Abstract: In Good Times and in Bad: IBM and the Federal Government

Steven Usselman

Abstract

This paper interprets the recent resurgence of IBM as resulting from its return to a business model grounded in providing comprehensive business services that leverage proprietary technologies. The approach, which the paper characterizes as one of closed systems, harkens back to earlier periods of IBM's history. In those instances, the proprietary technology involved hardware and operating systems, while today it involves applications software. During previous periods of its history, IBM pursued this business model within a framework established by its relations with the federal government. The paper emphasizes four aspects of those relations: antitrust, procurement, research funding, and tax policies. Together, these policies sought to create a virtuous cycle that balanced private and public interests and kept the perceived deleterious effects (or vices) of the business strategy in check. This balancing act has withered under forces of globalization and technological change. Offshore software factories have replaced domestic hardware factories, generating large returns on which IBM pays significantly reduced taxes, while operating within a relaxed antitrust regime and pumping fewer resources into research.