The AT&T Monopoly as Creator of Bell Labs

   It was of course sheer coincidence that on the day after I finished Jon Gertner’s fascinating book, The Idea Factory: Bell Labs and the Great Age of American Innovation, I read in the New York Times that AT&T will shortly be replaced by Apple “in the Dow Jones Industrial Average, an index that tracks 30 US blue-chip companies and is a leading bellwether of the nation's economic performance.” Ma Bell had entered the DOW in 1916.

   A coincidence of course, but uncannily symbolic of the theme of this blog post I thought of writing, also last night. I will not review the book; there are plenty of good discussions and Google will get you to them. I merely want to make a couple of observations that you might say are embedded in Gertner’s account, but not brought out as explicitly as I will here. But before I do so, I need to remind you of what Bell Labs was.

   It was created in 1925 as AT&T’s Research and Development unit and became, many agree, the greatest institution of that species—ever, anywhere. At its height the Labs employed 12,000 people—theoretical scientists, experimental scientists, engineers of various brands, and more practical people who had ideas about how to manufacture (economically!) the things thunk up by those more abstracted ones.  Some problems were set, many were “invented” by the “employees”—of whom no one could earn more than ten times the lowest paid—and other projects  were brought to them, as they arose from AT&T needs.

   Interaction among all these folks was controlled—or rather, very much not controlled—by practices and mores that sharply distinguished Bell Labs from the departmental organization of universities. No sharp lines were drawn between genres and interaction among them all was encouraged and even facilitated by the very design of buildings—with long corridors that made encounters likely.

   Given this set-up (of which is a mere outline), the Bell Labs’ accomplishments were phenomenal.  A recital of them all would indeed require a review. Herewith just a flavor. Crucial work on radar, a significant World War II project. Many concerns with long-distance telephoning, with innovations pertaining to undersea cables and communication via satellites.  The stars, however, are, above all, the “invention” of information theory by the mathematician Claude Shannon that makes possible (or should I say “practical” communication of text via telephone or computer or whatever comes next. The other star, more (if not very) familiar to us ordinary folks, is the transistor that replaced vacuum tubes, at a miniscule fraction of their bulk and consumption of power, making it possible to, literally, amass millions of them. Although Bell Labs accomplished many more feats that affect all of our lives, I’ll let those two symbolize how that organization has changed technology in the latter 20^th century and beyond.

   Clearly, to have those 12,000 people do all that and much more cost mega-bucks—many millions in the currency of the day, probably pushing into the billions if the same effort were mounted today. This was not Washington money, but money from an outfit that was cultivating customers to stay alive, like zillions of others to be found on the stock market. But there was one big—very big—difference: AT&T had been accepted as a monopoly  by the US government. With a steady growth of telephone users—with the cost not affected by competition—the company was sufficiently rich to be able to satisfy its stock holders as well invest heavily in providing for its future. Bell Labs, whose work called for the investment of many years of effort, could only have been created by a company that was autonomous, capable of planning into an extended future.

   That status as a recognized monopoly—in a context that was, in general, not at all friendly to monopolistic practices—had another outcome that was very favorable to widespread technological progress. AT&T management was well aware that the US government might change its position and end their privileged status as a monopoly. It thus became Bell Labs’ policy to allow the use by others of its many patents with only minimal charges. Numerous industries in the US and throughout the developed world thus benefited from the work of the Labs, almost as if they were a governmental research organization—only better run and more successful than any.

   It was not to last—not because the Labs ran out of steam, but because after years of negotiations that began with a 1974 justice department antitrust suit, agreement was reached in early 1982 that led to the break-up of the Bell empire and the separation of AT&T from Western Electric, its manufacturing subsidiary.

   With the introduction of competition, the consequences, not just for the telephone industry but for a much broader span of communication providers, were complex and at times dramatic. I do not have a grasp of this multifaceted set of changes and am not in a position to sort out what was for the better and what for the worse. Most free market proponents will probably agree that in some domains competition must give way to regulated monopolies, but there is probably little agreement as to which cases and how regulated. These are big topics—well beyond my ken.

   I do however want to conclude this small essay by noting that Bell Labs, almost certainly the greatest “idea factory” that was ever created, depended on its formation and continuing functioning on the existence of a significant monopoly and that its end came rapidly when that monopoly ceased to exist.