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The Potato: Prince or Pauper of Vegetables?
The Innovation Industry
THE POTATO:
PRINCE OR PAUPER
OF VEGETABLES?
A lowly vegetable is the potato, but oh so ver
were battled with frequent applications of Paris
satile! It can be boiled, baked and foiled; home
green. Irrepressible weeds were uprooted by
fried or French fried; creamed, diced, or riced;
means of a horse-drawn, hand-guided cultivator.
chipped or whipped, scalloped, souped, or sal-
In the fall when the potato vines died, the pota
aded;
lyonnaised, julienned, or au gratined.
toes were dug with a potato hook and hand
Rare, indeed, is a full-course dinner without po
picked into gunny sacks. That was about seven
tatoes in some form. Gastronomically, the potato
is the most popular member of the vegetable
or eight Presidents ago. How times have changed
-—potato times!
kingdom. Botanically, it is a berry-bearing herb,
Today, potato growing is big business. Most of
with esculent roots, winged leaves, and a bell
the potatoes are now grown in areas favored by
flower. Economically, the potato is wayward,
soil and climate, on farms of extensive acreage,
capricious, unpredictable.
cultivated with specialized and costly machinery
The potato is readily growable, gradable,
— the entire operation requiring a capital invest
marketable,
ment that often runs into six digits west of the
processable— even hedgeable— but not always
decimal. To be sure, little potato patches are still
profitable. Between sowing and reaping (or as
an adjunct of many small general farms through
the English say, between planting and lifting)
out the country; but “ small potatoes” is no longer
many things can happen. So much depends upon
an apt description of the potato business.
packable,
storable,
transportable,
the acreage planted, the weather, the bugs, the
Potatoes are grown in every state of the coun
yield, the quality, and the carryover. All of these
try, which may give the impression that they
contingencies, in the face of a steady but in
thrive anywhere. Their ancestry can be traced
elastic demand, conspire to make prices erratic.
back to the Bolivian and Peruvian Andes, where
Hence the potato farmer is likely to be a prince
close botanical relatives of the potato still flour
one year and a pauper another.
ish at mile-high altitudes— indicative of the fact
The last time we planted potatoes we cut them
that the tuber tolerates a cool climate.
by hand with a little paring knife, making sure
each wedge had at least one eye. With a hand
The p o tato in Pennsylvania
hoe, each wedge was carefully covered with soil.
Potatoes are grown in all 67 counties of Penn
During the growing season, pestiferous bugs
sylvania, including Philadelphia County, though
B U S I N E S S R E V I E W is produced in the Department of Research. Evan B. Alderfer was primarily responsible for
"The Potato: Prince or Pauper of Vegetables?” and Elizabeth P. Deutermann for “The Innovation Industry.” The authors will be
glad to receive comments on their articles.
Requests for additional copies should be addressed to Bank and Public Relations, Federal Reserve Bank of Philadelphia,
Philadelphia, Pennsylvania 19101.
business review
LEADING POTATO COUNTIES OF PENNSYLVANIA
1964 PRODUCTION— 1000 CWT.
a good many years have passed since potatoes
nearest big potato county; but distance lends
were cultivated at Broad and Chestnut. Last
enchantment, so let’s go northwest to Potter
year the Commonwealth produced $25 million
County, bordering New York State; then to
worth. Corn and hay were the only field crops
the western extremity of our district in Cambria
that yielded more money. New Jersey and Dela
County, rich in both potato land and soft soal
ware also grow potatoes, but in this article spe
cial attention is called to the Pennsylvania po
beds.
Potter and Cambria counties are hilly. Pota
tato.
toes have no objections to summits and slopes—
are
and there is where most of the potato fields are
shown on the map. The leading counties are
found, because only the higher elevations afford
Erie, Lehigh, Lancaster, York, Potter, and Cam
sufficiently broad acreage to permit the use of
bria— in that order. These half-dozen counties
field machinery; the valleys are too narrow for
produced over half of the state’s 1964 crop.
mechanized potato culture.
Field notes
curvaceous sweeps of freshly cultivated brown
To understand potato farming, you ought to see
earth contoured between stands of green grass
it. Let us take you on an armchair tour into
on one side and greener oats on the other. The
Pennsylvania potato
foliage of newly sprouted potato plants is just
Pennsylvania’s
most
productive
areas
An early June landscape presents a view of
country. Lehigh is our
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beginning to pin-stripe the brown soil with
and all-around mechanic to make repairs rap
green, and when the vines bloom the fields turn
idly when something goes wrong. Incidentally,
white. The interspersed oats and grass-legume
the mechanized planter plants with each potato
crops are part of the rotation plan to replenish
seed a systemic insecticide which finds its way
the soil with moisture and nitrogen; and the
up through the stalk to give instant battle to
gracefully curving contours help to prevent the
some of the attacking enemies.
The harvesting machine— drawn by a big cat
soil from washing away.
A farm with 100 acres in potatoes, which is
about the minimum size for profitable commer
erpillar or four-wheel-drive tractor— is a costly
and colossal newfanglement which unearths two
cial operation utilizing machinery, usually has a
rows of potatoes simultaneously, shakes out the
total of 300 to 400 acres for purposes of crop
soil, separates the rocks from the potatoes which
rotation. Land, buildings, and machinery— a
are delivered by moving belt to the accompany
Potter County farmer told us— requires a capital
ing truck that hauls the potatoes to the potato
investment of $150,000 and up. On a large 1300-
barn where they are mechanically unloaded. In
acre Cambria farm with 350 acres in potatoes,
a Cambria County potato field, we came upon a
we counted 14 tractors, two potato harvesting
healthy stand of young potatoes in a field so full
machines (each worth about the price of three
of stone that we were moved to say, “ I never
Cadillacs), numerous plows, planters, cultivators,
knew potatoes could be grown in a rockery,” to
sprayers,
which the farmer’s only reply was, “ You should
and
miscellaneous
equipment.
The
owner-operator employs 14 full-time, year-round
see all the rocks we have already removed from
workers with, of course, a greatly augmented
that field.”
labor supply during harvest time.
Potato storehouses— barn-like in appearance
To grow good potatoes, one must plant good
but commonly referred to as potato storage—
seed. Pennsylvania farmers import large quan
are equipped with air ducts below the floor and
tities of certified seed potatoes from Maine.
gigantic blowers provide good circulation. These
Some are also grown in Potter County— the only
precautions, along with insulated ceilings, keep
place in Pennsylvania. Certified seed potatoes
the stored potatoes in good condition awaiting
grow best in low-temperature northern areas and
delivery which may be as late as the next year’s
assure the commercial potato grower the maxi
planting time. The structures are always larger
mum protection against ravages such as ring
and, in many instances, better cared for than the
rot, infection by mosaics, leaf-roll disease, and
homestead because they are the base of opera
other seed-borne diseases which cause losses up
tions in quest of potato profits. The potato stor
to 20 per cent of the crop.
age is a multiple-purpose building which serves
The seed potatoes are machine cut, machine
not only to store seed potatoes, harvested pota
loaded, machine planted, machine cultivated,
toes, and fertilizers but serves also as a place
machine sprayed, machine harvested, and ma
for cutting seed, grading, sorting, packing, and
chine graded for size. Everything is done me
often includes a machine shop and a telephone.
chanically except the eating thereof. The mod
Sideline operations such as fattening hogs or
ern farmer must be not only a good manager,
breeding horses may also be under the same
roof.
but also must be or must employ a good welder
4
business review
LEADING POTATO STATES
1964 production.
Source: United States Department of Agriculture.
The a ll-A m e ric a n p o tato scene
points up the 20 leading states. Delaware doesn’t
Although Pennsylvania is representative of the
qualify because of its small size, but the little
way potatoes are grown, it is not to be inferred
state is not to be overlooked; it is among the
that the Commonwealth is a leader; in fact,
states that produce
Pennsylvania ranked twelfth in the 1964 inter
which brings up another point.
state potato derby in which all fifty states par
early-summer potatoes—
Almost three-fourths of the annual crop of
potatoes is grown in Northern states, including
ticipated. New Jersey ranked fourteenth.
Anyone who has ordered food from a printed
California, and is harvested in the fall. Some
and
states, however, harvest their potatoes in late
housewives, cruising through supermarkets, are
familiar with Maine potatoes whether or not
summer; others in early summer; others in late
they have heard of Aroostook County. Those
few states harvest winter potatoes— notably Flor
two states, along with two others— California
ida and California. The accompanying panel of
and New York— produced half of the country’s
maps shows the origin of the six seasonal mar
menu has come across Idaho potatoes;
spring, and still others in early spring; and a
1964 crop, which is indicative of the regional
keting areas. There is no month in the calendar
specialization. All the other states together pro
without new potatoes originating somewhere.
duced the other half. The accompanying map
Remarkably accommodating is the potato.
5
IRISH POTATOES
Principal producing areas by seasons.
WINTER
EARLY SPRING
Source: United States Department of Agriculture.
Potato p roductivity
Never have so many potatoes been grown on so
The potato is a most accommodating vegetable
few acres as in recent years. Last year, acreage
in still another respect— its amenability to ex
was down to almost 1% million— the smallest
pansive productivity. This feature of the spud
reported since 1867— and the yield per acre was
is graphically portrayed on the charts showing
close to the peak of 200 cwt. (hundredweight)
acreage planted and the yield per acre. Note the
per acre. These are national averages. Some in
phenomenal decline in acres planted and the
dividual farmers do far better than twice the
equally phenomenal growth in yield per acre.
national average. Moreover, some of those top
6
business re v ie w
flight farmers are in Pennsylvania (pardon the
The tr e k to m a rk e t
commercial). Noteworthy is the fact that recent
With increased regional specialization in potato
yields per acre are almost triple those of three
growing and increased urban and suburban con
decades ago.
centration of population, potatoes have a longer
Rising productivity, as might be supposed, is
and longer trek to market. Formerly, most of
not fortuitous. It has come about through stead
them went by rail but a rising tonnage is going
ily improved practices such as the use of cer
by truck. The cost of moving potatoes from farm
tified seed, better strains obtained by cross
to market has also been increasing, partly as a
breeding, improved disease and insect control,
result of longer hauls, partly owing to increased
irrigation, judicious use of fertilizer, and mois
services incident to marketing, and partly be
ture control. For example, some farmers, instead
cause of rising wages. In many instances there is
of cutting their grass for hay making, plow un
also a middleman or two, or three, between the
der the entire crop of grass thus insuring ade
grower and the ultimate consumer. As a conse
quate moisture for the ensuing potato season
quence of these developments, consumers are
regardless of how niggardly the rainfall.
likely to pay more than formerly and farmers
are likely to receive less than formerly.
TOTAL ACREAGE PLANTED
Potatoes go to essentially two major markets:
M ILLIO N S OF ACRES
the fresh table market and the processing mar
ket. The fresh table market is the larger, and it
has undergone some notable changes in recent
years. Potatoes for the fresh table market are
mass merchandised. Potatoes, like other vege
tables, now reach consumers by way of big
shippers, big supermarkets and corporate chains.
There is more direct buying and less movement
1939
1944
1949
1954
1959
1954*
* Preliminary.
Source: United States Department of Agriculture.
through terminal markets. As a result, growers
and shippers must adjust their grading, packag
ing, and other services to meet large-scale de
YIELD PER ACRE
mands of the changing marketing structure;
cm.
however, the fresh table market is not growing.
Reasons for the languishing fresh table market
in the face of an ever-growing population will
be explored several paragraphs later in connec
tion with the discussion of our changing dietary
habits.
Fortunately for the potato grower, the proc
essing market is flourishing. A mere decade ago
about 14 per cent of the potatoes grown for food
was processed; now almost a third is being
Preliminary.
Source: United States Department of Agriculture.
*
processed. Processing consists of converting po-
7
business re v ie w
VOLUME OF POTATOES FOR FOOD PRODUCTS
SHOWS GAIN
MILLIONS OF CWT.*
Many chippers buy on contract, which has
both good and not so good features for the
farmer. The farmer who sells to a chipper is
assured a definite contract price, which is per
haps to the farmer’s advantage in the long run,
but there are times when the farmer wishes he
had not been under contract. A Cambria County
farmer told us that last year he could have made
$60,000 more on his potato crop had he not
been under contract to a chipper. It is also al
* Fresh equivalent basis.
Source: United States Department of Agriculture.
leged (and denied) that various clauses in the
contract allow more loopholes for the chipper
tatoes into various finished or semi-finished prod
than the grower.
ucts for consumption. Potato chips and “ shoe
A controversial aspect of potato marketing is
strings” are the leading items; other are frozen
the futures market in New York City, which
potatoes, dehydrated potatoes, and canned pota
deals in Maine potatoes. A futures market affords
toes. The growth in relative importance of these
the opportunity of buying or selling potatoes
items is shown in the accompanying chart. As
for future delivery. Some growers, dealers, and
many housewives know, particularly gainfully
others use the market for hedging purposes.
employed or bridge-playing housewives, proc
Numerous farmers, however, believe that the
essed potatoes appear on the shelves of super
futures market exerts adverse effect on the cash
markets in various attractive packages. There
market for potatoes.
are frozen fries, puffs, whole potatoes, and pre
pared dishes such as scalloped potatoes and
G lo ry , w h a t prices I
others ready to put in the oven. Dehydrated po
Never, or almost never, have potato prices been
tatoes take a variety of forms such as mashed
so high as they have been recently. Reason? A
potato flakes, mashed potato buds, and potato
short crop in 1964.
pancakes, which enable the housewife to as
semble an instant dinner— almost.
The 1964 crop of 243 million cwt. is referred
to in a U.S. Department of Agriculture mono
Whether a farmer sells to the fresh or proc
graph as “ relatively small.” It was 11 per cent
essed market depends upon the type of potatoes
less than that of the preceding year. For the 1963
he grows, the length of the haul, prices offered—
crop, which was about “ normal,” farmers re
in short, the market promising the best return.
ceived an average price of $1.77 per cwt. At this
Some Pennsylvania growers ship potatoes as far
writing, not all of the 1964 crop reports are in;
South as Florida and Texas— the potatoes going
but on the basis of recent and current prices, it
South on return trips of trucks that brought
appears that the average price that farmers will
citrus fruits North. The trend, however, is defi
have received will be about double that of 1963.
nitely toward the processing market, not only
Thus an 11 per cent decline in production from
for Pennsylvania growers but also for growers
one year to the next caused almost a doubling
in the leading areas.
of the price. Such is potato economics.
8
business review
UNITED STATES PRODUCTION AND AVERAGE
PRICE RECEIVED BY FARMERS
MILLIONS OF CWT.
repeat, is usually either prince or pauper. He
seems doomed to ride the price roller coaster.
DOLLARS PER CWT.
The (insupportable price support pro g ram
A Potato Control Act was passed as early as
1935, but it ran into a legal snag. The objective
of the Act was achieved, however, by using
Section 32 funds for surplus removal. In 1940,
several million bushels were bought, most of
which were diverted to livestock feed and starch
production.
Subsequent to our involvement in World War
A somewhat longer-run picture of potato eco
II, the Congress, anticipating heavy wartime de
nomics is shown in the chart entitled “ United
mand for food, authorized outright support pro
States Production and Average Price Received
grams and further specified that supports be at
by Farmers.” Production for the 30-year period
90 per cent of parity.
portrayed, it will be observed, has a sawtoothed
During the years of price support, 1943 to
contour; but the contour of prices is sawtoothier.
1950, tremendous gains were made in yield per
Irregularities of production are caused by sev
acre, so that heavy production persisted in spite
eral things: changes in acreage planted, changes
in yield owing to the vagaries of weather, in
of acreage cutbacks. Reduction of the support
level from 90 to 60 per cent of parity failed to
sects, diseases, the carryover and, of course,
prevent continued overproduction.
changes in price. Often, though not always, a
Inasmuch as potatoes are difficult to store over
large crop and low prices are followed the next
a year and are ill-suited for uses other than hu
year by smaller acreage planted, a smaller crop,
man consumption and, above all, since large
and higher prices.
reductions in price bring about only minor in
Weather is most unpredictable. Sometimes
creases in consumption, little could be done with
shortage of rainfall may result in smaller crops
the Government surpluses other than to destroy
in some areas, which redounds to the benefit of
them or feed them to cattle. The experiment cost
growers in other areas with adequate rainfall.
the Government over a half-billion dollars and
Last year, for example, potato growers in Potter
drew avalanches of criticism. Price support was
and Cambria counties encountered only minor
abandoned in 1951, whereupon the industry re
shortages of rainfall, contrary to the experience
verted to the status quo ante; that is to say, the
throughout other areas of the state— with the
good old law of supply and demand.
result that potato profits are the source of some
nice new homes being built in those two coun
The p o tato in our d ie t
ties. But, who knows? Next year some of these
Thus far we have explored potato economics
new “ potato” homes may have to be mortgaged
only in terms of production and price. There re
to buy seed and fertilizer. Abnormality is nor
mains demand, which cannot be ignored.
mal in potato growing. The potato farmer, to
Despite the widespread dietary utility of the
9
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potato, demand for the vegetable harbors a basic
is the popular misconception that consumption
infirmity. Demand is said to be inelastic, which
of potatoes causes obesity.
is the economist’s way of saying that price has
In defense of the potato it should be pointed
only a minor influence on consumption. People
out that to think of the vegetable as fattening is
eat what potatoes they like and pay little atten
erroneous. All foods eaten to excess are fatten
tion to the price. Potatoes are cheap even when
ing. Pound for pound, potatoes are less fattening
they are high priced. The diner will not order
than most items in the American diet. It is not
an extra helping of potatoes because they are
cheap, nor will he curtail his consumption be
so much the ingestion of potatoes that causes
equatorial expansion of the human form as it
cause they are dear; at any price, they are an
is the butter, the sour cream, or the gravy with
insignificant proportion of the total tab.
which potatoes are so often garnished. The
Per capita consumption has declined from
“ fattening” tendency of potatoes is one-tenth
about 200 pounds in 1910 to not much over 100
that of margarine, one-fifth that of dry cereal,
pounds currently. Why the slippage? Students
one-third that of bread, and one-half that of
who have given considerable attention to the
beef or hamburger. The case rests.
problem point out various reasons, such as the
virtual cessation of immigration, higher real in
A salute to the chip
comes, increasing abundance and variety of
Potato people are hopeful that the declining per
other foods on the market, the growing ascend
capita consumption has reached the end o f the
ancy of white-collar over blue-collar jobs, in
road; indeed, the curve seems to have reached
creasing urbanized dwelling, greater girth-con
bottom and is rising again. For that happy turn
sciousness— especially among women— and the
of events the growers can thank potato chips and
slowness of some potato merchandisers to doll
associated processed products— but chiefly the
chip.
up potatoes into fancy packages for the fresh
market.
No one stops with one potato chip, any more
There may also be psychological reasons. For
than one stops with one salted peanut. Chips and
example, for purposes of distinguishing it from
“ shoestring” consumption is already above the
the sweet potato, the white potato is commonly
called the Irish potato. The Irish are lovely
people and we have nothing against them, but
over a century ago they made the mistake of
PER CAPITA CONSUMPTION* OF POTATOES
IN THE UNITED STATES
PO U N DS
making the beautiful Emerald Isle a one-crop
country, against which they had been warned.
A potato famine caused by two successive bad
harvests resulted in widespread starvation, where
upon Irish immigrants poured into this country
in great numbers. The misfortune was a poor
advertisement for potatoes— it gave rise to the
widespread impression that the potato is the
poor man’s diet. Perhaps worse for the potato
10
Source: United States Department of Agriculture.
business re v ie w
total amount of potatoes going to the fresh mar
downhill. In 1946, the Commonwealth produced
13 million cwt.; last year, only half that amount
25 million cwt. range and takes one-eighth of the
ket and food processors. And frozen potato
— less than 7 million. Is it a case of opportunity
products are close on the heels of the chips.
cost, that Pennsylvania farmland can be used
Could it be that the future of the potato lies in
more productively otherwise; or is it a case
the chip, frozen, and other processed products
of opportunity lost— lost to Idaho, to Maine, to
yet to be devised by the ingenuity of man? We
Long Island?
are loath to predict, especially in print, but the
Pennsylvania grows quality potatoes and a
enthusiasm of processors is understandable, and
large proportion goes to the chippers and other
it is not unrealistic to anticipate additional new
processors who demand high quality. For the
potato products from experimental laboratories
fresh market, Pennsylvania might do better if
like the Eastern Utilization Research and Devel
it adopted Idaho expertise in grading, packaging,
opment Division of the U.S. Department of Agri
marketing, and advertising. The Idaho potato
culture, on Mermaid Lane on the edge of Phila
isn’t a variety, like the Katahdin or Russet Bur
delphia.
bank, or Red Pontiac, or Sebago, or Kennebec.
The Idaho potato is the potato grown in Idaho,
P ennsylvania re vis ited
and the Maine potato is the potato grown in
When we embarked upon this little survey of the
Maine. Perhaps the only thing the Pennsylvania
potato situation, we were chagrined to discover
potato needs to reverse the declining production
that potato production in Pennsylvania is going
trend is more Pennsylvaniaizing.
11
Daring ideas are like chessmen moved forward;
they may be beaten, but they may start a win
ning game.
— Goethe
THE INNOVATION
INDUSTRY
Unique characteristics make research and development an industry in its own right— a big industry
that is growing spectacularly. While the impact of this innovation industry is all pervasive, it has
special implications for regional economic development. A region’s participation in this growth in
dustry of the future will depend largely on the strength of its scientific manpower base. Within the
Third Federal Reserve District, Wilmington and Philadelphia so far have shown the greatest poten
tial for becoming research complexes.
Just for a moment, try to recall 1955. Can you
in research and development— commonly known
remember that commercial jets had not yet
as R & D. A highly organized team effort of
flown the Atlantic? Could anyone have con
scientists, engineers, and technicians was basic
vinced you then that ten years later a man would
to the re-entry success story. The proliferation
take a walk in space— and come back to tell
of such team efforts for complex problem-solv
about it? For most of us, the answer is no. A
ing has made R & D one of the nation’s major
few scientists believed that a man in space was
employers. Secondly, the growth of a G. E. Di
possible, but even they doubted he could come
vision from six people to 12,000 in ten years
back alive.
exemplifies the phenomenal growth of research
A decade ago a handful of men at the General
and development in the past decade. Thirdly,
Electric Company disagreed with those scientific
the nearly 10,000 new jobs generated by R & D
skeptics. They were convinced that a vehicle
in one company have a significant impact on the
could be developed to protect a rocket’s payload
economy of the Philadelphia area. Similar ex
from the extreme impact and heat of atmos
periences throughout the nation have stimulated
pheric re-entry. With a Government contract and
intense regional competition for research and
determination, they set out to solve the problem.
development activities.
In the process of solving it, G.E. grew. The six
men who initiated the re-entry project could not
R & D: big and gro w in g
have conceived that their effort would snowball
Research and development employs 800,000 sci
into a Missile and Space Division 12,000 strong.
entists, engineers, and technicians. A substantial
Most of these employees are in the Delaware
but unknown number of craftsmen, secretaries,
Valley: 3,500 are at work in West Philadelphia;
clerks, laborers, and other personnel support the
6,000 are at the Space Technology Center at
innovative efforts of the 800,000. R & D today
Valley Forge, Pennsylvania.
employs more people than banking. It is four
This experience of one company illustrates
times the size of the air transport industry, one-
three important reasons for the current interest
third the size of the entire wholesale trade of
12
business review
A DECADE OF R & D GROWTH
the research and development function an inno
INDEX 1 9 5 4 = 1 0 0
vation industry.
The 800,000 persons employed in R & D are
highly skilled, through education or work experi
ence or both. They include scientists of all kinds,
such as chemists, physicists, mathematicians, life
scientists, metallurgists, and engineers. Each of
these professional cadres depends on the sup
porting aid of technicians. A common attribute
of these R & D employees is their interchangeability between one traditional industry and an
other. A professor at the University of Pennsyl
vania’s Moore School of Engineering, for exam
ple, may spend his scholastic year in full-time
research on advanced electronic devices. During
that time, a survey of the U. S. Department of
Labor would list him among those employed in
Source: National Science Foundation; McGraw-Hill Depart
ment of Economics.
education. Should a survey be conducted during
the summer, when he is consulting for an elec
the nation. It is nineteen billion dollars’ worth
of big business.
tronics firm, he would be classified as an em
ployee of the electrical machinery industry. As
Expenditures on R & D have more than tripled
with other R & D employees, the professor is in
in the past decade— from 5% to 19 billion dol
tellectually and geographically mobile among
lars. R & D has grown three times as fast as the
any number of industries which can use his
gross national product. Aggressive companies,
talents and skills. He is really employed in the
out to beat their competitors in the race for “ the
new” or “ the better,” have expanded the re
innovation industry.
search function in every major industry. Spend
technician, the R & D employee pursues three
ing for R & D in manufacturing, for example,
types of work— usually one at a time. They are
grew 50 per cent faster than total manufactur
basic research, applied research, or development.
ers’ sales over the past ten years. Research and
Basic research is original investigation to ad
development has grown into a new industry in
vance scientific knowledge, without a specific
its own right— the innovation industry.
commercial objective in mind. Einstein’s theory
Be he a physicist, a chemist, or an electronics
of relativity is a product of basic research.
W h a t in n o vatio n industry?
Though basic research takes the smallest share
The research function is found in all of the tra
of the R & D dollar, its relative importance is
ditional industries, but size and growth don’t
expected to increase in the coming decade. The
make it an industry. Its characteristics do. The
second R & D activity in size is applied research.
kinds of personnel required for R & D, the way
Applied research is directed toward discovering
they work, and the product they produce make
('Continued on Page 16)
13
SCIENTIFIC TALENT IN THE THIRD
FEDERAL RESERVE DISTRICT
Growth of the innovation industry in any one
region of the country is largely dependent on
of scientists in the nation approaches 215,000.
How does the Third District measure up in
the region’s scientific and technical manpower.
scientific talent?
Unfortunately, the geographic distribution of all
persons employed in research and development
Fairly well— primarily because of the desire
of scientists to work in Wilmington and Phila
is not known. Through the efforts of the Na
delphia. But the rating is not outstanding. Too
tional Science Foundation in Washington, how
many small communities outside the Delaware
ever, the states and metropolitan areas where
Valley just don’t attract top R & D talent.
scientists are working have been pinpointed.1
There are about 12,000 scientists working in
Knowing where the scientists are is a good indi
the metropolitan areas of the Third Federal Re
cator of where the rest of the R & D personnel
serve District. This fact alone doesn’t tell us how
are located. California, New York, Pennsylvania
the area rates as a science center. But, using a
and New Jersey emerge as the leading science
measure designed to show the concentration of
states. The top fifteen metropolitan areas are
scientists here relative to the nation, the District
shown in the following table. The grand total
can count among its assets a specialization in
science. The measure of regional specialization
FIFTEEN TOP SCIENCE CENTERS, 1962
works like this: if scientists in the District are
the same proportion of its population as all sci
Standard
Metropolitan Area
Number of
Scientists
Rank
Population
R a n k ,1960
New York, N. Y.
Washington, D. C.
Los Angeles, Calif.
Chicago, III.
Boston, Mass.
Philadelphia, Pa.
San Francisco, Calif.
Newark, N. J.
Pittsburgh, Pa.
Houston, Tex.
Minneapolis, Minn.
Denver, Colo.
Cleveland, Ohio
Wilmington, Del.
St. Louis, Mo.
U. S. Total
14,513
10,712
10,266
7,501
6,611
6,483
6,295
4,405
3,205
2,832
2,729
2,701
2,520
2,470
2,345
214,940
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
1
10
2
3
7
4
6
13
8
16
14
26
11
65
9
Source: National Science Foundation, American Science
Manpower 1962, Washington, 1964; U. S. Census of Popula
tion, 1960.
Note: As explained in the text, available data do not permit
comparisons of total R & D personnel by metropolitan
areas. Hence the above rankings are for scientists only and
exclude engineers. Inclusion of the latter is necessary for
ranking “research complexes.”
i Surveys published by the National Science Foundation
do not, as yet, cover engineers. There is a very high correla
tion, however, between the geographical location of scien
tists and the resident states of engineers reported by the
U. S. Census for 1960. Engineers and scientists concentrate
in the same areas of the country.
Digitized for14
FRASER
entists are to the total U. S. population, the index
is 1. An index of 1 is frequently thought of as
indicating a fair share. The area which scores
over 1 gets classified as a scientific concentration.
An area under 1 doesn’t.
The Third District’s index is 1.25.2 The re
gion ranks high as a scientific concentration be
cause of three metropolitan areas: Wilmington,
Trenton, and Philadelphia, in that order. Their
indexes are 5.58, 3.83, and 1.25, respectively.
In those areas, scientists concentrate out of
2 This is a descriptive measure of concentration, usually
called a location quotient. It is a device for comparing a
region's percentage share of a particular activity (in this
case, science) with its percentage share of some basic
aggregate (e.g., population). As used here, the location
quotient for the concentration of scientists in a region is
stated by the formula
S r/P r
Sr/Sn
.
- ——- or
■ where:
—
Sn/P n
Pr/Pn
Sr = the number of scientists in the region; Pr = the popu
lation of the region; Sn = the number of scientists in the
nation; and Pn = the population of the nation.
business review
proportion to population. Adding in the Allen
research laboratory
town area, 90 per cent of the scientists in the
in
Montgomery
County,
Pennsylvania.
District are in four of its 13 cities. Though these
Though Philadelphia tends to specialize in
four cities are major population centers of the
chemical and biological sciences, the proportion
District, they have a substantially greater share
of scientists working in physics, mathematics
of scientists than people.
and statistics, and psychology, closely resembles
the national scene. As is the case with industry,
P h ilad e lp h ia and W ilm in g to n le ad
Philadelphia is more scientifically diversified
In terms of absolute numbers of scientists, Phila
than Wilmington.
delphia and Wilmington are the heavyweights.
Wilmington has all o f its eggs in one test tube
They employ 76 per cent of the District’s scientists.
— chemistry. A whopping 65 percent of its sci
A look at the table on the preceding page shows
entists work in this one field. Research at Du
that they also rank high nationally as science cen
Pont is, of course, no small factor. The impact
ters. Philadelphia, which has the fourth largest
of Du Pont on Wilmington is a well-known story;
metropolitan area population in the country, is
however, research at Du Pont tells other stories.
sixth on the list for scientists. Wilmington is in a
It provides a good example of the rapid change
contrasting position. By population size, it’s way
which characterizes the whole innovation indus
down in 65th place. It ranks 14th as a science
try. R & D at Du Pont led to the development of
center. In fact, relative to population, more sci
nylon. To produce their new product, the com
entists work in Wilmington than in any of the
ten largest metropolitan areas in the country.
pany set up a plant in 1939. This, the oldest
commercial nylon plant in the world, is only 26
Compared to the nation, Philadelphia is a
years of age. R & D continued, and today the
specialist in chemistry and the biological sci
company’s nylon products alone number over
ences. Research in these fields makes a major
1,000. Sixty per cent of these were introduced
contribution to the economic health of the area
in the last seven years. In a typical year, Du
and, in some cases, the physical health of the
Pont’s research results in 475 patents on new
world. Drug research at Smith Kline and French,
products and processes for apparel, household,
for example, has paid off for the company as
industrial, and defense uses. But chemical re
well as for the Delaware Valley economy. SK&F’s
search in the area is by no means confined to
eight-man research staff in 1936 has grown to
Du Pont. Atlas Chemical has about 300 employees
850 scientists and supporting personnel today.
R & D at their Philadelphia laboratories is the
DISTRIBUTIONS OF SCIENTIFIC EMPLOYMENT
chief source of products sold throughout the
Field
world— 218 million dollars’ worth last year. For
Agricultural Sciences
Biological Sciences
Psychology
Earth Sciences
Meteorology
Mathematics and
Statistics
Physics and Astronomy
Chemistry
Other Fields
All Fields
the Philadelphia economy, SK&F’s investment in
research has increased area jobs, not just for
the 850 researchers but for all of the other em
ployees required for production, marketing, and
administration. It has also resulted in increased
capital investments, the latest being a $5 million
Philadelphia Wilmington
1.3%
14.9
7.9
1.3
.7
8.0
11.7
36.5
17.7
100.0
.8%
3.9
2.8
.7
.1
2.5
3.9
65.2
20.1
100.0
Nation
5.8%
11.9
7.8
8.7
2.5
8.5
12.0
25.1
17.7
100.0
Source: National Science Foundation.
15
business re v ie w
in research and development. Hercules Powder
Wilmington doesn’t: its size can support a qual
has 750 R & D personnel at its major laboratory
ity and variety of cultural assets, and personal
in Wilmington. And there are many others.
and professional services, which the smaller
community cannot; it is a major medical com
How a bo u t th e futu re?
plex; it has many more colleges and universities.
In spite of its specialization in chemicals, the
But it falls short in trained R & D manpower.
Wilmington research outlook is good. For one
The proportion of scientists with Ph.D’s is not
reason, the chemical industry in general is the
biggest funder of its own research. Hence, 'it
so high as in the average large city. If scien
tists with medical degrees are also considered,
does not have to worry so much about Govern
the picture stays the same. Philadelphia is still
ment cut-backs as do communities with greater
below average. New efforts in Philadelphia to
dependence on defense contracts. More impor
tantly, Wilmington has an extremely strong base
develop the University City Science Center and
of brainpower on which to build its research
Southeastern Pennsylvania Economic Develop
future. Its R & D personnel are very highly
ment Corporation are both important moves in
trained. In the 25 major science cities, 32 per
creating a vigorous research community. Never
cent of the scientists have at least a Ph.D. In
theless, the importance of improved graduate
to promote and attract research through the
Wilmington, the figure is 53 per cent. This is
and postgraduate education for the development
vitally important because such talented man
of more topnotch Ph.D’s, and the nurturing of an
power in residence tends to attract more brains
environment to keep them in the afea, cannot
to the area.
be overstressed. Here lie the keys to Philadel
Philadelphia has attractions for R & D that
(■
Continued from Page 13)
phia’s development as a research complex.
makes the R & D function an industry. Food is
new knowledge for specific marketable objec
the product of the food industry. Chemicals are
tives. The work of General Electric in devising
products of the chemical industry. Innovation
the re-entry vehicle was applied research. The
is the product of the innovation industry.
third
pursuit— development— comprises
two-
thirds of the R & D effort. Development trans
The im pact o f innovation
lates research findings into products or proc
Innovation is inherently the most dynamic in
esses. Every company that draws on basic or
dustry of all. Accelerated growth of research and
applied research to create new products or proc
development generates dramatic changes in our
esses, or to improve existing ones, is involved to
economy— and in every facet of our lives. En
some degree in development.
tire industries are created by R & D: television,
The end product of this total R & D effort is
plastics, synthetic fibers, computer services. We
newness and change. Whether the field is organic
are witness to a population explosion of new
chemistry, oceanography, or optics, the output
of the research and development function is in
products. Teaching machines, transistors, Pola
roid film, integrated circuits, dacron, Xerox, and
novation. It is this common end product which
polio vaccine were not in the vocabulary a few
Digitized for16
FRASER
business review
ucts and processes to keep competitive. By closely
years ago.
The rapid changes produced by research have
following technological change, surprising new
a double-barreled impact. The very nature of
markets can be found for present products. Re
change creates both opportunities and problems
gardless of the method employed to be research-
for individuals, for industries, and for regions.
oriented, if a firm is to reap the benefits of the
O n people. The personal impact is demon
research revolution, it has to know what’s going
strated by the impersonal computer.
It has
on. The difference between company prosperity
spawned countless new job opportunities and
or failure in ten, or even two, years is in some
destroyed many traditional jobs. This process
laboratory today.
will continue— at an accelerated rate. In 1946
Note how R & D brings both hopes and head
the first electronic computer was unveiled in
aches to industry. The birth of the transistor,
Philadelphia. The first installation by private
for example, not only made the modern-day com
business took place only 11 years ago. Today
puter a reality but revolutionized the electronics
23,000 computers are installed in this country,
industry. Many producers of vacuum tubes were
and 20,000 more are on order. Their use re
caught napping. As fast as possible, they switched
quires systems analysts, keypunch operators,
to transistors. At the moment, the small firm
data processing maintenance workers, magnetic
producing electronic components is suffering a
tape librarians, and programmers. In five years
migraine headache from the pressure of new in
the U. S. Department of Labor estimates that
tegrated circuits. The story is similar in the
over 200,000 programmers will be needed by
business and government. These are good oppor
plastics industry. Polyethelene research fathered
it. A proliferation of plastic products followed
tunities for those who qualify.
which hurt many markets for glass and metals.
But turn the coin, and someone else has a
Now metals are fighting back. Through a new
problem. Particularly vulnerable to displacement
forming process, an alloy of zinc and aluminum
by computer use in the office are bookkeepers,
can be molded and shaped in ways previously
accounting clerks, typists, file clerks, and ac
possible only with plastics.
counting-machine operators. Moreover, the rela
One of the latest miracle devices of science is
tively new keypunch operator isn’t safe either.
the laser, a highly intensified light beam capable
He can expect competition from optical scanners
of producing flashes 100,000 times stronger than
and other electronic devices which “ read” the
light at the sun’s surface. One application of the
printed word and automatically translate it into
laser replaces a surgeon’s scalpel ill delicate eye
electronic machine language.
operations. Another welds and cuts difficult mate
O n industries. Research, similarly, is both a
rials with minute precision. Wide-ranging laser
threat and a promise to business: a competitive
applications already are expected for commu
threat to the firm out of step with the times and
nications, computers, medicine, and weaponry.
a promise to the research-oriented company. The
Each new use speeds the obsolescence of some
latter may invest heavily in R & D to prosper.
other device. Will this kind of technological his
It doesn’t necessarily have to— as long as it
tory repeat itself? Undoubtedly. In no industry
“ thinks research.” A firm can adapt the fruits
can a company be research-ignorant and survive.
of another industry’s research to its own prod
In every industry R & D is becoming almost a pre
17
business re v ie w
taken, who does it, and where it is performed.
requisite for success.
O n regions. The spectacular growth of the
Most of the remainder of the research bill is paid
innovation industry provided a major economic
by private industry. Universities and other non
boost to some regions of the country. Others
profit institutions pay only a tiny share of the
have received little or no benefit. To a large
$19 billion total.
degree this is because of a unique industry char
The distribution of work differs greatly from
acteristic. That is, for the most part, those who
the funding.
pay for R & D don’t perform the work. And
those who pay decide in which regions of the
tions do 14 per cent of the job. Government
laboratories account for 19 per cent. Sixty-seven
Colleges
and nonprofit institu
country the work will be performed. Who pays?
Who performs? What are the regional implica
per cent of all R & D is performed by private
industry. Largely because of defense require
tions?
ments, three industries do the bulk of the work:
Most of the nation’s research and develop
aircraft and missiles, electrical and communica
ment is performed by private industry, but the
tions equipment, and chemicals. They are re
biggest single spender is the Federal Govern
sponsible for 65 per cent of all industrial R & D.
ment. The Government tends to concentrate its
And the big researchers are getting bigger.
R & D spending in relatively few industries, com
Not only is research volume concentrated in a
panies, universities, and geographical regions.
few industries, but in a few companies as well.
The basic factors underlying this concentration
National defense needs are again an important
are the special research needs of Government
influence. Since most federally sponsored re
and its knowledge of the ability of performers to
meet those needs.
search is for defense, a look at defense con
Uncle Sam pays for 70 per cent of all R & D.
centration. Of the 500 prime industrial contrac
Obviously Governmental decision-making has a
tors for defense R & D, eight companies were
tracts provides an indication of company con
big impact on what type of research is under-
awarded 50 per cent of the total value of con
FOR RESEARCH AND DEVELOPMENT
tracts between 1961 and 1963. Similarly, most
WHO PERFORMS?
university research is done by a small elite. Last
year 38 per cent of Government R & D contracts
to universities went to ten schools, led by the
University of California and the Massachusetts
Institute of Technology.
It just so happens that the industrial, com
pany, and university concentrations of research
tend to be in the same geographical areas. The
San Francisco Bay and Boston metropolitan
areas epitomize such regions— now known as re
search complexes. Why does research just hap
GOVERNMENT
INDUSTRY COLLEGES
AND
INSTITUTIONS
GOVERNMENT
INDUSTRY COLLEGES
AND
INSTITUTIONS
Source: National Science Foundation; McGraw-Hill Depart
ment of Economics.
Digitized for18
FRASER
pen to concentrate in, for example, these two
areas? Most other parts of the country wish
they knew.
business review
C om petition fo r research
how each area goes about it. As with the fight
Companies have always fought to be competi
for industry, different tools are being tried to
tive. Regional competition for growth, however,
encourage research. M ajor metropolitan areas
is a relatively new fact of economic life. It is
where universities, culture, good schools, and
more intense daily. States and communities in
good living abound have a head start over their
creasingly muster new forces to make their re
less-endowed brethren. But these assets aren’t
spective economies healthier. They are fighting
enough. The competitors recognized this and
for a larger share of the nation’s economic ac
seized first upon the research park. Aesthetically
tivity. As the battle escalates, one weapon after
appealing campus-like settings marked “ research
another is employed to hold old industry and to
companies only” were expected automatically to
entice plants from other areas. Free land, planned
attract R & D. They weren’t very successful. The
industrial parks with built-in amenities, low-
currently fashionable key to building a research
interest financing, tax benefits, political influence,
complex is a research institute. The institute can
promotion campaigns, and other levers are all
provide an important link between university
used to aid and abet local economic growth. The
research and the business community. Companies
tendency of such gambits is merely to move the
can make better and quicker use of the latest
economic pieces around the big U. S. chessboard.
scientific findings of university laboratories by
With the rapid growth of research and devel
consulting the institute. The Stanford Research
opment, combined with the desire of all com
Institute is one prototype, among many, for this
munities for “ nice clean industry,” a new set
of weapons is being devised. It is aimed at the
kind of undertaking.
But without a more fundamental asset, a re
latest panacea for economic advantage of one
search institute may be just as sterile as some of
area over another— becoming a research com
those research parks. That asset is top-quality
plex. Hence, communities are looking hard at
scientific and technical brainpower. While no
existing R & D concentrations for clues to suc
one weapon is sufficient to trigger the develop
cess. The economic implications of this new
ment of a research complex, the necessary one
drive to develop research complexes should be
is brainpower.
very different from the earlier indiscriminate
A community that grows talented scientific
competition for industry. Successful efforts to
and technical Ph.D’s and provides a receptive
increase research and development will create
climate for the use of their talent has the best
a bigger economic pie. More R & D means new
base for growing research. Brains like compan
techniques and processes and more efficient in
ionship; they attract other brains. This is the
dustry. These are the major factors behind in
beginning of the chain reaction which sets off
creased productivity. And increased productivity
the research complex. Brainpower is the only
contributes about half of the nation’s economic
source of research and development. It is the
growth. The more every community does to pro
source of vitality for a research institute. The
vide an environment in which new ideas are born
more outstanding the brains, the richer the re
and nurtured, the greater the national wealth.
gion. A community’s investment in developing
How can community competition for research
and nurturing topflight talent is an investment in
contribute to national growth? It all depends on
its own economic growth as well as the nation’s.
19
FOR THE R E C O R D . . .
BILLIONS $
2 YEARS
AGO
YEAR
AGO
MEMBER BANKS, 3RD F.R.D.
JUNE
1965
Third Federal
Reserve District
United States
Per cent change
Per cent change
Factory*
Department
Store Salesf
Check
Payments
Per cent
change
June 1965
from
Per cent
change
June 1965
from
Employ
ment
Payrolls
Per cent
change
June 1965
from
Per cent
change
June 1965
from
mo.
ago
mo.
ago
year
ago
+ 6
+
1
+12
+
2
+17
+
+
5
+ 8
+
5
+29
SUMMARY
mo.
ago
year
ago
6
mos.
1965
from
year
ago
mo.
ago
year
ago
6
mos.
1965
from
year
ago
+
June 1965
from
1
+
8
5
+
3
+
2
+ 8
LO CA L
CH AN GES
+ 9
June 1965
from
MANUFACTURING
Electric power consumed. . . .
Man-hours, to ta l* ....................
Employment, to ta l......................
W age income*..........................
+ 5
+ 2
+ 1
+ 2
+10
+ 7
+ 4
+ 11
CONSTRUCTION” ...................
-1 3
+23
+17
-
+
+ 5
+
COAL PRODUCTION.................
TRADE” *
Department store sales.............
BANKING
(All member banks)
Deposits......................................
Loans...........................................
Investments.................................
U.S. Govt, securities...............
O ther........................................
Check payments........................
+
6
7
+ 9
+ 8
+ 4
+ 10
Lehigh V a lle y .. .
+
1
2
Harrisburg.........
+
2
+ 7
Lancaster...........
+ 4
4
+
2
+
5
+ 9 + 8
+ 10 +11
+ 2 + 2
- 6 - 4
+ 16 + 14
+ 2 3 t + 15+
+ 4
+ 2
+ 1
0
+ 3
+11
12
15
3
5
16
18
+
+
+
+
+
10
14
3
4
14
11
+
+ 5
+ 3
- 1
- 2
+ 1
+ 2t
+
+
+
+
+
+ 3
+ 2
+
+
1
1
’ Production workers only
’ ’ Value of contracts
’ ’ ’ Adjusted for seasonal variation
year
ago
+ 9
-1 2
+ 4
+ 2
+10
-
4
1
+ 6
+
+11
-
6
1
+ 4
+ 4
-
3
1
-
+
4
-
3
+
+
1
+
+ 6
Scranton............
+
1
-
Trenton..............
+
1
+
1
1
mo.
ago
year
ago
1
+
3
+17
0
+
+
4
+ 19
1
+
1
+ 10
0
-
2
+15
6
+
6
+40
3
+ 3
+
4
+20
+
+
n
+ 2t +
U
1
0
f2 0 Cities
^Philadelphia
Wilkes-Barre. . .
+
1
+ 3
+
2
+
5
-
W ilmington. . . .
PRICES
Consumer...................................
1
mo.
ago
+ 3
Philadelphia.. . .
Reading..............
-
year
ago
+
1
+ 4
-
1
+ 11
-
6
+
8
-
6
+48
+13
-
6
+
7
+ 4
+ 18
York...................
+ 3
+
6
+ 3
’ N o t restricted to corporate limits of cities but covers areas of one or more
counties.
fAdjusted fo r seasonal variation.
@FedFRASER