Crash and Burn

Opportunity.  One word that summarizes a lot of what the United States, especially its economy, is about.  The opportunity to create something new, start a business, make money, succeed...or do none of these.  Also, it is the ability to buy whatever product or service you want, the right to pick and choose.  It is what makes the United States great, what continues to draw the intrigue and interest of millions of people, and what keeps business thriving and innovation developing in order to allow for economic and state growth.

"It goes without saying that economic vitality - innovation, growth, and opportunity - depends on the freedom of the economic growth system to rise and fall, crash and burn." (Wu 301)

Throughout The Master Switch Tim Wu uses companies-turned-monopolies, such as AT&T and RCA, to demonstrate the effects of the Cycle. For instance, when an industry changes from being open and decentralized, to centralized and closed to outside influence (or change).  Herein lies, what I believe, is Wu's most compelling claim, that centralization leads to the restraint of a free economy by stifling innovation, growth, and opportunity, so that economic vitality and the development of a nation is hindered.

Take, for instance, Bell Labs and AT&T.  At the beginning of the Cycle, these companies, as most do, started, "in a lonely room where one or two men are trying to solve a concrete problem." (Wu 18)  These companies would grow with time and, at the height of their prominence and influence over American telephony, they were given a government grant to act as a monopoly.  Under the direction of Theodore Vail they, "promised to do no evil.  And the government bought it." (Wu 57)  Now, in all fairness, under Vail, AT&T did provide excellent service for a reasonable price.  Later however, it became apparent that in order to continue as a monopoly, unhindered by new innovations that threatened to change the way the communications industry (in other words AT&T) was run, new innovations had to be repressed.  That's where it all went wrong.  

The smothering of innovation is proven by the work of Clarence Hickman, a scientist for Bell Labs, who in 1934 invented magnetic storage and the answering machine.  However, "soon after Hickman had demonstrated his invention, AT&T ordered the Labs to cease all research into magnetic storage, and Hickman's research was...concealed for more than sixty years." (Wu 106) This was done, according to Wu because, "the very knowledge that it was possible to record a conversation would 'greatly restrict the use of the telephone,'" and therefore AT&T's business. (Wu 106)

Because of the control that AT&T held over the telephone industry they could literally decide what things were allowed to be developed, produced, and sold.  This undoubtedly limited innovation, growth, and opportunity in the United States economy.  They even had laws put in place to hinder innovators and inventors from developing technologies that would rival, or replace, theirs.  The magnetic tape would eventually be brought to America, despite the wishes of AT&T, "via imports of foreign technology, mainly German." (Wu 106)  Now not only had AT&T missed out on that new technology, but it had prevented America from being the first to develop, produce, and capitalize on the innovation, damaging the dominance of the U.S. in the global marketplace. 

So, how much different would the world have been if magnetic storage had of been "invented" in the 1930's by America and not in the 1990's by Germany?  Would 60 years and the pioneers of that innovation really make a big difference?  It is impossible to know for sure, but it would have been nice if AT&T had given us the opportunity to have progressed with that technology, unhindered, for all of those decades. 

Yet AT&T would not be the only company to stifle innovation and opportunity.  RCA would also have its chance to block progress and growth.  One example is that David Sarnoff, the president of RCA, blocked the entrance and usage of FM radio, in order to protect the older AM radio that his business was founded upon.

In 1934 Edwin Armstrong invented the FM radio.  This new modulation of radio waves was capable, "of a far higher fidelity in sound reproduction than AM." (Wu 129)  Not only that but, "FM technology held another promise: as a potential competitor to AT&T's long distance lines," through relay stations. (Wu 129)  Finally, Armstrong realized that FM could be used, "as a form of wireless fax," a technology years before its eventual time.  While clearly holding a larger benefit of use than the AM radio, Sarnoff would take Armstrong to court in order to stop his invention from reaching the public market.  Needless to say, FM radio, "would take until the 1970s for it to catch on, and until the 1980s to reach the popularity of AM." (Wu 133)

Because of one company's absolute control over a certain industry it was "allowed" to hide an invention, that was known to be important, from the public, in order to protect its own interests.  If the FM radio had been used as Armstrong had thought, possibly as a way to compete with AT&T phone lines, maybe the invention that AT&T was holding back, the magnetic storage, would have made an appearance in order for AT&T to compete again.  Yet again, the limitations placed on innovation deprive the economy of much needed growth and stimulation, as well as the future generations of years of potential technological development.

So how does the economy combat the oppressive forces of centralized industries, or monopolies?  By allowing for outside disruptions, innovations, inventions.  Developments that will disrupt or change the way companies are run and technologies used, giving the opportunity for competition between those companies.  Allowing for the natural rise and fall of these companies.  Letting some crash and burn.

Wu writes a little about this in his theory on a Separations Principle.  A "law" that would fight vertical integration, the cause of the problems of companies like AT&T and RCA, first by, "protecting entrepreneurial freedom by preventing stagnation and repression of business innovation, especially repression abetted by the state." (Wu 306)  Also, the Separations Principle calls for a change in the government's historic role so that it can be a, "check on private power, never as an aid to it." (Wu 308)  While all of this is idealistic and gives no concrete examples of how this can be accomplished, it is the correct thought and, if properly developed, could spell the end for the Cycle by finally allowing for long periods of sustained competition.