How Did America Maintain Innovation Leadership During the Twentieth Century?

By the start of the twentieth century, the United States had introduced important modifications of the patterns of innovation that had started in the early industrial economy of England. Most notable was the growing role of large-scale corporations. American firms in the industrial sectors grew into large corporate entities, increasingly owned by multiple passive shareholders and managed and run by full-time, salaried professional managers. These corporate giants integrated multiple stages of production, from raw material to finished product under one roof, or under one corporation at least. By bringing together the stages of production they went one better on Adam Smith and his division of labor. In the factory, labor might be divided for the sake of efficiency and productivity, to be sure, the old American system. But under corporate management all the parts of the productive process were controlled and coordinated, enabling large corporations to increase the rate of output and taking advantage of economies of scale to dramatically lower the price of crucial goods. In the petroleum industry, John D. Rockefeller’s Standard Oil Corporation dropped the price of kerosene (the most important refined product before the automobile and gasoline) by some 90 percent. In steel, Andrew Carnegie did likewise, becoming the lowest cost steel producer in the world by 1900. A bit later, Henry Ford picked up the old American system and integrated the production of car parts and assembly of cars on his assembly line to radically decrease the cost of a car. In 1909 Ford made over 10,000 cars, which sold for $825 each, about $23,000 in today’s dollars. By 1925 he was making just under 2 million cars a year, at $260, or $3,600 in today’s money.

American corporations and their productive processes were studied, copied, and adapted by all industrial nations, from England to Germany, France, Sweden, and Japan. They marveled at the productive power of what they soon called “Fordism.” But it wasn’t just one model. America, and other industrial nations, adapted and devised a host of industrial innovations that ranged from large-scale mass production to skilled, specialized production emphasizing changing styles, designs, and market needs. The American economic landscape was vast and varied enough to sustain firms both large and small, industries that ran on large scale and industries that ran at small scale. It had industries where labor was organized and divided on the assembly line, and industries where workers were skilled and experienced mechanics and craftspeople.

In this economy, the talented and entrepreneurial could start out at one place and move to another where opportunity beckoned. Or they could start out in one industry and see opportunities to adapt their capital, skills, labor, and technology to pioneer a new business. For example, in 1893 Frederick Maytag was a reasonably successful maker of agricultural equipment. His most notable product was a self-feeder for threshing machines that greatly reduced the chance of injury or death to workers. Although the company was soon the world’s number one producer of this technology, demand for the equipment was seasonal, which meant that Maytag often had to lay off their most skilled workers and mechanics in the slow season. Looking for ways to keep them occupied and employed, Maytag came up with a version of the washing machine, then a new household product. In 1922 Maytag engineer Howard Snyder developed an improved agitator, a design that proved so robust that Maytag washing machines soon acquired a reputation for dependability, so much so that the company gave up farm equipment and moved into washing machines and consumer durables full time.

There is a similar story behind the American pioneering of the airplane at the beginning of the twentieth century. The Wright brothers did not start out with an airplane in mind, exactly. They ran a successful bicycle manufacturing company in Dayton, Ohio, one of those industrial networks that drew together lots of mechanical, engineering, and inventive talent. Bicycles were a new phenomenon, with fantastic public interest and demand. As they hit the market, consumers, men and women, gobbled up the first personal transportation device beyond the horse. Bicycles used the same American system of production of standardized machine-made parts and assembly that had been pioneered in the nineteenth century and would continue under Henry Ford. In fact, some bicycle makers would also transition to automobile manufacturing by developing a number of the important machines and machining techniques needed for the production of automobiles. And for the Wright brothers, knowledge of gears, chain drives, and even aerodynamics, balance and control, led them to their great flying machine breakthrough as well.

One of the great strengths of the American technological landscape was that it contained these multiple points of entry for inventors. Sometimes, an invention led to the start of a new company to carry out and profit from the original idea. This was the case with George Eastman, who invented roll film for cameras, then invented the Kodak, an inexpensive mass-produced camera to use the film, and founded and ran the Kodak Company that made, marketed, and sold film and cameras. Other times, independent inventors were more interested in selling what they created to another firm and just collecting patent royalties for their work. And still other innovators exhibited both traits.

Perhaps the most famous example of the last is Thomas Edison. He set up a virtual invention factory in Menlo Park and then West Orange, New Jersey, where he brought together engineers, mechanics, designers, mathematicians, and those with formal training in physics and chemistry. Much of Edison’s work was directed toward solving bottlenecks or problems in existing products or industries—a better stock ticker for Wall Street, a durable filament for incandescent lamps. Other work was directed towards creating products for which demand did not yet exist. So, Edison, often thought of as the solitary inventor, really devised an entire organization focused on innovation. He was as much an entrepreneur and businessperson as an inventive genius. He sought to capitalize on patents by organizing his own companies to market what his mind had come up with. Besides inventing the motion picture camera and projector he started a company to make both the equipment and also to produce early pictures. Likewise, his phonograph was produced and sold by the Edison Phonograph Company. He not only perfected incandescent lamps, but also built and sold electric power generating equipment and set up one of the first generating stations to provide electricity to homes and offices in New York. Edison was not a manager; he usually assigned his patents to the companies he helped to found and, like a venture capitalist, went back to his invention factory to come up with other products that he could sell another day. Like his savvy contemporaries, such as Alexander Graham Bell, Elisha Gray, Elmer Sperry, and Nicola Tesla, Edison was very good at the research and development business, itself a new concept—continual research and work to either develop new technologies or improve or perfect existing ones.

By the early twentieth century, the uniquely American innovation ecosystem was bringing together inventors with a host of other talents in an organizational form that could execute and sell increasingly sophisticated technological products. Just consider one example of how this worked—electrification. Besides Edison, other inventors of the time were also at work on this technology. Elihu Thompson, an immigrant from England, founded with his old high school science teacher the Thompson-Houston Company. The business took off when they brought into it Charles Coffin as CEO. Coffin’s skills were in marketing, a crucial skill for successfully launching a new technology. Coffin had made and sold shoes at his uncle’s shoe factory in Lynn, Massachusetts, so he was not an inventor, a scientist, nor an electrical engineer. But he grew the company and by 1892 the Thompson-Houston Company, makers and sellers of electric power systems, merged with Edison’s own electric company to form General Electric, using financing provided by the famed investment banker J. P. Morgan. Morgan himself had been one of the first customers for electricity in New York at his private residence. Coffin ran General Electric for the next twenty years.

Elihu Thompson, like Thomas Edison, did not play an active role in company management. Both men continued to concentrate on inventing, Thompson ending up with some 700 patents to Edison’s 1,000. Indeed, after the GE merger Thompson moved back to Massachusetts and started what became the General Electric research laboratory, hiring a number of brilliant engineers and scientists to work with him, including the German immigrant Charles Steinmetz. The GE story, like Edison’s, reveals the way that the United States had by the turn of the twentieth century developed a new and more complex ecology of innovation that brought in organization and a specialized division of inventive labor. This ecosystem drew on the multitude of human resources American society could provide: Independent inventors with practical, hands-on skills, trained engineers and mechanics working for industry, scientists employed in industrial research laboratories, and it combined them with investment bankers, professional managers, and clever marketers to both create and bring to the marketplace new or improved products, processes, and technologies. The pillars of American innovation were expanding.

As corporations grew, they added another leg to the inventive table. While independents and startups were crucial for making breakthroughs or founding new firms or even whole industries, existing large firms began to routinize the process of innovation. They diversified into new lines of business, leveraging their technology and market knowledge, and harnessing the talents of their skilled technical people. DuPont, for example, had been started in 1802 by Eleuthera Irenee du Pont, a French immigrant fleeing religious persecution. What began as a family-owned firm producing black powder for firearms and explosives expanded by 1920 into a host of new product lines and industries. Taking advantage of its strengths in chemistry and other branches of science, DuPont was able to move into synthetic fibers, plastics, pesticides, solvents, and paints, among other areas. Increasingly, science and not just on-the-job skills mattered to innovation, and DuPont, like many other corporations, opened and funded a large research laboratory, hiring men (almost always men) educated at the new American graduate schools in scientific and engineering fields.

Large firms could provide the combination of money, managerial talent, and marketing push that good ideas needed to come to fruition. A significant portion of the corporate research budget therefore was spent on development and engineering, particularly process engineering that transformed the first model of a new thing into a mass-produced, low-cost, consumable item. Bell Labs, perhaps the most famous corporate laboratory in history, won nine Nobel Prizes for its fundamental research, but it spent about 70 percent of its budget on development rather than research. Developmental work plus production and process engineering were crucial to improving the functioning and lowering the cost of telephone service, incremental rather than radical breakthrough innovations. As a result of improvements in the capacity of transmission systems and the automation of switching systems, the United States enjoyed a low-cost telephone system, and American consumers had more telephones than the rest of the world combined.

This pattern was repeated in multiple industries in the United States in the twentieth century. The British scientist Sir Alexander Fleming may have discovered penicillin, but it was a unique collaboration between the American pharmaceutical companies and the U.S. government during World War II that discovered how to mass-produce the first successful antibiotic. Merck, Pfizer, Lederle, and Squibb worked together to develop new ways of mass-producing enormous amounts of this new lifesaving drug—646 billion units per month by 1945, enough to supply the U.S. and British military forces as well as civilians. Much as in other industries at this time, the intellectual universe of medical science was rapidly shifting and developing strong ties to academia and even government as never before.

It was not necessary to win prizes to be successful at innovation in America. Before World War II, far more Nobel Prizes went to Europeans than Americans, though that would change after World War II (in part because of the arrival of immigrant European scientists and intellectuals in America). Meanwhile, American education, American inventors, and American corporations focused much more on practical and commercial innovations.