Microsoft thanks Bush with historic share dividend

Thanks, Bill! No, thank you George...


When the Bush Administration was sworn in, in January 2001, Microsoft was in the position that we so often find James Bond in mid-way through a movie: strapped to a table and heading inexorably towards a huge carving machine or deadly laser.

By November, the fix was in. Attorney General John Ashcroft had indicated that he had little interest in pursuing the case, and several Department of Justice Antitrust attorneys had already left, disillusioned. The result was a settlement neatly summarized by the financial analysts we cited at the time: "a major win; no substantive change in business model or R&D practices; maintain Buy."

Ashcroft had declined to excuse himself from the case: despite having taken $20,000 in campaign contributions for his Senate campaign from Microsoft and refused to disclose contacts with the company. That said, the contribution hadn't done him much good: he still lost the race to a dead man.

So yesterday, remembering its manners, Microsoft got its chance to thank the Administration properly, and it timed the announcement to perfection.

For the first time in its history as a public corporation, Microsoft will pay a dividend to its shareholders. Technology companies loathe paying dividends, although a few pay a token sum. Historically, they prefer to buy back public stock to increase the company's share price: IBM, Intel, Sun and Cisco have spent billions on share purchase programs that effectively shrink the company. Scott McNealy told us it would be a cold day in hell before Sun ever paid a dividend, although in strict terms, both dividends and buy backs are equally money down the drain to a corporation.

Why is this so well timed? On January 6, President Bush announced his new budget, and its centerpiece is the elimination of tax on stock dividends, at the eye-watering cost of $370 billion over ten years.

It should be a hard sell. The administration has already been preparing the public for a move away from progressive taxation, complaining that the poor don't pay enough. Despite targeted cuts to lower income groups, the dividend exemption favors the wealthiest, as most stock holders are institutional investors or extremely loaded individuals, and has been criticized by Bush's former Treasury Secretary Paul O'Neill and from his own side of the Senate.

Lobbyists for technology companies privately oppose the plan, with one telling the Washington Post: "This is not the bill that's going to pass Congress, and everybody knows it." A dead duck, then.

But rumors that a major technology company - Cisco was mentioned, as was The Beast - would break with tradition have been circulating for a little while now.

Microsoft's decision to pay a dividend allows the administration to claim that America's most notorious corporate lawbreaker is in fact, a redistributive angel in wolf's clothing. Thanks to this incredible partnership, we'll soon hear, business and government can get the economy moving. Billions will trickle back to MSFT-holding families, demonstrating that economic stimulus comes not from any Keynesian multiplier, but through the charity of the rich, so justifying the reward, not punishment of the largest corporations. It's a supply-sider's dream!

As an added benefit, this will again sanitize "popular capitalism" - which currently has a rather poor reputation now after the largest loss of wealth in human history - the "Long Boom" having gone Phutt. (Where is Kevin Kelly now?)

Curiously, there is a rational case to be made for encouraging dividends, it's just that the Bush Administration isn't making it. Encouraging long-term stockholding rather than speculative day trading ought to reward profitable companies and encourage long-term investment, taking much of the volatility out of capitalism. That's a case I haven't yet heard, however. I suppose when the Big Lie has worked so effectively, there's little need to resort to reason.

But there you have it: the "Quid" to your "Pro Quo".®


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