How Social Security Rescued IBM From Death by Depression

Seventy five years ago this month, IBM started shipping its IBM Type 77 collators, great gray punch card-reading machines the company designed to help the brand-new U.S. Social Security Board get off the ground back in 1937.

The collators were new machines for IBM, developed specially for the Social Security project. They could take two sets of punch cards and compare them and then merge them into a single pile, whizzing through about 480 cards per minute. Collators were a new super-fast way to merge data sets or spot duplicate cards. Back in 1937, they added payroll contributions to social security accounts.

IBM had developed them to help the U.S. government manage what was becoming a massive bookkeeping project. When Franklin Delano Roosevelt’s Social Security Act became law in January 1937, the government suddenly had to keep track of contributions from 26 million Americans and more than 3 million employers. Just finding the floor space in Washington, D.C. to assemble the IBM machines and store all of the records was impossible, so the Social Security Administration set up shop in nearby Baltimore, on the floor of an former Coca-Cola bottling plant.

IBM’s collators and sorters made Social Security work, but they also slingshotted IBM to the very top of the business machines market for more than 50 years (see photos above). “It was such a big deal from every perspective you can think of, it really transformed the company,” says IBM Historian James Cortada.

IBM got the Social Security contract because it was the only company ready to do the job, back in the mid-’30s. And the story behind that is one part luck and one part vision on the part of IBM’s famous CEO Thomas J. Watson Sr. When the Depression set in, rivals like NCR and Burroughs cut costs and hunkered down to make it through the downturn. But IBM had taken the opposite tack; CEO Watson had doubled down, increasing the company’s headcount and factory output and filling up warehouses in a big bet that the Depression was a short-term thing.

He was wrong. And by 1934, it was starting to look like Watson, Sr. had made a serious mistake. As writer Kevin Maney put it in his definitive 2003 biography of Watson, 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 1935 Social Security Act was just that miracle, Cortada says. And because IBM was the only company ready to do the job, it got the contract. Watson had “built up this supply of a new generation of equipment while everybody else was standing pat with whatever technology he had coming into the Depression,” he says.

In 1934, IBM’s annual revenue was $19 million. By 1937, it had jumped to $31 million. “It would climb unabated for the next 45 years,” Manley writes. “From that moment until the 1980s, IBM would utterly dominate the data processing industry — a record of leadership that was unmatched by any industrial company in history.”

For most of those 45 years, the 80-column punch cards used by those IBM Type 77 collators were an industry standard.