The Idea Factory

During the 20th century Bell Labs was the greatest incubator of innovation. It transformed all aspects of our modern life—the transistor, the integrated circuit, the communications satellite, the cell phone were born here. Why did so many breakthrough inventions come from Bell Labs? The book The Idea Factory: Bell Labs and the Great Age of American Innovation by Jon Gertner explores the century of Bell Labs in great details.

I find three interwoven elements of Bell Labs story particularly interesting—People, Collaboration, and Economics.

People. The core of Bell Labs is a small group of brilliant men, like Mervin Kelly, Bill Shockley, and Bill Baker, although at its peak Bell Labs employed more than a thousand of PhD. One of the principal criteria for employee selection was enthusiasm—most of the core group was small-town boys, childhood hobbyists, oddballs, doing strange things. This selection and nurturing approach trickled down, “Hire for Attitude, Train for Skill”. Bell Labs employees had a special for playing with stuff and tweaking things—Claude Shannon is a great example here. The book tells an anecdote of Bell Labs’ survey on productivity of its employees. It turned out that a single best predictor for a productive employee was … having lunches with Harry Nyquist. He was known for his talent of asking good questions, a key for innovation and collaboration.

All Bell Labs inventions required Collaboration between very different specialists. Invention of the transistor required collaboration of physicists, who had some idea what they would like to get, and metallurgists, who knew how to do different tricks with metals. Bell Labs intentionally nurtured the culture of collaboration in very different aspects—from broad search for specialists who are doing interesting things to creating physical space for mixing and talking (the approach later used by Pixar as vividly described in Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration by Ed Catmull, Amy Wallace). Bell Labs encouraged risk-taking and was quite tolerant to what would be called inefficiencies by modern managers—pursuing personal projects without immediate and obvious monetization. The reason is understanding of the profound distinction between two types of innovations—racing for obvious and the leap into the unknown. Sometimes ideas are “in the air” and you have to run fast to be first or someone else will do it—the transistor is a good example here. However, sometimes transformation requires a much larger leap, in a less anticipated direction, into the unknown—Shannon’s information theory and communication satellite are two good examples.

How Bell Labs managed to maintain its operations over decades? The right Economics is an answer. First and foremost Bell Labs did not strive for “efficiency” and “profit.” It was cross-subsidized from other profitable businesses of AT&T, and this cross-subsidization was explicitly recognized. AT&T was an official natural monopoly, which allowed it to maintain vertically integrated operations and finance extensive innovation activities . (The price was limitations of company activity to the communication sector only.) In a sense, it resemble a paradox of USSR and USA Internet (as described in great details in How Not to Network a Nation: The Uneasy History of the Soviet Internet by Benjamin Peters)—capitalist USA acted in more socialist manner and got better results. Second, AT&T recognized the power of specialization and vertical integration. Bell Labs was an incubator of innovations. The Western Electric Company, another subsidiary of AT&T, served as the primary equipment manufacturer and was doing technical and manufacturing innovations. This allowed AT&T to have a whole control on innovation—from the idea and prototypes (done by Bell Labs) to scaling it into a marketable, mass producible product (done by The Western Electric Company)—“cheaper or better or both.” This is in sharp contrast with other innovation labs, like Xerox PARC (story told in Dealers of Lightning: Xerox PARC and the Dawn of the Computer Age by Michael A. Hiltzik), which did not manage to go from idea and prototyping to mass production and therefore transformative change. This doesn’t mean all Bell Labs products were successful. For instance, Picturephone was technologically advanced, but too unfamiliar and did not fly.

Overall this is a great book for everyone interested in history, technologies, and innovations.

P.S. This book came to me as a part of a reading list on innovations, although I am not completely sure which one. It could be a reading list from my Leadership Development Program, or from Seth Godin.


Upheaval: How Nations Cope with Crisis and Change by Jared Diamond

Simple questions are hard to answer and often provoke great responses. Guns, Germs and Steel by Jared Diamond started with a question “Why is it that you white people developed so much cargo and brought it to New Guinea, but we black people had little cargo of our own?”, asked by a New Guinean politician. It resulted in breathtaking exploration of the history of everybody for the last 13,000 years. It outlines—with broad brush strokes—main factors stimulating or holding back progress. The Collapse started with a simple question “Are we doomed to collapse?” Jared Diamond traced the fundamental pattern of catastrophe and adaptation using cases as diverse as the Polynesian cultures on Easter Island and Inuits adapted to the Greenland environment.

The Upheaval: How Nations Cope with Crisis and Change, the third book in the series, raises a simple question “Can we learn from the lessons of the past?” This simple question starts exploration of national self-appraisal (or lack of) and adaptation through selective change (or avoiding it).

The first, short, part of the book Jared Diamond borrows and adapts a 12 factors framework from crisis therapy to understand what happens to nations in crisis. In the second part, he applies this framework to a series of case studies—Australia, Chile, Finland, Germany, Indonesia, and Japan—selected on the basis of personal knowledge and connections. How did these countries manage challenges like foreign threats, civil war, or general change of conditions? How different factors worked for them? What did not work? The cases in the book are very different, but all are fascinating. Finland faced harsh reality during World War II and managed to find the pragmatic way forward. Chile was so proud of unique democratic culture and suddenly slipped into decades of bloody dictatorship. Japan was forced to open up to the World, rapidly embraced the change and soon became the westernmost of the East. In the third part he turns the look forward and explores challenges ahead—or Japan, USA, and the whole World.

One sad conclusion of the book is that “obvious” lessons and requirements have been ignored so often (and are still often ignored today) and this is a recipe for disaster. However, the book conclude on a more optimistic note—familiarity with changes that did or didn’t work in the past can serve us as a good guide in navigating in crisis.

P.S. This book came to me spontaneously—I spotted the cover with japanese Ukiyo-e and immediately got interested.

Algorithms to Live By

Algorithms to Live By: The Computer Science of Human Decisions by Brian Christian, Tom Griffiths.

Cover page of book Algorithms to Live By: The Computer Science of Human Decisions by Brian Christian, Tom Griffiths

All models are wrong. But some are useful.“–George Box

This book provides detailed exploration of some models or algorithms as applied to daily problems–ranging from marriage decision to design of parking lots. Simultaneous exploration from two standpoints–computational and psychological–brings two interesting insights.

First, it makes very clear that all theory and practice could be very different. As authors noted “Communication is one of those delightful things that work only in practice; in theory it’s impossible.” It doesn’t stop here and go in details what and why differs. For instance, in chapter on explore-exploit dilemma it turned out that people tend to over-explore. We switch to explore mode faster than algorithm suggests. However, it makes perfect sense if one take into account that model assumes unchanging world. If environment changes–as it constantly does–switching to explore is a good approach.

Second, it factors in computational burden. This could be crucial for explaining and design. The trick is seemingly similar things use different algorithms with different computational burden. For instance, it turned out that people are more likely to be available when you request meeting with specific time (or a number of options), rather than “at convenient time next week.” The former constrained problem is easier to solve. The latter launch resource consuming scheduling algorithm.

Overall the book is an excellent reading. It combines in academic arguments, everyday observations, anecdotes and philosophical pieces.

P.S. I don’t remember exactly how this book came to me. I believe, it is coming from someone’s reading list.

The power of improvisation. Directed improvisation.

There is no shortage of ‘best practices’ or ‘one-size-fits-all’ solutions in a development economy. Free trade, democracy, institution building, you name it. The Washington Consensus has reigned in the decades since the 1990s. Now the Beijing consensus is emerging.

Yuen Yuen Ang dismisses such solutions and suggests that there is no universal prescription. Her one-sentence summary is “Poor and weak countries can escape the poverty trap by first building markets with weak institutions and, more fundamentally, by crafting environments that facilitate improvisation among the relevant players.” She explores this idea through studying how China managed to achieve and sustain economic development after Mao. The country employed this approach, which allowed the to achievement of economic growth in complex circumstances. Yuen Yuen Ang call this approach ‘directed improvisation’ where central reformers direct and local state agents improvise. It taps local knowledge and adapts to the local circumstances, while aiming at an overarching goal. The resulting transformative process has displayed three distinct patterns. It is broad, bringing systemic changes despite incremental reforms. It is bold, unusually entrepreneurial but also attracts corruption-prone bureaucrats. Finally, it is uneven, with wide regional disparities coexisting with national prosperity.

The Government nurtured what Yuen Yuen Ang calls ‘directed innovation’ through variation, selection and niche creation. To promote variation, central reformers allowed local agents to flexibly implement central mandates according to local conditions. This has been done through deliberate creation of grey zones, as too much leeway could create chaos. Hence, Central bodies clearly delineated these zones of local improvisation. They imposed red lines around local administration, denoting things which are prohibited and risk very severe punishments; and black lines for things which must be delivered, again at the risk of severe punishment in the case of non-performance. The rest was in a grey zone, open for innovation and adaptation to local conditions. Selection was promoted by clearly defining and rewarding success within bureaucracy, of the type in the black lines discussed above. Central reformers clearly communicated the criteria for success to lower levels and ranked localities, and closely looked for what has worked and what didn’t. Successful models and approaches then became central policy, scaled up and replicated throughout China. For instance, the famous Township and Village Enterprises (TVEs) were neither prescribed, nor anticipated by central reformers, as Deng Xiaoping himself admitted. They grew up out of local experimentation at that stage of the reforms, as best fit to local needs and conditions, to produce growth spurts, and centrally imposed restrictions for the of non-acceptability of private property. The diversity of China provided the raw material for innovation, resulting in niche creation for different localities. Regional diversity thus turned from liability into a collective advantage.

The methodology Yuen Yuen Ang used is a mapping of the ‘coevolutionary process’, with whole Chapter (1) and Annex (A) devoted to the description of the methodology. She does not engage into construction of sophisticated regression models, torturing data in the elusive quest for causality out of correlation. Neither does she stick to small N approach, looking through messy and overcomplicated set of variable for a single case (By the way, enquiring reader could find great discussion of cultural differences between small N versus big N approaches in “A Tale of Two Cultures: Qualitative and Quantitative Research in the Social Sciences” by Gary Goertz and James Mahoney). Hence, no oversimplification and no messy non-reductionist approach to complexity. Rather, a complex approach, which captures a non-linear, co-evolutionary process, in reduced form. She tracks changes in the related systems of economy and institutions, over the time. Throughout the book, she dives into examples of Forest Hill, Blessed County and Humble County in China, which are archetypes of various types of localities in China. In her methodological annex she extends this approach to two additional cases of tax-less finance in United States of America in the 1880s and raise of Nollywood in Nigeria.

The three ‘I’s haunting development economics, according to Esther Duflo, are a conceiving Ideology, often derived out of Ignorance, that is perpetuated as a result of Inertia (see also “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty” by Abhijit Banerjee and Esther Duflo). More and more we do recognize the complex nature of issues we face with, the inadequacy of opaque models pushing correlation for causality, and the lack of Silver Bullet solutions. However, we are yet to find the instruments for handling complexity in a meaningful way. The book by Yuen Yuen Ang is an excellent starting point for this intellectual inquiry.

Economics of Good and Evil: The Quest for Economic Meaning from Gilgamesh to Wall Street by Tomáš Sedláček

Economics of Good and Evil: The Quest for Economic Meaning from Gilgamesh to Wall Street by Tomáš Sedláček

The guy drives me crazy trying to persuade that gender equality is much higher at distant districts of that (quite patriarchal) country, than in capital. The best argument he uses “econometrics shows this, and you know, math doesn’t lie”. When we run down devils in details, it turned out that the guy used share if girls among higher education students as a metrics of gender equality. In distant districts higher education facilities are limited to medical and pedagogical ones, overpopulated by girls. Contrary, in the capital there is much broader set of education institutions, including technical ones preferred by boys, and share of girls is naturally lower. Wrong implicit assumptions lead to wrong results, despite of all that ubersophisticated math.

Tomáš Sedláček tells that story, but on a bigger scale. Currently, we hide implicit assumptions behind sophisticated formulas of economics (which more and more is limited to econometrics). Math replaced ethics in economic debates, based on assumption that math is value-neutral. However, this is very recent development. Over centuries economic though was inseparable from ethics, moral philosophy. In this book author walk through the long history, analyzing sources as old as Gilgamesh and the Old Testament, coming to the Greek philosophers, continuing to Christian economics, and then to Enlightenment ages, and finally the Wall Street. The book is well written and easy to read. While I don’t agree with several arguments, it is thought provoking and very useful.

To my surprise, there is not much Wall Street in the book, while Crash 2008 could be a very good case study. Intricate econometrics and math models simply hide the basic assumption that property prices will rise forever. As soon as this assumption turned out be false, and prices stagnated and slightly went down, all models went crazy and market crashed. On the other hand, author pay some attention to Debt, which is a great issue going well beyond Public Debt.

Overall—nicely written, thought provoking, well referenced book.


“When Nature Helps Scientists: Natural Experiments of History” ed Jared Diamond

Human history and societies left many question open—why Haiti and the Dominican Republic, which share the very same island of Hispaniola, are so radically different in their level of development? Why expansion of Western Territories in USA in 19th century was so explosive? Is it unique? What condition level of political development in Polynesian societies? How slave trade has affected long-term development perspectives of Africa?

Social scientists find themselves in disadvantaged position, comparing to natural scientists, physicians, or chemists—they have no luxury to run a controlled laboratory experiments, often considered to be the hallmark of the scientific method. On the one hand, they often deal with past. On the other hand, even if they could design such an experiment, it would be immoral and illegal. To make things even worse, social phenomena often are hard to measure (for instance, what are the measures for “happiness”, “development” or “stability”?) and involve many variables, which affect outcome. (Back in 1987 Jared Diamond wrote an excellent article “Soft sciences are often harder than hard sciences”, where he touch upon some of the issues).

However, Mother Nature often times offers her helping hand, in the form of “natural experiments”—serendipitous situations, when systems or groups are similar in many respects, but are affected differently by a treatment, random or quasi-random. This allows comparing two systems or groups and studying influence of the treatment factor. “Natural Experiments of History” is a collection of eight comparative studies drawn from history, archeology, business studies, economics, economic history, geography, and political science.

Book is easy to read and it is extremely thought-provoking. It offers broad sample of approaches to comparative history, using range of methods—from nonquantitative to statistical, range of compared subjects—from two in development Hispaniola island case to 233 areas in India, range of temporal comparisons—from past to contemporary societies, and wide geographic coverage. Behind all cases there is one simple idea—comparative analysis of natural experiments can be applied to the messy realities of human history, politics, culture, economics and the environment.

Short summary of all chapters is available on-line. Many chapters in this book are based on research papers, which could provide additional information about research methods used.