Markets, monopolies and innovation

I recently wrote a blog post on The Mythology of Steve Jobs, in which I noted what I take to be a fairly standard understanding among sociologists: that technical innovation is generally the outcome of collective labor and that major innovations are generally produced by well-funded teams of researchers working in places protected from market forces.

The upshot is exactly the opposite of the standard story on innovation we get from mainstream economics. According to the latter, innovations are the result of individual entrepreneurs and are best fostered by intense market competition. But this simply does not fit the history of major innovations. This is shown very clearly in a recent article in the New York Times Magazine by Jon Gertner on the history of Bell Labs.

The article is a bit long, but very insightful and well worth a read. Let me just note a few highlights. Gertner explains that the researchers at Bell Labs were given “years to pursue what they felt was essential. One might see this as impossible in today’s faster, more competitive world.”

He distinguishes major innovations such as the transistor, which Bell Labs invented, from less significant “innovations,” such as smartphone apps and the like: “One type of innovation creates a handful of jobs and modest revenues”; another type, like that “Bell Labs repeatedly sought, creates millions of jobs and a long-lasting platform for society’s wealth and well-being.”

Perhaps most importantly, “The teams at Bell Labs that invented the laser, transistor and solar cell were not seeking profits. They were seeking understanding.” This is because Bell Labs hired intellectually curious researchers and gave them time, space and resources to pursue basic science.

While Gertner concludes “There’s no single best way to innovate,” the lesson is clear: major innovations are facilitated when researchers are shielded from the market, with its short time horizons and destructive forms of competition.

Without the giant businesses that are seen to generate “imperfect markets” and “market failure” in economics textbooks, it would be hard to imagine the 21st century as we know it.

  1. Thanks for this and the previous post on Steve Jobs. The organizational/labor aspects of all this are important. The Science and Technology Studies folks have long been elaborating the social/collective character of most innovation.

    I’ve been working on an explanation of why the mythology of the hero inventor still persists in the face of all the evidence to the contrary. Early thoughts on the Steve Jobs case are here:

    Tom Streeter

  2. matt vidal said:

    Hi Tom,

    Thanks for the comments and links to your article. Your analysis is right on the money. It is an additional excellent point about how Jobs got the spotlight because he got rich (while others who developed important inventions but were less successful overall have remained obscure).


  3. I think you have to be careful saying that “technical innovation is generally the outcome of collective labor and that major innovations are generally produced by well-funded teams of researchers working in places protected from market forces.” If we consider research that as tried to make lists of important innovations and then find out who created them and how — much of the bulk of that is from Eric von Hippel and his collaborators — I’m not sure that we can support your statement about what generally happens. Even if it is fairly common understanding among sociologists.

    Of course, I don’t think the statement you’ve laid out is totally incompatible with the world von Hippel describes: I think von Hippel and company would definitely agree with your conclusion about the Steve Jobs mythology. I also think that von Hippel’s core argument that users are the ones doing the innovating can be seen as supported by the observation that most of the innovation that Bell Labs is famous for where things that Bell hoped to benefit from by using as opposed to selling. It’s also true that von Hippel’s whole argument is that the market pressures are usually less relevant (at least in sense that they drive innovation-to-sell) in the innovation process. vH’s work is largely not focused on organizational variables, but the strong sense you get reading his work is that the Bell Labs are the exceptions rather than the rule.

    Interesting connections, for sure!

  4. matt vidal said:

    Good comments, Benjamin, thanks. I guess I might qualify my argument, taking into account Von Hippel, to state that collective labor refers both to teamwork and to individuals working on the basis of the existing stock of scientific knowledge (itself an output of collective labor); and that the role of well-funded teams is something increasingly important over the long haul, more particular to the 20th century than to previous centuries. That said, I think my fundamental point, a critique of the “individual entrepreneurs in free markets” argument, stands.

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