Technological Revolutions and Financial Capital

"What Perez kind of simplifies and notices is that every time there's been a technology wave that leads to wealth creation..."

"Carlota Perez comes out of a whole set of arguments which basically go back to Kondratiev . Kondratiev was the Soviet economist who said there seem to be long-wave downturns and upturns in cycles of around fifty years. He got shot by Stalin for his trouble. He first wrote the paper in 1924. There follows seventy years of argument whether it’s true – the price evidence seem to think it’s true: long upswing, long downswing – and why it’s true, and there’s different views on that: some of it’s about economics, some of it’s about capital investment, some of it’s about innovation cycles. Carlota Perez effectively cut through the disputes. She said: if you go back to 1771, you can see five technology platforms which broadly correspond to the Kondratiev models. First you see cotton and canals; then you see rail and steam; then you see electricity and steel and chemicals; then you see oil and autos; then you see ICT, digital technologies. They all follow a very similar pattern of approximately fifty years (though the dates change). There’s a long period of installation, which is basically about putting infrastructure in – funded by finance capital – that gets ahead of itself, the uptake is not as fast as you’d expect it to be, finance capital gets impatient, there’s a crash. Then all those bits get picked up very cheaply by production capital, businesses with customers, and suddenly you get this acceleration, money starts being made hand over fist and then it all slows down because the market matures. Then you start getting things like institutional push-back, new forms of regulation, you start seeing slowing rates of return, and then finance capital starts looking elsewhere for the next wave. That’s quite a simple version of it, but one of the things I still hear a lot at conferences is: ‘technology is speeding up, there is no constant except change.’ When you look at the current ICT technology surge through Perez’s model, what you see is that we’re three-quarters of the way through the technology S-curve, and you can see that in how hard it is for the technology companies to make serious money. This week we had the Belgians telling Facebook they were acting illegally. We had a German court ruling about Google. All those things happen in the final quarter of the cycle: the technology has got out of hand, the companies have got over-powerful and you start seeing slowing returns and regulatory pushback. “A good futurist needs to be a good historian.” You were talking about prediction earlier – this isn’t necessarily a prediction, but it’s a pattern. Being able to think about the world through patterns allows us to make sense of it; otherwise we’d just get caught up in the moment. When I talk about this book with people I use car analogies because we’ve finished the car cycle . We’ve still got cars – they haven’t gone away – but cars are not the leading-edge sector any more. If you go back to the 1960s, which was the last bit of the car cycle, you started seeing parking meters coming in, and drink driving legislation, and a bit later on you start seeing pollution controls, all that sort of regulation comes in. Effectively we’re seeing the same thing now with technology – going back to that idea that one of the things good futures work should do is make you read the news differently. When you’re thinking with this model in your head and you’re looking at the news, you can see that probably selling your technology shares – not Apple but the rest of them – is probably a good idea. Maybe selling your Apple shares is a good idea. These are not companies which are going to carry on booming for much longer. That also opens up other questions – we can’t predict what the next platform is going to be. She talks about platforms being an integrated set of innovations. You can start getting a sense that you’re going to start seeing finance moving into a new area through the next decade. We’re in 2015 now, we’re probably ten years, fifteen years away from the end of the ICT cycle, when finance will start looking for the next thing. That’s an interesting question. In academic terms this is a very influential book. I’ve seen it compared by one author to Marx’s Capital even though it’s 170 pages of text. I’ve seen it compared to Schumpeter’s book on business cycles. So, academically it’s influential. I don’t think yet it’s escaped from the academic and consulting/think tank world into the policy word. But I think as it does that – and she’s certainly trying quite hard to do that – it will start influencing the way people think about sectors, and think about behaviour."