This is a totally eye-opening view of how capitalism and technology advances interact. This is going to be on my list of must-read books for anyone, especially anyone working in or investing in tech.
In “Technological Revolutions and Financial Capital”, Carlota Perez argues that the technological advances and financial capital interact to create “surges”, what others generally call “long waves”. This surge encompasses the lifecycle of an entire “techno-economic paradigm”, a fancy word to describe how a society and its capitalist organization is underpinned by a set of technologies including processes, and that one form of this capitalist organization is very different from another. It is easiest to use an example, such as the “mass production” techno-economic paradigm. This started with Henry Ford et al, and is essentially waning as the “Information Age” (society’s term for the current techno-economic paradigm) emerges and dominates.
These surges have a lifecycle of the stages:
- A “big bang” of societal awareness of the new technology
- “Irruption”: A “frenzy” of investment and installation of the new tech
- Crash/Recession/Depression as the investment was over-hyped compared to the installed base
- “Synergy” as the paradigm is accepted and rolled out
- “Maturity” of the paradigm as the major gains are tapped out and capital goes in search of the next shift
Perez backs up this theory with examples of the 5 capitalist paradigms:
- The Industrial Revolution
- Age of Steam and Railways
- Age of Steel & Heavy Engineering
- Age of Oil, Autos, and Mass Production
- The Information Age
This theory seems to hit the data points very well, and it will be very interesting to see how the next stages of the Information Age play out. Perez wrote the book right after the Tech Bubble burst in 2001, identifying that event as the crash in the lifecycle. It seems so far that the lifecycle is holding: as the broadband deployment and cell phone service extends, business models are finding traction in all areas of the economy. This seems to follow the “Synergy” phase and validate those claiming that “this time it’s different” because of such widespread adoption. For instance, online ordering of takeout food is normal to the point where people will not order from a restaurant who does not use Seamless/Eat24Hours/etc. What was once a fringe service that could not gain traction is now the norm.
Once almost every routine thing can be done online, we will be in the “maturity” stage and you can expect profitableness of new tech ventures to decrease. Note that I am not saying that everything will be done online, just routine things. Shopping for a gift? Still in person, if you want. But a new pair of jeans? Bonobos has seemingly cracked that one, and there’s no sentimental or community-building reason to keep going to Kohls and buying Levis. You might as well just order over the internet. Groceries are probably going to be handled online, as the supermarket is a big hassle for everyone.
You might think, isn’t this what everyone thought the last time? Again, yes, but that is somewhat of the point- a lot of decent ideas were floated during the bubble that were too early for their time, horribly executed, and way overvalued. As this techno-economic paradigm rolls out, we can hopefully avoid “Internet Mania” with constant reminders of the turn of the century.
So what’s the next paradigm? I’d guess robots who can navigate the real world, but we will see. The advances in battery technology and machine learning are allowing potentially explosive growth in useful applications of robotics. Or does cloud computing count as a separate paradigm? It seems as though that is not the case, but perhaps it is revolutionary enough. Perez does not seem to set defined limits for how different a paradigm can be, seemingly setting them once it is clear a technology is on a track to replace as a paradigm.
Right now I’m borrowing Paul’s copy of the book, but I think I might buy myself a copy- it is that important to think about these things! Look also for a followup in which I think about which things might be totally different this time around.