We toss around the concept that graces this blog, the deal economy, with regularity. Fortunately, the deal economy is a capacious notion: At bottom, it links up all the different aspects of deals and dealmaking in a highly developed economy. It makes the implicit argument that there's an end to all this that is larger than simple banker or lawyer self-interest, that the struggle for corporate control, the tension between private and public capital, the power of markets, the seemingly endless pendulum swings between consolidation and fragmentation, contribute to economic growth and material well-being. (You can argue with that, but on another day.) Dealmaking, in fact, is a process that feeds off deeper currents. One of them is technology and innovation, which fuels the larger process of corporate growth and change. The strange thing about innovation is how mysterious it remains -- economically, socially, practically. While there's a broad belief in its importance (and in the progress it represents), it certainly cannot be predicted with any certainty. The long debate over innovation resembles the current teeth gnashing over issues such as productivity, competitiveness, inequality and stagnation. How should we organize ourselves to insure innovation? Does innovation come from large, established companies or small, creative vehicles? What role does finance -- or the lack of finance -- play? Does innovation require a long-term and patient investment in R&D or does it thrive best with entrepreneurial individuals motivated by quick gain? How do science and technology work together? And perhaps the hardest question of all: How do we set ourselves up as a society, through education and incentives, to maximize innovation?
All of these questions, in one form or another, inform Jon Gertner's fascinating history of Bell Laboratories, "The Idea Factory: Bell Labs and the Great Age of American Innovation." This is not an institutional history in the academic sense; rather, it's an attempt to see a once pre-eminent institution through the lives of some of its most noteworthy employees, from longtime Bell Labs president Mervin Kelly, to William Shockley of the transistor (and, late in life, notorious for his eugenics fixation), to Claude Shannon, the man behind information theory, to John Pierce, a brilliantly catalytic figure who runs through the postwar history of Bell Labs like a bright thread. Gertner, an editor at Fast Company and a contributing writer to The New York Times Magazine, grew up across the street from the Murray Hill, N.J., campus of Bell Labs, where in the decades after World War II foundational technologies for the digital age, like the transistor, the semiconductor laser, cellular telephony, Shannon's information theory and photonics, were developed. While the title argues for the pre-eminence of the Bell Labs model in the subtitle "the Great Age of American Innovation," Gertner in the text is more subtle and circumspect. Gertner clearly recognizes the enormous strengths of this research operation built on ample resources and the long view, but he also admits that it was an institution well suited to its time and to the technologies it pioneered, electronic communications. But it was an institution that, in retrospect, appeared fated to fade as times changed. Much of this book is reminder of just how dramatically times have changed.
Bell Labs' output of fundamental breakthroughs in the years after World War II was remarkable, leading to the notion that Murray Hill, in particular, was some sort of "house of magic." How did this come about? As Gertner points out, AT&T was an unusual company with unusual needs. As a de facto monopoly, AT&T had immense resources. But its drive for a universal communications network -- universal connectivity -- instilled a deep belief in the marriage of science and engineering; as Gertner points out, Bell was responsible for the largest, most complex and sophisticated communications network in the world, and one the company fully anticipated to be managing far into the future. (Bell equipment, for instance, was expected to last 30 years.) The company, despite its status as a natural monopoly, thus had the need not only to seek incremental improvements over a long period of time, at least in corporate terms, but to explore fundamental science, particularly physics, in the hopes of finding ever more efficient ways to communicate. This combination of the fundamental and theoretical with the practical became its abiding hallmark. The '20s and '30s saw a great upheaval in physics. The Great Depression further bolstered Bell's hegemony, while making some of the best young minds in science and engineering, many of whom couldn't find academic jobs, available for hire. Then came World War II, which drove the development of everything from microwave transmission, through the wartime radar project, to cryptography, to what became known as solid-state physics, or semiconductors. The result, at Bell Labs, which moved from its overcrowded home at Western Electric, AT&T's manufacturing arm, on West Street in New York City to a much larger facility in the leafy New Jersey suburbs, in 1942, was a series of "inventions" that produced longer-term innovations -- Gertner carefully defines and discriminates between the two often confused and overused concepts -- that not only eventually reshaped the Bell network, and the nature of digital electronics, but that in the long run eroded Bell Labs and AT&T's position running America's communications network.
As Gertner emphasizes, there was a human element here. Bell Labs had plenty of resources and a long-term view, but it was more than fortunate in its leadership. In particular, Kelly, a physicist and former researcher, who presided over the glory years, was an energetic and shrewd leader. He had been one of a number young physicists sent to AT&T by Robert Millikan, the University of Chicago and Caltech physicist and Nobel laureate; Kelly, in turn, personally hired many of the greatest minds at Bell Labs, a group known as the Young Turks, and thought deeply about how to manage research. Kelly's Bell Labs, Gertner points out, had a penchant for scientists and engineers from obscure American towns and universities -- men (Bell Labs appears as male as Augusta National) like Kelly himself. For all the science going on, Bell Labs long emphasized the "innovative process." Scientists at Bell Labs had regular contact with engineers at Western Electric and with experts in a range of technical disciplines. Kelly emphasized the power of personal contact. There were the rules: Office doors should not be shut (Shannon shut his, but then he was viewed even by the most brilliant Bell Labs as a thinker in a class of his own). New hires were told to wander around and talk to senior staff to figure out what they wanted to look into. Meet William Shockley -- he'll explain solid-state physics to you. Interaction was built into the design of the place:
"By intention, everyone would be in one another's way. Members of technical staff would often have both laboratories and small offices -- but these might be in different corridors, therefore making it necessary to walk between the two, and all but assuring a chance encounter or two with a colleague during the commute. By the same token, the long corridor for the wing that would house many of the physics researchers was intentionally made seven hundred feet in length. It was so long that to look down it from one end was to see the other end disappear at a vanishing point. Then again, that was the point. Walking down that impossibly long tiled corridor, a scientist on his way to lunch at the Murray Hill cafeteria was like a magnet rolling past iron filings."
Kelly recognized that a revolution in electronics was coming after the war. By 1950, just a few years after the invention of the transistor, he grew convinced of the power of the Bell Labs research model. Kelly elaborated on his management philosophy in a speech in London: "To Kelly, inventing the future wasn't just a matter of inventing things for the future; it also entailed inventing ways to invent these things. In London, Kelly seemed to be saying that Bell Labs' experience over the past few years demonstrated that the process of innovation could now be professionally fostered and managed with a large degree of success -- and, even, perhaps, with predictability. Industrial science was now working on a scale, and embracing a complexity, that Edison could never have imagined."
Gertner weaves together the personalities and breakthroughs in an accessible and entertaining way; the book is often beautifully written. What's clear is just how much of a balancing act running Bell Labs was in its most productive era. Kelly was a force at the top, and his decisions were final. But he depended on a tight-knit and brilliant group of research managers to keep him informed. Bell Labs was no assembly line -- despite this notion of an "idea factory." In fact, part of the appeal of the place was the chance to pursue ideas in a deep way over a long period of time. Looming over everything was the care, feeding and improvement of the Bell network. But Bell Labs had the resources to tolerate eccentric behavior from the likes of a Shannon, or the egotism of Shockley (who flamed out in the first semiconductor company of the still-nascent Silicon Valley), or the persistently blue-sky thinking of someone like Pierce, who, among many other things, envisioned satellite communication long before it was feasible. But could Bell Labs survive in a "normal" corporation -- not a monopoly -- particularly in an age of shareholder value? After all, the price to be paid for monopoly status was that Bell Labs had to freely license its inventions. As Gertner points out, Bell Labs thus spawned its own competition. The transistor is the most striking example of this. The early innovations in solid state came from Murray Hill, both theoretically and practically. But the technology quickly disseminated, and further developments, like the integrated circuit, came from outside Bell Labs. The technology also changed the very nature of the network, increasingly blurring the line with computers (an area AT&T was forbidden to enter, until after the breakup).
Gertner's story takes on an elegiac edge as it proceeds into the '70s. Magic is increasingly hard to come by. The great men of Bell Labs age and die. More importantly, the climate changes. By the '70s, the large corporation is increasingly under attack, not only from an antitrust perspective but from an increasing decentralization of research, innovation and financing. The rise of Silicon Valley provides a potent new competitive model to the classic industrial research model perfected at Murray Hill. Companies are much smaller, backed by venture capital or the stock markets; the sources of innovation grow more diversified. The "network" grows beyond AT&T with the advent of mobile telephone and the Internet (both of which, Gertner points out, were born outside the market, at Bell Labs and the Defense Department, respectively). The decline truly began with the breakup of AT&T in 1984, triggering a process of dissolution as one business unit after another of Ma Bell's powerful vertically integrated structure was peeled off. At the same time, research has to cope with the demands of stockholders, seeking to maximize their increasingly short-term needs.
What conclusions can you draw from the rise and fall of Bell Labs? Gertner resists the easy belief that we can, or should, return to an age of big industrial labs like Bell Labs, though he argues that such structures might well be appropriate for developing technologies such as life sciences or energy. The Bell Labs model might have been optimal for its place and time, and for the science and technologies that then existed. But the world has moved on. Despite Bell Labs' enormous success, Kelly's notion that research and innovation could be professionally fostered and even predicted still feels like a stretch. The ability to ferret out and hire the best and the brightest like Shannon or Pierce -- in large quantities over multiple generations and keep them loyal and productively working -- is infinitely more difficult. The ability to achieve both intimacy with practical realities and distance from current realities is also tougher than ever. Besides, both electronics and digital communications and processing have grown larger, more complex, more resistant to fundamental change -- in other words, more mature. Not that the Silicon Valley model, with its mobility and fluidity is perfect -- the model to end all models. Despite the hype, Silicon Valley is really about incremental improvements, not the fundamental breakthroughs of the transistor, the laser or the optic fiber. Bell Labs, as Kelly saw, was lucky enough to exist in a period when its technology, electronics, was poised on the edge of revolutionary change. The irony here is that when we look at Silicon Valley we often see past its commercial dynamism to that age when truly new things were born in a corporate research center in the New Jersey suburbs.
This post was originally published on TheDeal.com.
Robert Teitelman is editor in chief of The Deal magazine.