Optical fibres and the paradox of innovation

Here is one of the foundational papers for the modern world – in effect, reporting the invention of optical fibres. Without optical fibres, there would be no internet, no on-demand video – and no globalisation, in the form we know it, with the highly dispersed supply chains that cheap and reliable information transmission between nations and continents that optical fibres make possible. This won a Nobel Prize for Charles Kao, a HK Chinese scientist then working in STL in Essex, a now defunct corporate laboratory.

Optical fibres are made of glass – so, ultimately, they come from sand – as Ed Conway’s excellent recent book, “Material World” explains. To make optical fibres a practical proposition needed lots of materials science to make glass pure enough to be transparent over huge distances. Much of this was done by Corning in the USA.

Who benefitted from optical fibres? The value of optical fibres to the world economy isn’t fully captured by their monetary value. Like all manufactured goods, productivity gains have driven their price down to almost negligible levels.

At the moment, the whole world is being wired with optical fibres, connecting people, offices, factories to superfast broadband. Yet, the the world trade in optical fibres is worth just $11 bn, less than 0.05% of total world trade. This is characteristic of that most misunderstood phenomenon in economics, Baumol’s so-called “cost disease”.

New inventions successively transform the economy, while innovation makes their price fall so far that, ultimately, in money terms they are barely detectable in GDP figures. Nonetheless,society benefits from innovations, taken for granted through ubiquity & low cost. (An earlier blog post of mine illustrates how Baumol’s “cost disease” works through a toy model)

To have continued economic growth, we need to have repeated cycles of invention & innovation like this. 30 years ago, corporate labs like STL were the driving force behind innovations like these. What happened to them?

Standard Telecommunication Laboratories in Harlow was the corporate lab of STC, Standard Telephones and Cables, a subsidiary of ITT, with a long history of innovation in electronics, telephony, radio coms & TV broadcasting in the UK. After a brief period of independence from 1982, STC was bought by Nortel, Canadian descendent of the North American Bell System. Nortel needed a massive restructuring after late 90’s internet bubble, & went bankrupt in 2009. The STL labs were demolished & are now a business park

The demise of Standard Communication Laboratories just one example of the slow death of UK corporate laboratories through the 90’s & 00’s, driven by changing norms in corporate governance and growing short-termism. These were well described in the 2012 Kay review of UK Equity Markets and Long-Term Decision Making. This has led, in my opinion, to a huge weakening of the UK’s innovation capacity, whose economic effects are now becoming apparent.