The Master Switch

by Tim Wu

  But when the time came, Hubbard saw the potential in the telephone to destroy his personal enemy, the telegraph company. In contrast, Elisha Gray, Bell’s rival, was forced to keep his telephone research secret from his principal funder, Samuel S. White. In fact, without White’s opposition, there is good reason to think that Gray would have both created a working telephone and patented it long before Bell.7

  The initial inability of Hubbard, White, and everyone else to recognize the promise of the telephone represents a pattern that recurs with a frequency embarrassing to the human race. “All knowledge and habit once acquired,” wrote Joseph Schumpeter, the great innovation theorist, “becomes as firmly rooted in ourselves as a railway embankment in the earth.” Schumpeter believed that our minds were, essentially, too lazy to seek out new lines of thought when old ones could serve. “The very nature of fixed habits of thinking, their energy-saving function, is founded upon the fact that they have become subconscious, that they yield their results automatically and are proof against criticism and even against contradiction by individual facts.”8

  The men dreaming of a better telegraph were, one might say, mentally warped by the tangible demand for a better telegraph. The demand for a telephone, meanwhile, was purely notional. Nothing, save the hangman’s noose, concentrates the mind like piles of cash, and the obvious rewards awaiting any telegraph improver were a distraction for anyone even inclined to think about telephony, a fact that actually helped Bell. For him the thrill of the new was unbeatably compelling, and Bell knew that in his lab he was closing in on something miraculous. He, nearly alone in the world, was playing with magical powers never seen before.

  On March 10, 1876, Bell, for the first time, managed to transmit speech over some distance. Having spilled acid on himself, he cried out into his telephone device, “Watson, come here, I want you.” When he realized it had worked, he screamed in delight, did an Indian war dance, and shouted, again over the telephone, “God save the Queen!”* 9

  THE PLOT TO DESTROY BELL

  Eight months on, late on the night of the 1876 presidential election, a man named John Reid was racing from the New York Times offices to the Republican campaign headquarters on Fifth Avenue. In his hand he held a Western Union telegram with the potential to decide who would be the next president of the United States.

  While Bell was trying to work the bugs out of his telephone, Western Union, telephony’s first and most dangerous (though for the moment unwitting) rival, had, they reckoned, a much bigger fish to fry: making their man president of the United States. Here we introduce the nation’s first great communications monopolist, whose reign provides history’s first lesson in the power and peril of concentrated control over the flow of information. Western Union’s man was one Rutherford B. Hayes, an obscure Ohio politician described by a contemporary journalist as “a third rate nonentity.” But the firm and its partner newswire, the Associated Press, wanted Hayes in office, for several reasons. Hayes was a close friend of William Henry Smith, a former politician who was now the key political operator at the Associated Press. More generally, since the Civil War, the Republican Party and the telegraph industry had enjoyed a special relationship, in part because much of what were eventually Western Union’s lines were built by the Union army.

  So making Hayes president was the goal, but how was the telegram in Reid’s hand key to achieving it?

  The media and communications industries are regularly accused of trying to influence politics, but what went on in the 1870s was of a wholly different order from anything we could imagine today. At the time, Western Union was the exclusive owner of the only nationwide telegraph network, and the sizable Associated Press was the unique source for “instant” national or European news. (Its later competitor, the United Press, which would be founded on the U.S. Post Office’s new telegraph lines, did not yet exist.) The Associated Press took advantage of its economies of scale to produce millions of lines of copy a year and, apart from local news, its product was the mainstay of many American newspapers.

  With the common law notion of “common carriage” deemed inapplicable, and the latter-day concept of “net neutrality” not yet imagined, Western Union carried Associated Press reports exclusively.10 Working closely with the Republican Party and avowedly Republican papers like The New York Times (the ideal of an unbiased press would not be established for some time, and the minting of the Times’s liberal bona fides would take longer still), they did what they could to throw the election to Hayes. It was easy: the AP ran story after story about what an honest man Hayes was, what a good governor he had been, or just whatever he happened to be doing that day. It omitted any scandals related to Hayes, and it declined to run positive stories about his rivals (James Blaine in the primary, Samuel Tilden in the general). But beyond routine favoritism, late that Election Day Western Union offered the Hayes campaign a secret weapon that would come to light only much later.

  Hayes, far from being the front-runner, had gained the Republican nomination only on the seventh ballot. But as the polls closed his persistence appeared a waste of time, for Tilden, the Democrat, held a clear advantage in the popular vote (by a margin of over 250,000) and seemed headed for victory according to most early returns; by some accounts Hayes privately conceded defeat. But late that night, Reid, the New York Times editor, alerted the Republican Party that the Democrats, despite extensive intimidation of Republican supporters, remained unsure of their victory in the South. The GOP sent some telegrams of its own to the Republican governors in the South with special instructions for manipulating state electoral commissions. As a result the Hayes campaign abruptly claimed victory, resulting in an electoral dispute that would make Bush v. Gore seem a garden party. After a few brutal months, the Democrats relented, allowing Hayes the presidency—in exchange, most historians believe, for the removal of federal troops from the South, effectively ending Reconstruction.

  The full history of the 1876 election is complex, and the power of the Western Union network was just one factor, to be sure. But while mostly studied by historians and political scientists, the dispute should also be taken as a crucial parable for communications policy makers. More than anything, it showed what kind of political advantage a discriminatory network can confer. When the major channels for moving information are loyal to one party, its effects, while often invisible, can be profound.

  It also showed how a single communications monopolist can use its power not just for discrimination, but for outright betrayal of trust, revealing for the first time why what we now call “electronic privacy” might matter. Hayes might never have been president but for the fact that Western Union provided secret access to the telegrams sent by his rivals. Western Union’s role was a blatant instance of malfeasance: despite its explicit promise that “all messages whatsoever” would be kept “strictly private and confidential,” the company regularly betrayed the public trust by turning over private, and strategically actionable, communications to the Hayes campaign.

  Today Western Union’s name remains familiar, but the company that survives is the shriveled rump of what was in 1876 among the most powerful corporations on earth. But power is never entirely secure in any tyranny. Western Union, despite its size, had come under episodic attack from speculators, putting into question whether it was really a “natural” monopoly. And in two years’ time Bell’s three-man company, though embryonic, would pose an even more devastating threat to the firm’s rule over American communications.

  In antiquity, Kronos, the second ruler of the universe according to Greek mythology, had a problem. The Delphic oracle having warned him that one of his children would dethrone him, he was more than troubled to hear his wife was pregnant. He waited for her to give birth, then took the child and ate it. His wife got pregnant again and again, so he had to eat his own more than once.

  And so derives the Kronos Effect: the efforts undertaken by a dominant company to consume its potential successors in their infancy. Understandi
ng this effect is critical to understanding the Cycle, and for that matter, the history of information technology. It may sometimes seem that invention and technological advance are a natural, orderly process, but this is an illusion. Whatever technological reality we live with is the result of tooth-and-claw industrial combat. And the battles are more decisive than those in which the dominant power attempts to co-opt the technologies that could destroy it, Goliath attempting to seize the slingshot.

  Western Union, despite its great size and scale, was vulnerable to the same force as every other business: disruptive innovation. No sooner had the firm realized the potential of the Bell company’s technology to overthrow the telegraph monopoly than it went into Kronos mode, attempting to kill or devour Bell. It did not happen instantaneously. At the very beginning, in 1877, the Bell Company probably seemed more a source of comic relief than a threat to Western Union. Bell’s very first advertisement for the telephone, in May 1877, betrays a distinct lack of confidence in the product:

  The proprietors of the Telephone … are now prepared to furnish Telephones for the transmission of articulate speech through instruments not more than twenty miles apart. Conversation can be easily carried on after slight practice and with the occasional repetition of a word or sentence. On first listening to the Telephone … the articulation seems to be indistinct; but after a few trials the ear becomes accustomed to the peculiar sound.11

  Bell’s first telephone simply did not work very well. The Bell Company’s most valuable asset would remain, for some time, the principal patent, for actual telephones were more like toys than devices adults could depend on. Finding investors, let alone customers, was such tough going that at one point, according to most accounts, Hubbard, acting as Bell’s president, offered Western Union all of Bell’s patents for $100,000. William Orton, president of Western Union, refused, in one of history’s less prudent exercises of business judgment.12

  In a year, however, as Bell began to pick up customers, Western Union realized its mistake. In 1878 it reversed course and proceeded full steam into the phone business. Against tiny Bell, Western Union brought overwhelming advantages: capital, an existing nationwide network of wires, and a close relationship with newspapers, hotels, and politicians. “With all the bulk of its great wealth and prestige,” as the historian Herbert N. Casson wrote in 1910, “it swept down upon Bell and his little bodyguard.” The decision, once taken, was implemented quickly. Ignoring Bell’s shoddy equipment, Western Union commissioned a promising young inventor named Thomas Edison to design a better telephone. Edison’s version would prove a major advance over Bell’s, including a much more sensitive transmitter that didn’t require one to shout. For that reason, depending on how you define “invention,” there is a strong case to be made for giving Bell and Edison, at a minimum, joint credit.

  By the end of 1878 Western Union had deployed 56,000 telephones, rendering Bell a bit player.13 For a brief moment, the telephone industry came under domination by Western Union’s subsidiary, the American Speaking Telephone Company. In an 1880 Scientific American article we see a drawing of an AST exchange in New York, staffed by boys with Edison phones. In some alternate universe, AST, rather than Ma Bell, would go on to rule communications by wire.

  We can stop here to imagine that future. The telephone could easily have been born as what Harvard professor Jonathan Zittrain calls a tethered technology: that is, a technology tied directly to its owner, and limited in what it might do.14 Western Union’s telephone network was designed not to pose any threat to the telegraph business. In an oft-exampled way, a dominant power must disable or neuter its own inventions to avoid cannibalizing its core business. In the 1980s and 1990s, General Motors, famously, was fully equipped to take over the electric car market, but was restrained by disinclination to create a rival to the internal combustion engine, its main business.

  Western Union’s version of the telephone would have remained a feeder business for the telegraph, and another tool for discrimination. Most likely we would have seen a telephone system that was primarily local, used to call in telegraph messages for nationwide communications, and as such always a complement to the telegraph, not a substitute for it. Alexander Bell would be as obscure as the inventors of cable or broadcast television, to name two other initially suppressed inventions—but let us not get ahead of ourselves. For now it is enough to imagine how the retardation of telephony in an alternative run-through of history might have altered the narrative. It might even have affected the development of American economic supremacy, if other nations better grasped the importance of the telephone.

  In 1878 the future so described was likelier than not. For months, Bell suffered under the onslaught of Western Union. As if mourning his company, Alexander Bell became a bedridden invalid, in the grip of such a depression that he checked himself in to Massachusetts General Hospital.15

  CYCLES OF BIRTH AND DEATH

  The struggle between Bell and Western Union over the fate of the telephone was, in retrospect, a match to the death. The victor would go on to prosper, while the loser would wilt away and die. This is how the Cycle turns. No thinker of the twentieth century better understood that such winner-take-all contests were the very soul of the capitalist system than did the economist Joseph Schumpeter, the “prophet of innovation.”

  Schumpeter’s presence in the history of economics seems designed to displease everyone. His prose, his personality, and his ideas were infuriatingly provocative and confounding, and quite deliberately so. He bragged of sexual exploits at faculty meetings, and while living in the United States during World War II, he voiced support for Germany, supposedly out of dislike for Russians.

  Nonetheless, Schumpeter is the source of a very simple economic theory that has proved itself particularly virulent. At the most basic level, Schumpeter believed that innovation and economic growth are one and the same. Countries that innovated would grow wealthier; those that did not would stagnate. And in Schumpeter’s vision innovation was no benignly gradual process, but a merciless cycle of industrial destruction and birth, as implacable as the way of all flesh. This dynamic was, to Schumpeter, the essence of capitalism.16

  He described innovation as a perennial state of unrest: a “process of industrial mutation … that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” In the age of carts, what mattered was not a cheaper cart, but the Mack truck that runs the cart over. Bell’s telephone was a quintessentially Schumpeterian innovation: it promised not improvement of the telegraph industry, but rather its annihilation.

  To understand Schumpeter we need to reckon with his very peculiar idea of “competition.” He had no patience for what he deemed Adam Smith’s fantasy of price warfare, growth through undercutting your competitor and improving the market’s overall efficiency thereby. “In capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts,” argued Schumpeter, but rather, “the competition from the new commodity, the new technology, the new source of supply, the new type of organization.” It is a vision to out-Darwin Darwin: “competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.” Schumpeter termed this process “creative destruction.” As he put it, “Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.”*

  Schumpeter’s cycle of industrial life and death is an inspiration for this book. His thesis is that in the natural course of things, the new only rarely supplements the old; it usually destroys it. The old, however, doesn’t, as it were, simply give up but rather tries to forestall death or co-opt its usurper—à la Kronos—with important implications. In particular Schumpeter’s theory did not account for the power of law or the government to stave off industrial death, and (
for our particular purposes) arrest the Cycle. As we shall see in future chapters, allying itself with the state, a dominant industrial force can turn a potentially destructive technology into a tool for perpetuating domination and delaying death.

  But before describing such corporate contortions, let us return to the sorrows of Mr. Bell.

  ENTER VAIL

  In 1878, Theodore Vail was an ambitious and driven thirty-three-year-old working at the U.S. Post Office. He was very good at his job—he pioneered a more efficient form of railroad mail, and he supervised more than thirty-five hundred men—but he was obviously bored. And so when Gardiner Hubbard, Bell’s founding father, legal counsel, and first president, showed him the Bell prototype, Vail spied the chance of a lifetime. He was in precisely the position of anyone who leaves a steady job for the promise held out by some start-up. “I can scarce believe that a man of your sound judgment,” wrote his boss, “should throw it up for a damned old Yankee notion called a telephone!” It would have seemed imprudent, in a time when Americans did not change jobs as regularly as they do today, to leave a secure situation and hitch one’s wagon to what seemed a novelty item, and a rather buggy one. Yet something in Vail’s nature allowed him to see the grand potential of the telephone, and the lure was irresistible to him.17

  We must try to understand Theodore Vail, for his basic character type recurs in other “Defining Moguls,” the men who drive the Cycle and populate this book. Schumpeter theorized that men like Vail were rare, a special breed, with unusual talents and ambitions. Their motivation was not money, but rather “the dream and the will to found a private kingdom”; “the will to conquer: the impulse to fight, to prove oneself superior to others”; and finally the “joy of creating.” Vail was that type. As his biographer put it, “he always had a taste for conquest … here was a new world to subjugate.”18