There’s a lot Silicon Valley can learn from the Theranos mess.
In the second half of the twentieth century, an innovation came along that would transform the way the world did business. At first, some people wrote it off as a fad. Others kept at it, convinced that it was going to have a huge impact. Some of the companies that made big bets on this tool were very successful, while others ended up going under. Ultimately, it helped accelerate the globalization that had already been under way for centuries.
I’m not talking about software. I’m talking about the shipping industry, and in particular an innovation you might not have thought much about: the shipping container. It is the subject of an excellent book I read this summer called The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, by a former Economist editor named Marc Levinson. The Box is mostly about globalization, but there is also a larger story here that touches on business and philanthropy more broadly.
For centuries, cargo ships were loaded and unloaded by hand, one crate at a time. Each crate might have a different destination, which made the whole process slow and expensive. In 1956, a trucking magnate named Malcolm McLean had a clever idea: Instead of unloading a trailer’s worth of crates onto a ship, why not put the whole trailer on the ship?
It was the beginning of a revolution in the way goods move around the world. Shipping lines ordered bigger and bigger ships to accommodate the aluminum boxes that soon became the standard container. Port cities from New York to Singapore raced to modernize their facilities to accommodate the larger ships.
By the early 1980s, the transition to the containerized system was essentially complete. Computers were coming into the picture as well. I remember meeting with the leaders of port authorities that wanted to go paperless. They would ask, Are the computer systems reliable? How do they work? Today it seems crazy that a ship would dock and somebody would get off with a piece of paper to show what’s in the cargo hold.
The move to containerized shipping had an amazing impact on the global economy. As Levinson says, “A machine manufactured on Monday can be dropped at Port Newark on Tuesday and delivered in Stuttgart, Germany, in less time than it once would have taken to be loaded aboard a ship.” He cites one study that says the container system reduced freight rates from Asia to North America by 40 to 60 percent. At the same time, it also led to job losses at ports, since greater efficiency meant you could move more freight with fewer dock workers.
The story of this transition is fascinating and reason enough to read the book. But in subtle ways The Box also challenges commonly held views about business and the role of innovation.
For example, you often hear that it’s a big advantage to get into a particular business early. But in both software and shipping, that wasn’t necessarily the case. Some shipping companies made big bets early, and still failed. Apple was an early entrant in the PC business but didn’t take off until many years later. At Microsoft it certainly helped that we got an early start, but we never took that advantage for granted.
Or consider the conditions that make it possible for an innovation to take hold. You often hear simplistic arguments that it never happens without government involvement, or the opposite, that government only gets in the way. But the truth is more complicated. For example, there was no way that shipping companies in the 1950s and 1960s could raise enough capital to invest in new cranes, deepening waterways, and other changes that ports needed to take advantage of the new containers and ships. Only governments could do that. On the other hand, Levinson makes it clear that governments’ overregulation of the transportation sector held back a lot of innovation and kept costs high. So it is a complex picture.
That’s also true when it comes to setting standards. The container revolution only took off after all the boxes were built in compatible shapes and sizes, which meant they could be transported on ships, trucks, and trains from different companies. Similarly, the Internet relies on a common protocol for sending information. But it’s very hard to know ahead of time where these standards will come from. Few people would have predicted that the Internet protocol would grow out of a university research project funded by the U.S. Department of Defense. In the case of shipping containers, it took several years and the efforts of an obscure government agency and several industry groups to come to agreement.
These questions also touch on a lot of the work Melinda and I are doing through the Gates Foundation. For example, how can advances in shipping help deliver vaccines to remote areas, while keeping them cold so they don’t spoil? In education, many states are adopting common academic standards; how can these standards encourage software companies to develop new tools for teachers and students across the country?
Few people in the 1950s understood just how important the shipping container would be in shaping the global economy. That’s often the case with innovation—it’s hard to predict which ones will fizzle and which ones will change the world. That’s why it’s so important to keep investing in a broad range of innovations, whether they’re in the field of genetics, robotics, agriculture, or other areas. It’s the key to saving lives, driving human progress, and making the world a fairer place. You never know where the next shipping container will come from.