The half century between the end of the Civil War and the outbreak of World War I was marked by rapid industrialization and economic growth. A number of factors underlying U.S. innovation and growth were similar to those later enjoyed by Japan during the half century following World War II. A favorable U.S. security environment allowed relatively low defense spending. High trade barriers encouraged the growth of domestic manufacturing industries and the inflow of foreign technologies. Just as Japan's access to an integrating global economy in recent decades allowed scale-intensive manufacturing to prosper, rapid population growth and the development of transportation infrastructure gave late nineteenth century America the largest common market in the world. This context favored low-cost, high-volume manufacturers of standardized goods, and U.S. companies responded by developing production systems characterized by capital intensity and specialization in order to minimize costs over long production runs. 3 The challenge of managing a heterogeneous work force was met by dividing operations into narrow, relatively unskilled tasks. U.S. manufacturing was characterized by larger, more efficient mass production operations than those of other countries. By 1913, U.S. productivity and per capita income exceeded those of Great Britain. 4

Innovation during this period did not rely on indigenous scientific research. 5 The U.S. government generally did not see support for science as a legitimate public function in peacetime until after World War II, but it did support the development of technology and innovation directly and indirectly through policies linked to specific national purposes. Policies that supported the growth of key institutions and infrastructure underlying industrial development the railroads and land grant colleges, for example—are well known. The late nineteenth and early twentieth centuries also saw the establishment of government agencies to support the development and diffusion of applied technologies, such as the Agricultural Research Service, National Bureau of Standards, U.S. Geological Survey, and the National Advisory Committee for Aeronautics. 6

As a result of new antitrust laws enacted around the turn of the century, U.S. companies were constrained from utilizing informal price-fixing agreements between firms to control markets. Many turned to horizontal mergers and industrial research and innovation as alternative mechanisms for growth and differentiation. 7 During the first half of the twentieth century, Du Pont, AT&T, General Electric, and other leading companies established research facilities, which expanded from an initial focus on quality control and materials analysis to external technology monitoring and the development of new products and processes. 8 The large corporations that spearheaded the growing utilization of scientists and engineers in corporate research were concentrated in the chemical, petroleum, and electrical machinery sectors. By the end of World War II, the transportation equipment sector also had become a major performer of R&D because of the growth of the automobile and aerospace industries.

During the 1930s, federal expenditures for R&D accounted for less than 20 percent of the total national effort, comparable to the situation in Japan today. 9 Industry accounted for two thirds. Scientific and engineering research at universities grew considerably in scale and quality during the first half of the century, supported largely by state governments and private


David C. Mowery and Nathan Rosenberg, "The U.S. National Innovation System," in Richard R. Nelson, ed., National Innovation Systems: A Comparative Analysis (New York: Oxford University Press, 1993), p. 31.






Brooks, op. cit., p. 119.


Mowery and Rosenberg, op. cit., p. 32.




Ibid, p. 35. The U.S. Department of Agriculture was the largest federal R&D spender, accounting for 39 percent of the $74.1 million budget in 1940.

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