The English poet John Milton once said, “Luck is the residue of design.” The aphorism neatly encapsulates the experience of IBM during the Great Depression.
In reaction to massive economic turmoil, President Franklin D. Roosevelt developed the idea of a Social Security Administration (SSA), a safety net to help those lacking financial protection — senior citizens, people with disabilities, the unemployed, and widows and orphans. When he signed the legislation in August 1935, the document was scant on administrative details. The challenge of creating and managing more than 27 million individual accounts had yet to be addressed. It was a Herculean task. The system would need to collect a massive amount of salary data, calculate payments and transmit the information to the US Treasury Department, which would cut checks for qualified recipients. The largest bookkeeping job in history at the time also faced a daunting timeline. The law dictated that it be in place by January 1, 1937.
Not long before all this, in the early years of the Depression, IBM President Thomas J. Watson Sr. made a risky bet. Based on his firm belief that the SSA bill would eventually pass, he envisioned a tremendous business opportunity for any company that could meet the increased need for data management in an expanded government. He assumed that the SSA and other agencies would require many of the tabulators and calculators that IBM offered at the time. So, in spite of a severe downturn, he ordered IBM to produce machines in great quantities. The company stored inventory in every warehouse available, and even rented out barns in Endicott, New York.
Once Congress formally approved the Social Security program, the government chose IBM from among many bidders, buying all the machines in storage and ordering many more. The IBM 405 Accounting Machine and the 077 Collator proved to be workhorses for the SSA. The former was the most advanced calculator available at the time, the first to process information alphanumerically, translating binary information into letters by recognizing specific patterns of ones and zeros. When unveiled in 1934, tabulating 150 cards per minute, the 405 was the cutting edge of data processing. It was the pillar of Watson’s plan to mechanize administration of the new agency.
The 077 Collator, which was developed specifically for the SSA to sort tabulated cards, was unveiled by the Electric Bookkeeping and Accounting Machine Division. It was a massive machine capable of comparing, deduplicating and merging 240 to 480 paired cards per minute into a single pile. According to H. J. MacDonald, head of sales for the Social Security campaign, Watson had originally ordered the machine’s development out of concern that the government would not otherwise be able to meet its obligations.
The 400-odd machines were so large and heavy that the operation for processing and tabulating was decamped to an old Coca-Cola bottling plant in nearby Baltimore. To operate the collator, workers placed two piles of cards into a slot on the side of the device, which would identify data from punched-out holes then feed the output to one of a handful of bins on the other side. The 077’s collation rate more than matched the 405 accounting machine’s output and expedited the program’s success. These devices would remain linchpins of IBM’s product line for years, even as World War II required greater technological developments.
The 077 Collator performed many card-filing and -pulling operations. As a filing machine, the 077 simultaneously fed and compared two groups of punched cards: records already in file and those yet to be filed. It then merged the groups in numerical or alphabetical sequence. The 077 could pair current transactions with previous transactions, track debits with credits, sort master cards by name and address, select cards by a given number, and segregate them by date.
At the time, IBM heralded the 077 as one of the company’s most innovative and important inventions. According to the in-house publication Business Machines: “It signals the entrance of IBM into a field of operation which heretofore has been accepted as requiring manual assistance to the otherwise automatic machine procedure of the punched card system.”
Years after development, MacDonald explained the central role the 077 played in landing the SSA contract. “We couldn’t have done a decent job with Social Security unless we had the collator,” he said. “We needed it because Social Security punched cards from records sent from all over the country, and we had to bring them together. To try to sort them together would have been out of the question as there were millions and millions.” He concluded that without the collator “we would have been lost.”
The collator remained a staple of Social Security operations for two decades and made a significant contribution to the company’s bottom line, boosting total revenue 81 percent between 1935 and 1939, and cementing a relationship with the federal government that continues to this day.
According to author and historian James Cortada: “It is difficult to exaggerate the importance of the Social Security win to the evolution of IBM. That one piece of business, along with its effects on other agencies and businesses, wiped out the Great Depression for IBM. That transaction handed IBM a potential market of 20,000 other companies that would need to process Social Security data.”
In other words, Watson’s bet paid off in a very big way.
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