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I.B.M. and the Transistor

I.B.M. and the Transistor

Computers are at the foundation
of the modern globalized economy. And their roots lie in the
19th century in an unexpected way with the punch card. Now punch cards were invented to
control looms, a special kind of loom, called a Jacquard loom
that could be programmed to produce a wide array of
different kinds of weaving patterns. And even in the late 19th
century, the census used, again, punch cards to keep track
of the American population. But these machines were not computers. They were not able to do complex
calculations on this data. At best, they were adding machines. And the best company that produced
these adding machines by World War II was a company called International
Business Machines or IBM. In the 1940s, IBM had 90% of the
punch card market in America. And so during World War II, when
American and British scientists tried to figure out a way to store data
from a new kind of actual computer, called ENIAC, that used vacuum
tubes from radios to begin to do calculations, they
used punch cards made by IBM. And so these computers during World
War II were used for two purposes. First, the decryption of German
communications using those enigma machines to decrypt those. And also the calculation of missile
trajectories and rocket trajectories, and all the other kinds
of complex calculations that go along with modern artillery. Coming out of World War II then,
it was a natural fit for IBM to become the developer of new kinds of
commercially useful business computers, computers that would use
vacuum tubes in the one hand and its own punch cards on the other. After the war, there was a search
for a new kind of device that could perform the logic that
was possible with vacuum tubes, but without their very fragile nature. The breakthrough came in
the late 1950s at Bell Labs, where William Shockley
invented the transistor. Now, Bell Labs was owned
by AT&T. And so they were very afraid already of
being investigated for antitrust, in the sense that they controlled the
American telecommunications industry. And so AT&T decided to license out
the transistor to Raytheon, to Zenith, to RCA, to Texas Instruments to a range
a different electronics firms who would all produce these
new kinds of chips. In the late 1950s then, the transistor
began to find its way into the computer through IBM. The CEO of IBM, Tom Watson,
before an assembled gathering of the top executives,
100 top executives, handed out these transistor radios
produced by Texas Instruments. He said to the group, “If that
little outfit there in Texas can make these radios work
for that kind of money, they can make transistors that
will make our computers work too.” And so this transition to the transistor
computer that came in the early 1960s created a boom in the industry. In 1960, there were only 6,000
mainframes in the country, and by 1968, there were 67,000. But these were for business,
for business problems. And in doing so, IBM
remade not only itself but the entirety of American capitalism. IBM was clever in how it
operated its business. Instead of selling the
computers outright, it simply leased them
to the corporations and then sold them punch cards. And so they had a huge
mark up on the punch cards, which were, of course, just paper. And at any moment, if they tried to
switch to some other purveyor of punch cards, they could pull
back their computers. And doing so, they locked in the largest
corporations into their business model. But these computers could do more
than the adding machines of pre World War II. They could do more than count. For instance, in 1964, IBM releases
Sabre, Semiautomatic Business Research Environment, which allowed
these new jet airlines to coordinate ticket sales
and hotel reservations. It’s the very first real
time transaction system, and in many regards, the forerunner
of today’s internet commerce. And so for the jet age,
computers mattered. They made those real time
global connections possible. In 1964, IBM introduces its
breakthrough product, the first computer that separates the operating
system, that is the software, from the hardware. It was called system 360. Now, it was exciting because
it was a stable computer that could be used with many
different kinds of peripherals. So whether you worked at the Atomic
Energy Commission or the NSA, you could hook up your different
kinds of specialized devices. And it’s the most successful
product since the Model T. It produces 30% annual growth for IBM. And this is a company that already
has a multi-billion dollar revenue. And so this is a tremendous
explosion, and it marks the maturation of
the electronics industry into the forefront of
American capitalism. IBM was very successful,
so successful, in fact, that companies in other parts
of the world begin to buy them. So what IBM begins to
do is look for ways to actually have the
final assembly step, the step that adds the
least value, as opposed to manufacturing the chips and all
those other steps, take place close to the customer. And so especially for Asian
customers, which were so far away, they decided to set up
assembly plants in Asia itself, completing that last,
lowest value added step. Now, this happens in the
1960s, and in many ways is the mirror image of what begins to
happen in the 1980s, as we’ll come to in a few minutes, talking about the
rise of Asian automobile manufacturing.

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