shipping only Windows, Ballmer recently had to plead that Asian governments not rule out Windows from purchasing decisions. "I think it is in the best interest of governments everywhere in the world to be very open to all kinds of software, to be open to commercial software," he said, according to The Korea Times.
Open-source products are also building momentum in the U.S. Linux desktops now outnumber Apple Macintosh computers, and the market share might double again by 2006. Consumers can purchase a $278 Linux PC from Wal-Mart, and recently HP released a Linux laptop in the U.S., to rave reviews.
As the competitive pressure on Microsoft rises, you can expect to hear the company increase demands on the Legislature, just as Boeing did when Airbus caught up and then passed it in commercial-airplane market share. Microsoft General Counsel Smith told me, "The reality today is that Washington state is not doing nearly as much as our principal technology competitors if one looks at the other states in the country. We need to do more, not less."
If shareholders haven't noticed the looming threat of open-source software, surely they have noticed that Microsoft's stock price has been flat the past four years. That reality has to do with a lack of execution and accountability in the company, not a lack of state tax exemptions or the cost of Microsoft's employee benefits. In light of the $75 billion dividend distribution, it might appear that Microsoft executives have executed brilliantly. Yet Microsoft's technological ubiquity has peaked. Windows and Office continue to generate huge revenues, but the company has reached a pinnacle of financial success that belies a slow decline of technological advantage. For example, the technology news site News.com reports that Microsoft's Internet Explorer Web browser has, since January, lost 9 percent of market share to open-source browsers Mozilla and Firefox.
But nothing will be a greater blow to Microsoft's balance sheets than failure to deliver a major upgrade to Windows XP, its flagship product, in time to matter. One Microsoft employee recently lamented to me, "It will be 2007 before we release the equivalent of Tiger," Apple's operating system upgrade, expected in early 2005.
While IBM and other Microsoft competitors reorient their businesses to open source and provide consulting services to customers using a variety of software, Microsoft has largely chosen not to, plunging ahead with the next version of its proprietary, and expensive, operating system.
Whether it is tax avoidance, aggressive lobbying, cuts to employee benefits, questionable attacks on competitors, or poor product execution, Microsoft is making disappointing decisions, often creating bad will in the process. As much as it has argued for freedom to innovate without government interference, Microsoft's business practices couldn't be more old school. That's going to be bad for Washington, and at some point, that might be bad for shareholders, too.
A Middle Path
According to Ira Jackson, co-author of a new book, Profits With Principles, "The majority of a company's worth is in its brand." BusinessWeek recently ranked Microsoft the second most valuable corporate brand at $65.1 billion. As the nature of Microsoft's business practices become better known, it risks losing goodwill, which might be its most important asset.
Meanwhile, some companies are discovering that they benefit from the goodwill of communities, employees, and even competitors. A new business model is emerging that values not just shareholders but stakeholders—anyone affected by a company's activity.
In Profits With Principles, Jackson profiles more than 60 such companies, including Merck, Alcoa, and Dupont, that see the wisdom of, simply put, being a good citizen. Based on past and present behavior, Microsoft doesn't get this.
While many of the companies in Jackson's book have been guilty of offenses as great as or greater than those of Microsoft, they are at least beginning to take steps to align strategies with stakeholder interests. Merck chose to develop a cure for river blindness and has distributed more than 250 million free doses in Africa and Latin America. Alcoa set a target of zero work-related injuries and illnesses and has less than one-tenth the average of lost workdays in U.S. industry. Dupont created new metrics to measure shareholder value—per pound of product—to reduce its environmental footprint. Meanwhile, Microsoft continues to operate without much regard for Washington taxpayers or the open-source community it might need in the future, concealing unethical behavior with philanthropy and a feel-good marketing slogan: "Your Potential, Our Passion."
"Over the past decade evolving societal expectations, together with the forces of political transformation, economic globalization and technological innovation, have changed forever the context in which business operates," writes Jackson. The collapse of Enron, the shrinking of the middle class, and the declining health of the environment all have contributed to a growing distrust of business. Jackson cites a BusinessWeek/Harris Poll showing that 71 percent of Americans believe business has gained too much power over too many aspects of American life. "The costs of 'getting it wrong' are growing in terms of damage to reputation, costly litigation, increased regulation and even liquidation," Jackson says.
Google gets it. In the prospectus for its recent stock offering, Google's founders wrote, "Don't be evil. We believe strongly that in the long term, we will be better served—as shareholders and in all other ways—by a company that does good things for the world even if we forgo some short-term gains." Google is trying to codify socially responsible business behavior—to place that above fiduciary duty to shareholders.
Microsoft could also learn from the community Web site CraigsList.org, which operates essentially as a nonprofit. With more than 1 billion page views a month, it's one of the most successful sites on the Web. In an interview with SFGate.com, its founder, Craig Newmark, describes CraigsList as "a commons in the sense that we're providing a public service. . . . We don't think of ourselves as do-gooders or altruists. It's just that somehow we're trying our best to be run with some sense of moral compass, even in a business environment that is growing."
Meanwhile, Microsoft focuses on extracting every dollar it can from a monopoly advantage and neutralizing unfavorable news about its practices with skillful marketing and calculated philanthropy. I estimate the company donates less cash and software in Washington than it saves in taxes by logging all those sales in Nevada. Good news for shareholders: That's a net profit.
It's Up to Us
"There is an underlying compact between society and businesses," says Kapor, the designer of Lotus 1-2-3. "Corporations are a class of legal entities that are granted certain privileges and rights, like limited liability and certain rights that people have. I think we're going to have to rebalance what those responsibilities are. Microsoft is a wonderful example of what can go wrong."
Is Microsoft the best capitalism can do? With such great wealth and talent, it must know it's not. Few shareholders would complain if the company chose to pay its full share of taxes in Washington to maintain good relations with the community. Yet former Bellevue council member Cain says, "I don't think things are going to change if we're not able to convince people the extent to which they are being ripped off."
Our Legislature should be more skeptical of the proposals of the Competitiveness Council and groups like it. Ultimately, companies that don't pay a fair share for the impact of their growth aren't good for any of us. The Legislature needs to focus on creating a healthy equilibrium. The pursuit of jobs and growth through expansion of corporate welfare has proven to be ineffective.
As Smith told the business summit last week, Microsoft remains "committed to one straightforward goal, and that is ensuring that the world center for developing the best and most popular software in the world will remain Washington state." Yet what makes Washington great for Microsoft isn't necessarily what makes Washington a great place to live. And what if the most popular software in the world soon isn't made by Microsoft?
The Legislature should meet our education and transportation needs, certainly, but not on Microsoft's terms. It faces increased competition and, perhaps, slower local growth and even layoffs. And no amount of tax breaks for business or improved education and transportation is going to change that. Microsoft's own decisions and behavior are responsible for its fate. We can't change Microsoft's behavior. But we can stop rewarding that behavior, and that of other businesses, for that matter.
According to the BusinessWeek/Harris Poll, 74 percent of Americans believe that big companies have too much influence over government policy and politicians. "Of the world's top 100 economies, 51 are corporations," says Dr. Kellie McElhaney, executive director of the Haas Center for Responsible Business. "So much power is concentrated in the corporate world. Yet one of my fears is that we forget about individual responsibility. At the end of the day, corporations exist because we buy their goods and services," McElhaney says. After hearing about Microsoft's tax shelter in Nevada, one of my friends said she might begin pirating software as an act of protest.
Richard Grossman, co-founder of Programs on Corporations, Law, and Democracy, an organization contesting corporate power, says in a 2002 interview with The Progressive: "What we have now is a system where the coercive force of government and the culture that goes along with it enable a few people through the law and through their institutions called corporations to dominate the governing of this country. Many people don't want to acknowledge that. Because to do something about it means to change this country in very significant ways. If this country were really a country of democratic self-governance where the people actually were the source of all political and legal authority, it would be a very different country. And the people who govern today wouldn't govern. The class that governs today wouldn't govern."
Perhaps Bill Gates sees himself as having two legacies. He probably imagines he will be remembered both as an incredibly successful software tycoon and as a hugely generous philanthropist. But there's a third legacy Gates could pursue while at the helm of one of the wealthiest corporations in history: He could advocate that global corporations cede control of government back to the people. But let's not wait for him to do it. Let's do it ourselves.
Former Microsoft employee Jeff Reifman builds Internet tools for nonprofit organizations as director of technology at Groundspring.org. He also writes for the progressive political blog IDEAlog.us. He can be reached at email@example.com.