Yesterday, the New York Times published an article citing new research by my Duke University colleague Dan Gross (co-authored with Pierre Azoulay and Bhaven Sampat) on Indirect Cost Recovery in U.S. Innovation Policy (ICR). The Times piece highlights how reductions in science funding could undermine U.S. technological competitiveness and economic growth. Indeed, many of the past century's most important innovations came from risky, federally funded university research, that private firms didn’t have the incentives to do.

Where does this money fit into the formula for American technological excellence?

In this post, I do a deep dive into the building of two of America’s most innovative universities and the formula for excellence that leaders like Vannevar Bush, Fred Terman, and Allen Newell applied. It’s a story of ambition, architecture, and the entrepreneurial spirit of a generation of academic leaders who led long-term scientific leadership for their institutions and the United States.

World War II and US Science Policy

Much has been written about how WWII shaped U.S. science policy, including one of my favorite books, American Prometheus, as well as other accounts of how America responded to the crisis of this most devastating war.

Many brilliant academics from universities across the country (and some from outside it) were involved in the war effort to defeat the Nazis. These included physicists involved in the Manhattan Project, engineers running the Radio Research Laboratory as part of the US’s electronic warfare, as well as statisticians and economists responsible for weapons design, military tactics, and weather forecasting.

Perhaps the most important scientific institution during this period was the OSRD, or the Office of Strategic Research and Development, founded in 1941 and headed by Vannevar Bush, an MIT professor and an advisor to some of the greatest scientists of the mid-20th century. OSRD coordinated scientific research for military purposes during the war, overseeing key projects, including radar, radio engineering, and the Manhattan Project.

Bush’s experience during the war led him to see the immense impact of science on the US war effort. But he also realized that science would be the key to post-war prosperity and that this dominance needed to be engineered.

Science, the Endless Frontier

In Science, the Endless Frontier, published in July 1945, near the war's end (the Nazis had surrendered in May), he wrote a report to President Franklin Roosevelt that laid out a vision for how the United States should organize and fund scientific research after World War II.

"New frontiers of the mind are before us, and if they are pioneered with the same vision, boldness, and drive with which we have waged this war we can create a fuller and more fruitful employment and a fuller and more fruitful life."
Franklin D. Roosevelt, November 17, 1944.

One key insight from this report was that basic scientific research is vital to national progress and deserves public funding as a strategic priority.

Where would this basic scientific research be conducted? In America’s great universities, of course. These universities would not only produce great science but also great scientists. The funding would not just support one-off projects, but also fund people and institutions over the long term. And these scientists would be free to explore any direction they choose.

“Scientific progress on a broad front results from the free play of free intellects, working on subjects of their own choice, in the manner dictated by their curiosity for exploration of the unknown.” Vannevar Bush

Bush also knew that great science takes time and money,1 and the funding should support the infrastructure (libraries, machines, buildings, students, etc.) that can complement the production of great science and its eventual application.

After the war, many scientists, engineers, and thinkers who had contributed to the war effort returned home, scattered across the country, often returning to the universities they had left behind. They came back with a new perspective on the power and importance of their craft: ambitious, entrepreneurial, and deeply aware of the opportunity science had created for both military and civilian use.

The post-war period marked a key transition as the spirit of the OSRD began to take root in civilian institutions, leading to the creation of the National Science Foundation and a broader university infrastructure that would fuel America’s scientific dominance.

Looking back, it’s clear that the extraordinary scientific achievements of World War II were made possible by the convergence of a few essential elements. Massive federal funding flowed into ambitious research. Brilliant people, including physicists, engineers, statisticians were mobilized. The wartime context granted time and institutional focus to tackle long-horizon problems without the usual constraints of normal university jobs. Most importantly, the moment offered an unparalleled opportunity: a global crisis that demanded new science and opened new frontiers.

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The Entrepreneurial American University

I've been incredibly fortunate in my academic career to be at two great American universities, first as a graduate student at Carnegie Mellon University and later as a junior faculty member at Stanford University. Both were shaped in critical ways by World War II and the endless frontier that entrepreneurial leaders at these schools saw as their opportunity for lasting impact.

One of the things anyone who spends time at an American university will quickly realize is the fundamental role that private universities (or independent public universities) play in the U.S. education system.

This is not the case in much of the world. For instance, the leading UK universities, Oxford, Cambridge, Imperial, and the University of London, are all public. In France, it's the Grandes Écoles. In India, higher education is dominated by the Indian Institutes of Technology. In Canada, public universities like the University of Toronto and McGill are dominant.

The American university system is incredibly unique in this way (and others). For various historical reasons, the United States never developed a single dominant national university or a unified federal university system. There is no “University of America” funded by the federal government. Instead, the system is a patchwork of thousands of colleges and universities spread across the country. They began in many different ways. Some were founded in the early days of the republic by religious communities seeking to train clergy. Others started as teacher-training colleges, vocational schools, or polytechnics created by local industries to meet regional needs.

Because they lacked consistent government support, these institutions had to be self-sufficient. This constraint made them entrepreneurial, competitive, and innovative. They built relationships with alumni, turned to local business leaders for support, and constantly created new programs to bring in revenue to support their functions. As described in A Perfect Mess by David Labaree, this system grew out of necessity and evolved into the rugged, adaptive, and experimental institutions we see today.2

The scarcity of public funding forced American universities to differentiate themselves and attract students and resources in ways their international peers did not. So, when federal research funding expanded dramatically after World War II, it met an environment full of ambitious, nimble institutions ready to compete. Much of this momentum came from young academics returning from wartime research who, like Vannevar Bush, saw that science and rigorous research offered a pathway to national progress and institutional prominence.

Fred Terman at Stanford

A few years ago, I read a biography of Frederick Terman, the legendary provost of Stanford University. He was a famous engineer and scientist in his own right, and the son of Louis Terman, the psychologist who developed the Stanford-Binet IQ test. After earning his undergraduate degree at Stanford, Terman went on to MIT to complete his ScD under none other than Vannevar Bush.

He returned to Stanford in 1925 to join the engineering faculty and got off to an incredible start. During this time, he mentored students who would go on to have luminous careers, including Bill Hewlett and David Packard. He wrote a field-defining textbook on radio engineering and invested time and energy into students who would go on to found companies like Varian Associates and Hewlett-Packard.

When the United States entered World War II, Terman was tapped to lead the Radio Research Laboratory at Harvard University, where he oversaw more than 850 staff members. The lab played a critical role in helping the U.S. military develop and deploy cutting-edge radio technologies, improving Allied communication and disrupting enemy capabilities.

After the war, Terman returned to Stanford as dean of engineering. He once quipped that when he arrived, Stanford wasn't even a top-five engineering school in California, let alone in the country. But over the following decades, working alongside Wallace Sterling, Stanford’s fifth president, he helped transform the university from a strong regional institution into one of the greatest research universities in history.

Stanford, who?

When Terman first joined the faculty in the 1920s, California was barely on the map in terms of higher education, and Stanford was even less prominent. At the time, the universities that mattered were the elite East Coast institutions, the great Midwestern public universities, and a few newer research-focused models like Johns Hopkins and the University of Chicago. Stanford was nowhere near that conversation—yet.

Hayward Keniston. *Graduate Study and Research in the Arts and Sciences at the University of Pennsylvania* (January 1959), pp. 115-119,129.

Stanford had many problems in its early years, but perhaps the biggest was a lack of spendable capital. It just did not have the kind of money that other elite universities had. Moreover, its location far out west, away from the prestige and networks of the East Coast, did not help either. The Stanford family granted the university its land, but according to the original charter, Stanford was prohibited from selling it. It was a land-rich, cash-poor university.

But running a great university takes money. And the most important reason you need that money is to hire the best people in the world. What are universities but a collection of people committed to the power of ideas? For a university to succeed, outstanding faculty must believe they can do the best work of their careers there.

This was the key problem Stanford needed to solve.

Constructing the Stanford Flywheel

Terman was instrumental in developing three big initiatives to address this. First, drawing on his experience during World War II, he understood that federal funding for scientific research would expand dramatically after the war. However, to compete for that funding, Stanford needed to attract world-class faculty who could win grants. The challenge was convincing those people to come to Stanford. And to bring them in, the university needed to create an environment that would allow them to do their best work.

Stanford could not sell its land, but maybe it could rent it out?

In 1951, Terman helped establish the Stanford Research Park on the southern edge of campus near Page Mill Road. It was a place where Stanford faculty and students working on advanced technologies could stay close to campus and start new companies. The rent was cheap, but it kept them nearby. Companies like Varian Associates and Hewlett-Packard set up their headquarters there. Even today, HP’s world headquarters remains on Stanford land.

On the northern side of campus, near Menlo Park, the university opened the Stanford Shopping Center in 1955. Palo Alto was growing quickly, and a mall brought in both retail and reliable rental income. These two developments—the Research Park and the Shopping Center—created a steady cash flow that allowed Stanford to pursue Terman’s larger vision. (Another Terman institution formed was the Stanford Research Institute in 1946, but that is for a later post.)

With this new infusion of funding, the university could focus on what Terman called “Steeples of Excellence” — a few areas where Stanford could be world class.

These Steeples of Excellence were focal points of targeted investment where Stanford could establish unrivaled expertise and reputation. These carefully selected domains would serve as beacons attracting premier talent, substantial funding, and global recognition to the university. The hypothesis was that prioritizing strategic concentration over broad mediocrity could eventually elevate the entire institution.

Stanford went after world-class faculty in specific areas, offered them opportunities to start labs, build departments, hire ambitious colleagues, and enjoy life in sunny California. Many faculty built homes on campus in what is still called the Faculty Ghetto. Despite the name, it is no ghetto. The homes range from modest to magnificent, including the Hannah House, the first home Frank Lloyd Wright built in California.3

Terman, always thinking like an engineer, designed what you might call the Stanford flywheel. The income from the Research Park and the mall provided capital to recruit faculty, both young and experienced. Those faculty built labs and won federal research grants. The labs attracted top students. Many students stayed and started companies at the Stanford Industrial Park or joined nearby ones. This created a self-reinforcing system that kept growing stronger, what later became known as Silicon Valley.

Terman and Stanford President Wallace Sterling knew that building a strong engineering school was just the first step. For Stanford to become a truly great university, it had to take the winnings from its Steeples of Excellence and upgrade the rest of the university. The funding engine they created made that possible. It allowed Stanford to invest in its infrastructure and support all of its departments.

Today, Stanford has more academic departments ranked in the top five nationally than any other university.

Terman’s vision for Stanford aligned the key ingredients of institutional excellence. The money came from the Stanford Shopping Center and Research Park, and this primed the system for federal grants. The people this money attracted were world-class faculty recruited to California with the promise of autonomy and ambition. These people attracted other top people, federal dollars, and great students who stayed to start companies. The time came from long-term investments in labs, departments, and a campus culture prioritizing deep work. And the opportunity, the rise of new engineering fields in the wake of World War II, was one Terman recognized intimately from his own wartime experience. This is not to say that California itself was an opportunity to seize.

Stanford wasn’t the only university on the rise after World War II. A new discipline was being built in the steel town of Pittsburgh, PA.

Carnegie Mellon University and the Birth of Computer Science

Many names come to mind when people think about computer science at Carnegie Mellon. Of course, Herbert Simon stands out. He is one of the founders of artificial intelligence. This polymath won the Nobel Prize in Economics, the Turing Award, and some of the highest honors in psychology, philosophy, and other disciplines. His intellectual blueprint had a profound and lasting influence on the university.

No less transformative for the field of computer science was Alan Newell. Newell was pioneering computer scientist who sought to understand how humans think, and how we might replicate that kind of thinking in machines. His belief was simple but revolutionary: if we could deeply understand what intelligence is, we could build intelligent systems capable of doing meaningful, intelligent work.

Newell graduated from Stanford University in 1949 and began a graduate degree in mathematics at Princeton. But he quickly realized he was more interested in applied work than in pure mathematics. He left Princeton to join the RAND Corporation (I hope to write a longer discussion on the importance of RAND at some point). While at RAND, he met Herb Simon, who was already collaborating with many researchers there. That connection led Newell to pursue a PhD at what is now the Tepper School of Business, then known as the Graduate School of Industrial Administration, under Simon’s supervision. He completed his PhD in 1957 and returned to Carnegie Mellon in 1961.

Beyond being a brilliant academic and one of the founding fathers of artificial intelligence, Newell was also, like Terman, an institution builder. Carnegie Mellon has done a tremendous service to the research community by digitizing many original documents from Herbert Simon’s archives. A few years ago, I came across a 29-page document titled “THE FUTURE OF THE CMU COMPUTER SCIENCE DEPARTMENT FILE CSDF.A2 STARTED 7 FEB 74” authored by Newell in 1974 on how Carnegie Mellon could remain a leader in the emerging field of computer science. It’s a powerful read. It offers a window into the ambitious, entrepreneurial spirit of the people who helped build the post-WWII American university into the powerhouse it is today.

The full document is worth reading. It contains very little of the bullshit that constitutes modern strategy documents. It is full of hard, honest assessments of the challenges and opportunities for Carnegie Mellon.

For instance, Newell highlights Pittsburgh as a limiting factor for CMU's Computer Science aspirations. He calls it a “second rank city” (though not a third or fourth-ranked one) that lacks the scientific tradition and technological ecosystem of places like San Francisco, Boston, and Los Angeles. Unlike those premier locations, Pittsburgh was not viewed as a desirable place for scientists to live, and critically, it lacked the established “habits of doing science” that naturally permeated institutions in major centers of learning. Anyone who has lived in the San Francisco Bay Area or worked in Cambridge, MA can tell you they “feel” different.

How do you build a world-class department in an emerging technology area in a grimy industrial town? This document was Newell’s hypothesis:

First Page of Newell report “The Future of the CMU Computer Science Department” 1974.

However, for this post, the most relevant part to our discussion begins on Page 7 (“The Ingredients for Gaining Excellence”).

My most straightforward takeaway is his MMTO formula: Money, Men (People), Time, and Opportunity. [I’ve decided to keep the MMTO acronym, but below changed the gendered language.]

It’s clear that this was the formula that Bush understood as key to driving US excellence in science at OSRD and afterward, and Terman used it as a playbook upon his return to Stanford from World War II.

Money: Sustained and flexible funding is essential and must be under local control to respond to changing opportunities.
People (Men): A small group of visionary, high-caliber individuals at or near the top of their field and with the stability and ability to collaborate over time is critical.
Time: Excellence takes time; there is no instant success. Institutions must have autonomy to capitalize on opportunities without external time pressures.
Opportunity: An “ecological niche” or a unique moment in the field where the institution can grow without direct competition. Often tied to the emergence of a new field or concept not yet widely accepted.

Carnegie Mellon’s strategic engineering of MMTO and the flywheel that ensued under Newell, Simon, Cyert, and later under others such as Raj Reddy and his successors has allowed it to remain a dominant Computer Science program for over half a century.

The MMTO framework should be understood as a conjunctive model (strong complementarities, superadditive) rather than an additive one. Each component—Money, People, Time, and Opportunity—is necessary, and the absence of any single element renders the entire system inoperative.

Furthermore, it’s clear that additional strength in one area cannot compensate for a deficiency in another (great people, no money, means you will lose people). Even great people, money, but no time or autonomy for research, means you will not create great research because great work takes time and attention. Similarly, money, time, people, and no clear niche: intense competition.

This interdependence explains why the emergence of excellence is uncommon and challenging to engineer anywhere. What is clear from both the internal strategy document from CMU and Terman’s strategic efforts as Dean and then Provost was that Stanford and CMU’s success was not an accident. It resulted from an engineer’s mindset: Excellence is a system that needs to be consciously and strategically constructed.

However, once excellence is achieved, a different dynamic often takes hold: Excellence Breeds Excellence (EBE), according to Newell. In this phase, reputation and past success attract further resources, talent, and attention, creating a self-reinforcing cycle (a “Matthew Effect”). But even this dynamic is vulnerable. When one of the foundational elements begins to erode, e.g., through faculty departures, loss of institutional autonomy, or the closing of a strategic window, the effects may not be immediately visible. Over time, however, the system becomes increasingly fragile, and collapse can follow with little warning.

Today, as the debate over science funding heats up, we should remember Bush, Terman, Newell, and many other great leaders and consider what it actually took to build lasting excellence. It was a system carefully constructed by ambitious leaders who slowly put together the pieces for institutional excellence.

I believe in the Entrepreneurial American University, but The MMTO formula is a reminder that these factors all must come together to create excellence.

When any one of those is missing, even the strongest institutions can falter. And once you break the system, how you might put it back together is not obvious.

1

“Babbage, even with remarkably generous support for his time, could not produce his great arithmetical machine. His idea was sound enough, but construction and maintenance costs were then too heavy.” [wikiquote]

2

I always find people’s views of academia as slow, stodgy, and uninspired to be off the mark. American Universities have a fighting spirit that has allowed them to be some of the world's most well-known institutions and respected brands. Most of the companies founded at the time of our great universities are long gone.

3

For some reason, I was lucky enough to get my first job at the business school at Stanford University as an assistant professor. For the first few years, I lived on campus with my family at 624 Mayfield Avenue. This large house had been converted into faculty apartments, and there was a small one-room, shed-like building in the back that was sometimes rented out to visiting faculty.

I rented the apartment sight unseen. My uncle drove down from Orinda, California, to check it out. He said it was pretty and told me I should take it. Little did I know that it had once housed a famous resident—maybe more than one. In that little shed behind the main building had lived a first-year MBA student named Jack. He left after a few months to enlist and fight in World War II. He later became president of the United States.

Superadditive: Deep dives into innovation and organization

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