Chapter 14
Entrepreneurship in the United States, 1920–2000
THE SPECIAL GENIUS OF THE twentieth-century U.S. economy has typically been characterized as the harnessing of technology by entrepreneurs working within the large vertically integrated American corporation, at first wholly a private sector phenomenon, and then in cooperation with an increasingly interventionist federal government.1 By the 1970s no sector of the U.S. economy, whether public or private, for-profit, or not-for-profit, was unaffected by this regime. Even nonmanufacturing sectors like entertainment and communications bore the stamp of the scientifically enhanced, and regulated, form of industrialization that consolidated the gains of the second industrial revolution.2
Closer examination of the twentieth-century experience in the United States, however, suggests a more complicated picture than the simple rule of giant firms.3 Even the apparent institutionalization of innovation-as a perpetual motion machine embedded in a network of large corporations, supported by complementary institutions-was only part of a more complex story.4 Less evident, but still important, were the activities of the usually smaller entrepreneurial firm, and of individual inventing entrepreneurs, often working with large corporations. Though the interlocking bureaucracies of what Louis Galambos has termed the “organizational synthesis,” which relied on associated professionals, managers, scientists, and government bureaucrats, may have been the dominant mode of the American economy for much of the twentieth century, the impetus for renewal in the American system was grounded in the complementary relationship between the innovating entrepreneur and the enterprising firm, which might be termed the corporate entrepreneur.5
Large corporations were well established by the beginning of the twentieth century (as we learned in the previous chapter), but many of them had yet to “corporatize.” As historians Olivier Zunz, David Hounshell, and JoAnne Yates have described in detail, the corporatization of America took the form of increasing bureaucratization through standardization, controlled information flow, the investment of impersonal capital, and cultural homogenization.6 The end of the Great War unleashed a passion for productivity that resulted in a systematic application of scientific management, especially within the large corporation, as well as among its suppliers and institutional collaborators like the labor unions.7 The institutionalization of the large industrialized corporation also brought with it several new forms of economic coordination-integration of R & D, intercompany associations, and increasing degrees of government regulation (Galambos and Pratt 1988). Together, these changes led to a partial closing of the U.S. innovation system, with the short- term but temporary effect of streamlining technological innovation and harnessing it to national priorities. This highly integrated and compartmentalized innovation system did not drive out the individual entrepreneur entirely, but it formed a different context for entrepreneurship than the open system we saw in previous chapters. The reopening of the system was a development that occurred, not coincidentally, with the spread of information technologies and the third industrial revolution that was fully consummated by the end of the century.
Innovation as a Twentieth-Century Version of Entrepreneurship
It is significant that the Oxford English Dictionary credits Austrian economist Joseph Schumpeter in 1939 with the first use of the term innovation, as the essential entrepreneurial act, for in the first half of the twentieth century the term entrepreneur became closely associated with science-based innovation. The Schumpeterian entrepreneur's role was to supply the coordination and effort that brought a new process or product to the point of adoption and commercialization, but not necessarily to supply the capital. For this diligent observer of the twentieth-century American economy, entrepreneurs, whether acting on their own, or inside firms, did more than make decisions in the face of change. They responded creatively to change, seeking to shape and use it for their own purposes. Though Schumpeterian entrepreneurs did not have to risk their own capital, entrepreneurship was inherently a risk-taking activity in other ways, one so painful and fraught with uncertainty that it justified the financial returns it generated when it succeeded, even when they were very large.
While Schumpeter initially limited his characterization of the entrepreneur to the creative individual, his later work acknowledged that the advent of the large integrated corporation had changed the American entrepreneurial scene. When scientific research entered the picture, the locus of greatest uncertainty became technological. Firms that integrated invention and research as corporate functions were creating the potential to initiate disruptive innovations that could leave their less well-endowed competitors at a disadvantage. They also acquired the potential to control the rate of change in their industries, and often sought to keep individual entrepreneurs from interrupting the orderly and profitable development of technologies.8
Prosperity and Status
No period in American history has celebrated the entrepreneur, and especially the inventing entrepreneur, more wholeheartedly than the period that culminated in the second industrial, or electrochemical, revolution in the 1880s and 1890s. By World War I, however, this revolution had entered a consolidation phase. The wealth and power it generated had also become identified in many quarters with various antisocial activities. When corruption at various levels both in government and firm governance, attracted public attention, the federal government of the Progressive Era instituted social and regulatory policies intended to curb the more antisocial aspects of greed. Regulatory policy was also fashioned to build solid working and middle classes that would be equally resistant to socialism and the solidarity of labor unions.
In this context the corporation adopted a less flamboyant style more in keeping with the public mood and the spirit of science-based efficiency, replacing its hitherto charismatic leaders with professional managers, “the organization men.” Large centralized corporations headed by industrial statesmen, like Owen D. Young, chairman of General Electric, would remain a fixture of the twentieth-century business environment, playing a major part in making these classes viable (McQuaid 1978). The role of industrial statesman-an establishment figure, often college-educated, always socially and politically well connected-was rarely open to the entrepreneur. Some that did achieve it, like Samuel Insull, English immigrant, electricity pioneer, and leader of his industry during the 1920s, suffered reversals of fortune for their presumption.9 For much of the rest of the century, the term entrepreneur took on a negative connotation, signifying the eccentric individual who was all too likely to be disruptive to the well-integrated organization.10
The new social landscape was shaped by other factors as well, including a narrowing of the disparities in wealth distribution in the society through fiscal policy, and the acquisition of appropriate skills by the broader population. What became known as the “great compression,” shrinking the gap between the highest and lowest U.S. income earners, had the effect of reducing the private concentration of investment capital, while giving the federal government more money to spend. The federal income tax, first imposed on the highest income earners in 1913, helped to consolidate the middle class. The income of those in the highest income percentile as reflected in income tax records, dropped from 18 percent of total declared income before World War I to 8 percent of declared income in the early years of World War II. After the wealthiest people saw their marginal tax rate hit 80 percent to help finance the war effort, income inequality hit its lowest level of the century and remained stable well into the 1960s (Piketty and Saez 2003). The midcentury dip was partly accounted for by shifts in tax policy-progressive income taxes, estate taxes, and corporate income tax, which in turn reduced the money payable for dividends. Wage levels for working- and middle-class people were also sustained by big unions and big corporations, as well as by government programs (Fischer 1996, 202–3).
A widening of income inequality levels in the 1970s signaled the start of a new technological revolution, the information revolution.11 For some, the recurrence of rising income disparities was explained by the failure on the part of the working class, and the unions that represented them, to acquire the new skills required by the shift in technology; for others, they reflected increases in individual entrepreneur- ship as well as increases in its rewards (Reich 1991). They also reflected the effects of successive waves of financial innovation extending credit to less and less qualified people through the depersonalization and automation of investment at all levels.
Social attitudes toward entrepreneurs corresponded to the income inequality curve. From the late Victorian period to the Roaring Twenties, wealth attained through entrepreneurship or other forms of achievement like entertainment, held celebrity status, but as novels by Willa Cather and F. Scott Fitzgerald demonstrated, the associated materialism and lapses in morality were simultaneously admired and condemned.12 After the shared sacrifice of World War II, individual power and wealth became suspect, and greater status accrued to those leaders of large organizations, private or public, civilian or military, who knew how to make them productive (Farber 2002). By the 1990s the tables had turned and entrepreneurs appeared on the front cover of Time magazine. Once again the top percentile of the population was in control of over 11 percent of the country's annual income. This time, however, less of the wealth in the top category of taxpayers was accounted for by the rentiers. Owing to striking gains in executive compensation, including stock options, and to massive increases for those whose compensation derived from innovative activities in financial services-venture capitalists, hedge fund managers, and private equity partners-this time more accrued to the working rich, who in turn often used their money to invest in entrepreneurial ventures.
Context and Conditions for Entrepreneurship
The period 1920 to 2000 comprised three distinctly different eras for entrepreneurship. The financially chaotic interwar era of 1920–41, featuring a push for productivity and its consequences for unemployment, ended with the U.S. entry into World War II.13 For entrepreneurship this period was extremely volatile with many opportunities in fast-growing industries in the 1920s followed by the swift demise of many new companies before and during the Great Depression. The second period from World War II until the long period of inflation beginning with the Vietnam War, 1941–74, involved continuous national mobilization but with a relatively static economic equilibrium emphasizing optimization. In this period innovation was not a high priority for large corporations, or even very welcome in many sectors, except in the designated “high tech” businesses that were needed by the military, and “crossovers” that could translate military technologies into civilian products. The third period, 19752000, featured the fluid phase of the information revolution coupled with globalization, combining to become the third industrial revolution. This era saw a resurgence of entrepreneurial opportunity in many different sectors of the economy, especially information technology and new consumer products. Beginning with the economic slowdown characterized as “stagflation,” it continued with a revolution in financial institutions that culminated in a series of financial bubbles: the telecoms collapse, the dot-com mania, and the subprime mortgage collapse, the last of which developed after the turn of the new century. Each era for entrepreneurship was characterized by its own unique institutional developments, and in all three eras entrepreneurship played the important but distinctive part that circumstances dictated at the time.
Era One, 1920–1941: Search for Economic Self-Regulation
In the 1920s economic output rose, until in 1929 it achieved a level not to be seen again until 1940 with the ramp-up for World War II. This performance was the result of deliberate attempts to rationalize and achieve efficiency. Besides the focus on productivity, big contributors were social factors generating a new kind of consumption: mobility and suburbanization, rising populations with greater disposable incomes, and more leisure time (Bakker 2003; Melosi 2000, 206–7). Industries that benefited especially from these factors were the several great high-growth businesses that had their start in technological developments before the turn of the century, but drew on wartime demands and financial improvements to achieve postwar scale. These included two huge changes in transportation, aircraft and automobile production, together with the infrastructure builders and the materials and parts-suppliers that attended those industries; and electrification-comprising also the motorized appliances that electricity made possible, cinema, and consumer electronics, which transformed entertainment and advertising. Entrepreneurs who had driven the development of these industries, both technologically and financially, like Samuel Insull, the electrical pioneer and acknowledged leader of big-city power companies, had already turned to investing the substantial rewards of their prewar activities. Among the high-growth industries of the 1920s, the iconic growth industry was radio, which opened opportunities of many kinds for entrepreneurs, especially inventing entrepreneurs. If the patron industries for nineteenth-century inventors had been the telegraph and the railroads, the patron industries for the twentieth century became automobiles, aviation, electrical appliances for home and industry, entertainment, especially the cinema, and radio. Of these, radio and the electronics that grew out of it became the greatest generator of entrepreneurial opportunity.
Radio: Invention and Innovation
Radio was both science-based and a “crossover” industry, in the sense that its technology base was considered to be strategic from a military perspective as well as important to civilian pursuits. For this reason the U.S. government intervened at the time of World War I to ensure that its technology was not held hostage to the disputes over intellectual property that had plagued it and other emerging technologies in the prior era. Characteristic of this type of intervention was the takeover of American Marconi and its reorganization into the General Electric subsidiary, the Radio Corporation of America (RCA), which was formed to administer a patent pool of radio-related patents drawn from GE, Westinghouse, AT&T, and United Fruit (Aitken 1976; Chandler 2001, chap. 2; Reich 1977). Growth in the industry was fueled by the major social movements of the time. Acculturation of immigrants from prior decades, for instance, was a key growth factor as transplanted populations often speaking and reading no English found community, entertainment, and information about their adopted society in the new medium (Graham 2000, 149–50).
Radio functioned primarily as a point-to-point (i.e., ship to shore) communications medium before the war, but its development was also driven by thousands of ham radio operators who helped to develop the radio art and contributed their expertise in many ways before and during World War I (Douglas 1987). Beginning with radio station KDKA in Pittsburgh in 1920, radio morphed into broadcasting. By 1930 radios could be found in 14 million U.S. households, enjoying a rate of adoption far greater than either electrification or the telephone. Both technologically enabled forms of entertainment, radio and cinema, met with similar rapid increases in use, though sales of radio sets declined in 1926 and again during the Depression. New radio-related opportunities for entrepreneurs ranged from design and production of radio sets and electronic components to dealers and repair shops, advertisers, public relations firms, and entertainment producers. Though the number of companies active in the radio industry declined dramatically in industry shakeouts of the mid-1920s and early 1930s, a few new enterprises survived to become large suppliers of ancillary devices. One factor that inhibited entrepreneurship in radio was the aforementioned control given to RCA over the radio-related patents, for all radio producers were required to license a “package” of patents, whether they could use them all or not. This was a significant liability for smaller enterprises, as was the control of component manufacturing and supply by the electrical companies, GE and Westinghouse (McLaurin 1949).
Dislocation and Innovation
The Roaring Twenties were not just about sudden growth industries, however: the frenzied prosperity masked other forms of economic dislocation, which in turn moved established companies to innovate reactively, often by forming relationships with entrepreneurial enterprises. While overall output rose, employment numbers declined in such previously steady areas as mining, steel, shoes, housewares, and clothing production.14 Spurred by rapid advances in mechanization achieved during the war years, companies harnessed electricity to replace manpower, and found new uses for internal combustion engines for transport and for agriculture. Homes and farms adopted the new labor-saving devices when their domestic laborers and hired hands took manufacturing and office jobs. At the firm level a new merger movement occurred as companies sought to insulate themselves from change. Many firms that obtained the necessary financing absorbed other firms, especially competitors and suppliers. However, even firms that came out on top in the various industry consolidation movements could not proceed on the basis of scale alone: most could no longer survive by offering the goods they had offered before. For inspiration many embraced social needs, like the movement for sanitary households following the 1918 flu epidemic, or drew on new science bases like home economics for fresh ideas.
The task of keeping up with “The New American Tempo,” as it was known by the later 1920s, was not an easy matter. Regina Blaszcíyzk has shown that to increase their appeal to a broader spectrum of customers and to compete for a consumer dollar stretched by the purchase of new homes and automobiles, even the most established firms had to change their product lines, often in innovative ways. Companies added new forms of expertise like design and set up new feedback links with their customers. Corporate entrepreneurs like Kohler, the third largest plumbing ware company in the country, abandoned its old channels of distribution dominated by traditional plumbers and plumbing supply contractors, and appealed directly to consumers through a combination of showrooms, designers, and color experts (Blaszczyk 2000). Specialty glass company Corning Glass Works also connected with different markets when it diversified from just selling heat-resistant glassware to laboratories, to selling consumers see-through ovenware and tableware. Even Ford Motor Company tried to adapt its changeless Model T to changing consumer needs, while trying to avoid the appearance of innovating.15
Entrepreneurship in general assumed a different shape in this context, in many industries achieving a new symbiosis between large and small enterprises. Large companies that had been forced to innovate reactively settled back into established ways as soon as they dared, but corporate entrepreneurs, like Kohler and Corning, learned from their experience in the 1920s and 1930s to take advantage of economic shock or upheaval by introducing new lines of product or new businesses. Large merchandisers like the department stores and chain stores took on the financing, national advertising and consumer education campaigns, and distribution management challenges of supplying a continental economy, while smaller design and production houses took on the task of making better contact with local consumer fashion needs, while producing higher-quality goods more efficiently and at lower prices.
Despite, or perhaps because of, the fervent efforts of all firms to achieve efficiencies and to strike a balance between innovation and control, the stock market crash in 1929 and the economic collapse that followed it caused many to fear that economic order was not achievable by the private sector alone. Despite the new opportunities that the emergent industries-automobiles, aviation, electrical appliances, and consumer electronic devices-created, there was a net major loss of jobs in the 1930s. For this the public laid the blame on two things: the evident abuses of the public trust that had occurred in their financial institutions, especially the stock market, and the relentless application of new technology to the pursuit of efficiency that had accompanied the institutionalization of R & D.16
Institutional Shifts: The Stock Market and Entrepreneurial Funding
Developments in the stock market both enabled the rapid rise of the high-growth industries, and contributed to the subsequent shifts in buying power. The 1920s brought financial innovations of several kinds, creating opportunities for the scrupulous and the shady alike. Important changes had already occurred making it possible for the country's securities markets to offer reliable financing to new companies. According to Mary O'Sullivan, more new stock issues occurred in the 1920s than in any other time in the century (O'Sullivan 2007). Enterprises in the aviation and radio industries, for example, could obtain financing without entrepreneurs having to provide the money themselves. Companies that needed to revamp their businesses, or merge with others, could get the financial backing they needed, while enterprises that had already consolidated could find the financing to acquire others in their industry. If the great merger movement of the 1890s had attempted to organize markets, the merger movement of the 1920s was aimed at changing corporate financial structures, issuing stock, or buying stock back so as to increase the value of the remaining outstanding shares. At a time of postwar consolidation for many industries large companies had better access to capital than small ones.
In addition to the novel forms of equity financing, debt was also important, as the U.S. kept its interest rates low for much of the interwar period, motivating investors to seek out higher-yielding investments. Ivar Kreuger, the Swiss “Match King,” made a fortune selling postwar reparations bonds on the behalf of European governments to unwary U.S. investors seeking high yields, and was regarded as a philanthropist until his suicide revealed him to be both a financial entrepreneur and a swindler.17 Smaller U.S. enterprises often resorted to borrowing to meet their needs. Few twentieth-century entrepreneurs proved to be, like Henry Ford, both completely unwilling to have anything to do with stock markets and allergic to credit (Zunz 1990). Although Ford too had serious difficulties in the downturn following World War I, he avoided going into debt because his suppliers and dealers were willing to do it for him. But according to David Hounshell (1984), he also expressed the belief that sales on credit were harmful to the consumer and “steadfastly refused to consider consumer credit as a legitimate instrument of consumption.”
Cheap consumer debt financed buying the new homes in the suburbs and the durable goods that went with them. Towns and cities in turn issued debt of their own to invest in the infrastructure needed to service all the new neighborhoods and homeowners. Middle-class buyers were encouraged to use debt to acquire their cars and houses, and to turn their savings into investments. Many people drained their low-interest bank accounts, and invested their savings in the stock market. Though early in the decade consumer credit was widely available for such purposes, by the late 1920s all forms of investment had become more expensive.
One industry where consolidation was not supposed to take place, at least not across state lines, was banking. But banks, like other enterprises, recognized the development of a national market, and tried to find ways to attain the requisite size needed to take advantage of scale. One banking entrepreneur who later became chairman of the Federal Reserve under Franklin Roosevelt was Marriner Eccles, the first to form a bank holding company, chartered in Delaware, which purchased and owned banks in more than one state, and put together enough of them that it could gain access to eastern banking connections, economies of scale, and large amounts of capital (Hughes 1986).
As consolidations took place in the high-growth industries, however, the amount of trustworthy (blue chip) stock that was available on the market diminished, pushing the prices of remaining stocks to ever greater highs. When the average investor could no longer afford even one share of many high-priced stocks (the Berkshire Hathaways of their day) a few enterprising investment firms adopted the investment trust, imported from England, to offer smaller investors a chance for diversified stock holdings. Most of the management companies that offered these trusts failed quickly, but a few such as those organized by JP Morgan and Goldman Sachs, and the Boston-based independents Mass Mutual and Pioneer, survived. The result was the new mutual fund industry, the innovation of a few entrepreneurial management companies and independent financial entrepreneurs.
Depression Impedes Entrepreneurial Activity
As must be evident from the foregoing account, the Depression that followed the crash of the market in 1929 exposed and exacerbated many kinds of economic weakness: failures of overextended and overleveraged businesses, the interconnectedness of banking institutions, the ready availability of stock market credit. While causality remains a matter of debate in academic circles, one consequence of the Depression was a shift in demand, a decline in buying power for the ordinary citizen. At a meeting with major industrialists convened by President Hoover on November 21, 1929, Henry Ford observed, “American production has come to equal and surpass not our people's power to consume, but their power to purchase” (McElvaine 2003). Paradoxically, upper-middle-class citizens had relatively greater buying power than they had ever had (Szostak 1995). Ordinary consumers who were not utterly destitute continued to buy for the rest of the decade until World War II, but many bought with the help of another financial innovation introduced by a colossal financial and corporate entrepreneur, the General Motors Corporation, the installment plan. After the chaos and wealth destruction of the previous decade the installment plan provided an appealing and reassuring financial discipline.
The war-depression sequence had lasting consequences for the way the American economy would be run. New Deal Democrats secured the White House on promises that the federal government would find solutions to the problems of joblessness and economic instability. The federal government stepped in to coordinate and fund major pieces of the economy, first in the period of the National Recovery Act through public works and later through defense spending. In what has been called the Second New Deal the Roosevelt administration also turned to rigorous enforcement of antitrust legislation, already on the books but seldom enforced, and to other changes in regulatory practice.
If the 1920s provided a heady climate for individual entrepreneurship in chaotic growth-with fluid, rapidly growing new industries, and many new technologies and management techniques being introduced-the conditions of the 1930s worked against starting new businesses and reduced the chances of survival for recent startups. In addition to the difficulty of gaining access to capital, the increasing burden of regulation made the minimum effective size for a viable firm harder to achieve. Many firms run by inventor-entrepreneurs were either acquired or driven out of business by larger firms. Business failures, especially among small and medium-sized companies occurred with increasing frequency, peaking in 1933, but continuing at substantial levels until World War II. For the most part the New Deal administration's several disjointed efforts to coordinate economic recovery stalled, leaving fear and pessimism in their wake (Raff 1991; Hughes 1986).
Large firms that had not taken on excessive debt were better able to weather the prolonged downturn and many took the opportunity to pursue entrepreneurial opportunities or to sponsor entrepreneurial ventures.18 To prudently managed firms, the Depression offered a chance for a new kind of corporate entrepreneur- ship, anticipating and diversifying into long-term business opportunities drawing on research-based invention, rather than relying on immediate demand.19 BF Goodrich investigated artificial rubber; RCA pushed to achieve a working television system; Alcoa looked into structural aluminum for housing and large buildings; Corning Glass produced new high-purity glasses and large telescope mirrors; and DuPont pushed ahead with nylon and other artificial fibers.20 For these companies and many others, the respite from the unrelenting demand pressures of the 1920s was a chance to pursue the long-term research for a program of new products and services. While some firms that had recently opened research departments closed them as an economy measure, firms that kept their R & D laboratories open and working during the Depression built the knowledge bases and acquired the skills that laid the foundation for new business growth for the next several decades.21
In the early 1930s many observers blamed the onset of the Great Depression on the drive for efficiency through industrial research. Even such a consequential member of the New Deal administration as Secretary of the Interior Harold Ickes believed that technological unemployment was an unavoidable consequence of invention (National Resources Science Committee 1937, quoted in Rhodes 1999). Scientist- statesmen like Karl Compton, president of MIT, and Frank Jewett, CEO of the Bell Telephone Company, were anxious to counter this technological pessimism and to convince the public to make a different connection between science, jobs, and prosperity. They argued that, contrary to popular opinion, well-funded and organized science-based innovation could be a purposeful spur to growth, far more reliable than the trial-and-error “imagining” they attributed to independent inventors like Thomas Edison. Their campaign to redeem science in the public mind claimed for industrial research an essential role in future economic growth and set the stage for huge increases in public funding for science in companies and research universities alike.22
Effects of Industrialized Research on Entrepreneurs
Industrial research was institutionalized, in two senses, after World War I. First, the large corporation brought research in-house, to occupy a special place in the corporate hierarchy. Second, the corporate laboratory formed the nexus of a set of relationships and practices with other organizations beyond the boundaries of the firm that has been called the U.S. national innovation system.23 The resulting set of close and interactive relationships never completely excluded inventor entrepreneurs of a previous era, but it did push them to the periphery, outside the expanding boundaries of the more formal knowledge networks formed by large firms and research universities.
As discussed in the previous essay, only a few exceptional pioneering corporate research laboratories were established in the United States before World War I.24According to surveys conducted by the National Research Council, more than 500 firms set up corporate laboratories in the decade after World War I.25 Most believed that a lead in industrial research had given Germany advantages during the war, especially in advanced war materiel, in weaponry, and poison gasses. Because in-house research required significant investment and only the largest firms in any industry had the scale to support it, those that did the research and were willing to share or license their results were creating knowledge resources for entire industries. The federal government actively encouraged private investment in R & D. Especially during the Coolidge administration the funding of industrial research by companies was treated as justification for technology-based firms like RCA to behave as sanctioned technical monopolies (Sturchio 1985).
If the large corporation as an institution had become homogeneous and monolithic by the 1920s, this newest part of the firm had not (Zunz 1990). Industrial research laboratories recruited leaders with charisma as well as recognized scientific achievement to hire stables of distinguished scientists in the United States and from abroad. Corporate laboratories were seldom the first laboratories that a company possessed, but they differed from the others already in use. Before corporate laboratories appeared, there were works laboratories, sales laboratories, experimental mills, licensing laboratories, design studios, and testing laboratories. Like corporations in their formative years a generation earlier, their technical staffs were filled with eclectic groups of people, from many disciplines and occupations. Earlier laboratories were not so remote as to be unreachable by ordinary employees, nor so secretive as to be off-limits to customers, licensees, and suppliers, many of them entrepreneurs. When corporate laboratories proliferated and became increasingly involved with government-funded research, however, the R & D function took on a different character-increasingly remote, campus-like, and protected from the daily interruptions that close connections with production sites were likely to involve.
During the 1920s corporate research laboratories formed connections with other industrial laboratories, university departments, scientific societies, and government bureaus such as the National Bureau of Standards (NBS) and the Patent Office.26 By World War II these networks had developed further, but also narrowed into vital links with government funders and a select group of research-performing universities, forming an integrated, self-sufficient, and increasingly closed innovation system.27 Well-established relationships between experienced inventors and certain large and medium-sized companies survived the 1930s, but the time passed when companies in high-growth industries welcomed the product ideas of amateurs and tinkerers (Hintz 2007, Douglas 1987, Israel 1992, conclusion).
After the war corporate laboratories were expected to fill a new role for large corporations-serving their strategic purposes, creating long-term opportunities, acting as arbiters and standard setters between different divisions of the corporation. Many corporate laboratories gained control of the entire R & D agenda of their respective firms, sometimes closing or integrating the other laboratories and often changing their modus operandi (Graham and Pruitt 1990). In some cases a laboratory became the organizational surrogate for the company's leader, institutionalizing innovation. In 1951 RCA's CEO David Sarnoff made this mission quite explicit by renaming the corporate research laboratory after himself.
Era Two: War and the Innovation System
For U.S. policymakers World War II offered a powerful example of what the economy could accomplish if directed and optimized by the federal government. Direction and optimization were most efficiently accomplished through large corporate entities, which might in turn rely on, or even start from scratch, smaller entrepreneurial companies. In the era that began with World War II successful entrepreneurs and entrepreneurial companies had to become skilled at dealing with politicians and procurement officers to such an extent that economic historian Jonathan Hughes called them procurement entrepreneurs.28 Large corporations that were chiefly government suppliers were known as prime contractors, and supported their research mainly with government research contracts, farming out smaller projects to subcontractors. For military business the primes frequently served as mediators and shields for smaller entrepreneurial enterprises that could not handle the demands of government bureaucratic controls, as well as for other large companies that did not want to deal directly with the government for fear of compromising their intellectual property rights.
The effort to convert the economy to a war-fighting mode reinforced patterns that had already become embedded in the large technology-dependent firms in the late 1930s. Firms like General Motors and Ford Motor Company had just returned to profitability when preparations for World War II and Lend Lease forced them to redirect their efforts, and convert their capacity to war production. Large corporations with working R & D laboratories like Westinghouse, General Electric, and RCA contributed members of their engineering and research staffs as well as project management expertise to several huge, secretive, science-based projects for which the war became known-radar at MIT, radio at Harvard, the Manhattan Project at University of Chicago and Los Alamos. These interdisciplinary programs involved corporate researchers working together with research faculties at universities and recruited as well from other institutions. Both the interdisciplinary approach they used and the inventions they generated were early forms of university entrepreneurship and created a reservoir of opportunities for development after the war.
In World War I the primary mobilization challenges had been for uniform manufacturers, food suppliers, and the makers of munitions and vehicles, but World War II posed more difficult choices for many U.S. manufacturers. When mobilization time was short, large established firms obviously had the advantage over smaller firms, and there was no time for start-ups. The new military procurement programs needed technically demanding goods: artificial substitutes for essential raw materials that came from overseas or belligerent countries-rubber for shoes and tires, critical ingredients for medical supplies. Established firms could continue to produce their regular products in the face of unpredictable demand, or they could choose to ramp up production for different products that had a definite military need, and for which the government promised a new and innovative compensation arrangement-”cost- plus” reimbursement. In the rubber industry for instance BF Goodrich chose to stick with rubber while Goodyear chose to become an aircraft manufacturer in response to the defense program (Blackford and Kerr 1996). Corporate executives went to Washington on behalf of their companies partly to do their patriotic duty and partly because they found that service on the War Production Board and other coordinating agencies could yield valuable information both about current demand and about competition as it might be shaping up for the postwar era. Nevertheless, privately bearing the cost of conversion to new military programs, as some entrepreneurial firms tried to do to avoid government claims on intellectual property, could mean sustaining serious losses from arbitrary program discontinuations.
War preparation created opportunities for brand new entrants, but rarely for small concerns. The U.S. military, with its long-established preferences for large concentrated suppliers that could provide items at large scale and lowest cost, naturally looked for new entrants that had already demonstrated the necessary management and organizational skills. Such a case was Henry Kaiser, steel magnate and friend of Franklin Roosevelt's, who was persuaded to enter the aluminum business when the government doubted both the capacity and the willingness of the Aluminum Company of America (Alcoa) to supply all its needs. The antitrust case against Alcoa as a monopolist had already been tried, and under these circumstances the company was unlikely to want to add on still greater capacity. Biographer Steven Adams calls Kaiser a new kind of government entrepreneur (Adams 1997). Other types of entrepreneurs that would emerge in the postwar and Cold War eras were variations on Jonathan Hughes's procurement entrepreneurs-technology-based entrepreneurs with expertise in defense-related technologies, and university entrepreneurs who developed new businesses from their research projects, often while continuing to hold academic appointments. For these new kinds of entrepreneurs government sponsorship provided not only access to funding and expertise, but also steady, predictable, and often cost-indifferent demand.29 The downside, of course, was a creeping form of lock-in owing to complementary bureaucratization in government agencies and the companies with which they dealt.
Role of Government, Equilibrium, and Democratization
Entrepreneurship looked decidedly different in the period after World War II than it had looked before, or during, the war. If the logic of the 1930s had been focused on science-based innovation-to invent new products that would get the economy going again-the logic of the postwar period was to optimize output from existing plants. Many new products marketed in the postwar era were based on invention and development undertaken in the prewar era. Process modifications were required to meet unforeseen levels of demand and to bring costs down, especially in consumer goods, and product invention took a back seat to process development (Hayes and Abernathy 1980).
Exceptions in the civilian economy were for products that were funded by government programs aimed at improving living standards for, and the productivity of, returning servicemen. Federal housing loans, for instance, made it possible for many people to buy houses for the first time, and entrepreneurial opportunities in housing construction, epitomized by the Levittowns in the Middle Atlantic region and Daly City in San Francisco, could be seen in suburbs all over the country. For the postwar nuclear family with the mother at home another important growth area was mass entertainment-television and popular music recording. Entrepreneurial opportunities abounded around television advertising, production, and recording, as well as dealerships and repair services.
For two decades (1950–70) 70 percent of the U.S. workforce was employed by large enterprises serving the relatively predictable needs of other large corporations and the mass consumer. Whether these enterprises supplied steel, aluminum, construction equipment, televisions, computers, chemicals, or pharmaceuticals, they appeared capable of maintaining a stable equilibrium and controlling their own destiny. When so much demand existed for existing products, why risk inventing new ones, an irrational phenomenon known as self-obsolescence? There was one sector of the economy, however, where the market for innovation was inexhaustible-the federal government and especially the military.
ROLE OF GOVERNMENT: FUNDING “BIG SCIENCE”
The three-way establishment that had come into being during World War II-the co- evolution of administrative government, university, and private industry-coalesced in peacetime under a decidedly military command-and-control model (Balogh 1991; Roland 2001). The designated technologies that ultimately fed into military, institutional, and consumer product markets-were funded through a newly organized system of intermediaries that came to be known as “Big Science.” As we have previously established, the corporate research laboratory formed a vital link in this new innovation system.
After a divisive political debate between those holding different visions of how government resources should be allocated and by whom, the 1950s offered in the main the picture of economic stability that had been promised. The general population believed that science had had a vital role in winning the war, and the scientific community continued to serve military priorities first. Prewar industrial laboratories had mainly focused on industrial and consumer products-artificial fibers, telephone systems, lighting, photography, and glassware. In the postwar era, a relatively smaller portion of the nation's industrial scientific capacity was directed at civilian purposes, while a much-expanded portion was allocated to defense applications, with the DOD and the various branches of the military controlling the research agenda. Thanks to a Congress whose members saw that the most promising way to secure jobs for their constituents was through military funding, and a populace that feared the ongoing threat of renewed international conflict, the U.S. Defense Department had the loudest voice in determining what scientific disciplines and problem areas would receive funding and through what channels. Convinced also of the need for American self-sufficiency in science and the belief that focused investments in basic scientific knowledge would pay off in a cornucopia of new applications, government funding was allocated to a defined and relatively narrow set of scientific disciplines and technologies, many of which related to discoveries made in the large wartime projects. Funding went to research performers in three different settings: research universities, government laboratories, and major companies with R & D laboratories that were equipped to tie their research to new military products (Graham 1985; Mowery and Rosenberg 1989, 143). Many high-tech entrepreneurs of this Cold War period had their start in one leading laboratory or another. On the East Coast MIT-connected Lincoln Laboratories, Bell, and RCA spawned the entrepreneurs that built Route 128 around Boston. On the West Coast, a particular development target of the federal government, many high-tech entrepreneurs got their start as radio amateurs producing electronic components. Numerous companies started out like the Varian brothers, who set up their pioneering Silicon Valley company to produce microwave tubes, or Hewlett and Packard that started with scientific instruments, and later Robert Noyce and Gordon Moore who left the Shockley West Coast laboratory to form Fairchild Semiconductor, a division of the East Coast firm Fairchild Camera, and then left Fairchild to form Intel with Andy Grove (Lécuyer 2006).
Defense mobilization coordinated through the prime contractors in turn formed the context for various forms of civilian enterprise. Many of the designated technologies in the postwar era were crossovers-aircraft and avionics, computers and controllers, electronics and communications, nuclear power, and solid-state materials. Though the rhetoric of political economy in the United States held that governments could not dictate winners and losers, the defense budget, and the untold millions of dollars in federal funding allocated to the intelligence community, in effect selected and created the technology-based industries that would attract and concentrate most of the country's dynamic resources. Consumer electronics drew on the same knowledge base and shared many of the same production processes as military electronics. Even major investments in infrastructure were justified by reasons of defense-the national highway system, the investments in education at all levels including an interest in foreign languages, all were tied in some way to federal defense priorities.
Enthusiasm for government funding for science was on the wane, however, when in 1957 the USSR launched the world's first satellite, Sputnik, ensuring that U.S. government funding for defense mobilization would increase rapidly. The concerns that this raised were best articulated by President Eisenhower, one of the country's most prominent wartime military leaders, who in his farewell address to the nation in 1961 warned of the unwarranted influence of the “military-industrial complex” in the councils of government (Kevles 1978, 393).
Navigating the ever-growing government bureaucracies of the postwar era required an organizational skill that was as much a form of government entrepreneur- ship as qualifying to be a government contractor. Jonathan Hughes points to figures like Mary Switzer, who fought successfully for federal mental health programs, and Marriner Eccles, who redesigned the Federal Reserve, as government entrepreneurs who changed the course of the U.S. government as effectively as Thurman Arnold was to change federal antitrust policy. Although all three were successful at creating new programs and finding the organizational means to make them effective, none of them relied simply on enlarging the bureaucracy. All three found ways to promote legislation or embed in executive practice procedures that catalyzed parts of the established economy and society outside Washington to achieve the reforms they believed were needed.
Nonmilitary agencies of the federal government were nevertheless in an expansion mode for most of the rest of the century, and they garnered huge investments that called for procurement entrepreneurs in peacetime: data-processing systems for big agencies like Social Security, the Internal Revenue, and later NASA, Medicaid, and Medicare. High-tech companies might not all be entirely focused on supplying government, but for most of them government was a significant and lucrative part of their overall business. Once obtained, the business was easy to keep and with the cost-plus funding formula, the risk was low. In these conditions it was hardly surprising that high-technology businesses were the source of most of the dynamic activity on Wall Street in the 1950s and 1960s.
In the context of continuous defense preparedness and the rapidly expanding federal government of the Cold War, the nature of government procurement created narrower, more technology-focused opportunities for individual and corporate entrepreneurship than had existed in the earlier part of the century. But opportunities for procurement entrepreneurs were attractive in all the designated technologies-communications, electronics, advanced materials, and computer technologies (Mowery and Rosenberg 1989; see also Galison and Hevly 1992; Galambos and Pratt 1988; Dyer 1998; Dyer and Dennis 1998). Computers and computer-based technologies in particular, later known collectively as information technology, extended across all boundaries (Coopey 2004). While early uses of computers were primarily for missile development, within a decade computer technology had found broader and more mundane uses, filling data centers in government bureaus and large enterprises alike, as well as providing automated controls for manufacturing processes.
The Computer, Basis of the IT Revolution
While all of the large science-based projects created entrepreneurial opportunities for established companies, most were connected with industries that in the United States were traditionally regulated, and had been classed by regulatory theorists as “natural monopolies,” like electric power and communications. They were also extremely capital intensive in the equipment needed for research and even more for the massive investments needed for development-nuclear particle accelerators, nuclear fuel processing facilities and power plants, electronic components manufacturing for radar and radio. The greatest area of opportunity for new entrants and smaller enterprises clustered around the information appliance that was first known as a calculator (Galison and Hevly 1992).
As Campbell and Aspray point out, the technology that ultimately led to the multifaceted information technology industry at the heart of the information revolution needs to be understood as drawing on that vast web of technologies, systems, and practices collectively known as systematic management, that had developed in the first half of the twentieth century. Nevertheless, the modern computer itself was the device without which the rest of the system would not have existed. As developed for military purposes, the computer was the parallel wartime “invention” of several teams of inventors at different universities-Harvard's Aiken Laboratory, MIT, Penn, and Princeton all developed analog versions of the so-called electromechanical calculator designed to do the challenging computational tasks required for World War II weaponry (Yates 2000; Campbell-Kelly and Aspray 1996).
Though all were university entrepreneurs, few of the inventors involved in the initial development of the computer recognized that the new high-speed calculators might also have commercial applications apart from the weapons systems that funded them, many of which would be obsolete before the computers themselves could be completed. The exception was the team of Eckert and Mauchly at the University of Pennsylvania's Moore School, who recognized that these devices were not just mathematical calculating machines but would make possible the automation of huge information-processing tasks already needed to keep the large corporations, and the rapidly expanding government bureaus and agencies with their ever greater requirements for information, operating. The market for such devices-costing millions of dollars to develop-would for the foreseeable future be confined to the large organizations that already employed thousands of people processing massive amounts of information, or for advanced weapons systems with performance requirements in which speed and information capacity were essential (Yates 2005). In the United States there was a five-year window of opportunity (1948–53) when the amounts of money required to get into the business were small enough to allow new entrants to gain a foothold before larger, more established firms with better access to money and established distribution networks seized on the opportunity and the newly defined capability. Given their propensities for technological inertia, on the other hand, it is doubtful that the larger firms would have been so quick to invest had there not been active new entrants.
Three kinds of firms were candidates for entering the new computer industry- electronics firms, business machine firms, and entrepreneurial start-ups. In the first round the entrepreneurs were eight firms (IBM and the Seven Dwarves). Of these, in addition to the Eckert and Mauchly Computer Corporation, the two start-ups were CRC and DEC. IBM was the one existing business machine firm to make the entrepreneurial transition, and four electronics firms-RCA, GE, Burroughs, and Sperry Rand, which bought Eckert and Mauchly-stayed in the business long enough to help reshape their own industry by creating the new one (Cortada 2000; Fabrizio and Mowery 2007; Usselman 2007). Very different in size, experience, and endowments, all three types of firms were innovators in their respective industries and deserve to be called corporate entrepreneurs.
The Eckert and Mauchly experience demonstrated what difficulties small entrepreneurs of all kinds, and especially high-tech entrepreneurs, faced in the postwar environment. Chief among them was securing financing for their new ventures. Needing vast and unpredictable amounts of money, and lacking buyers who believed in the product and were willing to spend the money, early developers of all sizes took on a combination of military contracts and commercial orders to finance the initial development of their machines. All grossly underestimated the amount of time and effort it would take and what the most challenging aspects of the project would be. Eckert and Mauchly, who had tried to attract financial backing even before the end of the war, could raise only shoestring financing, and that for only a fraction of the development needed. None of the sources they approached for funding, mostly established companies, were willing to advance them even the inadequate amounts they asked in their optimism, let alone the vastly greater amounts they would actually spend on development of their computer, the ENIAC. In the end the commercial version of the ENIAC was financed by several civilian contracts, only kept afloat by a major diversion to a couple of military contracts.
The company that eventually succeeded in dominating the computer industry during the 1950s and 1960s, IBM, prevailed not because it was the technology leader, but because it designed a managerial and technological support system for users that gave them what they needed to make computer investments profitable. For decades this system operated effectively as a monopoly, impenetrable by competitors, and closed to outside suppliers. So the courts concluded in the 1970s when IBM agreed to operate differently by opening the development part of its business, and the less profitable products like the IBM Personal Computer, to outsiders.
IBM spawned its own set of spin-off entrepreneurs like H. Ross Perot, for several years IBM's leading salesman, who left in 1962 to set up his own company, Electronic Data Systems, supplying data-processing services primarily to government agencies. In the 1980s EDS made Perot a multibillionaire when he merged it with General Motors and later sold it outright when the entrepreneurial behaviors and attitudes of his EDS employees working inside GM struck automotive executives as intolerably disruptive.
Other entrepreneurial businesses that IBM inadvertently helped to develop arose out of its need to play catch-up with Apple's personal computer in the 1980s after IBM had already done badly in the competition for minicomputers with entrepreneurial companies like DEC. Unable to wait until it could generate all the necessary components and softwares inside, and unsure of hitting the winning combination if it did, IBM outsourced the operating system for its PC to a new software start-up run by Harvard dropout Bill Gates and his partner Paul Allen, and simultaneously gave the microchip design to the Fairchild spin-out Intel. Both companies soon achieved larger book values than IBM itself, as Big Blue, like many other high-tech companies of an earlier era, went through a period of downsizing and restructuring.
Institutions in the Closed Innovation System
As early as the 1920s vocal critics of the U.S. patent system were complaining that the institution created to ensure fair compensation for inventors had been co-opted by large corporations (Noble 1977). As Leonard Reich has demonstrated, with armies of patent lawyers and deep pockets, corporations like AT&T and GE pursued the defensive strategy of buying up and suppressing any patents that threatened their control of technological change in their industry. They could either refuse to license the patents they held, or they could charge such high royalties or attach such onerous conditions to their use that the technology was not worth obtaining. At the same time, they could vigorously prosecute anyone that either infringed or tried to invent around their patents.
A similar irony attended the antitrust regime, intended to maximize intercompany competition and to keep prices low for consumers; when vigorously enforced, it resulted in unintended consequences. Midcentury efforts to offset the negative effects of these interacting institutions, so important to innovation and entrepreneurship, actually reinforced the closing of the U.S. innovation system, where access to ideas and research became more restricted and where secrecy and exclusivity prevailed for much of the rest of the century.
PATENTS AND ANTITRUST
As indicated in the two previous chapters, the regimes for patenting and antitrust were both well established in previous eras (Khan 2005). The U.S. patent system was established at the birth of the Republic to encourage inventive activity, while the time-limited nature of patents was intended to prevent their misuse as a form of technological restraint of trade, or block to continued innovation. Low fees charged to file patents were intended only to cover administrative costs and to encourage entrepreneurial activity, an arrangement that continued until the 1990s. Antitrust legislation, especially the Sherman Act of 1890, applied to patent monopolies as well as to other forms of restraint of trade. The U.S. patent system had functioned for a century without any rules about monopoly to offset it, but when companies rather than individuals became patent-holding entities, the system became subject to widespread abuse (Markham 1966).
The controversial case of radio-related patents exemplified the broader problem and continued to be an issue well into the 1950s (Aitken 1976, 1985; McLaurin 1949; Lécuyer 2006). On the one hand RCA's unified control over the pool of “radio-related” patents enabled rapid advances in this important communications technology for military purposes and also for the wholly unforeseen emergence of radio broadcasting. But the ability of RCA to control all radio-related patents provoked bitter opposition throughout the interwar period by numerous smaller electrical companies like Raytheon. Electronics companies like Philco that expanded their own research during the war, when licensing royalties were suspended, struggled under the burden of paying RCA's substantial “package licensing” fees after the war.30
A big shift in antitrust policy and enforcement began in the 1930s and continued into the 1970s, though it was suspended during World War II, when Yale law professor Thurman Arnold was appointed to head the Antitrust Division at the Roosevelt administration Justice Department. Arnold, a classic government entrepreneur in the sense that he quickly reorganized and expanded his department and set it on a very different course, was an avowed skeptic about the value of U.S. antitrust laws, but soon surprised the business community by enforcing them. Arnold held that despite the American distrust of bigness, it was not large size, but the deliberate action of large companies that failed to pass on savings from efficiencies to consumers, that was the greater evil. To make his point Arnold adopted the practice of filing simultaneous civil and criminal suits, offering company executives the consent decree as a way of avoiding personal time in jail. Starting in 1938, the Department of Justice launched hundreds of investigations, prosecuting whole industries-building and construction, tires, fertilizer, glass, motion pictures, electric companies, petroleum and transportation, to name only a few. The new vigor with which the law was upheld proved effective at creating uncertainty, and changed the shape of industrial competition, but partly because of the larger business environment of the era, its effect on innovation was inconclusive.31
Although antitrust prosecutions were suspended during World War II, postwar administrations continued enforcement actions and gradually broadened their scope. In spite of their importance to the war effort, RCA, Alcoa, AT&T, GE, and many technology-based companies in the 1950s had antitrust actions concluded against them, resulting in the compulsory licensing of many thousands of patents-either royalty-free or at very low cost. Alcoa was forced to license its latest technology to competitors, Kaiser and Reynolds, aluminum companies that the government had created during the war. AT&T was compelled to license its key transistor and semiconductor patents to all comers royalty-free.
Well into the 1960s it was generally believed that antitrust policy had been an effective spur for R & D investment and therefore, naturally, for innovation. When there was a conflict between patent policy and antitrust policy, antitrust prevailed more often than not as the courts proscribed price-fixing clauses in license agreements and set higher standards of patentability. Yet although Steve Usselman, looking at IBM, maintains that a strength of the U.S. antitrust system was that it was not coordinated with other parts of the regulatory system, large corporations still found ways to adjust to the regulatory system, with the effect of harming smaller companies' interests and limiting their access to technology (Usselman 2004). Companies subjected to compulsory licensing often chose to rely on secrecy rather than patenting as a way of protecting their intellectual property. In this they were aided by the Cold War security regime that gradually extended well beyond the range of military contractors (Markham 1966).
Even though Thurman Arnold forced a sea-change in the ways companies could share technology, the suppression of patent monopolies produced unintended consequences for the patent system. AT&T's forced licensing of its patent holdings still allowed for cross-licensing, which amounted to a barter system that gave AT&T a dominant position in many key areas. Xerox, when deprived of its patent monopoly of xerographic technology earlier than originally anticipated, turned to a practice of wholesale patent exchange with its Japanese arch-rival Canon. RCA, when ordered to discontinue its package licensing arrangements in the United States, simply shifted its licensing regime to Japanese licensees, thus helping to speed up the development of the Japanese consumer electronics industry (Graham 1986).
In the 1970s the number of patents filed fell off dramatically, partly because of changes described above and partly because of cutbacks in the funding of the Patent Office. Reforms in the U.S. patent system in the early 1980s-extending the duration of patents, designating specialized courts to deal with patent cases, allowing patent protection for software inventions-shifted the odds once again in favor of patent- holders, rather than those who would sue them for antitrust. In the 1990s the Patent Office became self-supporting when patent filing fees increased, under the rationale that a large proportion of filers under the U.S. system were no longer U.S. citizens or taxpayers. By this time improvements in information technology made the ability to search patents and claims much easier, and power shifted dramatically in favor of patent-holders whether they were “practicing” the patents or not. Companies called “patent trolls” acquired suites of patents that they had no intention of using, holding them until a large company with related technologies could be sued for patent infringement. Whether large companies had infringed or not, they often preferred to settle patent suits rather than delay their product introductions for years while the suits made their way through the court system. A celebrated case of this kind arose at the end of our period around the new email equipment and service provider Research in Motion (Canadian maker of the Blackberry), which was sued by patentholding company NTP, Inc. for violating certain of its patents on retrieving email. Many other companies such as AT&T and Verizon simply settled for substantial sums, but RIM ignored NTP's demands and ended up settling a few years later for nearly half a billion dollars after having fought the infringement charges through many layers of appeal.
Laboratories as Corporate Entrepreneurs
Corporate research as an institution rarely achieved the reality of the surrogate innovators that leaders like David Sarnoff intended they should become. One among many corporate divisions, they seldom achieved the standing to overcome conflicting interests among bureaucratic peers. As a means of self-defense in internecine squabbles, and as a way of attaching measurable value to their work, they often resorted to attaching a monetary value to their work through patenting and licensing.
For many large technology-based companies, including Texas Instruments and RCA, licensing revenues for proprietary technologies became as important, sometimes more important, than the innovations the patented discoveries were intended to generate or support (Graham 1986; Jelinek 1979). Eventually this practice made formerly innovative companies vulnerable to smaller more innovative and nimbler corporate entrepreneurs that did not view intellectual property as a source of revenue or a means of control. When AT&T faced the challenge of achieving a radical increase in its system's bandwidth in the 1970s and 1980s, for instance, it proved to be no match for the more flexible and entrepreneurial Corning Glass Works. Corning, by innovating in optical fiber in the 1970s, and supplying it first to AT&T's mortal enemy, MCI in 1984, forced AT&T to acquiesce in the optical fiber revolution twenty years earlier than it would otherwise have chosen to do (Graham 2007).
Founded in 1970, Xerox PARC (Palo Alto Research Center) started out as a countercyclical example of the closed innovation model of corporate laboratory many companies had pursued successfully in the 1930s, but instead it became an unintended exemplar of the reopening of the U.S. innovation system. Located in the heart of Silicon Valley, PARC was a corporate laboratory with a special long-term mission that proved to be a highly effective incubator for inventor-entrepreneurs at a time when they were generally finding it hard going. PARC had been set up as a ten-year strategic investment by Xerox chairman Peter McCullough to invent “The Office of the Future” as a planned successor to the patent-protected Xerox photocopier. At a time when high interest rates and even higher inflation rates caused many corporations to question the value of research, Xerox hired an exceptionally talented set of researchers from some of the leading physics and computer science departments and think tanks, many of them already known to each other as part of the Department of Defense's DARPA (Defense Advanced Research Project Agency) program. By deliberately hiring researchers who were both brilliant and hands-on, people who wanted to use what they made, the laboratory managed in a much shorter time than expected to produce enough inventions, and entrepreneurial individuals with ideas, to make a serious contribution to the growth of Silicon Valley. Adobe, Small Talk, Apple Computer, Microsoft, and eventually even Google-all owed their existence or at least their innovative success in part to the technological fecundity of Xerox's small West Coast laboratory. Not expecting or even wanting such an early payoff for its investment, the parent corporation reaped little reward from this creative activity. Only a few years after its founding, inventors started leaving PARC for more flexible opportunities in the Bay Area. By then, as discussed below, conditions were changing and the institutions were forming to support their various individual attempts to develop and sell pieces of the emerging office of the future. Later it was acknowledged at Xerox that the company would have earned far more from its investment in PARC had it arranged to benefit from the laboratory's many spin-offs.
Era Three: The Third Industrial Revolution
The third era for entrepreneurship in the twentieth-century United States is only be-ginning to be digested by historians, though other social scientists have offered some sweeping, provocative, and often conflicting propositions that need to be tested not only against the aggregate data, but against more disaggregated and more qualitative evidence.32
In this era, beginning in the 1970s, conditions for entrepreneurship were shaped by the twin forces of the information revolution and globalization, forces that combined to become the third industrial revolution. The linking of global financial markets with the growing liberalization of markets and the deregulation of formerly regulated industries in the United States followed closely the model already introduced in Thatcher's England.33 Historians agree that it ushered in a level of international trade and competition by no means unprecedented, but not seen since before World War I (Osterhammel and Petersson 2005). For U.S. entrepreneurs, especially individual entrepreneurs, these developments, combined with the relaxation of antitrust enforcement and the deregulation of several formerly regulated industries, created opportunities of an intensity and variety not open to individuals since the Roaring Twenties.
One long period of economic shock put an end to the way U.S. business had been conducted since the 1940s. Although the period consisted of an almost unrelenting series of setbacks, the most serious was an unprecedented combination of high inflation and slow economic growth-known as “stagflation.” Coping with these shocks rather less well than some international rivals, American businesses confronted international competition in manufactured goods in the very industries that had been mainstays of the U.S. economy since the 1920s-automobiles, electronics, and consumer electronics.34 Venerable U.S. industries like machine tools, protected in the previous era by their importance to defense mobilization, disappeared altogether in the early 1980s. The basis of the new international competition was not simply price, but quality and performance as well. Europe and Asia had rebuilt their manufacturing plants after the war, especially in basic industries like steel, using the latest manufacturing technology and adopting the most up-to-date management practices. American manufacturers were thus condemned to endure more than a decade caught in what was later termed a “productivity dilemma” (Abernathy 1978; Abernathy, Clark, and Kantrow 1983).
The United States experienced a general decline in productivity growth rates from the 1970s to the mid-1990s. Popular candidates for causes of the decline included the shift from one set of base technologies arising out of the electrochemical revolution to a new set of information technologies that had come into widespread use but had yet to yield improvements in productivity and lower returns to R & D expenditures. The numbers also reflected a fundamental shift from manufacturing to service as the basis of the U.S. economy. In retrospect, although these developments were interpreted as aspects of the shift from the industrial economy to the knowledge economy, they might also have pointed to several decades of suppressed independent entrepreneurial activity. If, as we have seen, such shifts foreshadowed impending trouble for many large corporations and their employees, for entrepreneurs outside the corporation and eventually outside the country, they opened many attractive and accessible opportunities.
The Decline of Corporate Entrepreneurship
Corporate entrepreneurship among large corporations became the exception rather than the rule even for technology-based companies during the 1970s as the Cold War system began to come apart under a combination of centrifugal forces and outside pressures. As Spurgeon and Leslie have argued, the Silicon Valley model of entrepreneurial development, usually thought of as the icon for private entrepreneurship in the United States, had its roots deep in the wartime program of the federal government to develop the West Coast defense industries, and continued along with Stanford University to be dominantly related to the military business until well into the 1980s (Sturgeon 2000 and Leslie 2000).
As the Cold War settled into familiar patterns, with guaranteed returns based on a cost-plus formula in the military sector, companies controlling fundamental patents hiding behind patent protection, and regulated companies turning their regulatory position to their advantage, investors became enamored of “high-tech” firms. Lacking serious competition in a world of oligopolies and cost-plus contracts, hightech companies seemed to show that the rewards for corporate entrepreneurship could be had without the risks.
But completely private entrepreneurial opportunities arose with increasing frequency as large companies and government agencies sold or divested their technologies, restructured, reengineered, and downsized, and even demolished their stockpiles as the costs of maintaining them in a high interest rate environment became too high and the returns for keeping them too low (Sullivan 1997).
Meanwhile inside the prime contractors, government-funded research, with its heavy and complicated reporting requirements, evoked a corresponding bureaucratization in companies that pushed innovators and innovation to the margins. At the height of the Cold War it was the rare corporate laboratory that could tolerate real mavericks, and when it could it was likely to develop a counterculture that drove a wedge between the laboratory and the rest of the company (Graham 1985). Creeping bureaucratic procedures slowed many industrial programs to a crawl. The burden of procedure was so great that a program manager at Lockheed, the big California aeronautics and space contractor, developed the Skunkworks to get things done. This pared-down, tight-knit collection of the most flexible and dedicated employees was committed to starting and completing a new development program on time and within budget. If the Skunkworks came to symbolize creativity and effectiveness within the large corporation, its rapid spread through government contractors was testimony to how hard it was to pursue innovation in the context of the ever more tightly interlinked bureaucracies (Arthur 1989).
Ironically, the corporate laboratory's role as chief innovator eventually undermined the capacity of many larger firms to be entrepreneurial, and revived their need for the role of external entrepreneur. One critical factor affecting the ability to innovate commercially was the new stricter security provisions attached to military R & D during the Cold War, and the restrictions they placed on the circulation of scientific knowledge.35 Another was an innovation in corporate structure, the multi- divisional, or M-form, which helped to establish the pattern of the corporate laboratory as a prime mover in innovation in the first place. In a celebrated act of corporate entrepreneurship through organizational change, DuPont pioneered the M-form to facilitate diversification, out of weapons manufacture into civilian products, and then into starting new ventures. Many other corporations followed DuPont's example after World War II, but the new organizational form could and often did lead to destructive internal competition between different corporate divisions vying for resources.
Over time strategic planning and resource allocation that required each corporate division to excel on its own worked against coordinated initiatives and undermined effective corporate entrepreneurship. The consequences of this shift were especially evident in the risk-avoidance that shaped the conglomerate movement in the 1960s and 1970s. The growing tendency toward risk aversion and short-term maximization of returns to technology, which was driven by a financial community that demanded ever more frequent reporting and punished surprises, eventually led to the downfall of many large, formerly innovative firms. The organizational problems posed by corporate research and the divisional structure were not lost on those who started their careers in corporate research. Indeed the founders of one of the most successful entrepreneurial corporations of the next generation, Intel, organized R & D very differently, hiring many Ph.D.s, but putting them on the production floor and spreading their research locations throughout the operation.
Despite the clear attractions of corporate laboratories after World War II-the stable, well-compensated employment, the attractive facilities, locations, and resources for travel and equipment-many of the most brilliant inventors and scientists, especially those with entrepreneurial leanings, opted to pursue their ideas and their aspirations in less comfortable surroundings. Early technological entrepreneurs received funding from large, mostly eastern, firms that wanted to diversify into government business, like Remington Rand or Fairchild Camera. Many leading industrial researchers-computer scientists and materials scientists-discovered their own entrepreneurial inclinations, and were moved to start their own companies after watching executives at parent companies reap most of the rewards. Starting out, they got the resources they needed from friends, family, and other contacts, followed by procurement contracts from larger enterprises. In cases that were rare at first they gained support from a new form of financing, venture capital. In Silicon Valley especially, where the climate allowed for outdoor work much of the year, more than a few garage shrines mark the spots where famous high-tech companies got their start. William Hewlett and David Packard, Steven Jobs and Steve Wozniak, Paul Allen and Bill Gates, and eventually Michael Dell, as well as many less well known kit- makers and experimenters like Ed Roberts, designer of the Altair computer kit, laid the groundwork for new “high-tech” enterprises in driveways, garages and dorm rooms.
The conglomerate movement of the 1960s signaled an inflexion point in corporate behavior, effectively putting an end to the mid-twentieth-century approach to large corporate entrepreneurship. In the conglomerate form, technology-based companies discovered the comfort of countervailing risks, and financial speculation and manipulation of assets offered a lucrative alternative to the harder work of entrepreneurship. Technology-based companies that had suffered from volatile stock prices because of the uncertainties of innovation were seduced by the persuasive powers of investment bankers, often on their boards, into acquiring unrelated businesses with different risk characteristics. Smaller growth companies began to manage themselves to be good targets for acquisition. Acquiring firms soon found that unrelated acquisitions with different management characteristics and different requirements for capital undercut their ability to carry out the steady product innovation they needed to renew their core businesses. Corning's acquisition of the Fairchild spin-off Signetics in the 1960s was an example of the kind of transaction that posed a significant diversion from the acquirer's core business (Lécuyer 2006; Graham and Shuldiner 2001). Even companies like Northern Telecom that in the 1970s acquired smaller companies they considered technically related and strategically vital had trouble managing them to profitability. Many other acquisitions, motivated by narrower aims of rapid financial gain and acquired for stock, encountered even worse problems. When RCA acquired a handful of companies in services and consumer goods in the 1960s, stockholders protested loudly, suspecting that such unrelated operations would undercut the ability of the large technology firm to continue to play the role of lead entrepreneur for consumer electronics. RCA's attempts to prove its detractors wrong, and to introduce the VideoDisc as the next generation consumer electronics product, led to a decade of costly missteps and culminated in eventual failure in 1984 (Graham 1986).
RCA was not alone. Other large technology-based companies that had formerly been reliable corporate entrepreneurs failed in the 1980s when trying to introduce innovative mass-market products, including Eastman Kodak with its disc camera, AT&T with its picture phone, and Polaroid with its repeated attempts to innovate in electronic cameras. Even in the more predictable institutional business, the traditional leaders lost traction. DuPont waited many years to find uses for Kevlar. IBM dominated mainframe computers, but did not compete successfully with new entrants DEC or Data General in minicomputers, failed to invent around Xerox in copying machines, and lost its supercomputer designer Seymour Cray, who set up an independent supercomputer business. Even Ampex, a smaller company that did not carry the same baggage and that had the steady commitment of its innovative institutional customer, the ABC broadcasting network, lost out to Sony in professional portable video cameras (Florida and Kenney 1990; Graham 1982; Rosenbloom and Freeze 1985).
To be sure, a few established companies continued to act as corporate entrepreneurs in nonmilitary technologies throughout the distressed decades of the 1970s and 1980s. Minnesota Mining and Manufacturing (3M) was renowned for the number of new products it brought to market by encouraging researchers to become entrepreneurs inside the framework of the firm. Hewlett Packard with its HP Way encouraged creativity and a new version of corporate entrepreneurship by keeping its units small and delegating substantial authority to eager young managers. Corning Incorporated introduced a wide range of technically challenging new products based on novel combinations of glass formulations and patented processes. But after numerous failure experiences involving significant R & D and new ventures, innovation fell out of fashion and the financial markets no longer rewarded established “high tech” companies to the same degree (Lazonick, forthcoming). In almost all the science-based industries it was new entrants, spin-offs or start-ups, that seized and held the advantage over large corporations where innovation was concerned.
After several decades of funding the designated technologies at accelerating rates, with returns that were at best hard to measure, U.S. society in general turned against the practice of concentrating so much of its collective spending in science and weapons technology. When public opinion, and also much scientific opinion, turned against the military uses of science, the younger generation of researchers fostered in the DOD research system were motivated to find civilian uses for their work. The latent commercial opportunities that might have been generated by the remaining 40–50 percent of federal research funding each year that was not performed by industry had been mainly bottled up in a handful of research universities in nine states and in several government laboratories (Mowery et al. 2004; Mowery and Rosenberg 1989).
The Consumer Movement: Scale for Entrepreneurs
A rebellion among American consumers also marked the transition that started in the late 1960s. The baby boom generation born after World War II, which came of age resisting the war in Vietnam, associated big business with destructive uses of technology like the production of chemical warfare agents, and a military procurement system run amok (Roland 2001). Reacting against an increasingly entrenched economic system and a bureaucratic form that was starting to show its weaknesses, the baby boomers rejected the hierarchy and diminishing security of the large corporation, and with it the boring sameness of the products it produced. As Daniel Yergin has shown, they reacted by welcoming variety from smaller producers and lower prices from imported products and deregulated industries, while at the same time demanding a greater degree of social regulation: clean water and clean air, consumer protection, product safety, and various environmental controls. In tune with these developments in the marketplace the federal government responded by downsizing funding for military R & D and shifting the focus of government regulation to energy and lifestyle issues, turning to a regulatory regime focused on health, safety, and equal opportunity employment. The ensuing deregulation of such industries as airlines, communications, and utilities attracted entrepreneurial ventures that soon challenged previous industry leaders and exploited niches that in some cases, like MCI telecommunications and Southwest Airlines, grew into dominant positions.36Deregulation of telecommunications not only gave rise to entrepreneurial concerns like MCI, but to legions of new suppliers, when telecommunications equipment was no longer dominated by Western Electric.
Minor cracks had appeared in the facade of the stable regulated postwar economy as early as the 1950s, when imports like the Volkswagen Beetle and the pocket- sized transistor radio from Sony found a surprising number of willing buyers in the United States. But the transition that signaled the end of the long period of postwar stability began when first imported radios and televisions and then imported cars from Japan gained a following in U.S. markets. A sudden sharp recession in consumer electronics in 1971 revealed that the United States was in the process of losing one of its strongest manufacturing businesses. Soon large and well-heeled companies like General Electric and RCA were failing in the high-growth parts of the electronics business as well, unable any longer to meet either the managerial or the financial demands of the fast-growing computer business (Coopey 2004, introduction).
For the first time since the 1930s a generation questioned the central premises on which the country's economy was based-the twin pursuits of growth and scale. What appeared to be merely youthful social rebellion, soon outgrown, developed economic “legs.” The critique of the “beats” and the “hippies” may have seemed utopian, but the enterprises they started in university dormitories and garages, and even on collective farms, occupied niches that could be developed. Though these alternatives hardly seemed to be credible business entities at first, over time the pursuit of the small-scale goods-natural foods, herbal medicines, natural fibers, new sources of energy like biomass, wind and solar, even personal computers-gave rise to substantial businesses capable of competing with the large corporations. Some existing companies recognized the alternatives as the wave of the future and bought them out, while others weakened or transferred into other lines of business.37
The information revolution got its second wind when computers moved from institutional to consumer products. While large companies like IBM, AT&T, and Xerox still controlled the mainframe and full-service parts of the office machine and computer hardware business, they soon lost control of successive waves of smaller machines. Independent software and peripherals, home computers, and computer games took the entire computer business in such different directions that by the end of the century, few of the original companies were still in the business. Software, when made independent of hardware, became for a few years the easiest entry point in the IT industry and also one of the first to create entrepreneurial opportunities in the U.S. market for developing countries (Campbell-Kelly and Aspray 1996, 181205; Coopey 2004, 300). By the latter 1980s information technology had started to penetrate other industries' products and processes, not just their systems. Artificial intelligence emerged in robotics, and new robotics firms sprang up to challenge machine tool companies.
One place the combinatorial tendency of information technology showed up most clearly was in pharmaceuticals, where the Human Genome Project, launched in 1990 and funded by $3 billion of federal government money, involved the kind of data manipulation and record keeping that was only possible with massive increases in computer power. Genomics, seemingly an extension of macrobiology, became another field ready for entrepreneurial activity.
Opening the Innovation System
Entrepreneurial opportunities based on emerging technologies in biotech, new materials, and of course advanced software and applied forms of information technology like Infomatics opened more widely as Congress directed government laboratories to share their discoveries with private enterprise. Under the provisions of the Bayh- Dole Act passed in 1980, universities were allowed to patent discoveries made with government funding. A handful of research universities, starting with Columbia and Stanford, were soon collecting large licensing royalties, and the financial stakes for research universities became much higher when a younger entrepreneurial generation of researchers began to patent their work and to seek out investors to partner with them in start-ups (Mowery et al. 2004). In parallel, numerous industrial laboratories adopted the practice of selling their proprietary technologies rather than holding them for development.
Technologies that had long been sequestered in government laboratories became available to private investors along with the expertise of many of the more enterprising researchers who had worked on them. When the Cold War came to an abrupt end in the late 1980s, declassified technologies of extraordinary power-database technologies, computer imaging for animation and gaming, supercomputers, satellite technologies and spacecraft-were ready to be commercialized by entrepreneurial firms, often started by experienced entrepreneurs in serial start-ups, such as ousted Apple entrepreneur Steve Jobs's new companies, Next and Pixar.
A few industries benefited from increased federal funding for non-military- related research. Chief among these funded fields were agriculture, through land- grant colleges and university research stations, long supported at the state level, and drug and disease research through the National Institutes of Health. In these areas the U.S. innovation system was never as tightly closed even during the Cold War as it was in the designated technologies. Funding for agricultural research, one of the most important forms of public funding in the earlier periods, continued in amounts that were nowhere near as high as the designated technologies, but they continued to benefit communities across the country and the companies that served them. Meanwhile, as Galambos and Sturchio have written, the pharmaceutical industry, which was always international to some degree, relied on a network of sources for ideas and investment, including not only public funding for research, but also both private and public research performers at government, university, and industry laboratories (Galambos and Sturchio 1996).
Even though networks were a major part of the innovation system for the entire twentieth century, entrepreneurial activity was primarily closed and corporate until the developments that opened the U.S. innovation system more generally. Only in the 1980s did it become commonplace for biotech start-ups like Genentech and Amgen to grow to become major players in pharmaceuticals. Genentech received a boost by forming an alliance with Corning Incorporated, called Genencor, that accepted stock in place of investment money (Dyer and Gross 2001). Alliances like Genencor, which had been out of favor for decades because of the antitrust focus on technology sharing, became a much more common way for small and start-up companies with high-tech specialties to team with large corporations and yet remain independent. For university entrepreneurs like Craig Venter, who started Celera Genomics with a $300 million investment by the Perkin Elmer Corporation, to compete with the government-sponsored Human Genome Project, conditions to support research based start-ups were well in place in the 1990s.
Notably, the international pharmaceutical industry, which benefited both from a variety of types of research funding and from the vigilant regulation of the Food and Drug Administration, became one of the few advanced industries in which even leading European companies chose to locate their headquarters and their research laboratories near leading U.S. research universities rather than remain in their home countries or outsource to Far Eastern developers and producers. This was a sign that the access to the discoveries funded by the National Institutes of Health and to start-up companies headed by university entrepreneurs created especially attractive conditions for pharmaceutical and medical device investment. Similarly, Japanese, Taiwanese, and Korean companies specializing in information technologies, especially producers of microprocessors, elected to start up advanced industrial research laboratories near major U.S. research universities like Stanford and MIT.
As human capital and social capital became more important than fixed capital toward the end of the twentieth century in the developed countries, the prevailing forms of successful organization changed from hierarchy to network in other industries as well, benefiting companies that were less hierarchical and more open. Early signs that open standards were the wave of the future were Xerox's Ethernet standard, licensed free of charge in the 1980s, and IBM's open-code approach to generating software for its PC that helped to give it the advantage over what was generally considered the superior technology of Apple's personal computers. Even before the Internet gave them the means to adopt it more fully, the open software movement and the success of companies like AOL, Apple, Amazon, eBay, Cisco, and eventually Google were signs that the U.S. innovation system was at least as open, and possibly more open, than it had been since the nineteenth century.
By the early 1990s it was widely recognized that companies that were forming strategic alliances with smaller technology-based companies and formal research relationships with university researchers were developing much faster and more effective approaches to acquiring new skills and new business opportunities than companies that still relied on their own in-house capabilities. Pharmaceutical companies that needed to make a rapid transition to genomics and to replenish their drug pipelines, telecommunications companies that needed new devices and new software, and many companies that needed workforces that were up to date with the new technologies, looked to start-up companies, as either acquisitions or collaborators, but primarily as agents of renewal.
Entrepreneurial Fraud
As cultural priorities shifted away from defense toward poverty alleviation and alternative consumer lifestyles, and as the innovation system became less controlled and more open, new arenas opened not only for legitimate entrepreneurship, but also for the kinds of imaginative fraud not seen since the financial speculators of the 1920s or the military contracting profiteers of the middle decades. Following on the heels of the new government legislation providing health care-Medicare and Medicaid-came private enterprises offering ways to outsource services like laboratory testing. Many such enterprises turned out to be incubators for sophisticated attempts to defraud the federal government. Other lifestyle-related opportunities took mass entertainment in new directions, anticipating the predicted leisure time that would be released by the increased use of computer automation. Such pursuits not only increased the sales of new consumer electronics devices like VCRs both domestically and internationally, but laid the groundwork for huge new illicit lines of business when the Internet was commercialized in the early 1990s-for online gambling and trafficking in pornographic images and in drugs. Many such businesses were too unsavory for large centrist organizations to touch, leaving a large market that nimbler and less socially vulnerable enterprises could exploit by operating outside the law-including pirate radio stations, organized crime, and Native American reservations.
Similar developments occurred in the financial community. Once deregulated, savings-and-loan institutions, for instance, took advantage of Federal Deposit Insurance covering accounts up to $100,000 to make imprudent investments in search of higher yield. By 1988 more than 500 S&Ls had achieved the dubious distinction of insolvency. Government bailouts of S&Ls in the late 1980s, which deepened an already huge federal deficit, led not to greater financial probity, but to even greater abuses of the public trust toward the end of the twentieth century. Outside the protected area defined by ever-weakening government banking regulations, financial entrepreneurs explored new financial instruments and vast new investment vehicles known by the all-purpose term hedge funds, designed once again to earn spectacular yields with minimal exposure to actual risk.
Financial Entrepreneurship
Just as the volatility of the interwar period had yielded tremendous innovative activity on the part of companies seeking to adjust to the major changes and new uncertainties of that period, so the difficult financial markets of the third era of the twentieth century sparked new waves of financial innovation.
As alluded to earlier in the discussion of high tech and the conglomerate movement, the investments made with stock and paper profits in the 1960s often caused the acquiring companies to lose value themselves a decade later. Small investors withdrew from the stock market. Double-digit inflation, intensifying the inflation already under way from the Vietnam War, followed the Breton Woods collapse and the loss of the gold standard. A dearth of capital coupled with very high interest rates provoked urgent attempts to try innovative approaches to financing new ventures. Weakened by the loss of millions of ordinary investors, the equities markets concentrated on less risky kinds of investments.
It was in this context that Michael Milken, still one of the most controversial financial entrepreneurs, emerged on Wall Street. Recognizing that normal corporations were finding it very difficult to finance their internal development, Milken invented a new issues market for high-yield bonds. Milken's employer, Drexel Burn- ham Lambert, as only a minor player among Wall Street giants in corporate finance, was willing to give something novel a try. With Milken's invention, companies with low credit ratings, and little hope of securing financing on the corporate bond market, could issue what were called “junk bonds.” The new market was enabled in part by the new Rule 415 that allowed underwriters to speed the bonds to market. Junk bonds were risky for underwriters, but they were also very profitable.
Savings-and-loan institutions were permitted to buy the bonds, and jumped at the chance to find higher interest rates, overlooking the bonds' risky quality. After several years of enthusiastic acceptance of his junk bonds, Milken became the highest- paid Wall Street employee ever, rumored to have accumulated over $3 billion in personal wealth. Unfortunately, initial buyers of junk bonds were inflating the already high prices before selling them to investors and then kicking a portion of the cash back to Drexel. Milken went to jail and Drexel shut its doors, but the junk bond market continued, after a minor pause for the stock market crash of 1987.
A financial innovation that depended on the availability of junk bonds was the leveraged buyout, using debt to take over companies, strip their assets, conduct layoffs, and then sell the companies to other investors, having realized major profits.38 The vast sums of money accumulated in private hands in the 1980s and early 1990s provided in turn new pools of capital that could, given the right institutional arrangements, be made available to finance new enterprises. Led by the best-known corporate takeover firm, Kolberg, Kravits, Roberts, many takeover specialists took over and broke up lethargic companies that had succumbed to poor management, and some that were just unlucky, and created a boom in leveraged buyouts, the mainstay of investment banks and private equity firms alike. Many large bureaucratic companies that had been celebrated for their longevity and staying power either disappeared or were downsized and reorganized, releasing expertise and other resources into the market to be picked up by more entrepreneurial leaders with their own investments at stake.
Extending free-market solutions to social and environmental problems that had previously been tackled by government regulation became another area of entrepreneurial activity, often by academic entrepreneurs wanting to apply their ideas in the marketplace. In some instances their efforts proved highly successful. When the Clean Air Act was passed in 1990 with the objective of reducing acid rain by means of attaching a cost to emissions, Richard Sandor, former Berkeley economics professor, set up the Chicago Climate Exchange to implement a “cap and trade” system, making it more expensive for electric power companies to pollute than to install scrubbers to control sulfur dioxide emissions. The Environmental Protection Agency credits the new system with reductions in emissions of many millions of tons annually, as well as savings in reduced lung disease and other related illnesses (Specter 2008). The acid rain problem has indisputably improved. In effect, financial entrepreneurs, like Sandor, have superseded government entrepreneurs in their efforts to address such problems as clean air and climate change, while creating large new investment opportunities in the financial markets.
Institutionalizing Venture Capital
Private banks and wealthy individuals, members of the top percentile of income recipients until the 1940s-had been providing investment money for start-up ventures well before the twentieth century, but venture capital in its twentieth-century form began after World War II. On both coasts concerns about a shortage of risk capital gave rise to new forms of financing. Boston and the San Francisco Bay Area led the way. In 1946 a group of Boston civic leaders headed by General George Doriot, a professor at the Harvard Business School, formed American Research and Development-a nonfamily venture capital organization organized as a closed-end fund with an investment focus on opportunities in electrical and medical electronics (Kenney and Florida 2000, Ante 2008). AR&D, which both loaned to and invested in start-up companies around Boston for twenty-five years, had some notable successes with a number of high-tech companies spawned at MIT, but by far its greatest money-spinner was Digital Equipment Company (DEC).
The region that had received the largest portion of federal defense funding in the Cold War era was California. In the San Francisco Bay area around Stanford a number of small concerns started up and, lacking the necessary ability to raise capital for expansion, sold out to large East Coast firms (O'Sullivan 2007). The first real financial breakthroughs for an alternative course of financing came in the mid-1950s when first Varian and then Hewlett-Packard floated successful public offerings on the New York Stock Exchange. In the 1960s some of the larger high-tech firms like Fairchild and DuPont looked to investments in corporate new ventures based on new technologies as a way of diversifying when they were constrained by antitrust action from growing larger in their core businesses.
In 1958 Congress passed the Small Business Act, followed by the establishment of the SBIC (small business investment company.) Not only did this make more money available, but it allowed entrepreneurs to reduce their own personal liability. By the early 1960s private investors, including some of General Doriot's students, started family SBICs, so that by the early 1960s substantial amounts of money became available to high-technology start-ups outside the framework of the large established eastern firms. As the SBICs developed full-time staffs of professional investors, they became important organizational stepping stones to the full-blown venture capital funds that emerged in the 1970s and 1980s.
Various investment funds formed on the West Coast, but it was with the “limited partnership” that venture capital hit upon a form that worked. This form of organization had greater upside potential for investors than the SBICs, and from then on the limited partnership prevailed. Between 1968 and 1975 as many as thirty venture capital firms formed or reformed in Silicon Valley alone. Coinciding with the semiconductor revolution, and the shift from transistors to integrated circuits, this wave of investment activity awarded high returns to early venture capitalists, causing northern California to prosper while older industrial parts of the country were mired in industrial transition. The success of a few major deals-Xerox's payment of a billion dollars for SDS (Scientific Data Systems), Fairchild and Intel, the Apple II computer and others-did much to establish venture capital during the late 1970s and early 1980s.
While in the aggregate only small amounts of money were involved in venture capital until the 1980s, returns on the investments made in general were quite high (20–30 percent). A serious turning point for the industry came in the late 1970s when two important events occurred. The year 1978 brought a significant reduction in the capital gains tax, and in 1979 ERISA legislation governing pension investing was reinterpreted to say that it was “prudent” to include more risky investments in a portfolio as long as it wasn't too great a percentage. This opened the way for pension funds to invest in venture capital and shifted the focus of venture capital money-raising from wealthy families to institutions. From then on certain VCs raised funds on a regular basis, though the amount they were able to raise in any given year depended heavily on recent performance and on capital gains tax rates, which in turn also affected the opportunities that were available for investment (Gompers et al. 1998).
After a decade or so of variable experience, professional venture capitalists became important sources of entrepreneurial funding, not just because they supplied hard-to-find early-stage capital, but because they also became an important source of business expertise for inventor entrepreneurs. Venture capitalists sat on the boards of each company they invested in and guided their investment companies until they could go public (Hambrecht 1984). One consequence of this form of control was the increased importance of intellectual property. Venture capitalists, needing tangible evidence of achievement-something to sell when an investment went sour, evidence for their investors that their investment was sound-insisted on the early filing of a patent portfolio, and patents and venture capital became ever more tightly linked.
While venture capitalists were becoming professionals in their own right, venture capital was being institutionalized. In those areas where it was well established, like Boston and the West Coast, but increasingly in other “high tech” areas such as
New York, New Jersey, and Texas, law firms and accounting firms and various other professional service firms developed related kinds of expertise. Naturally this could only happen where the volume of venture capital investment was large enough to support such an infrastructure, and for this reason venture capital remained concentrated in a few locales to the end of the century.
According to studies by Kortum and Lerner (2000), venture capital money was three times more potent as a source of capital for innovation than simple R & D even though it accounted for only 3 percent of all the R & D money expended between 1983 and 1992. Given the growing reliance of venture capitalists on patents as part of the investing process, the growth in venture capital funding had a leveraging effect on patenting. Toward the end of our period well-established VC firms were reviewing far more proposals than they could ever consider funding, yet having patents in place was one of the conditions start-ups had to meet for having a proposal considered.
Over time venture capital covered the entire spectrum of funding from main stage funding to seed funding, but ironically, as venture capital became an industry, it also adopted a lower risk profile. In some instances this meant less willingness to offer early-stage funding; very often it meant reducing the risk through syndication. As the first generation of professional VCs retired, very few well-established firms continued to take on full investments themselves, a change that diluted the quality of experienced advice available to start-ups. Only a few of the early venture firms, like Sequoia Partners and Hambrecht and Quist, were still in business by the year 2000.
As young inexperienced people poured into the business toward the end of the century, technology areas considered “hot” attracted disproportionate amounts of money, while solid, more conventional brick-and-mortar investments were spurned as “old economy.” Not surprisingly, there were many failures for every successful start-up. Paradoxically, in the later stages of “irrational exuberance” as chairman of the Federal Reserve Alan Greenspan called it, dot-com companies that did not receive VC financing were more likely to survive than those that did (Goldfarb, Kirsch, and Miller 2007). While many failed, a few spectacular Internet company successes like Amazon and eBay pursued a business model that supported the efforts of thousands of small-time entrepreneurs to reach markets previously unreachable. Once again, established businesses were persuaded to invest their own money in response to the new model businesses, as retail giants of all kinds added the new forms of distribution to keep up with the dot-com enterprises.
By the end of the century, having gone through the tremendously volatile period of dot-com investments, venture capital had matured from an institution to an industry. In the areas in which it was most concentrated it supplied up to a third of all the capital used for start-ups. Viewed from this perspective, this version of the networked firm, initially motivated by the demand for higher-yield investments and better-informed advice, provided an important alternative to the large bureaucratic firm as a backer of entrepreneurial ventures, at least in some industries. On the other hand, would-be entrepreneurs in biosciences found it harder and harder to find early-stage money from venture capitalists, and recent start-ups also had a hard time refinancing to grow their businesses. Venture capitalists were also seeking secure returns and ever higher yields without risk-taking.
Ironically, even as the venture capital industry gathered steam, a movement arose to oppose it. For all the researchers, hobbyists, and amateurs who eventually took their passion to market, there were many others who objected to what they considered a perversion of the original purposes of their enterprises. Toward the end of the century, invigorated by the Internet, the open software movement took on new life, which in turn gave rise to further voluntarist movements such as Wikipedia. These movements could be seen as forms of collective entrepreneurship-introducing a technology into widespread use-for free-with the intention of collecting money for collateral activities like advertising or services. Although these movements were controversial, the open software movement challenged the basic business model of many software companies in ways that would have profoundly transformative effects on whole industries in the next century (Lazonick, forthcoming).
Conclusion
This overview of entrepreneurship in the twentieth century points to some important continuities in the U.S. economy-legal, financial, and communications- related-that were critical to encouraging entrepreneurial behavior and continued to be important. The protections of the Constitution-the sanctity of contracts and the protection of private property-continued, while corporate law evolved within the common-law tradition. The patent system and a robust public education system reaching an ever broader spectrum of society continued in force throughout the century, though both the patent system and public education had their ups and downs. New financial instruments evolved, but the basic principles remained firm. New forms of transportation and communication developed, reducing costs and eventually making most industries “footloose,” but place continued to matter.
Multiple and diverse, though largely uncoordinated, public and private funding sources for technology development-state governments, private foundations, and patron industries like agriculture, the railroads, and the telegraph-also endured, although the focus of invention shifted in the new century to different patron industries-electronics, automobiles, and aviation. The federal government intervened after World War II to select and allocate resources to the highest potential technologies for defense and the public welfare.
While important institutions and patterns endured, some features of the twentieth-century economy departed markedly from earlier eras, and these changes had a profound effect on the context for entrepreneurship. As much innovation became more scientifically linked, entrepreneurs needed more education, or at least better-educated employees, and access to greater resources. With the institutionalization of the regulated corporation and the integration of R & D as a central corporate function, entrepreneurship became both more linked to technological innovation and more subject to corporate influence. When antimonopoly laws were prosecuted vigorously, as they were from the 1930s to the 1980s, and corporations were prevented from growing by simply absorbing competitors or running them out of business, the corporation integrated many entrepreneurial functions that had previously been conducted outside its walls.
During the generation or so when innovation and development and national defense were compelling and unifying national goals, and the security of a career in a large, solid organization was most appealing, the corporation served as the prime recruiter of entrepreneurial talent, and the chief developer of new businesses. While these developments did not suppress independent research and invention altogether, they did have the effect of funneling entrepreneurial activity toward a few core technologies. The result for technologies that had military priority, even for crossover technologies that had applications for civilian purposes as well, was a closed innovation system-with access to applications and to funding-limited, classified, and performed in restricted areas.
As we have seen, a few key technologies like agriculture and medical research remained more accessible to the public and more subject to entrepreneurial activity, even global entrepreneurial activity. Nevertheless, during the middle years of the century entrepreneurship was very much associated with “high tech” ventures, and much of the funding it relied on came from publicly supported research and development, and publicly funded procurement contracts. Fundamental research performed in universities was not as restricted, but because it was separated from commercial exploitation by the values of scientific purity, it did not flow readily into entrepreneurial channels.
With the concentration of knowledge, the scarcity of private investment capital, and the large capital demands of many of the core technologies where opportunities were greatest, the scope of independent inventor-entrepreneurs in the midcentury was reduced, though they never disappeared altogether. Even in areas like agriculture where sources of innovation were widely distributed and remained more accessible, high-growth companies like Pioneer Hybrid moved to consolidate their position by integrating R & D and forming more restrictive networks with a few key universities.
A great deal remains to be understood about the revival of individual, private sector entrepreneurship in the 1970s that began the reopening of the innovation system. Indeed, whether it was the opening of the innovation system that promoted entrepreneurship, or an eruption of entrepreneurial energy that opened the innovation system, is not easy to determine. Opportunities for entrepreneurs arose with the continuing decline in the cost of information technologies and their spread into smaller and civilian applications. The combinatorial aspects of new computer-based information technologies also generated many new application areas for entrepreneurs to exploit.
Important social changes like the demands for clean air and water, for lifestyle improvements, and consumer and product safety protections shifted the focus of government expenditure, and opened up a new category of entrepreneurship, first working within government and then working from outside to change it. Government entrepreneurs were largely replaced by those in the private sector who wanted to bring about change using free-market mechanisms.
By the 1980s the core technologies fuelling the third industrial revolution would extend beyond IT to embrace macrobiology, miniaturization, and many new and hybrid materials and processes. Globalization also offered new markets and reinvigorated migration patterns that opened entrepreneurial opportunities linked to trade. Technologies like software and many of the new countercultural alternatives were far less demanding of capital than their midcentury predecessors, making high-tech investments the source of “irrational exuberance.” By the end of the century several emerging technologies, like genomics, with tremendous promise for growth, and with enthusiastic entrepreneurial involvement, had become more capital intensive, so that neither private investors nor capital markets seemed capable of supporting them.
In sum, the most important finding from this overview has to do with the multi- faceted and often complementary relationship that developed in the twentieth century between entrepreneurs and the large corporation.39 By the 1960s the large corporation showed itself to be too prone to bureaucratic lock-in to be entirely self-sustaining and self-renewing. Though the large corporation had displayed a temporary capacity during the Depression for spontaneous entrepreneurship, the tendency toward growing bureaucracy and risk-averseness in the postwar period gradually made genuine entrepreneurial personalities unwelcome in all but the most enterprising firms. When they abandoned the corporation, entrepreneurial employees took their expertise and their zest for innovation with them. Recognizing their ever-greater need for new ideas, and only rarely prevented by antitrust, some corporations formed alliances with enterprising firms, while others resorted to buying them, but sporadic bursts of financially motivated acquisition seldom resulted in productive outcomes.
With more capital available in private hands, and investors seeking ever higher yields, toward the end of our period new entrepreneurial ventures were growing rapidly, gaining knowledge and expertise through networks, and challenging the established corporations directly, sometimes putting them out of business. Nevertheless, to corporations that recognized their need for transformation, enterprising firms offered not only candidates for outsourcing and sources for innovative products, but exemplary business models as well. Finally, globalization altered the geography of U.S. entrepreneurship just as it altered the geography of business generally. While it has been appropriate to speak of American entrepreneurship in the twentieth century as a distinct phenomenon, it seems very unlikely that historians of the twenty- first century will be able to identify any such thing.
Notes
1 Servan-Schreiber 1968; Galbraith 1967; Thurow 1999; Chandler and Cortada 2000. Oddly, Chandler and Cortada downplay the role of government, except as funders of R & D.
2 Gerben Bakker (2003) points to the entertainment industry as an example of an industry that was not regulated, but was still affected by the parts of the economy that were.
3 Alfred D. Chandler's (1977) portrayal in The Visible Hand of the rule of large firms as the only important story of U.S. industry has recently been challenged from several quarters: Philip Scranton (1997) on the one hand, and Naomi Lamoreaux, Daniel M. G. Raff, and Peter Temin (2003) on the other.
4 Lance Davis and Larry Neal (2007) maintain that it was the mixed systems of large and small firms that account for the timing of both the second and third industrial revolutions.
5 Eric S. Hintz (2007) notes that nearly 50 percent of total patents were still granted to independent inventors, outside the corporation, through the 1950s.
6 Zunz 1990; Hounshell 1984; Yates 1989. According to Olivier Zunz, Thorstein Veblen in The Engineers and the Price System (1921) blamed corporate finance for turning the management of the corporation into a bureaucratic practice that was confining to the engineer. Veblen saw engineers and entrepreneurs, whom he associated with the profit motive, as inherently opposed, and saw Taylorism as a way to free “technological man” from the captains of finance. Zunz notes that Veblen did not take into account “tinkerers” like Henry Ford, whom we would call inventor-entrepreneurs.
7 Aitken 1960, 237. Though the labor unions at government arsenals rejected scientific management after a few early experiments, unions embraced the movement after World War I as an arena where labor-management cooperation could yield major gains in productivity. See the study by Robert Kanigel (1997), who shows that Taylorism became embedded in American manufacturing during World War I, and spread like wildfire thereafter.
8 See McCraw 2007. More recently William Lazonick (2007) has extended the theory of the innovative firm to distinguish between firms that optimize and firms that allocate resources to innovation, while Nathan Rosenberg (2000) has stressed the critical point, noted in the last chapter, that the most radical and disruptive innovations are brought to fruition by further development by many parties, who should legitimately be considered part of the innovation process, though they may not be entrepreneurs. Also see Reich 1980.
9 Samuel Insull, who started his career as secretary to Thomas Edison and went on to become a major electricity innovator, organizer of the network in Chicago, and leader of his industry, was scapegoated during the Depression, and died a broken man, having been tried and acquitted for securities fraud.
10 Yergin and Stanislaw 1998. Managing the maverick well became a hallmark of the innovative firm-see Graham and Shuldiner 2001.
11 B. M. Friedman (2007) summarizes this argument and its social implications.
12 In F. Scott Fitzgerald's The Great Gatsby, published in 1925, the main character both idolized the riches and glamour of the Jazz Age and felt uncomfortable with its materialism and morality. Similar attitudes were shared by the characters in Willa Cather's The Professor's House, also published in 1925.
13 Szostak 1995. Economists today dispute the push for productivity as a contributing factor to the Depression, but few deny that a net loss of jobs occurred in established industries, and contemporary observers were convinced that the obsession with efficiency had led to conditions of oversupply. See Rhodes 1999.
14 Galambos and Pratt (1988) quote John Kendrick, the classic source for productivity figures.
15 Graham and Shuldiner 2001; Hounshell 1984, 263–77. Hounshell points out that many Model T owners valued its changelessness, so to make visible modifications was tricky.
16 Archibald MacLeish writing in The Nation, 1933, cited in Rhodes 1999, 116. MacLeish was writing at the depths of the Depression trying to find hope in the productivity story. See also Pursell 1981. For a recent account of the financial innovator whose exposure did much to spur banking regulation in the depths of the Depression see “The Match King,” The Economist, December 19, 2007, 115–17.
17 “The Match King.”
18 O'Sullivan 2006. GE bought back its own shares and drew down its debt burden, while Westinghouse repeatedly overextended itself.
19 Field (2003) shows the numbers that reflect the success of these developments.
20 Blackford and Kerr 1996; Graham 1986; Graham and Pruitt 1990; Dyer and Gross 2001; Hounshell and Smith 1988. It was observing companies like these that led Schumpeter to observe that innovation was now the activity of large companies.
21 Mowery and Rosenberg 1989. This is consistent with Alexander J. Field's (2003) argument that despite severe unemployment the period 1929 to 1941 was the most economically progressive decade of the century.
22 Edwin F. Mansfield (1968) summarizes the campaign to ensure scientists of full employment. He cites Dupree 1957 as the original history of these events.
23 David C. Mowery and Nathan Rosenberg (1993) depict the relationships between research performers and institutions as developing in systematically different ways in different industrialized countries.
24 Reich 1985; Wise 1985; Hounshell and Smith 1988. The best and most balanced summary of the evolution of industrial research in the United States is Hounshell 1996.
25 National Research Council, Bulletins 16 and 60 (1919 and 1927); Herbert Hoover 1926, quoted in Rhodes 1999.
26 David Noble (1977) discusses this developing set of relationships. See also Graham 2008.
27 David C. Mowery and David J. Teece (1996) summarize the increasingly inward-looking nature of postwar industrial research.
28 Hughes 1986. Recognizing this new reality, one of Corning's most important directors in the period after World War II was General Walter Bedell Smith, who had been General Eisenhower's chief procurement officer during the war and who later became chairman of the AMF Corporation.
29 Mowery and Rosenberg (1989, 123–68) point to the vast increases in funding of university research through the National Science Foundation; to the National Defense Education Act, passed in 1958; and to several other important pieces of legislation on the supply side, as well as to focused procurement on the demand side.
30 Kevles 1978. Raytheon, where Vannevar Bush spent his early career, was one of many small firms that had nearly been forced out of business by RCA's discriminatory allocation of vacuum tubes and high licensing fees.
31 Whether rigorous antitrust enforcement did in fact force growth-seeking activities into the narrow channel of innovation when other avenues like acquisitions were foreclosed remains a matter of controversy. See also Miscamble 1982; Markham 1966; Waller 2004.
32 Manuel Castells, who asserts that the information revolution enabled global networking for the first time, is contradicted by many historians of international business who see this change as less a qualitative shift than a return of modes of behavior that began in the Middle Ages and were last seen in the early twentieth century. Historians' attempts to digest and rethink this period include Galambos 2005; Lamoreaux, Raff, and Temin 2003; and Lazonick 2007.
33 For the conventional economic interpretation, see Yergin and Stanislaw 1988.
34 Ironically, in consumer electronics the rise of Japanese competition in consumer electronics was partly due to the efforts of the leading innovator in the United States, RCA, which successfully replaced its revenues from domestic package licensing by shifting the practice of package licensing to Japanese electronics companies (Chandler and Cortada 2000, introduction).
35 Mowery and Teece (1996, 113) state a point that is often overlooked, that the trend toward remote “campuses” was above all a security move on the part of the many corporate laboratories that received government funding for research on the condition that it would be conducted on a classified basis and under tight security.
36 Yergin and Stanislaw 1998. Deregulation of the airlines provided the right conditions for upstarts like Peoples Express and Southwest Airlines. MCI challenged AT&T in telecommunications and attracted suppliers that competed aggressively and successfully with the old Western Electric-for example Corning, which achieved a dominant position in optical fiber.
37 The bible of this movement, according to Steve Jobs, was Stuart Brand's The Whole Earth Catalogue.
38 Wall Street Journal op-ed on Wolfson, innovator of the corporate buyout, January 16, 2008.
39 See Jones 2007, who notes the importance of understanding entrepreneurship in its larger historical context, and the need furthermore to understand more about the changing nature of skills, behavior, and personality that have been needed in different contexts.
References
Abernathy, William J. 1978. The Productivity Dilemma: Roadblock to Innovation in the Automobile Industry. Baltimore: Johns Hopkins Press.
Abernathy, William J., Kim B. Clark, and Alan M. Kantrow. 1983. Industrial Renaissance: Producing a Competitive Future for America. New York: Basic Books.
Adams, Stephen B. 1997. Mr. Kaiser Goes to Washington: The Rise of a Government Entrepreneur. Chapel Hill: University of North Carolina Press.
Aitken, Hugh G. J. 1960. Taylorism at the Watertown Arsenal: Scientific Management in Action, 1908–1915. Cambridge: Harvard University Press.
——. 1976. Syntony and Spark: The Origins of Radio. New York: Wiley.
——. 1985. The Continuous Wave: Technology and American Radio, 1900–1932. Princeton: Princeton University Press.
Ante, Spencer E. 2008. Creative Capital: Georges Doriot and the Birth of Venture Capital. Boston: Harvard Business Press.
Arthur, W. Brian. 1989. “Competing Technologies, Increasing Returns, and Lock-in by Historical Events.” Economic Journal 99:116–31.
Bakker, Gerben. 2003. “Entertainment Industrialized: The Emergence of the International Film Industry.” Enterprise and Society 4:579–85.
Balogh, Brian. 1991. Chain Reaction: Expert Debate and Public Participation in American Commercial Nuclear Power, 1945–1975. Cambridge: Cambridge University Press.
Blackford, Mansel G., and K. Austin Kerr. 1996. BF Goodrich: Tradition and Transformation, 1870–1995. Columbus: Ohio State University Press.
Blaszczyk, Regina Lee. 2000. Imagining Consumers: Design and Innovation from Wedgwood to Corning. Baltimore: Johns Hopkins University Press.
Campbell-Kelly, Martin, and William Aspray. 1996. Computer: A History of the Information Machine. New York: Basic Books.
Cather, Willa. 1925. The Professor's House. New York: Knopf.
Chandler, Alfred D., Jr. 1977. The Visible Hand: The Managerial Revolution in American Business. Cambridge: Belknap Press of Harvard University Press.
——. 2001. “Consumer Electronics: The United States.” In Inventing the Electronic Century: The Epic Story of the Consumer Electronics and Computer Science Industries, 13–49. New York: Free Press.
Chandler, Alfred D., Jr., and James W. Cortada, eds. 2000. A Nation Transformed by Information: How Information Has Shaped the United States from Colonial Times to the Present. Oxford: Oxford University Press.
Compton, Karl T. 1949. “Foreword.” In W. Rupert McLaurin, Invention and Innovation in the Radio Industry. New York: Macmillan.
Coopey, Richard, ed. 2004. Information Technology Policy: An International History. Oxford: Oxford University Press.
Cortada, James W. 2000. “Progenitors of the Information Age: The Development of Chips and Computers.” In A Nation Transformed by Information: How Information Has Shaped the U.S. from Colonial Times to the Present, ed. Alfred D. Chandler Jr. and James W. Cortada, 177–212. New York: Oxford University Press.
Douglas, Susan. 1987. Inventing American Broadcasting, 1899–1922. Baltimore: Johns Hopkins University Press.
Dupree, A. Hunter. 1957. Science in the Federal Government: A History of Policies and Activities to 1940. Cambridge: Belknap Press of Harvard University Press.
Dyer, Davis. 1998. TRW: Pioneering Technology and Innovation since 1900. Boston: Harvard Business School Press.
Dyer, Davis, and Michael Aaron Dennis. 1998. Architects of Information Advantage: The Mitre Corporation since 1958. Montgomery, AL: Community Communications.
Dyer, Davis, and Daniel Gross. 2001. Generations of Corning: The Life and Times of a Global Corporation. Oxford: Oxford University Press.
Fabrizio, Kira R., and David C. Mowery. 2007. “The Federal Role in Financing Major Innovations: Information Technology during the Postwar Period.” In Financing Innovation in the United States, 1870 to the Present, ed. Naomi R. Lamoreaux and Kenneth L. Sokoloff, 283–316. Cambridge: MIT Press.
Farber, David R. 2002. Sloan Rules: Alfred P. Sloan and the Triumph of General Motors. Chicago: University of Chicago Press.
Field, Alexander J. 2003. “The Most Technologically Progressive Decade of the Century.” American Economic Review 93:1399–1413.
Fischer, David Hackett. 1996. The Great Wave: Price Revolutions and the Rhythm of History. New York: Oxford University Press.
Fitzgerald, F. Scott. 1925. The Great Gatsby. New York: Charles Scribner's Sons.
Florida, Richard L., and Martin Kenney. 1990. The Breakthrough Illusion: Corporate America's Failure to Move from Innovation to Mass Production. New York: Basic Books.
Friedman, Benjamin M. 2007. “Comment on ‘Sustaining Entrepreneurial Capitalism’ by William J. Baumol, Robert E. Litan, and Carl J. Schramm.” Capitalism and Society 2, no. 2, article 1.
Galambos, Louis. 2005. “Recasting the Organizational Synthesis: Structure and Process in the Twentieth and Twenty-first Centuries.” Business History Review 79:1–38.
Galambos, Louis, and Joseph Pratt. 1988. Rise of the Corporate Commonwealth: U.S. Business and Public Policy in the Twentieth Century. New York: Basic Books.
Galambos, Louis, and Jeffrey Sturchio. 1996. “The Pharmaceutical Industry in the Twentieth Century: A Reappraisal of the Sources of Innovation.” History and Technology 13, no. 2: 83–100.
Galbraith, John Kenneth. 1967. The New Industrial State. Boston: Houghton-Mifflin.
——. 1994. The World Economy since the Wars: A Personal View. London: Sinclair-Stevenson.
Galison, Peter, and Bruce W. Hevly, eds. 1992. Big Science: The Growth of Large-Scale Research. Stanford: Stanford University Press.
Goldfarb, Brent D., David Kirsch, and Daniel Miller. 2007. “Was There Too Little Entry during the Dot Com Era?” Journal of Financial Economics 86, no. 1: 100–144.
Gompers, Paul A., Josh Lerner, Margaret M. Blair, and Thomas Hellman. 1998. “What Drives Venture Capital Fundraising?” Brookings Papers on Economic Activity: Microeconomics:149–204.
Graham, Margaret B. W. 1982. “Ampex Corporation: Product Matrix Engineering.” Harvard Business School Case Series.
——. 1985. “Industrial Research in the Age of Big Science.” In Research on Technological Innovation, Management, and Policy, vol. 2, ed. Richard S. Rosenbloom, 47–89. Greenwich, CT: Jai Press.
——. 1986. RCA and the VideoDisc: The Business of Research. Cambridge: Cambridge University Press.
——. 2000. “The Threshold of the Information Age: Radio, Television, and Motion Pictures Mobilize the Nation.” In A Nation Transformed by Information: How Information Has Shaped the U.S. from Colonial Times to the Present, ed. Alfred D. Chandler Jr. and James W. Cortada, 137–75. New York: Oxford University Press.
——. 2007. “Financing Fiber.” In Financing Innovation in the United States, 1870 to the Present, ed. Naomi R. Lamoreaux and Kenneth L. Sokoloff, 247–82. Cambridge: MIT Press.
——. 2008. “Technology and Innovation.” In The Oxford Handbook of Business History, ed. Geoffrey Jones and Jonathan Zeitlin, 347–73. New York: Oxford University Press.
Graham, Margaret B. W., and Bettye H. Pruitt. 1990. R&D for Industry: A Century of Technical Innovation at Alcoa. Cambridge: Cambridge University Press.
Graham, Margaret B. W., and Alec T. Shuldiner. 2001. Corning and the Craft of Innovation. Oxford: Oxford University Press.
Hambrecht, William R. 1984. “Venture Capital and the Growth of Silicon Valley.” California Management Review 26, no. 2: 74–82.
Hayes, Robert H., and William J. Abernathy. 1980. “Managing Our Way to Economic Decline.” Harvard Business Review 58, no. 4: 67–77.
Hintz, Eric. 2007. “Independent Inventors in an Era of Burgeoning Research and Development.” Presented at the Business History Conference, Cleveland. Available at http://www.thebhc.org/publications/BEHonline/2007/hintz.pdf.
Hounshell, David A. 1984. From the American System to Mass Production, 1800–1932. Baltimore: Johns Hopkins University Press.
——. 1992. “DuPont and Nylon.” In Big Science: The Growth of Large-Scale Research, ed. Peter Galison and Bruce W. Hevly, 236–64. Stanford: Stanford University Press.
——. 1996. “The Evolution of Industrial Research in the United States.” In Engines of Innovation: U.S. Industrial Research at the End of an Era, ed. Richard S. Rosenbloom and William J. Spencer, 13–85. Boston: Harvard Business School Press.
Hounshell, David A., and John K. Smith. 1988. Science and Corporate Strategy: DuPont R&D, 1902–1980. Cambridge: Cambridge University Press.
Hughes, Jonathan. 1986. The Vital Few: The Entrepreneur and American Economic Progress. 2nd ed. New York: Oxford University Press.
Israel, Paul. 1992. From Machine Shop to Industrial Laboratory: Telegraphy and the Changing Context of American Invention, 1830–1920. Baltimore: Johns Hopkins University Press.
Jelinek, Mariann. 1979. Institutionalizing Innovation: A Study of Organizational Learning Systems. New York: Praeger.
Jones, Geoffrey. 2007. “Entrepreneurship.” In The Oxford Handbook of Business History, ed. Geoffrey Jones and Jonathan Zeitlin, 501–28. New York: Oxford University Press.
Kanigel, Robert. 1997. “The Great Diffusion.” In The One Best Way: Frederick Winslow Taylor and the Enigma of Efficiency. New York: Viking Press.
Kenney, Martin, and Richard Florida. 2000. “Venture Capital in Silicon Valley: Fueling New Firm Formation.” In Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region, ed. Martin Kenney, 98–123. Stanford: Stanford University Press.
Kevles, Daniel J. 1978. The Physicists: The History of a Scientific Community in Modern America. New York: Knopf.
Khan, B. Zorina. 2005. The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790–1920. Cambridge: Cambridge University Press.
Kortum, Samuel, and Josh Lerner. 2000. “Assessing the Contribution of Venture Capital to Innovation.” Rand Journal of Economics 31:674–92.
Lamoreaux, Naomi R., Daniel M. G. Raff, and Peter Temin. 2003. “Beyond Markets and Hierarchies: Towards a New Synthesis of American Business History.” American Historical Review 108:404–33.
Lanham, Richard A. 1993. The Electronic Word: Democracy, Technology, and the Arts. Chicago: University of Chicago Press.
Lazonick, William. 2007. “Business History and Economic Development.” In The Oxford Handbook of Business History, ed. Geoffrey Jones and Jonathan Zeitlin, 67–95. New York: Oxford University Press.
——. 2009. “Restructuring the Old Economy Corporation.” In Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States. Upjohn Institute for Employment Research.
Lécuyer, Christophe. 2006. Making Silicon Valley: Innovation and the Growth of High Tech, 1930–1970. Cambridge: MIT Press.
Leslie, Stuart W. 2000. “The Biggest ‘Angel’ of Them All: The Military and the Making of Silicon Valley.” In Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region, ed. Martin Kenney, 48–67. Stanford: Stanford University Press.
Mansfield, Edwin F. 1968. The Economics of Technological Change. New York: Norton.
Markham, Jesse W. 1966. “The Joint Effect of Antitrust and Patent Laws upon Innovation.” American Economic Review 56:291–300.
McCraw, Thomas. 2007. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Cambridge: Belknap Press of Harvard University Press.
McElvaine, Robert. 2003. “Review of Rainbow's End: The Crash of 1929 by Maury Klein.” Business History Review 77, no. 2, 319–321.
McLaurin, William Rupert. 1949. Invention & Innovation in the Radio Industry. New York: Macmillan.
McQuaid, Kim. 1978. “Corporate Liberalism in the American Business Community, 1920–1940.” Business History Review 52:342–68.
Melosi, Martin V. 2000. The Sanitary City: Urban Infrastructure in America from Colonial Times to the Present. Baltimore: Johns Hopkins University Press.
Miscamble, Wilson D. 1982. “Thurman Arnold Goes to Washington: A Look at Antitrust Policy in the Later New Deal.” Business History Review 56:1–15.
Mowery, David C., Richard Nelson, Bhaven Sampat, and Arvids Aiedonis. 2004. Ivory Tower and Industrial Innovation: University-Industry Technology Transfer before and after the Bayh-Dole Act in the United States. Stanford, CA: Stanford Business Books.
Mowery, David C., and Nathan Rosenberg. 1989. Technology and the Pursuit of Economic Growth. Cambridge: Cambridge University Press.
——. 1993. “The U.S. National Innovation System.” In National Innovation Systems: A Comparative Analysis, ed. Richard Nelson, 29–75. New York: Oxford University Press.
Mowery, David C., and David J. Teece. 1996. “Strategic Alliances in Industrial Research.” In Engines of Innovation: U.S. Industrial Research at the End of an Era, ed. Richard S. Rosenbloom and William J. Spencer, 111–29. Boston: Harvard Business School Press.
National Research Council. Multiple Years. Bulletin of the National Research Council. Washington, DC: National Research Council of the National Academy of Sciences.
Neal, Larry, and Lance E. Davis. 2007. “Why Did Finance Capitalism and the Second Industrial Revolution Arise in the 1890s?” In Financing Innovation in the United States, 1870 to the Present, ed. Naomi R. Lamoreaux and Kenneth L. Sokoloff, 129–61. Cambridge: MIT Press.
Noble, David. 1977. America by Design: Science, Technology, and the Rise of Corporate Capitalism. New York: Knopf.
O'Sullivan, Mary A. 2006. “Living with the U.S. Financial System: The Experiences of General Electric and Westinghouse Electric in the Last Century.” Business History Review80:621–56.
——. 2007. “Funding New Industries: A Historical Perspective on the Financing Role of the U.S. Stock Market in the Twentieth Century.” In Financing Innovation in the United States, 1870 to the Present, ed. Naomi R. Lamoreaux and Kenneth L. Sokoloff, 163–216. Cambridge: MIT Press.
Osterhammel, Jürgen, and Niels P. Petersson. 2005. Globalization: A Short History. Princeton: Princeton University Press.
Piketty, Thomas, and Emmanuel Saez. 2003. “Income Inequality in the United States, 1913–1988.” Quarterly Journal of Economics 118:1–39.
Pursell, Caroll. 1981. Technology in America: A History of Individuals and Ideas. Cambridge: MIT Press.
Raff, Daniel M. G. 1991. “Making Cars and Making Money in the Interwar Automobile Industry: Economies of Scale and Scope and the Manufacturing Behind the Marketing.” Business History Review 65:721–53.
Reich, Leonard S. 1977. “Research, Patents and the Struggle to Control Radio: A Study of Big Business and the Uses of Industrial Research.” Business History Review 51:208–35.
——. 1980. “Industrial Research and the Pursuit of Corporate Security: The Early Years of Bell Labs.” Business History Review 54:504–29.
——. 1985. The Making of American Industrial Research: Science and Business at GE and Bell, 1876–1926. Cambridge: Cambridge University Press.
Reich, Robert. 1991. The Work of Nations: Preparing Ourselves for 21st-Century Capitalism. New York: Knopf.
Rhodes, Richard. 1999. Visions of Technology: A Century of Vital Debate about Machines, Systems, and the Human World. New York: Simon and Schuster.
Roland, Alex. 2001. The Military-Industrial Complex. Washington, DC: American Historical Association.
Rosenberg, Nathan. 2000. Schumpeter and the Endogeneity of Technology: Some American Perspectives. New York: Routledge.
Rosenbloom, Richard S., and Karen J. Freeze. 1985. “Ampex Corporation and Video Innovation.” In Research in Technological Innovation Management and Policy, vol. 2, ed. Richard S. Rosenbloom, 113–85. Greenwich, CT: JAI Press.
Scranton, Philip. 1997. Endless Novelty: Specialty Production and American Industrialization, 1865–1925. Princeton: Princeton University Press.
Servan-Schreiber, Jean-Jacques. 1968. The American Challenge. New York: Atheneum.
Specter, Michael. 2008. “Big Foot.” New Yorker 84, no. 2: 44–53.
Sturchio, Jeffrey L. 1985. Corporate History and the Chemical Industries: A Resource Guide. Philadelphia: Center for History of Chemistry.
Sturgeon, Timothy J. 2000. “How Silicon Valley Came to Be.” In Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region, ed. Martin Kenney, 15–47. Stanford: Stanford University Press.
Sullivan, Margaret Cox. 1997. The Hostile Corporate Takeover Phenomenon of the 1980s. Washington, DC: Stockholders of America Foundation.
Szostak, Rick. 1995. Technological Innovation and the Great Depression. Boulder, CO: Westview.
Thurow, Lester C. 1999. Building Wealth: The New Rules for Individuals, Companies, and Nations in a Knowledge-Based Economy. New York: HarperCollins.
Usselman, Steven W. 2004. “Public Policies, Private Platforms: Antitrust and American Computing.” In Information Technology Policy: An International History, ed. Richard Coopey, 97–120. Oxford: Oxford University Press.
——. 2007. “Learning the Hard Way: IBM and the Sources of Innovation in Early Computing.” In Financing Innovation in the United States, 1870 to the Present, ed. Naomi R. Lamoreaux and Kenneth L. Sokoloff, 317–63. Cambridge: MIT Press.
Veblen, Thorstein. 1921. The Engineers and the Price System. New York: B. W. Huebsch.
Waller, Spencer W. 2004. “The Legacy of Thurman Arnold.” St. John's Law Review 78: 569–613.
Wise, George F. 1985. Willis R. Whitney, General Electric, and the Origins of U.S. Industrial Research. New York: Columbia University Press.
Yates, JoAnne. 1989. Control through Communication: The Rise of System in American Management. Baltimore: Johns Hopkins University Press.
——. 2000. “Business Use of Information and Technology during the Industrial Age.” In A Nation Transformed by Information: How Information Has Shaped the U.S. from Colonial Times to the Present, ed. Alfred D. Chandler Jr. and James W. Cortada, 107–35. New York: Oxford University Press.
——. 2005. Structuring the Information Age: Life Insurance and Technology in the Twentieth Century. Baltimore: Johns Hopkins University Press.
Yergin, Daniel, and Joseph Stanislaw. 1998. The Commanding Heights: The Battle between Government and the Marketplace That Is Remaking the Modern World. New York: Simon and Schuster.
Zunz, Olivier. 1990. Making America Corporate, 1870–1920. Chicago: Chicago University Press.