When the Great Depression decimated the US economy in the early 1930s, shuttering businesses and destroying the livelihoods of millions, President Franklin D. Roosevelt called for the creation of a new form of social insurance to safeguard “against the hazards and vicissitudes of life.” Congress responded by establishing the Social Security Administration, an agency to oversee an unprecedented economic safety net for retirees that would be funded by taxing the wages of 27 million employees.
Approved in 1935, the program went into effect in 1937. As the largest accounting initiative in US history at the time, it was almost unimaginable in scope, with no clear method of handling that volume or complexity of calculations. The SSA enlisted IBM for the daunting task of managing the initiative, thus establishing a partnership that would transform the company, the nature of government operations, and society at large.
The SSA assigned identification numbers to employees and employers, while IBM provided card equipment as well as payroll and accounting expertise. By the late 1930s, the company had not only survived the Depression but parlayed the SSA work into becoming the clear leader in global information technology.
The metamorphosis derived from the vision of IBM CEO Thomas J. Watson Sr., who opted to invest heavily at an economic nadir. Watson began building equipment during the early part of the Roosevelt administration because he suspected both that the federal government would be increasingly reliant on technology and that overall market demand would bounce back quickly after a relatively short Depression.
The successful implementation of the SSA’s plan was hardly a foregone conclusion. Even its architects realized that the government was ill-equipped to execute such a scheme, and there was no obvious available solution in the marketplace. European authorities considering their own ideas outright scoffed at the ambition. “It can’t be done,” said one French industrial expert. “The government should just abandon the whole idea.”
In considering a proposal for the project, IBM executives consulted with a variety of longtime customers. They agreed that a manual, paper-based process would be incapable of digesting so much data. Automation would be the only hope. So while competitors retrenched — laying off workers in droves while curbing investments — IBM poured money into research, fortified inventory and maintained staff levels. The strategy perfectly positioned the company in the wake of the congressional approval of the SSA, which Watson deemed a “must-win” opportunity.
The point person for IBM’s bid, H. J. MacDonald, labored on the deal full-time for two years. He made sales calls to representatives of various US agencies even as they were being created for the SSA. He and other sales teams pressured the engineers to modify equipment to meet technical and functional specifications required by the SSA and to price it competitively.
On September 16, 1936, IBM won the contract and quickly unveiled a technological workhorse developed specifically for the SSA: the IBM 077 Collator, a massive machine for reading and organizing punched cards into a single pile. According to MacDonald, Watson had ordered the development of the collator in anticipation that the US government would not otherwise be able to meet its obligations. The new machines could compare, deduplicate and merge a pair of punched cards at the rate of 240 to 480 cards per minute. The 400 machines were so large and heavy that the operation was forced to decamp to an old Coca-Cola bottling plant in nearby Baltimore.
IBM had gotten the Social Security contract because it was the only company in a position to do the job. As author Kevin Maney put it in his 2003 Watson biography, The Maverick and His Machine, “Watson needed a miracle. He had been counting on a prompt end to the Depression — an end that was nowhere in sight.” The Social Security Act turned out to be just such a miracle, according to IBM historian James Cortada. Watson had “built up this supply of a new generation of equipment,” he said, “while everybody else was standing pat.”
The implementation of the SSA required an overhaul of accounting across industries. Some 3.5 million employers were faced with a raft of new reporting requirements and, within months, thousands of IBM clients were asking for help building payroll applications to conform to the legislation. By the end of 1939, IBM’s revenue had grown by 81% compared with that of 1935. Its US workforce mushroomed from roughly 6,000 to more than 10,000 in 1941.
“It was such a big deal from every perspective you can think of. It really transformed the company,” said the historian Cortada. “There are signature events in the life of the corporation where you can point to things being better as a result. The technical infrastructure behind the SSA was a huge event in IBM history. It took them from a small company to what it is.”
The size and scope of the Social Security contract burnished IBM’s credentials across government agencies and established its capabilities for handling high-end, complex data processing. Sensing greater opportunities in other government agencies, the company increased the number of employees located between Baltimore, Maryland, and downtown Washington, DC.
During the ensuing decades, governments increasingly turned to IBM to address gargantuan challenges, from managing air defense systems to supporting moonshots and developing Medicare support or environmental solutions. The partnership, born of vision and luck, continues to this day.
At the 25th anniversary celebration of the signing of the Social Security Act, Labor Secretary Frances Perkins credited both the IBM team and the IBM machines with the successful implementation of the SSA. She recalled the day her assistant walked into her office, excited about a potential solution to a problem that seemed intractable. “You know, I think we found it,” he told her. “These new IBM machines, I believe they can do it."
And indeed, they did. “Out of that really inventive group that worked in the IBM Research group, we found a way by which this could be done,” Perkins concluded, “and we will go into the future a stronger nation because we have this basic rock of security under all of our people.”
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