Friday, June 01, 2012

Bell Labs and Monopoly Innovation

[Repost: I put this up last night and then somehow it mysteriously disappeared.--ed.]

An insight about monopoly innovation came home to me while reading The Idea Factory, Jon Gertner's highly readable and instructive history of Bell Labs, the research arm of  Ma Bell,  the old Telephone Company.  It's a point probably old stuff to the cognoscenti but perhaps still an eye-opener to the vulgar horde (that would be me).

Here's the thing: we are all taught that the (a)  problem with monopoly is that it discourages innovation: the monopolizer grows fat and somnolent and we all pay more for less.  But Gertner demonstrates that for a generation or more, Ma Bell was one of the great innovators, and that the Labs were the engine.   But Ma Bell was a monopoly--worse, a regulated, sanctioned, monopoly, with all the power of the state behind it. How can this be?

Answer--who'd have guessed?--Ma Bell seemed to have lived through the entire time in a state of paranoid anxiety over the fear that they might lose their beloved  monopoly.  And so they hustled every way we might expect a competitor to hustle.  And more: because they were a monopoly, Ma Bell always had a surplus (a rent?) available to plow back into R&D..  Which is to say, Bell Labs.

The fear was not groundless.  We know that, of course, because in the end the government did break up Ma Bell (Bell Labs lost its moorings more or less as an incidental casualty, an afterthought).  But long before the final breakup, Ma Bell knew that parts of the government wanted to break it up and would have if they could  Ma Bell held them at bay partly through relentless innovation.  But there was a second prong to their strategy: they threw themselves into the arms of the Defense Department.  For a long time, it seems, there was a sort of functional membrane between Bell Labs and Defense that nourished organisms on both sides.

This relationship with the Defense Department suggests that there was something in Ma Bell's competitive DNA beyond mere paranoia.   That would be the competitive zeal that comes with warfare, or the threat of warfare.   Which is to say that Ma Bell was driven not just by zeal for lucre, but also by ideology and a salting of nationalist bravado.  Note to self, is there a good history of DARPA, the Defense Advanced Research Projects Agency?  And what, exactly, is/was the relationship between Bell Labs and DARPA?

In any event, in an it seems that everyone is some flavor of libertarian, it is almost impossible to imagine ourselves back into a time when the state nurtured and was nurtured by such a semi-private free-market octopus.  Even more astounding, from our blindered hindight, is the extent to which it actually worked.

1 comment:

MJH said...

There's an argument that only monopolies (or near-monopolies) will do "basic research," such as Bell Labs. The problem with basic research is that the company supporting it is not entirely sure how it will play out. If the company is in a competitive market, it can't be sure that a competitor won't be able to more efficiently capture the benefits of the innovation. However, in a monopoly setting, the innovator is relatively certain that they will be able to capture at least some of the benefits of the innovation.

By way of example, Bell Labs did most of their serious "basic resarch" in the timeframe 1930-1980. I was there (briefly) in the Lucent days, and there was an emphasis on more applied research. In the computer world, about the time Microsoft became a serious monopoly actor, they set up MS Research. As their hold on the desktop / phone has waned, MSR has become more applied. My current corporate research home has become much, much more applied as our market share has gone from 80% to 50%.