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Where Have You Gone, Bell Labs?

Mon, 08/31/2009 - 7:58am
Adrian Slywotzky

Editor's Note: We must innovate to get out of this mess; there is no other real alternative.

Name an industry that can produce 1 million new, high-paying jobs over the next three years. You can't, because there isn't one. And that's the problem.

America needs good jobs, soon. We need 6.7 million just to replace losses from the current recession, then another 10 million to spark demand over the next decade. That's 15 million to 17 million new jobs. In the 1990s, the U.S. economy created a net 22 million jobs (a rate of 2.2 million per year), so we know it can be done. Between 2000 and the end of 2007 (the beginning of the current recession), however, the economy created new jobs at a rate of 900,000 a year, so we know it isn't doing it now. The pipeline is dry because the U.S. business model is broken. Our growth engine has run out of a key source of fuel—critical mass, basic scientific research.

The U.S. scientific innovation infrastructure has historically consisted of a loose public-private partnership that included legendary institutions such as Bell Labs, RCA Labs, Xerox PARC XRX, the research operations of IBM IBM, DARPA, NASA, and others. In each of these organizations, programs with clear commercial potential were supported alongside efforts at "pure" research, with the two streams often feeding one another. With abundant corporate and venture-capital funding for eventual commercialization, these research labs have made enormous contributions to science, technology, and the economy, including the creation of millions of high-paying jobs. Consider a few of the crown jewels from Bell Labs alone:

• The first public demonstration of fax transmission (1925)

• First long-distance TV transmission (1927)

• Invention of the transistor (1947)

• Invention of photovoltaic cell (1954)

• Creation of the UNIX operating system (1969)

• Technology for cellular telephony (1978)

Decline in Lab Funding

In the decades after these initial discoveries, vibrant industries and companies were born. The transistor alone is the building block for the modern computer and consumer-electronics industries. Likewise, DARPA's creation of the Internet (as ARPAnet) in 1969 and Xerox PARC's development of the Ethernet and the graphic user interface (GUI) further developed the transformative computer and Internet industries. The basic research breakthroughs unleashed subsequent cycles of applied innovation that created entirely new sectors of our economy.

But since the 1990s, labs dedicated to pure research—to the pursuit of scientific discovery—have seen funding slowly decline and their mission shift from open-ended problem solving to short-term commercial targets, from pure discovery to applied research. Bell Labs had 30,000 employees as recently as 2001; today (owned by Alcatel-Lucent ALU) it has 1,000. That's symbolic and symptomatic of the broken link in the U.S. business model. With upstream invention and discovery drying up, downstream, industry-creating innovation is being reduced to a trickle.

It's easy to ascribe current job losses in the U.S. to the deep recession or outsourcing. Both are to blame, but neither is at the root of the larger problem, which is lack of new, high-quality job creation. We are in the throes of the fourth recession since 1981. We have been outsourcing jobs for decades, but we have always bounced back with a new industry—a blockbuster industry. Discovery drives innovation, innovation drives productivity, productivity drives economic growth. But this time it's different, and whenever the current recession mercifully ends, the U.S. economy will not respond with the same job-creating vigor we have come to expect.

Job Creation a Huge Challenge

In the past, when the U.S. exported millions of high-paying jobs to low-wage countries, we replaced them with an even greater number of high-paying jobs in industries whose inception could be traced back to science done decades earlier. The PC, Internet, and cellular industries, born in the 1980s and 1990s, more than offset the loss of high-paying jobs in manufacturing industries like consumer electronics, steel, and others as the economy shifted from a manufacturing to a knowledge base. But in recent years, the software and manufacturing jobs lost have been largely replaced by millions of low-wage jobs in fast-food and retail or other service businesses. Finance has been a source of ongoing job growth, but recent events have proven that growth to be unsustainable. We've stopped creating new high-paying jobs.

We should not underestimate the magnitude of the job creation challenge. Outsourcing and extended recessions are not the only job destroyers in our system. There is also the constant pressure of value migration (the flow of value from old business models to new), which continues to be the major force reshaping our economy and will eliminate a large number of jobs in the next decade. (Think of all the old business models you know, from newspapers, to printing, to landline telephony, to the mighty, but now vulnerable, PC).

As a consequence of exporting good jobs that are not fully replaced, the U.S. demand engine is broken. Of the roughly 130 million jobs in the U.S., only 20% (26 million) pay more than $60,000 a year. The other 80% pay an average of $33,000. That ratio is not a good foundation for a strong middle class and a prosperous society. Rather than a demand engine, it's a decay curve. As a nation, we have papered over our declining incomes by accepting the need for two incomes per household and by borrowing heavily, often against paper assets inflated by financial bubbles (dot-com and housing). In recent years, personal debt has grown much faster than personal income. In 1985 the ratio of household debt to household income was 0.7 to 1; in 2000 it was 1 to 1; in 2008, it was 1.7 to 1. We earned less, so we borrowed more. In 2007 we reached our limit.

This cycle looks only to be getting worse. The effects of the massive scaling back of American science and engineering research in the 1990s and 2000s may just be beginning. Unless reversed, it is likely to have its greatest impact a decade from now, when the missing discoveries of a generation earlier would have been expected to come to commercial fruition. It's time to identify—and fix—the root of the problem.

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