How the Beatles gave us the CT scan, and what it tells us about innovation - The Long and Short
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In the mid-1960s the Beatles were not just a cultural force, they were an economic one. At their peak, their record sales and ticket sales were earning $650 a second in today’s money. The dollar receipts from their overseas tours are credited with saving Harold Wilson’s government from a currency crisis.
One beneficiary of the Beatles’ rise to stardom was their record company, EMI. By 1967, 30 per cent of the company’s profits were coming just from Beatles sales.
Some have questioned the importance of EMI’s cashflows to the CT scanner project, pointing to the importance of government funding to the underlying R&D. However, it’s important to note that the project depended on much more than just R&D, and that this ’hidden innovation’ funding came from EMI.
The CT scanner was a remarkable feat of science and engineering. For the first time, it allowed doctors to make accurate 3D scans of patients’ soft tissue. This proved vital to modern neurosurgery and oncology. Hounsfield received a Nobel Prize, a knighthood; and even had a scientific unit named after him.
So while EMI’s development of the CT scanner was a big plus for humanity, it was a failure from the point of view of EMI’s shareholders. They might well have wished that all that Beatles cash hadn’t been left sloshing around to fund the latest project by their brilliant boffins, especially one that had little to do with EMI’s core areas of expertise.
As the years went by, more and more companies’ shareholders began to feel this way. Conglomerates – companies with many different lines of business – became rarer and rarer.
In the CT scanner example, it was EMI that made the investment, but GE that got the spoils. The spillovers from EMI’s investment led to a situation where GE benefited, and society as a whole benefited too, but EMI’s shareholders didn’t.