Leaving a Trillion on the Table

(I originally posted this in 2006. With the current push toward top-down micromanagement of virtually all aspects of the economy, it seems worth posting again. I should also note that a trillion is probably way too small a number to use for an estimate of the economic value of this technology)

The invention of the transistor was an event of tremendous economic importance. Although there was already a substantial electronics industry, based on the vacuum tube, the transistor gave the field a powerful shot of adrenaline and brought about the creation of vast amounts of new wealth.

As almost everyone knows, the transistor was invented by John Bardeen, Walter Brattain, and William Shockley, all researchers at Bell Laboratories, in 1946. But a recent article in Spectrum suggests that the true history of the transistor is more complex…and interesting not only from the standpoint of the history of technology, but also from the standpoint of economic policy.

The story begins in Germany, during World War II. Owing to short-sighted decisions by the Nazi leadership, Germany’s position in radar technology had fallen behind the capabilities of Britain and of the United States. (Reacting the the prospect of airborne radar, Herman Goering had said “My pilots do not need a cinema on board!”)

But by 1943, even the dullest Nazi could see the advantages that the Allies were obtaining from radar. In February of that year, Goering ordered an intensification of radar research efforts. One of the scientists assigned to radar research was Herbert Matare, who had been an electronics experimenter as a teenager and had gone on the earn a doctorate.

A key issue in military radar was the need for shorter wavelengths–which allowed for better target resolution (such as the ability to pick up the periscope of a submerged submarine) and also facilitated the miniaturization of radar equipment. Vacuum tube diodes (diode: a device that allows electricity to travel only in one direction) did not work well at these wavelengths, because the distance between the electrodes in the tube was too large. Matare was working with an alternative: crystal rectifiers similar to those he had tinkered with as a teenager.

In the course of this work, he noticed that when configured in a certain way, a device made of germanium could do more that provide a one-way gate: it could amplify. A small signal could control a more powerful current. In principal, the vacuum tube–fragile, bulky, power-hungry, and hot-running–could be replaced with devices of this type.

Focused on his war work, Matare did not have time to pursue the possibilities of his invention. (And very fortunately, he and his colleagues in German science and industry never came close to matching the Allied achievements in radar.) After the war, Matare moved to Paris and went to work for a Westinghouse subsidiary, Compagnie des Freins et Signaux Westinghouse. There he met Heinrich Welker, another German, a theoretical physicist who, remarkably, had also developed a transistor-like device, and the two men began working together on understanding the technology and its potential. After they began obtaining consistent results, in 1948, they contacted the director of the PTT, the French government agency responsible for posts and telecommunications. He was too busy to come by for a demonstration. But after the announcement of the transistor by Bell Labs in July of that year, there was a sudden upsurge of interest in the Welker/Heinrich project, and the PTT minister found time to visit the lab. He urged them to apply for a French patent on the device and also suggested that they call it by a slighly different name: the transistron. By 1949, the device was in limited commercial use: first as an amplifier on the Paris-Limoges telephone line, and later on the lines running from France to Algiers.

The Spectrum article tells what happened next: not much. But the French government and Westinghouse failed to capitalize on the technical advantages in semiconductors that they then appeared to have. After Hiroshima, nuclear physics had emerged as the dominant scientific discipline in the public mind, and nuclear power was widely heralded as the wave of the future. France became enchanted with puruing the nuclear genie unbottled in the 1940s, while ignorant of its promising transistron.

Matare and Welker struggled on in Paris, but as support for their work fell off, they started looking for other alternatives. In 1951, Welker went to work at Siemens, eventually becoming head of R&D and making important contributions to optoelectronics. Matare started his own company, Intermetall, which was based on Dusseldorf. In 1953, he demonstrated what was probably the world’s first transistor radio–built around four Intermetall transistors. He sold the firm to a U.S.-based company, Clevite Corp, which failed to aggressively pursue the potential of the transistor.

It was another U.S. firm, Texas Instruments, that first made a substantial business out of the transistor. Most of the enterprises built around the emerging semiconductor field were in two countries: the U.S. and Japan. Neither France nor Germany profited as they could have from the work of Matare and Welker.

Why did things turn out this way? Michael Riordan, author of the Spectrum article, suggests a couple of factors: first, that Bell Labs had a better theoretical understanding of how transistors actually worked, leading to improved devices and production techniques; second, the presence of more of a talent infrastructure in the U.S. due to its intensive wartime radar work. But I would also emphasize another point.

When governments become involved in technology choices, they tend to pursue that which is fashionable at the moment…and in France in the early 1950s, that was nuclear power, not semiconductor electronics. Corporations, too, often pursue that which is fashionable or that which has short-term payoff. But in a healthy and innovative economy, the high-potential idea that is dropped by one corporation will be picked up by another–either an existing one, or a startup. (As Intel was founded by individuals who didn’t think Fairchild Semiconductor was moving fast enough to exploit the integrated circuit.)

Research and development is very important, but it’s not enough. For R&D to achieve results, there must also exist a culture which facilitates that commercialization of the new technology. Such cultures tend to involve a high degree of decentralization–either within an enterprise or across an entire economy–precisely because everything cannot be foreseen in a master plan.

Unfortunately, it appears that many individuals in leadership positions fail to grasp the importance of decentralization and individual entrepreneurship–especially in government and especially in Europe. See this rather depressing document called Creating an Innovative Europe (referenced in Michael Mandel’s post here) which contains language like:

Large scale strategic actions are called for in key sectors to provide an environment in which supply-side measures for research investment can be combined with the process of creating a demand and a market.

They call for an independent High Level Coordinator to be appointed to orchestrate European action in each area across Member States, different parts of government and the Commission, business, academia and other stakeholders.

Would such a document, written in 1950, have identified “semiconductor electronics’ as a “key sector?” It seems unlikely, based on the experience of Matare and Welker. And, even if the planners had had the vision to understand the importance of the transistor, would a top-down process involving “stakeholders” (like incumbent vacuum-tube manufacturers) have ever permitted it to leave the lab for the production floor?