Technological Revolutions and Financial Capital by Carlota Pérez

It always happens: one comes across the most interesting and enriching books indirectly and this was the case with Carlota Pérez’s work.

Technological Revolutions and Financial Capital, as defined by the author, aims at finding a pattern and recurrent change sequences in the internal functioning of the capitalist system. It’s extremely difficult to sum up a book like this one, taking into account the useful and abundant information it grants. Nonetheless and from my perspective, the main two ideas defended by the author are the following:

On the one hand, since the end of the 18th century the economic growth has gone through five stages, linked to five key tecnological revolutions:

1. The Industrial Revolution: the origin country was England and the spark of the revolution was the opening of the cotton spinning mill in Arkwright, Cromford, in 1771.
2. The steam and railroad age: the origin country was England, spreading to Europe and U.S.A., and the spark of the revolution was the test of the steam engine Rocket for the train Liverpool-Manchester in 1829.
3. The steel, power, and heavy engineering age: the origin countries were U.S.A. and Germany. The spark was the inauguration of Carnegie’s Bessemer steelworks in Pittsburgh, Pennsylvania, in 1875.
4. The oil, automobile and mass production age: the origin countries were U.S.A. and Germany, spreading to Europe. The spark was the launch of the first T-Model Ford in Detroit, Michigan, in 1908.
5. The computer and telecommunications age: the origin country was U.S.A., spreading to Europe and Asia. The spark was the manufacture of the Intel microprocessor in Santa Clara, California, in 1971.

On the other hand, according to Pérez, the life cycle of a technological revolution consists of two clearly defined periods: the installation and the deployment periods. Both periods go on around 50-60 years. The caesura between them is a period called adjustment interval.

At the same time the periods are divided in two stages: the installation period is made of the irruption and the frenzy phases. In the irruption phase new products and tecnologies show their strenght and set foot in a world shaped according to the previous paradigm. In the frenzy phase the financial capital is in charge of developing the new infrastructure and technologies.

Nonetheless structural tension come up in the frenzy phase making unfeasible the system and ushering in the adjustment interval. The latter is a recession period after the financial bubble, in which the required ruling changes are carried out to ease the deployment period.

The deployment period begins with the synergy phase, in which the new paradigm develops itself totally, and ends with the maturity phase, in which the last products and tecnologies are included and at the same time the investment opportunities decline and a market stagnation takes place.

Graphically the development of the technological revolution would be as follows:

Just to remark, from my point of view the Internet evolution graphic shown by Peter Hinssen in his book “The New Normal” is somehow inheriting the basic features of Pérez’s technological revolution graphic

Assuming this perspective Carlota Pérez analyzes and reels off the afore-mentioned revolutions and grants a plethora of thoughts which help deepen the comprehension of such significant economic historical periods. In conclusion, an essential book for anyone interested in the economic history and extremely enlightening to understand episodes such as the ones we are facing currently.

Enjoy it!