From the archives: The rise and fall of the industrial R&D lab
For a time in recent history, R&D labs seemed to exist in a golden age of innovation and productivity. But this period vanished as swiftly as it came to be.
From our first issue, Ben Southwood writes on the rise and fall of the industrial R&D lab.
Once, small firms centred on inventors were responsible for most of our innovation. Larger firms might buy or exploit these steps forwards, but they did not typically make them. And then for a brief period, this changed: many of the best new products, tools, and ideas came from research labs within large corporations. This brief period also happened to be the era when scientific, technological, and economic productivity sped forward at its fastest ever clip. Yet almost as soon as it arrived, the fruitful period was over and we returned to a situation where small companies and small-business-like teams at universities developed innovations outside of large companies and sold them in a market for ideas. Though we might enjoy the innovation created by small flexible firms, we should not dismiss the contributions made by large corporate labs. The corporate lab may be creeping back, but aggressively prosecuting antitrust against large firms growing organically through in-house research could easily snuff this spark out.
The USA’s first system of innovation
When the USA began to contribute to the progress of technology, in the early 19th century, it was largely practically-minded, not based on deep scientific understanding. Rather, it largely consisted of individual inventors commercialising their own inventions. Whereas nuclear power depended on decades or centuries of progress in physics, many late 19th century innovations were more like the cotton gin, which came together through practical-minded trial and error in the field. By the late 19th century, the system had morphed into one we would find strangely familiar today: inventors invented, venture capitalists invested, and companies commercialised. The system even had patent lawyers and non-practising entities, which own patents purely to litigate on their behalf. There were still startups commercialising an idea and scaling it up themselves, but many inventors found that the division of labour enabled by the market ideas allowed them to focus on what they did best.
Large firms were consumers of ideas created by inventors, and were sceptical of the value of doing in-house science. They believed it was easier to buy new science off the shelf. In 1885 T. D. Lockwood, head of American Bell Telephone Company’s patent department, said:
“I am fully convinced that it has never, is not now, and never will pay commercially, to keep an establishment of professional inventors, or of men whose chief business it is to invent”
Of course, Bell Labs itself later grew to be one of the marquees of commercial labs—in the late 1960s it employed 15,000 people including 1,200 PhDs, who between them made too many important inventions to list, from the transistor and the photovoltaic cell to the first digitally scrambled voice audio (in 1943) and the first complex number calculator (in 1939). Fourteen of its staff went on to win Nobel Prizes and five to win Turing Awards.
The 1920s stock market boom was in large part driven by a huge rise in the value that investors accorded to intangible capital and ideas held within companies. A similar thing happened in the 1990s Dot-com Bubble. Between 1921 and 1927 the number of scientists and engineers in industrial labs more than doubled. When the stock market crashed and the Great Depression hit it caused a massive and persistent decline in independent inventing and the startup-like activity around it. But large labs continued to boom, increasing staffing and research spending throughout the lean 1930s, and earning more patents. By 1930, most patents were issued to large firms, rather than independent innovators, and this gap only widened into the 1950s. The industrial lab had become king.
You an read the rest of the piece here.