benefits that we have gained through scientific and technical change, and identify the sources of that change. Much of the change has come about through research and development. One cannot understand the history of the 20th century without understanding the development of industrial research and development laboratories, and the heavy commitment by corporations to scientific and technical change. If we look at the 1993 science indicators, we find that corporations spent 68 percent of the nation's R&D dollars. They employ the bulk of scientists and engineers in the United States. These numbers are very consistent with other trends in the 20th century. We reaped tremendous benefits from these investments. Unfortunately, I cannot demonstrate it rigorously, quantitatively.
Andrew Kaldor, Exxon Research and Development Corp.: My understanding is that somewhere in the 1900s, the accounting principles for R&D changed. Early in the century, R&D was considered to be part of the capital investment made by the company, but later it was considered to be expense.
David Hounshell: That is correct.
Andrew Kaldor: I wonder whether this is a fundamental problem facing the R&D enterprise in industry. In industry, we trade in options. It's a perfectly acceptable legitimate business principle, yet I don't see the options concept, and how you manage it, applied to research. Did DuPont, or some other company, investigate this approach?
David Hounshell: Pierre du Pont explored the options concept at the outset. As early as 1902, when the Eastern Laboratory was established and the Executive Committee was created essentially to oversee DuPont, Pierre strove to obtain a better accounting for research. One of the things that led to the establishment of Donaldson Brown's ROI formulation was the work that Pierre had done on accounting, which was very different than the accounting procedures used by the railroads. In particular, he worked on capital accounts as opposed to expensing or cost accounting.
Pierre initially thought that you could place R&D funding entirely under a capital account, treating it in the short term as an expense account and then readily converting it to a capital account. He investigated this concept intensely between 1902 and 1904. By 1904, he had abandoned this concept entirely. He just didn't think that it worked. He was not satisfied with an expense method either. That is why he wanted to treat it very differently than the other expenses incurred by DuPont. Certainly, in the overall ROI calculations of the company, it was treated as an expense, except where it had generated identifiable intellectual property that could be assigned value—patents, for example. Patents were handled on the capital account, on the capital side of the ledger rather than on the expense side.
Andrew Kaldor: I wonder if you can confirm another piece of DuPont folklore or history, I don't know which. At a recent meeting in San Francisco, someone was talking about DuPont's retrospective study of their technology. They apparently have a list every year of their top 10 technologies and the bottom 10. They have followed these technologies over a 15-year period to see how they fared. The result was remarkable! As I remember, 8 of the top 10 technologies failed, and roughly the same number of the bottom 10 succeeded. This certainly raises some questions.
David Hounshell: Yes, this is essentially correct. I call your attention to the dissertation that Joan Adams is working on. She is doing a number of case studies on polymer innovations. She's studying several cases from DuPont, but many other cases in the chemical industry as a whole. You might want to talk to her. She is much more aware of what's taking place at DuPont today than I am.