Lessons of Bell Labs: why capitalism today undermines the conditions for its success

The New York Times reports on the success of Bell Labs as a center of innovation from the 1920s to the 1980s. It produced many of the inventions that underpin today’s economy, from the transistor to lasers to solar cells. The underlying reason for this remarkable success, according to Jon Gertner, who has been studying its history, is not technical but social: the Labs created a culture in which very smart people actually worked together and helped each other. This was a deliberate act of design, from the way the building was laid out – encouraging serendipitous encounters – to the way people were rewarded, encouraging long-term projects and collaboration.
Bell Labs succeeded in creating what we call a collaborative community. The essence of such a community is that people can come together from disparate specialties and groups to form trusting relations focused on tasks and projects. It is very different from traditional communities, where trust is based on long-term personal connections and stable status hierarchies. It is also very different from the vision of competitive individualism that has become so popular in recent decades. Collaborative community is increasingly needed in a world where solving our problems requires complex combinations of specialized knowledge.

But one big problem is that innovation and problem-solving are costly. Every successful invention, as Edison famously demonstrated, is based on thousands of failures; it also requires a great deal of “basic research” that is not aimed directly at economic payoff, but seeks only to understand the logic of some important issue. So in an economy focused increasingly on “competitiveness,” who will pay for the underlying foundations of innovation?

Bell Labs is no longer the center of creativity it once was. The reason is that when AT&T was broken up in the 1980s, none of the parts were willing or able to fully invest in the infrastructure of a collaborative community. The Labs formally went to Lucent, which applied more and more pressure for immediate payoffs from research and occasionally went out and bought groups of scientists in order to get their inventions in a hurry. That strategy has undermined long-term innovative capacity. But the company really had no choice: the shareholders were always on the lookout for ways to “free up” invested capital, and the threat always loomed that someone might buy the company with borrowed money and sell off the assets – the accumulated knowledge as well as the technological systems – to pay off the debts.

Essentially, the logic of capital accumulation is now in contradiction with the logic of capital creation. To create capital, the best method is to develop new knowledge. That requires building and maintaining a trusting network of specialists, like those of Bell Labs, who are willing to contribute to larger projects. To accumulate capital, however, the best way is to extract value and recirculate it in the form of debt. This was the logic of the housing bubble as well as of mergers and acquisitions since the 1980s. There’s a lot of capital sloshing around the world now, much of it “liberated” from low-value uses such as scientists sitting around trying to figure out some basic problem with no visible payoff. This process has consistently destroyed existing networks like the Labs and is increasingly penetrating into universities with demands for more “practical” research with measurable results.

Unfortunately, the solution is not as simple as going back to something we know, like the Labs. Bell Labs had, from today’s point of view, some serious limitations. It was a small group, controlled by a single company with a limited focus, dependent on profits that came from the parent’s monopoly position. Those conditions are limiting and unsustainable. The knowledge needed for sustainable innovation today cannot cannot depend on monopolistic profits, nor can it be contained by a single company: companies constantly find that they need to draw on expertise from around the globe, including so-called “developing” nations like China and India.

What we’re looking for is a way to fund and maintain broad networks of people with many activities that may not pay off, but which are the seed beds of the solutions that will nourish further growth. Open source networks of software developers are in that direction: the Firefox browser and the Unix operating system are created by thousands of people volunteering time and expertise in exchange for a combination of satisfaction and reputational benefits; and large companies such as Google and IBM are also big supporters, contributing much free employee time, because they see the value of this method of knowledge-creation. Open source is in its infancy and its principles of organization, financing, and accountability are far from sufficient for long-run success, but it may point the way to the Bell Labs of the future.