Monday, April 03, 2006

Carlota Perez on recurring technology surges

John Seely Brown alerted me to Carlota Perez’ theory of technology revolutions. It’s a must-read for those interested in the intersection of history, technology, and business. It will appeal most to those who believe that history is cyclical, and most annoy those who think it’s linear.

Perez argues that technological revolutions occur every 40-60 years. After a cluster of new technologies bursts on the scene, there’s first a 20-30 year ‘installation’ period, during which a frenzy of investment leads to a bubble, and a crash. This is only the first half of the story, though. After the turning-point there follows a 20-30 year ‘deployment’ phase during which the technology spreads to all parts of the economy, and becomes the new paradigm. At the end of the second phase, the surge peters out – leaving investors with under-performing hungry capital that’s ready to drive the next revolution.

She describes four and a half of these technological surges during the history of capitalism, beginning with the Industrial Revolution that began around 1771 when Arkwright’s mill opened in Cromford. We’re right in the middle of the fifth, which began around 1971 when the Intel microprocessor made its debut.

Perez’ model nicely explains two sentiments which always seemed paradoxical to me: that the glory days of the computing revolution are over, and that the impacts have barely started to be felt. The glory days were the installation period leading up to the dot-com bust. In that phase, financial capital drives build-up of the new infrastructure and the new technologies. At the end, its potential is clear but not yet realized; full deployment will happen in the second phase. We’re at the beginning of the second phase. Is it a coincidence that Perez’ second phase will end just about when Kurzweil’s singularity is supposed to hit? Probably not, since each paradigm creates a common sense world view beyond which it’s very hard to see, just as it’s impossible to see through a singularity.

The theory is documented in her 2002 book Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages. It’s well-written and crammed with examples, though occasionally a little repetitive. A video of a talk Perez gave in Estonia is a very good 45 minute introduction to the topic.

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