Kneale: Obama, IBM and How to Kill Silicon Valley

The Obama Posse is hellbent-for-leather on a misguided crusade to rein in the one clear growth engine of the American manufacturing economy: high-tech.

There's no other way to explain the news today that IBM is in the cross-hairs of Justice Department anti-trust cops, who are suspicious of the grip it holds over a dinosaur business: mainframe computers.

This is the latest boneheaded move in the new administration's sudden spate of meddling in Silicon Valley, the most competitive market in the world, where tech titans collide and start-ups mushroom overnight, where prices fall preternaturally and consumers gain from all of it.

Elsewhere, the Federal Trade Commission is investigating Intel in microchips, Justice lawyers are questioning Google's online deal with book publishers, SEC lawyers helped push Google's Eric Schmidt off the Apple board, and the FCC wants to force AT&T and Verizon the open up their privately funded wireless networks to all comers.

Try reciting that cacophony of crackdowns in a single breath. I am sure we will hear of even more.

Here's the biggest problem: How are consumers getting hurt by any of this? Not at all: The price of computing power drops 15% to 20% a year. The price of data storage plunges 30% to 40% a year.

Dennis Kneale
CNBC Media &
Technology Editor

We also get tons of technology free of charge—Google search power in exchange for enduring online ads, ever more "free" software bundled in with your new laptop, even free cell calls to your favorite friends and family. We also now can choose from a vast array of rival brands and designs and services.

So what we have is an Imperial Bureaucracy in Washington scrutinizing tech’s most powerful players merely because they have succeeded in grabbing major market share. The Obama Posse wants to punish them for their success.

This anti-capitalist crusade is especially wrongheaded—and utterly ridiculous—in the case of IBM

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[IBM  Loading...      ()   ]. It shows a naïve disconnect with the past.

Background music, maestro: Let’s recall that by the early 1990s IBM—which at one point had 75% of all worldwide high-tech profits and 51% of all sales—was on its deathbed. It mulled breaking itself up into parts, just as the old Justice Department had done to the old AT&T (and had backed off from doing to IBM).

IBM’s mortal wound at the time: the mainframe computer business. The off-the-shelf cheap revolution (ever more powerful PCs at lower prices, a new wave of mid-range machines and client-server networks, and cut-price software) was roiling the fat margins and lack of choice in IBM’s core business: Systems costing $250,000 or more.