Monday, March 4, 2013


Telephone switching desk

I was in Galesburg, Illinois, this past weekend visiting one of our sons at college.  While there we went to one of his favorite places, an antique store, where I came across a telephone switching desk and a long distance calling log, both were in use in the early 1940s.  The desk was run by an operator, who manually connected each telephone call made.  When a customer wanted to make a long distance call, the operator connected the call, then recorded it in the log book and subsequently billed to the customer.  Both were labor intensive activities.  Over the years the switching desk was replaced by the switching centers, filled with hundreds of thousands of relays and occupying thousands of square feet of floor space, (the tall building in downtown Colorado Springs on East Pikes Peak Avenue was one), and then by computers.  With each change, telephone calls became faster, more reliable and less expensive.

In 1974 the U.S. Justice Department filed an antitrust suit against AT&T.  At the time, AT&T consisted of the operating telephone companies in each of the states, the long lines division -selling long distance telephone services, Western Electric, which manufactured the equipment, and Bell Telephone Laboratories (Bell Labs)*.  Bell Labs consisted of more than 4500 employees.  The minimum education requirement for employment at Bell Labs was a Ph.D. in a hard science, engineering or math. They operated under three basic directives: improve the quality of the communication (signal to noise ratio), improve the durability of the equipment, and make it less expensive to operate (resulting in lower costs to the consumer).  Over the years, Bell Labs scientists have earned Nobel prizes, on average, about once a decade for inventions and discoveries such as the transistor and the CCD (which makes digital photography possible).  (The outgoing Secretary of Energy, Steven Chu, shared a Nobel Prize for work he did while on staff at Bell Labs.)  Bell Labs created the first computer operating language, Unix; the concept that all information can be expressed digitally, and thus communicated over very long distances in a fraction of a second; the first solar cells and satellite communications.  Bell Labs did not just invent items, they invented entire industries.  And because they were part of a regulated monopoly, they gave away the technology for free.

When the Justice Department settled the antitrust case in 1982 with a consent decree, the Bell System was broken up into regional operating telephone companies; an independent manufacturing company; and a much smaller AT&T providing only long distance services.  Bell Labs was given to the manufacturing company, what is now known as Alcatel-Lucent.  Because the manufacturing company did not have the resources of a national monopoly, Bell Labs was decimated, staff levels have been reduced by about 80 percent.

In the years since the breakup of AT&T, the original AT&T saw its revenues dwindle as cell phone services (also invented by Bell Labs) ate into long distance services.  It was acquired on the verge of bankruptcy in 2005 by SBC, one of the regional telephone companies created by the breakup in 1983.  The inventions and discoveries from Bell Labs have also dwindled.  While the Nobel Prizes have continued to come, they are mostly for work done prior to the breakup. 

The current fiscal crisis in the United States is now approaching five years of age.  The most significant measure of our fiscal problems is the debt to GDP ratio.  Everyone is focused on the rate of growth of the numerator in this fraction, with almost no attention paid to the denominator.  If America is to dig out from under a mountain of debt, the GDP must grow faster than the debt, and key to that is increasing both productivity and products.  Unfortunately, productivity growth has been stagnant over the last fifteen years.

Every action has both intended as well as unintended consequences.  One wonders, what industries do not exist today, what productivity multiplying devices to not exist today because the Justice Department succeeded in 1982?

P.S.  For a complete history of Bell Labs, check out: Gertner, Jon. The Idea Factory, Bell Labs and the Great Age of American Innovation. New York: The Penguin Press, 2012.

*Conflict of interest disclosure:  my father was employed by Bell Labs for 30 years before he retired in 1984.

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