Technological Revolutions

Irving Wladawsky-Berger's blog quotes Carlota Perez, a Venezuelan scholar and expert who views technology revolutions as engines of growth, rejuvenating and transforming the whole economy, as well as re-shaping social behavior and the institutions of society.

Below is an edited excerpt based on an online lecture:

To better understand the dynamics of a technology revolution, we should split it into two different periods, each lasting 20 to 30 years.

The "installation period" is the time of creative destruction, when:

• new technologies emerge from the lab into the marketplace
• entrepreneurs start many new businesses based on these new technologies
• venture capitalists encourage experimentation with new business models and speculation in new money-making schemes

Inevitably, this all leads to the kind of financial bubble and crash we are all quite familiar with from our recent experience.

After the crash, comes the "deployment period," which she views as a time of institutional recomposition:

• the now well accepted technologies and economic paradigms become the norm
• infrastructures and industries start getting better defined and more stable
• production capital drives long-term growth and expansion by spreading and multiplying the successful business models

Carlota Perez believes that we may not yet have entered the deployment period, as the crash phase doesn't seem to have resolved itself. She mentions three particular structural tensions that we need still to work out in order to move on:

• investments continue to be focused on short-term gain, not on long-term production and growth
• the social system continues to foster an unstable environment in which the rich get richer and the poor get poorer
• there is too much "idle money" chasing and inflating assets like housing and not going into expanding the demand needed to soak up all the excess supply being produced