Is there a link between the current global crisis and the technological long wave that is in the process of transforming the world economy? Carlota Perez, a Venezuelan academic who specializes in the study of technological revolutions thinks there is, and laid it out at a talk at the IPPR last week (download her podcast here).
Massively simplifying a pretty complex argument:
1. There have been five great surges of development in the last 240 years (see slide), each lasting some 50 years: the latest, the age of information technology and telecommunications, can be dated from the 1970s.
2. Each revolution follows the well-known innovation S curve (next slide) where it at first struggles to take off, then rapidly accelerates as the whole economy adopts cars, computers etc, and then reaches saturation, at which point it flattens off.
3. But the really interesting point raised by Carlota is that each S curve can typically be divided into two periods, with a big financial crisis in the middle (last slide). Her explanation goes something like this:
In the first phase of the S curve, traditional companies and the state largely ignore the new technology, which turns instead to finance capital. Result? A financial bubble, over-investment and a subsequent collapse, but only after the influx of cash has helped establish the technology and the necessary infrastructure (roads, canals, railways, cable etc). Out of the wreckage of the bubble emerges a new system, in which finance retreats and plays a secondary role to ‘production capital’ backed by a more interventionist state, which takes over and pushes the technology to saturation (when most people already have cars, mobiles or whatever). According to Perez, the first phase is characterized by instability and growing inequality (finance creates few jobs), while the second phase is a ‘golden age’ of growth with equity. In previous S curves, the intervening crash has lasted anything up to 13 years (oh dear…).
Applying this model to the IT/telecoms revolution, Carlota sees 1970-2000 as the first phase, ending with the bursting of the dot.com bubble, with the current crisis a painful second installment of the interregnum. If we are to emerge into a new ‘golden age’ the state needs to intervene to clear away the wreckage caused by the finance bubble, overhaul the financial system so that it facilitates the new ‘deployment period’ and support the fullest possible expansion of the new technological paradigm. Then the whole cycle will begin again with whatever new technology emerges as the next big game-changer.