Breaking Bell | Writer Jon Gertner discusses AT&T’s impact on technological innovation | 5

25:40And as the company was broken into pieces, the revenue of each sort of fractional company would be smaller. So, you know, if you look at Bell Labs as having a kind of, that part of its innovative capacity was its size, that it had this sort of largeness of talent and dynamics because of all the people and because of all the revenue, then in fact, the threat of a breakup was worrisome. And the actual breakup proved to be devastating, not quickly, slowly, actually, as companies broke apart and Bell Labs got smaller and smaller, both in terms of revenue, in terms of people, and in terms of its capacity and capability for what it should do.

26:20So, I mean, the breakup was a sort of seminal kind of moment in the history of Bell Labs. I might add that a lot of the managers of Bell Labs had seen this coming or had seen this danger decades before. And really, if you go back to the 1950s onward, maybe even into the 40s, you can see that the managers would always have a very careful eye on where the limits of Bell Labs research could go, that they wanted to stay inside what was allowed by the monopoly agreement with the government. So, for instance, computers were off limits to AT &T and to Bell Labs by the agreement that they had struck with the federal government.

26:58they were going to work in telecommunications and telecommunications only that define the purview of their monopoly. So when I was kind of digging through the archives, you know, I would see papers saying, you know, please do not describe the electronic switching system as a computer. You know, of course it was a computer, but they couldn't describe it as a computer because that would kind of raise some alarms in Washington, possibly. So it was almost like the breakup in 70s, which effectively took place in the 80s of AT &T, had been the kind of nightmare scenario that I think people at Bell Labs had been sort of seeing really for many years.

27:36And as it unfolded, it really, I think, as many people at Bell Labs knew it, it undid their organization. Not quickly, as I said, but slowly. Was there anyone inside Bell Labs that thought there was an upside to the breakup? I mean, it seems like monopoly constraints might have limited their ability to do research, but also to do profitable research. Yeah, I think they were looking to try and sort of make the best of a difficult situation. You know, there was still a sense right after the breakup that this freed AT &T to join or to enter the computer business and that it would become a kind of player in that business.

28:13Now, that didn't work out well at all. In fact, they failed at that business in part because the expertise of AT &T and, you know, to some extent Bell Labs and Western Electric, was to kind of create telecommunications equipment within this sort of very structured, protected monopoly system. And, you know, it turned out that free markets were just not what they were able to work within and were very, very difficult for them to compete within. But thus, there was optimism that there would be new markets for the company to get into. There were some thoughts that maybe Bell Labs should be spun off as a national laboratory or I remember reading Peter Drucker sort of raising this point, maybe Bell Labs could kind of go into business on its own.

28:58I mean, it's difficult to see how that could have worked because Bell Labs was really a research and engineering group and not a sales or business group, really. It was kind of joined at the hip, really, to Western Electric and AT &T. And for it to be on its own was probably not possible. I think it could have, in theory, looking back on it, become some kind of national laboratory for communications. But that too is hard to see how that would work because it was still part of these larger telecommunications entities when the companies were broken up. So this notion of could history have turned out differently?

29:34What could have happened is AT &T could maybe have not settled or gotten into a settlement with the government to break up the company as it did. They could have gone to trial, which they didn't end up doing. But it's hard to know whether that would have happened anyway. And it's also hard to know if things would have turned out differently at all anyway either. Well, you know, that's speculative history and no one can really know. But after AT &T's breakup, Bell Labs remained part of the company, at least in the short term. Describe to us how Bell Labs changed in this period of enormous change for AT &T.

30:09At first, not much. At first, I think there were a lot of people doing, you know, researching. To understand Bell Labs, you know, there were a lot of engineers and some scientists working in development who were working on getting new products out, I guess we might say, within like a two to five year time frame. But we also had a lot of people just in the research area of Bell Labs, you know, probably well over a thousand people right around 1980 who were really doing, I guess you could say, blue sky research or basic research. And basic research is difficult for a company. I mean, Bell Labs continued to do it in physics, for instance, and they continued to win big prizes, like Nobel Prizes, for instance, and other prizes elsewhere.

30:51but one thing about that kind of research is it's really really hard to capitalize on not only because your competition might be working on something but because sometimes the time frame between these breakthroughs in basic physics or say the optical fiber transmission can take really many many years to actually translate into a new product and by that point you know AT &T kept evolving and kept breaking apart and being recombined into other forms. And Bell Labs, in the meantime, kept getting smaller and smaller, and telecommunications all of a sudden was in the midst of a real revolution, I mean, in terms of private industry and in terms of other companies kind of coming out with cheaper products that appeal to the consumer and all sorts of other advents of cellular communications too.

31:38Immediately after the breakup, Bell Labs tried to continue as it was, and it did for a few years. But eventually, I think the laws of gravity just caught up to it, and the basic research component got less and less. It could not be justified by the kind of private sector competition that the company was now in. And eventually, you know, it had to be kind of downsized to such a modest degree that Bell Labs really ceased to be the same organization, I would say, that was the Bell Labs that, you know, I had written about really more in the 50s and 60s and 70s in that heyday of innovation. And I think that's just reality I might just add.

32:16We might not look at that as a kind of tragedy, although maybe it is, maybe it isn't. I think the point is that the reality was that Bell Labs just could not be maintained under the situation of the breakup. that there was no way to continue funding and sustaining this 20 ,000, 25 ,000 person research and development facility that had a very, very large basic research component because it just couldn't be justified by the new private sector corporate nature of its parent companies. So after the breakup, we have this slow atrophy of Bell Labs. What happened to the brilliant minds at the company, the 20 ,000 people?

32:59That probably dwindled too. How did they handle this change in both mission and morale? Some left. Some of the best finds went out to the West Coast and got jobs at Google, at Microsoft. Some went to universities. You can still find Bell Labs people everywhere. Princeton, Google, Stanford, Berkeley, everywhere. Whether it was people who worked on Unix or C +, or in the physics labs or elsewhere, or engineers. And they're commenced to brain drain. in those years after. Some people retired, but academia and the private sector companies, as well as I think the burgeoning companies in Silicon Valley, really gained from Bell Labs' slow demise.

33:42And they in turn sort of hired those scientists and those engineers and used their both wisdom, experience, and intelligence to fund new research, new products, new ideas. A lot of innovation today is funded through VC money. How does this compare to the kind of incubation that Bell Labs received through AT &T? Yeah, it's a very different model. I think that we were talking about long-term time horizons. It's probably the most substantial difference. I mean, as a journalist, I've spent a lot of time with the VCs out in California and sort of have understood how they fund companies and what their expectations are for returns and for the development of technologies.

34:30and obviously they're not interested and can't really afford to and it makes no sense to fund basic science experiments in the same way that Bell Labs could and did. And, you know, if we look at some of Bell Labs, I mean, just to pick one example, say, of the first telecommunications satellite, you know, which really was an experiment, that's not something that would ever sort of suffice, I think, in the VC environment if we had to kind of compare it to today. But we have a model that I think, you know, it works certainly very well for bringing software to market and to some extent hardware. I think some of the shortcomings, if we might call it that, are in the sense of how difficult it is, for instance, to bring down some costs on things like clean energy technology, for instance.

35:19Although, you know, we've seen a lot of VCs funding some of these innovations that have come to market and have made an impact. You know, Bell Labs was a centralized model that I don't really think exists anymore. I think to some extent, you know, Google has tried it with Google X with, I think, you know, mixed results maybe or, you know, results that are more modest, certainly, than Bell Labs. And, you know, I think that that notion of putting billions of dollars into sort of early stage science and research is very, very difficult for any VCs, backed companies, or for any kind of companies that are really sort of focusing on, you know, quarterly or yearly results that have to sort of justify those investments and that are really looking at like a two or three year timeframe for new technologies.

36:09So, yes, in some, I think we have a different model. Does it work better? I think it works better in some respects, the VC model, in terms of getting kind of new consumer technologies to market, getting new software to market. Does it work better in terms of breakthrough innovations that might take decades to sort of scale? No, I don't think so. And we might say, well, okay, we have national laboratories or that's why we have federal investment to sort of take up those blind spots. And that's true. I think in some ways you kind of, as probably listeners can hear, like I sort of end up in this place like we're sort of comparing apples and oranges in some respects because that Bell Labs model does not really exist anymore.

36:52It's been replaced with something else that both has advantages and disadvantages. And if we've lost anything, it might be that sort of notion that we've lost this sort of ability to have really long time horizons to solve really difficult problems that take a lot of time and a lot of effort. Well, your answer there anticipated my next question. Back to speculation, is there any way to fill that gap? Could the long-term, high-cost research, the type of research carried out at Bell Labs be done successfully today in any manner? I think so. I don't think it would be done in communications, which probably goes back to that question of being, you know, Bell Labs was the right organization in the right area at the right time.

37:34I think those sort of huge gains in communications are probably there already. My own feeling, and it's just a kind of personal belief, is that we probably need a crisis and we probably need some kind of public funding. And whether that's related to some kind of biomedical crisis or some kind of climate crisis or the like, I think what we have to look towards would be some kind of federal funding to do a kind of Manhattan project of sorts or Rad Lab, which was at MIT for the development of radar, for instance. Some kind of huge expenditure with a kind of very high intensity number of people working together to solve a very sort of directed problem.

38:18It's hard for me to see companies, corporations making that step and saying, you know, I'm just going to create another Bell Labs. Because, again, I think right now it's just in the nature of the way companies function within markets that they don't have the luxury or ability to sort of work on those long, long, long timescales. It doesn't mean they can't have big breakthroughs and doesn't mean they can't do meaningful work or come out with new innovations that make a difference. I think what it means is that they're not going to sort of see themselves as responsible as, say, Bell Labs did for creating the future of communications over the course of a century.

38:54It means that they might just see themselves as necessary players that are investing in new products that can make whatever field it is, whether it's energy or software or cryptocurrency, whatever it might be, banking, better and better for the consumer. But in terms of these sort of world-changing innovations, it's harder for me to see that without that sort of federal funding component.

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40:35You mentioned Google X as a nexus or a location of where such research might be continuing today, but of course, Google is facing its own antitrust troubles. How much do you know about that case, and what could you possibly tell us about compare and contrast between AT &T and Google? I'm not following the Google case that closely at this point. I did go to Google X to visit in its very early incarnation. And I think to some extent, you know, there were some similarities between Google and Bell Labs or Google and AT &T, just as there were similarities, I think, to some extent with Microsoft and Bell Labs.

41:10And Bill Gates, I think, has sort of noted, you know, that he was a big admirer of Bell Labs, just as Google was of Bell Labs. And, you know, these are companies, Google and Microsoft, that, you know, had a kind of quasi-monopoly in their respective fields. They could dedicate large amounts of funding towards research and development. And whereas I don't think they could work with the same open-ended structure or time horizon that Bell Labs could because they weren't effective monopolies that were kind of codified into law, they really did have a luxury of not sort of looking necessarily at making something happen within a year or two.

41:46and Google X was looking at five years or 10 years to turn around some bigger innovations. There were similarities. I think the problem is, you know, with companies is you can have a tough year or you can suddenly see competition coming out of nowhere and then all of a sudden some of your research efforts can be on the chopping block pretty quickly. When they're not sort of materially relevant to your bottom line yet, it gets harder and harder to justify them. Presuming that Google does face some sort of action, either through the Department of Justice or negotiated with policymakers, what should these government agents, how should they think about any potential action against Google when they review the unintended consequences of regulating tech firms like AT &T and what happened to Bell Labs?

42:36Right. We know that regulation can create problems and we know that a lack of regulation can create problems. What I think about more than Google is what I think about is with artificial intelligence. And I think that gets into a kind of perhaps more pressing question of regulation. I mean, how much should it be regulated or what are the dangers of regulating it and what are the dangers of not regulating it? And to what extent are the risks of not regulating it, you know, catastrophic, say, or not? And, you know, I think we're certainly in an environment now where regulation is going to be downscaled under the Trump administration compared to sort of what we previously had.

43:14And I can't say I'm an expert on sort of where they're going to go with it. But I think, you know, what we've seen with those questions coming up with AI is we really didn't necessarily have a consensus on what to do with it. And I can't say I have the answers. I mean, I have certain thoughts about AI. And I think what we know from some of its creators is that there are potential dangers there, whether we know how to regulate it or not, whether we don't regulate it, but the European Union regulates it and that has an effect here, or whether we need some kind of global consensus on how to regulate these technologies is really important.

43:50But I think the point you raised is that, yeah, we're at a moment where the technologies can be so powerful, so new, so transformative, that regulation becomes a very, very difficult kind of question. And I don't even know if the Bell Labs lessons can apply in some aspects, because in some ways it feels like a very different world when we're talking about there weren't sort of existential risks, I think, with Bell Labs technology and regulation, but I think there may be now. That prompts a question. If you were to rewrite your first book, if you were to try and contemplate the central idea of your book, The Idea Factory, what themes or developments would you explore today?

44:34Well, I think, you know, coming at Bell Labs as a historian or science historian, And, you know, the story that I wanted to tell there was, I think, the same story I would tell today. How did this lab form? How does innovation happen? And I think those lessons are pretty timely. And when I started the book, I wasn't exactly sure that I would come out with those feelings that innovation lessons can kind of stand up over time. getting people together, looking at a technology in terms of a problem-solving approach, you know, using people from different disciplines to work together, sometimes intention to actually create a new technology, all those other things that my book sort of explores, the difficulty of scaling up hardware, all those things, I think they stand the test of time.

45:20So you mentioned rewriting the book, which sort of fills me with worry because like, oh my God, it was so hard to write anyway, that actually having to rewrite it would be difficult. But I think I would write the same book. I think where it would leave off at the very ending would be interesting. And it's a good question in that I don't know how I would sort of contextualize the sort of foundational work that Bell Labs did in terms of transistors and lasers and communications that in turn of rise to this, I guess, our digital society today, and how that figures into sort of the risks or concerns of the 21st century and the technologies we have.

46:05I suspect that I would address that a little bit more directly, or I would think about that a little more. And when I talk about risks, I don't just mean, you know, an AI system going haywire. You know, I mean risks also in terms of employment and jobs and how, you know, our society sort of functions, whether it's people working in technology or technology becoming so sort of self-empowering that it leaves a lot of people out and, you know, affects, you know, employment and economies in a very profound way. So there's all sorts of reverberations, I think, from where we are now and where we'll go ahead.

46:40And I think the larger point maybe is that, you know, the foundation, the platform innovations on which today's technologies were built really do trace back to Bell Labs. I mean, every time we'd boot up a computer or push the button on the microwave or turn on stove or any electronic device anywhere in our home, car, or anywhere in the world, we're using some kind of Bell Labs technology. So that undergirds, you know, the way we live today. And, you know, I still think that's an important story to know and understand. So finally, this is a business show, but many of us do not have global monopolies in the telecommunications industry.

47:18So what business lessons do you think our listeners can learn from Bell Labs and the breakup of AT &T that they may be able to employ in their work? I think that, you know, there were a couple things that stood out to me after. And the first is that, you know, innovation is like a buzzword, but that just knowing how it was done at Bell Labs is just that innovation is hard, whether it's software or hardware. And capitalizing on research is hard. and scaling up is hard. And even if you seem on the top of your game, you're kind of seeding your competitors. You're creating a kind of nemesis that you might be at a moment where you're just about to fall.

48:02So, you know, this sort of notion of making your way as a technology company and innovating over and over again, I think what struck me throughout the book is how difficult it is to kind of be a continually innovative company. And I think it's also important overall that you want to see your company and products contextually. And, you know, at Bell Labs, they were very powerful and very influential. But I think what we learned or what I learned about Bell Labs was that they could keep innovating, But at some point, sort of the world's kind of society or the way that the kind of surrounding environment within which their technology functioned kind of overtook how they functioned, that they became kind of antiquated.

48:52And maybe that's a lesson, too, that, you know, no matter what product you're making, no matter what space your company is working in, no matter how good you are at what you're doing, that kind of, like, understanding that you have to see yourself contextually within a sort of larger environment that's constantly changing, dynamic, that's constantly, in some ways, working against you or potentially. I guess it's possible it could be working for you, but that if you're not sort of aware of that, if you're sort of so sure that you can kind of exert control over that, then you may be doomed to fail in some ways as Bell Labs eventually was and that AT &T eventually was.

49:33So never stop to step outside your work to understand that no matter how great your achievements are, that future is always going to be hazy. It's terribly unfair, but it seems very true that that next year or the next five years are always going to be difficult and it's never going to change. Well, John Gertner, thank you so much for talking with me today on Business Movers. I enjoyed it. Oh, thank you so much. I appreciate it. That was my conversation with John Gertner. His book, The Idea Factory, Bell Labs and the Great Age of American Innovation is available now. From Wondery, this is the final episode of our series on the breakup of AT &T.

50:10In the next season of Business Movers, teenage millionaire Howard Hughes heads west with dreams of conquering Hollywood, but the bold Texan outsider quickly learns that making a hit movie is harder than it looks.

50:25If you'd like to learn more about The Breakup of AT &T, we recommend The Deal of the Century, The Breakup of AT &T by Steve Kahl. The Fall of the Bell System by Peter Temin with Louis Kolambos. And End of the Line, The Rise and Fall of AT &T by Leslie Cauley. A quick note about our dramatizations. In most cases, we can't know everything that happened, but all our reenactments are based on historical research. Business Movers is hosted, edited, and executive produced by me, Lindsey Graham for Airship. Audio editing by Mohamed Shazib. Sound design by Molly Ba. Our supervising sound designer is Matthew Filler.

50:57Music by Thrum. This episode is written and researched by Joe Guerra. Coordinating producer, Jake Sampson. Senior producer, Scott Reeves. Executive producers are William Simpson for Airship and Aaron O 'Flaherty, Jenny Lauer Beckman, and Marsha Louis for Wondering.

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51:52Jon Gertner:Audible subscribers can get all episodes early and ad-free right now. Join Audible in the Audible app or by subscribing on Apple Podcasts.