Thank goodness for Carlota Perez. In our grim period the esteemed Venezuelan economist, now in her eighties, is a spirit-lifter where things seem irredeemably complex. Her life’s work on the nature of techno-economic paradigm shifts throws water on our burning questions about the future.
In Perez’s particularly useful framing of the technological cycle, there are three phases: (1) a disruptive period of “installation” brought on by new technology, (2) a transitional phase or “turning point,” as society confronts countervailing pressures to technology-driven change, and (3) “deployment,” a period of great socioeconomic progress as the technology achieves wide adoption and use.
Her central contention is that it takes an exceptionally long time from original invention to the golden age when we unlock the true potential of the technology. For the information and communications technology (ICT) revolution that began in the seventies, the best days are still ahead.
Source: Carlota Perez, “Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages”
As new technology comes to market and infrastructure is built, this installation phase lasts twenty to thirty years or more.
Technology may need to be pushed to market at first if customers don’t understand the benefits. Picture personal computers in the seventies or the internet in the nineties. The possibilities of a radical innovation are so difficult to envision that even those who carry them out grossly underestimate their potential.
“There is no reason anyone would want a computer in their home,” insisted Ken Olson, president of Digital Equipment Corp., in 1977. In 1995, Robert Metcalfe, internet pioneer and formulator of Metcalfe’s law, predicted in 1995 that the internet will “catastrophically collapse.”
Once a story coheres around the disruptive power of a trend, speculative capital builds the requisite infrastructure. This energy turns into a bubble: overbuilding happened with canals (1797), railways (1847), and telecom infrastructure (2000).
Telecom companies plied more than $500 billion into laying fiber-optic cable, switches, and wireless networks in the run-up to the dotcom crash. Capacity vastly outstripped demand (though the foundation had been laid for widespread high-speed connectivity).
There are now 4.6 billion internet users compared to 400 million in 2000. That’s 59 percent of the globe. The internet, along with smartphones, has been installed, if you like, nearly everywhere.
About 100 million people bought smartphones in 2007 when Apple launched the iPhone. Now 1.5 billion smartphones are sold every year. Nearly 85 percent of all mobile users in America own a smartphone, up from 27 percent in 2010. The internet’s in everyone’s pocket.
Source: Digital Trends
Installation is a period of creative destruction. The dominant industries of the previous revolution struggle to keep up with the agile new entrepreneurs and innovators; their businesses mature and decline. Failure to adapt leads to massive job losses and damage to the communities they used to boost. A polarization between the new and old economy sets in.
Consider Amazon’s disruption of traditional retail, the bankruptcy of Detroit vis-a-vis Silicon Valley’s ascent, and Tesla’s value outstripping the combined automakers’. Old stalwarts are replaced by new giants.
Monopolies and oligopolies typically form during the installation period, according to Perez. J.P. Morgan un