by Jon Gertner
One can only speculate about how Kelly, Pierce, Baker, and the rest would react to the most acclaimed American innovations of recent years—iPhones, say, or Google searches or Facebook. They would likely see them as vital, sophisticated tools for the information age. A more provocative question, however, is whether they would perceive them as paths to the future, as many economic commentators often do. Regrettably, the language that describes innovations often fails to distinguish between an innovative consumer product and an innovation that represents a leap in human knowledge and a new foundation (or “platform,” as it is often described) for industry. In an effort to explain his motivations, Pierce once wrote in a memo, “Things should be done only when there is the possibility of a substantial gain, and this must be weighed against risk.”10 The italics were Pierce’s own. Bell Labs’ substantial innovations, John Mayo, the former Labs president, points out, “account for a large fraction of the jobs in this country and around the world. And they also account for a lot of the social status of the world.”
Mayo and many of his former colleagues worry about where the foundation for the next generation’s jobs will come from. Will they emanate from America, or from abroad? Are the next great leaps in energy research or biotechnology? Do we yet have the scientific base—akin to the “substantial gains” of transistors or lasers or optical fiber—on which to build that future economy? Or are we still living off the dividends from ideas that were nurtured, and risks that were taken, a half century ago?
EVEN AS MERVIN KELLY’S LIFE was drawing to a close, the models for innovation he had spent his career devising were changing. Kelly’s philosophy is sometimes summed up as a belief that innovation occurs by the movement of ideas in one direction: first a fundamental scientific discovery, which is then developed into a product, which is then pushed into the market. The textbook example was the transistor. In truth, he believed big scientific advances could come from any engineers or scientists encountering interesting problems. Kelly had learned that when he managed the vacuum tube shop in lower Manhattan in the 1920s. His larger view of innovation, as a result, was that a great institution with the capacity for both research and development—a place where a “critical mass” of scientists could exchange all kinds of information and consult with one another for explanations—was the most fruitful way to organize what he called “creative technology.” A corollary to his vision was that size and employee numbers were not the only crucial aspect. A large group of physicists, certainly, created a healthy flow of ideas. But Kelly believed the most valuable ideas arose when the large group of physicists bumped against other departments and disciplines, too. “It’s the interaction between fundamental science and applied science, and the interface between many disciplines, that creates new ideas,” explains Herwig Kogelnik, the laser scientist. This may indeed have been Kelly’s greatest insight.
And yet his grand design was undone by time. In his memorial tribute to Kelly, John Pierce pointed out that Kelly never had the opportunity to change his views on research and development in the wake of evolving business circumstances. As a result, Pierce concluded, “Kelly may have overestimated the amount and quality of research that could in the future be expected from industry, and perhaps from the nation.”11 Pierce was probably correct. In succeeding decades, for instance, Bell Labs’ own journey—as it moved from its monopoly status to Lucent and Alcatel-Lucent, shucking off employees and entire departments all the while—demonstrated that a large industrial laboratory had to change with political and legal regimes. It became increasingly difficult to fund basic research; instead, Bell Labs had to focus more on development and engineering. The Labs also needed a narrower focus on products and short- or medium-term goals. The new industrial lab had to succeed not only in engineering, but in business, too.
As industrial science was evolving, a very different model for innovation arose. From the 1970s on, a host of Silicon Valley entrepreneurs proved that new ideas didn’t need to be attached to a large corporation to become world-altering technologies. A good idea could arise from a teacher or student at a school like Stanford, and the purveyor of that idea could then get funding from a venture capitalist on Sand Hill Road, the wide avenue that runs along the university’s western boundary. In turn, the idea purveyor—now simply labeled an entrepreneur—could launch his or her technology through a small start-up company in a nearby town like Palo Alto or Cupertino or Mountain View. Not incidentally, in the process of backing a winner, everyone involved could get very, very rich. Bell Labs invariably lent some of its genetic material to this process—a number of the new ideas for computers or software relied on transistors or lasers or the Unix programming language, for instance. Eugene Kleiner, moreover, a founding partner at the premier venture capital firm Kleiner Perkins, was originally hired by Bill Shockley at his ill-fated semiconductor company. But the Silicon Valley process that Kleiner helped develop was a different innovation model from Bell Labs. It was not a factory of ideas; it was a geography of ideas. It was not one concentrated and powerful machine; it was the meshing of many interlocking small parts grouped physically near enough to one another so as to make an equally powerful machine. The Valley model, in fact, was soon so productive that it became a topic of study for sociologists and business professors. They soon bestowed upon the area the title of an “innovation hub.”
Early on, Bell Labs executives were aware of the vitality of California. At one point in the mid-1960s, for instance, Bill Baker and a New Jersey business consortium hired Frederick Terman, the Stanford engineering dean who had wooed Bill Shockley to Palo Alto in the mid-1950s. Terman is often credited as the father of Silicon Valley. (Shockley, by comparison, is sometimes called the Moses of Silicon Valley, since his failures prevented him from entering the Valley’s promised land of wealth and influence.) The hope was that Terman might be able to map out an innovation hub for New Jersey, based in part around the technological excellence of Bell Labs. One seemingly insoluble problem was that New Jersey was too geographically diffuse for the Palo Alto model to work there. The universities that did exist, such as Princeton and Rutgers, were either too far away from one another or too theoretical in their scientific focus to act as fertile training grounds for East Coast entrepreneurs. What’s more, while Bell Labs was dynamic—the scientists and engineers there shared ideas and knowledge with one another and, to a certain extent, with their friends in the academy and other industrial labs—it was not as dynamic as Silicon Valley.12 In the Valley, engineers changed jobs constantly while companies formed and dissolved and then formed again, as if in constant agitation. Terman believed a new college, perhaps modeled after Caltech and deemed “Summit University,” could help solve some of these problems. This new school—graduate students only—would provide to the region’s telecommunication and pharmaceutical companies a steady stream of expert scientific and engineering talent. The problem was the cost. It turned out that funding the school would be expensive—Terman projected a start-up cost of $15 million, according to the management historian Stephen B. Adams. The pharmaceutical industries were not interested, which meant that Bell Labs would have to be the main backer.13
It was too difficult for Baker to justify the costs. And ultimately, Summit University, along with the Terman study, was shelved.
AT LEAST FOR THE past few decades, the venture economy has proven a more adaptable model for innovation than Mervin Kelly’s. The products coming out of Silicon Valley—and to a lesser extent the Route 128 area outside of Boston—have evolved fluidly, from new applications in electronic hardware, to new applications in computer software, to new applications in biotechnology and clean energy. Perhaps the only thing lacking is that venture firms are averse, understandably, to funding an entrepreneur seeking out new and fundamental knowledge. Without any way to predict the difficulty of obtaining new knowledge, and without any tools to assess its market value, how could someone bet money on it? As one venture capitalist for Kleiner Perkins puts it, “We don�
��t fund science experiments.” In some respects, then, this leaves a gap. While it is frequently the case that new knowledge can arise from academia or a government laboratory and then secure venture capital afterward, it seems a more difficult proposition in Silicon Valley than it was long ago in New Jersey. The value of the old Bell Labs was its patience in searching out new and fundamental ideas, and its ability to use its immense engineering staff to develop and perfect those ideas. Some of the other great and now diminished industrial labs—General Electric, RCA, IBM—followed a similar tack, though with smaller staffs and less spectacular results.
John Pierce did not flatter himself so much as to think that success in basic or applied research—those big leaps in scientific knowledge—were necessarily more heroic than development. “You see, out of fourteen people in the Bell Laboratories,” he once remarked, “only one is in the Research Department, and that’s because pursuing an idea takes, I presume, fourteen times as much effort as having it.”14 Still, Pierce understood that the big new ideas—satellites, transistors, lasers, optical fibers, cellular telephony—could create an entirely new industry. “You may find a lot of controversy over how Bell Labs managed people,” John Mayo, the former Bell Labs president, says. “But keep in mind, I don’t think those managers saw it that way. They saw it as: How do you manage ideas? And that’s very different from managing people. So if you hear something negative about how John Pierce managed people, I’d say, well, that’s not surprising. Pierce wasn’t about managing people. Pierce was about managing ideas. And you cannot manage ideas and manage people the same way. It just doesn’t work. So if somebody tells you Pierce wasn’t a great manager … you say, of what?”
Mayo and other Bell Labs veterans don’t always call people like Pierce or Baker the Young Turks, the name this group of men, long ago, gave themselves. Sometimes they call them, without irony, the Giants. “Pierce did not let people get in the way of his pursuit of ideas,” Mayo adds. “He did not compromise because it would make people feel good. He did his thing because he felt it was necessary to accomplish the development of ideas the way he wanted. He was excellent at that. And I loved those research people for that. They weren’t about making people feel good. They were about motivating people—not to do the conventional thing, but to do the unconventional thing.” To follow the progress of business now, Mayo adds, is to become accustomed to watching successful technology companies offer new engineers rich incentives for their work. Pierce and Bell Labs couldn’t do that because they were funded like a public utility. But they also couldn’t do that because it chafed against their belief in how innovations arise. “Incentives are fine,” Mayo says, “but they produce incremental improvements in what’s there. That’s not what Pierce was about.”
Mayo continues, “There are a lot of people that just don’t see the kind of things that are going to happen or likely to happen. They would prefer to invest in incremental improvements, and to have wonderful picnics, and make this quarter’s earnings without strain.” In part, Mayo connects this to the “immense stress” associated with funding research on ideas that may destroy your business if the results make your current product obsolete. Those who study innovation know this as the innovator’s dilemma, a term coined by the Harvard professor Clayton Christensen. “This is a very strong force,” Mayo points out. “It’s in me. And in everybody.” Strangely enough, however, it may not have been in Mervin Kelly or in some of his disciples—perhaps because the monopoly, at least for a time, guaranteed that the phone company’s business would remain sturdy even in the face of drastic technological upheaval. Kelly, for instance, who toiled for decades to improve and perfect the vacuum tube, effectively lobbied for a research program on the transistor that, when it succeeded, rendered his entire previous career in science irrelevant. And an array of other technologies at Bell Labs had a similar effect of discarding the old in favor of the new. As Mayo says, “When I came to Bell Labs, and if you told me we were going to put a billion [transistors] on a single chip of silicon, we’re going to make glass so pure that you can shine light through it for hundreds of miles, or we’re going to use a computer to listen and speak like people do, I would have said, ‘You’re out of your mind. We’ll move in that direction, but that’s too far.’ But then, here we are.”
“CAN WE LEARN SOMETHING FROM THE EXAMPLE OF BELL LABS?” John Pierce asked, in all capital letters, one day in late January 1997. At the age of eighty-six—five years before his death—he had sat down at his computer, at home in Palo Alto, to write a proposal for a book that explored what his old institution had taught him. He never wrote the book. But the problem Pierce wrestled with that day was how to decouple Bell Labs’ success from its circumstances. “Bell Labs functioned in a world not ours,” he noted. The links between government and business were different in that era; the monopoly was deemed acceptable as well as vital. And the compensation scale for its researchers and managers could never suffice in the modern economy. In Pierce’s era, the top officer at Bell Labs made about twelve times that of the lowest-paid worker; in the late 1990s, it was more typical at large American firms for the CEO to make one hundred times the salary of the lowest-paid worker. Back in the 1940s and 1950s, moreover, smart and talented graduate students could never be wooed away from the Labs by the prospect of making millions. It wasn’t even thinkable. You were in it for the adventure. “I don’t think I was ever motivated by the notion of winning prizes, although I have a couple of dozen of them in the other room,” Claude Shannon said late in life. “I was motivated more by curiosity. I was never motivated by the desire for money, financial gain. I wasn’t trying to do something big so that I could get a bigger salary.”15
It may be obvious, but it is nonetheless worth noting that in 1997 and in the present day there is little possibility—and, admittedly, little reason—for the return of a phone monopoly. Communications is a thriving, innovative industry, thanks in part to the fact that it has been built upon the foundation laid down by Bell Labs. “I’ve often said to my old friends that we were very lucky we got to work there, in an environment that I don’t think will ever exist again,” remarks Dick Frenkiel, who worked on the first generation of cellular technology. “It’s hard to say something will never happen again. But with the monopoly gone, with the whole concept of monopoly essentially discredited, how could there ever be a place like that again?”16 Still, to explore what we can learn from the example of Bell Labs isn’t the same as pining for its return. Rather, it is to ask what aspects of Bell Labs made it succeed, and whether other organizations—or other governments, as they attempt to plan far into the future in energy, biotechnology, nanotechnology, information technology, and the like—can salvage what was valuable. Pierce, to put it simply, was asking himself: What about Bell Labs’ formula was timeless? In his 1997 list, he thought it boiled down to four things:
A technically competent management all the way to the top.
Researchers didn’t have to raise funds.
Research on a topic or system could be and was supported for years.
Research could be terminated without damning the researcher.17
It is an interesting list. But it is hard to see it as complete. The fact that the telephone engineers faced an unceasing stream of technical and logistical problems always urged them toward innovative solutions. Without question, the size of the staff at Bell Labs, and its interdisciplinary nature, were large factors in its success, too. So was the steadiness of the Labs’ funding stream, guaranteed by the monthly bill paid by phone subscribers, which effectively allowed the organization to function much like a national laboratory. Bell Labs managers knew they could support projects—the undersea cable, for example, or cellular telephony—that might require decades of work. The funding stream also assured the managers that they could consistently support educational programs to improve the staff’s expertise and capabilities. And as Morry Tanenbaum, the inventor of the silicon transistor, points out, Bell Labs’ sense of
mission—to plan the future of communications—also had an incalculable value that endured for sixty years. The mission was broad but also directed. Bell Labs’ researchers, Tanenbaum notes, had a “circumscribed freedom” that proved to be liberating and practical at the same time.
And what about competition? It is now received wisdom that innovation and competitiveness are closely linked. Companies that are good at innovating are good at competing in the market; the uncompromising nature of the market, in turn, is a powerful force on companies to innovate. But Bell Labs’ history demonstrates that the truth is actually far more complicated. It also suggests that we tend to misinterpret the value of markets. What seems more likely, as the science writer Steven Johnson has noted in a broad study of scientific innovations, is that creative environments that foster a rich exchange of ideas are far more important in eliciting important new insights than are the forces of competition.18 Indeed, one might concede that market competition has been superb at giving consumers incremental and appealing improvements. But that does not mean it has been good at prompting huge advances (such as those at Bell Labs, as well as those that allowed for the creation of the Internet, for instance, or, even earlier, antibiotics). It’s the latter types that pay to society the biggest and most lasting dividends. And it was almost always the latter types that Kelly and Pierce and Baker were striving for. It may be the case, too, that we not only mistake the potential for free market competition to prompt big breakthroughs. We may also misunderstand how the private sector produces the most promising innovations in any given year. For instance, a 2008 study titled “Where Do Innovations Come From?” concluded that partnerships among corporations, government laboratories, and federally funded university researchers has become increasingly essential to the U.S. innovation pipeline over the past several decades. In 2006, for instance, “77 of the 88 U.S. entities” that produced significant innovations were beneficiaries of federal funding.19 Clearly, at least in regard to innovation, capitalism is more deeply intertwined with government than many of us realize.