Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages

by Carlota Pérez

'Carlota Perez's insightful analysis of the rapid growth and diffusion of new technologies in general, and Information and Communications Technologies (ICT) in particular, is a welcome antidote to the bullish and ahistorical hyperbole of the datacom era. . . Do read the book. It is important. It is accessible. It is well presented. It is also fun.'
- Raphie Kaplinsky, Technovation 'It was Carlota Perez in the early 1980s, who designated the major changes in technology systems, such as mechanization, electrification or computerization, as ''changes of techno-economic paradigm'' a designation which has since been widely adopted. In this book she offers many new insights into these complex processes of social, economic and technological change. She traces the interactions between that part of the economy commonly known as ''financial capital'' and the evolution of technologies. Although this was an important aspect of Schumpeter's original work, it has been neglected by his followers, so that the book fills an important gap in the literature on business cycles and innovations. I most strongly commend it to all those attempting to understand the past and future evolution of technology and the economy.'
- Christopher Freeman, SPRU - Science and Technology Policy Research, University of Sussex, UK and Maastricht University, The Netherlands 'Before I read this book I thought that the history of technology was - to borrow Churchill's phrase - merely ''one damned thing after another''. Not so. Carlota Perez shows us that historically technological revolutions arrive with remarkable regularity, and that economies react to them in predictable phases. Her argument provides much needed perspective not just on history, but on our own times. And especially on our own information revolution.'
- W. Brian Arthur, Santa Fe Institute, New Mexico 'This is a smashing book. It informs us that the emphasis on finance that marked the excesses of the 1990s has historically occurred with each great wave of new technologies, only to later shift the focus back to production. Fascinating. May the shift happen again soon.'
- Richard R. Nelson, Columbia University Technological Revolutions and Financial Capital presents a novel interpretation of the good and bad times in the economy, taking a long-term perspective and linking technology and finance in an original and convincing way. Carlota Perez draws upon Schumpeter's theories of the clustering of innovations to explain why each technological revolution gives rise to a paradigm shift and a 'New Economy' and how these 'opportunity explosions', focused on specific industries, also lead to the recurrence of financial bubbles and crises. These findings are illustrated with examples from the past two the industrial revolution, the age of steam and railways, the age of steel and electricity, the emergence of mass production and automobiles, and the current information revolution/knowledge society. By analyzing the changing relationship between finance capital and production capital during the emergence, diffusion and assimilation of new technologies throughout the global economic system, this seminal book sheds new light on some of the most pressing economic problems of today. A bold interpretation of how the changing relationship between technological advances and financial capital shapes the patterns of economic cycles, this path-breaking book will provide essential insights for business leaders, policymakers, academics and others concerned with managing change in the world economy.

Genres: Economics, Business, Finance, History, Technology, Nonfiction, Science

224 pages, Paperback

First published October 1, 2002

About the author

Carlota Pérez is a British-Venezuelan scholar specialising in technology and socio-economic development. She researches the concept of Techno-Economic Paradigm Shifts and the theory of great surges, a further development of Schumpeter's work on Kondratieff waves. In 2012 she was awarded the Silver Kondratieff Medal by the International N. D. Kondratieff Foundation.

Perez is currently Centennial Professor at the London School of Economics, and since 2006, Professor of Technology and Socio-Economic Development at Tallinn University of Technology, Tallinn, Estonia. In 2003–2005, she was Visiting Senior Research Fellow at the Centre for Financial Analysis & Policy (CFAP), part of the Judge Business School of the University of Cambridge, where she remains as Research Affiliate. She is also Honorary Professor at SPRU, University of Sussex.

Reviews

[Justin Mares · Rating 5 out of 5]

This was an exhausting read. I found the book really, really hard to get through, as it was almost like reading a textbook.

That said, the information in this book is critically important for anyone interested in innovation and investment cycles. It's already changed a lot of the way I think about innovation and investment. Overall, very worth reading - just set aside 4-5 hours on afternoon and approach it like you would a study project in college.

[Ashraf Alhashim · Rating 2 out of 5]

read this after hearing marc andreessen recommend it in a talk. found it to be boring and full of hindsight bias + connecting the dots of history in the aftermath.

[Zhou Fang · Rating 4 out of 5]

I put this on my list because Marc Andreessen highly recommended it in a talk he gave at Stanford (available on YouTube). This book is an absolute slog to get through due to its dense writing, excessive repetitiveness, and poor organization, but it contains some profound analysis. Carlota Perez focuses on the 50-60 year cycle of technological revolutions and the shifting role of financial capital along the way, and describes the paradigm shifts (this book is credited with popularizing the term) which occur in their wake. A technological revolution starts with a "big bang" in which a visible application of a technology is introduced. It then follows 3 main periods: (1) installation (2) turning point and (3) deployment. A rough outline of the cycle is as follows:

1. Installation - new technology begins to propagate, infrastructure is built, and a new set of best practices are implemented widely, causing a "paradigm shift." This is further subdivided into two phases:

a) Irruption - Begins with the "big bang" of a tech revolution, in which a highly visible and sufficiently low cost product grips the imagination of the public. Perez identifies 5: Arkwright's cotton mill (1771), 'Rocket' steam engine for the Liverpool-Manchester railway (1829), Carnegie Bessemer steel plant (1875), Ford Model T (1908), and Intel microprocessor (1971). The new products, backed by financial capital, start making inroads. Those who have a vested interesti n the previous paradigm face despair and impotence as a new era dawns

b) Frenzy - Financial capital drives intense buildup of new tech infrastructure. Paper wealth begins to decouple from production, and a gambling economy characterized by asset inflation takes over. Examples of miraculous multiplication of wealth abound, and excess money is poured into infrastructure for the new paradigm (canal mania, railway mania, Internet mania). Seeing that the technological opportunity cannot consume all of the capital, financial wizards develop new instruments and tools (such as derivatives) in an effort to continue the boom times of high returns. Speculation itself becomes an object of adulation, attracting more people to the capital markets, which in turn creates even more capital to propagate the mania. This creates structural tensions in the system as inequality increases and wealth is concentrated in the hands of a few

2) Turning Point - This is usually a recession or a financial panic that occurs as the unrealistic expectations of speculators eventually face reality and the bubble pops. A sharp crash in the market is a catalyst for society to re-examine the implications of the new paradigm, distribute its gains more evenly across society, and build institutions which are more fit to regulate actors. This causes financial capital to recouple with economic reality

3) Deployment - the new paradigm is now beginning to spread across to all of society, and this becomes the new definition of 'common sense' as the old paradigm is displaced

a) Synergy - The paradigm is extended across the entire productive structure. Optimism returns as real production growth is what's driving the economy. Production capital begins to take control as the influence of financial capital, scarred by the last bubble, wanes. A "good feeling" takes over as more parts of the economy participate in growth, and infrastructure which was built during the frenzy phase enable economies of scale which distribute the benefits of the new technology wider across society with price declines. Additional opportunities for job creation through follow-up opportunities that extend the paradigm push the society towards full employment. Eventually, the opportunities become saturated and the cycle arrives at maturity

b) Maturity - As the technological opportunity becomes saturated, workers begin to make demands on broken promises that were not realized. Social discontent from younger people arises as they arrive in a society that was supposed to be full of opportunity but is now struggling to create economic growth. With no more high growth opportunities, companies begin to struggle for market share, and idle capital begins to pile up as profitable opportunities seek new investment. This creates the possibility for financial capital to start the cycle anew, by investing in world-changing technologies, even at high risk, due to the dearth of investment opportunities

Perez argues that this loose structure of a technological revolution occurs for 3 main reasons:
1) Technology happens in clusters and spurts. A series of innovations are necessary to create the conditions for a paradigm shift. Once in place, the confluence of these factors attract a cluster of entrepreneurs, who further propel the explosion of innovation.

2) Functional separation between financial and production capital. Financial capital tries to take money and turn it into more money. Production capital tries to take profit-making ability and turn it into more profit-making ability. The latter is based on production of actual goods or services, and is path-dependent as it is fundamentally information-driven. Financial capital, on the other hand, usually does not gain any experience and can be withdrawn quickly. These characteristics decoupling of "paper wealth" from "real wealth" at various stages of the cycle.

3) Greater inertia to change of socio-institutional framework in comparison with techno-economic sphere (this is the way the author writes). Technology is pressured by economic competition, which pushes innovation along. However, as an entirely new paradigm is introduced, there is considerable inertia due to the many parties with vested interests in the previous paradigm and the ramp-phase required to learn to adapt to the new paradigm. This causes a lag in the ability of social institutions to properly match up with the broad social change brought about by the technological revolution.

Overall, this is a very insightful work, and reading it is worth the intense effort. You will come away with a thoughtful framework that will enable much clearer understanding of technological revolutions, and the role of financial capital plays in them.

[Jose Papo · Rating 5 out of 5]

This is one of the best books I read this year. The author goes to explain the cycles of innovation inside capitalism and how the technological revolutions are helped by Financial Capital and how the cycle always have some kind of shakeup. Te author relates also those trends with their social aspects and the disruption they brought to the social fabric. To do that she bases her work on Schumpeter, Neo-Schumpeterian authors and also on Thomas Kuhn "The Structure of Scientific Revolutions" about changes in paradigms.

The author traces five boom-and-bust cycles of technological innovation: the industrial revolution; steam and railways; steel, electricity and heavy engineering; oil, cars and mass production; and information technology and telecommunications. Each innovation took two to three decades to complete on those four phases, including a period of frenetic investment culminating in a financial bust. The transitions entailed significant social and economic transformation not only in financial innovation but in society, law, regulatory framework, corporate structure and governance, and public expectations.

[Jen · Rating 5 out of 5]

I generally love to highlight the paragraphs that I find insightful. When I read this book, however, I wanted to highlight the entire book!

After designating the major changes in technology systems as changes of techno-economic paradigm in the early 1980s, Carlota Perez offered new insights into these complex process of social, economic and technological change in this book.

Each technological revolution has led to the massive replacement of one set of technologies by another, either by outright substitution or through the modernization of existing equipment, processes and ways of operation. Each involved profound changes in people, organizations and skills in a sort of habit-breaking hurricane. Each led to an explosive period in the financial markets.

The sequence technological revolution-financial bubble-collapse-golden age-political unrest recurs about every half century and is based on causal mechanisms that are in the nature of capitalism.

Over the period from 1770 to 2010, we have experienced five successive technological revolutions:
1. The Industrial Revolution started with Arkwright's mill opens in Cromford in 1771
2. Age of Steam and Railways started with test of the "Rocket" steam engine for the Liverpool-Manchester railway in 1829
3. Age of Steel, Electricity and Heaving Engineering started with the Carnegie Bessemer steel plant opens in Pittsburgh, Pennsylvania in 1875
4. Age of Oil, the Automobile and Mass Production started with the first model T comes out of the Ford plant in Detroit, Michigan in 1908
5. Age of Information and Telecommunications with the Intel microprocessor announced in Santa Clara, California in 1971

In retrospect of history, we are definitely at the turning point of the information age.
When the economy is shaken by a powerful set of new opportunities with the emergence of the next technological revolution, society is still strongly wedded to the old paradigm and its institutional framework. The world of computers, flexible production and the Internet has a different logic and different requirements from those that facilitated the spread of the automobile, synthetic materials, mass production and the highway network. Suddenly, in relation to the new technologies, the old habits and regulations become obstacles, the old services and infrastructures are found wanting, the old organizations and institutions are inadequate. A new context must be created; a new "common sense" must emerge and propagate.

How do we think about capitalism at the turning point?
As with many processes in capitalism, it is by taking a successful behavior to its extreme that it turns into failure. And it is because of this failure that the appropriate behaviors, practices and norms will be devised, accepted and adopted. As usual, also, there is no mechanical guarantee that the crash will happen in any particular way. Nor can predictions be made about the length or depth of the recession, or about the type of solution applied. All that depends on a multitude of political and other factors that are specific in each case.

Overall, the writing was so concise and refined. This has become one of the very few books that I read word by word, rather than flying through the 170 pages within 2-3 hours. I have put this book next to my bed and will revisit often in the future.

[Jonathan Mckay · Rating 4 out of 5]

AI Winter is Coming

AI is a technological revolution. We take for granted that such revolutions occur. Yet understanding their economic and societal consequences remains elusive. Looking backward is the only reliable compass, and today’s pattern is familiar: a new general-purpose technology appears, spreads unevenly, and begins the long, messy process of reorganizing everything around it. “When general purpose technologies exist, they are a model that can be followed by all, but [whose] configuration takes time, about a decade or more.”

The framing here is cyclical. Since the modern era, the sequence resets about every 50 years: technological revolution, “financial bubble–collapse–golden age–political unrest, then renewal.” If we date the present cycle to the mid-1990s, we’re only halfway through tthe timeline—yet the echoes of that decade are loud enough to feel like repetition rather than rhyme.

The early stage is always disorienting. The old order frays, and “exhaustion of a paradigm brings with it both the need for radical entrepreneurship and the idle capital that comes with.” It’s a portrait that fits 2022 a little too neatly. Productivity spikes arrive in lumpy bursts—“The quantum jump in productivity brought about by technological revolution leads during this period”—but progress is uneven, prone to mania.

Finance, predictably, rushes in. “The development and diffusion of each technological revolution tends to stimulate innovations in finance.” Sometimes this accelerates useful deployment; often it distorts it.

The “frenzy phenomenon” becomes “a huge process of income redistribution in favor of those directly or indirectly involved in the casino, which funds the massive process of creative destruction in the economy.” The diagnosis is blunt: “Financial markets are not immoral, they are amoral.”

What actually turns a breakthrough into a true revolution is slower, quieter work. “What’s needed for the revolution to fully blossom are the thousand and one small details, sub-technologies.” These accumulate until production capital—not speculative capital—takes the lead. “Production capital ensures the full deployment and widest spread of each technological revolution.” Only then does the system stabilize into a genuine golden age, and only then do its political contradictions start to surface.

Hobsbawm’s warning lingers at the edges: “it is the power to recognize the turning points that will help economists, politicians, and businessmen prepare for the next war, not the last.” The challenge is timing. Revolutions are obvious in hindsight and noisy in real time. Recognizing inflection points is less about forecasting than noticing when the background noise changes pitch.

If this cycle holds, we’re living in the hinge years. Winter is real and will come, but so is the dream of spring.

[Andrew · Rating 5 out of 5]

Perez articulates a simple but powerful template for technological innovation and the adoption cycle. The stylized model that she presents is both general enough to describe commonalities between all such cycles, and specific enough in that it recognizes the variance in how economic phenomena actually transpire. The model consists of four phases – irruption, frenzy, synergy, and maturity – and deftly describes the tension between agents of technological change, the real economy, the financial or "paper" economy, and sociopolitical institutions at the various stages between the introduction and deployment of new technological paradigms.

I was recommended this book in conjunction with Kindleberger's "Manias, Panics, & Crashes" and Janeway's "Doing Capitalism in the Innovation Economy". Where Kindleberger's book felt very much like a dry catalog of financial crises, Perez builds upon his work, providing an analytic framework for understanding their fundamental underpinnings and forming the foundation for Janeway's "Doing Capitalism". Consequently, I'd recommend reading Kindleberger, Perez, and Janeway in that order – to get basic historical literacy, form a coherent analytic framework, and understand the practitioner's perspective, respectively.

[Marks54 · Rating 4 out of 5]

I first heard about her when I read a feature somewhere on influential women economists who deserve more notoriety. This book is a compilation of prior work by the author into a theory of technological revolutions. Since the focus in on a relatively small number of important historical events (five over two centuries), this is more of an interpretative framework than a conventional economic theory, but that is ok and I do not mean to parse words.

The core idea here is that significant technological revolutions occur over a long time period (50+ years) and involve a large number of related change events that occur over the course of a revolutiom. The boundaries are fuzzy and the start and finish of revolutions are seldom if ever clearly identified. You start with some technological event which demonstrates the possibility that the new technology can drastically change the ways that people live and work. The initial events must themselves be followed up upon to see if the new technology is as important as initially thought and whether there are also complementary inventions needed to improve performance (telephones and switchboard technology, for example).

If technological development is possible, then other waves of changes are needed for the technology to prosper. Financial support and appropriate vehicles are needed. It is also important to figure out how to organize production and achieve scale and scope economies. Additional supporting infrastructure and related businesses are also necessary. For example, think of everything that comes with the dominance of automobiles in the economies, from roads and traffic signals, to repair shops, drivers’ license bureaus, and even dealer networks. These developments are happen in fits and starts over long periods. There are successes as well as failures. There are financial bubbles and the crashes that follow. The stock market plays a hig role but one that is distinct from the production economy and GDP. Add to the mix that new technologies start to develop along the ways that the dynamics for changing an economy through technology.are highly complex. ...and this is only a thumbnail sketch.

So what is the point? Is this just a series of extended discussions of changes associated with railroads, autos, or computers? No - the point is that looking at these revolutions over a long period will reveal similarities and commonalities that hold, even though technological change in 2020 is very different from what it was in 1912 and the similarities help us better understand what is happening.

If “technological revolution” seems a bit unwieldy as a term, it reads much better to many than the phrase “50 year Kondratiev cycle”. This work extends economic research on business cycles, coming out of Joesph Schumpeter’s massive work on business cycles. This is the work that got Perez, along with Chris Freeman, some notoriety in economics. This is really interesting work and much more accessible than it has been in the economics journals. By the way, the originator of the Kondratiev cycles had trouble finding support for his work and did not live as long as one of his cycles. He was executed in Stalin’s Great Purge in 1938 at the age of 46. It is good to see his ideas continuing to find readers in the 21st century.

This might be a difficult book for some to engage in although there is not much in the way of tables or formulae. It is a dense set of interconnected frameworks that puts a lot on a reader. Those willing to engage may find it worthwhile.

[Deniss Ojastu · Rating 5 out of 5]

Very interesting perspective on how economic growth and decline periods are related to great technological inventions and their role in shaping societies. Everything is repeating, phase after phase. The role of financial capitals - loans, stock markets etc - is analysed in depth in the book, depicting in a very coherent manner how at times financial agents are treated as the main force behind the growth, yet at other time - as "evil genius". Great analysis on how the mix of technological innovations and the race for profits among financial agents can both result in long periods of economic stability as well as financial collapses.

[Claude Rochet · Rating 5 out of 5]

Excellent and exceptionnal

[Jorge · Rating 5 out of 5]

quite possibly the best innovation economics book I've ever read.

[Rajesh Kandaswamy · Rating 5 out of 5]

An excellent book that explains how technological revolutions occur, the phases that make it and the role of finance in it. The thesis is based on five technological resolutions since the onset of industrial age, each roughly running half a century. The author’ explanations are articulate and comprehensive. The first half on the phases are the most useful.

[Ludwig Henry · Rating 5 out of 5]

This book presents the best macro framework I've encountered so far.
The book presents a recurring pattern where a technological revolution, capable of greatly increasing productivity, forms a new techno-economic paradigm. This paradigm goes through an installation phase, followed by a crash, followed by a deployment phase which can be a golden age of great wealth creation.

During the installation phase there is a decoupling of financial capital and production capital. There is a lot of hype about the potential of the new techno-economic paradigm, while a lot of work still needs to be done. The decoupling translates into a decoupling between valuations of companies in the new paradigm and their actual fundamentals. P/e doesn't matter anymore.
The result is a market crash and a recession. New regulation is put in place to stop this from ever happening again and to redistribute some of the wealth creation the new paradigm has enabled so far, but which was concentrated heavily toward the financial economy and the few.
After this crash the installation phase is completed. The new paradigm has been accepted by most as inevitable and the way to go forward. It becomes impossible to deny the potential for greater productivity from the new techno-economic paradigm.
What follows is the deployment phase where the techno-economic paradigm is ready to roll out and the productivity gains to begin to show. This is the moment where true wealth creation and meaningful growth happens. Whereas during the frenzy phase there were mostly financial gains, now there is broad wealth creation. Financial capital and production capital recouple. A new institutional framework forms to enable the greatest productivity gains possible that the new techno-economic paradigm can offer. Ideally a golden age follows where all of society can enjoy this wealth creation through full employment, higher life quality,...
As the techno-economic paradigm matures the growth slows and eventually stalls. Room forms for a new technological revolution.

Key takeaways, main interesting points to me:
- During the installation phase (especially the latter part, the frenzy phase) financial capital and production capital decouple. "Valuations don't matter" and tremendous capital flows to companies that are likely not even profitable. During this phase it is also the financial capital that is in control, not the production capital. Innovators and companies have to play by financial capital its games, which is not ideal. They have to fit hype, play toward buzzwords or trends, rather than be fully focused on creating value.
- During the deployment phase they recouple and production capital gets back in the driver's seat. The new paradigm has been installed as the way to go forward, new business models are accepted as legitimate. Valuations matter again. The new paradigm spreads almost everywhere and productivity gains are reaped.

- The techno-economic paradigm changes culture and society.
Humans adapt and organize themselves and society in such a way to enable the potential productivity increases of the new techno-economic paradigm.
This is the new socio-institutional framework. It can mean new work ethics, it can mean hierarchy and rigid work regimes are favored (the factory world of mass production). Or as with the current paradigm, it favors cultures that are flexible, can be quick to adapt.

- The socio-institutional framework is a major form of resistance/friction for when a new techno-economic paradigm irrupts. And it can remain a form of resistance even into deployment phase of the new paradigm as the companies (and some financial capital linked to them) in the old paradigm want to remain dominant.
This is however foolish. The new paradigm will grow far faster. It will have many innovative branches to explore and deploy. The high growth will far outpace the stalled old paradigm, it is simply unstoppable.
The old paradigm on the other end has exploited almost all of its innovative branches and the few new ones that still originate will be dead ends as the new paradigm offers much more potential for returns and will also establish a new socio-institutional framework to enable it.

- When a paradigm matures and the growth slows, there will be excess of capital available. Less capital will be required for deployment, and the matured companies will enjoy high cash flows. A lot of cash will flow back to shareholders and to financial capital.
The excess cash will struggle to find satisfying investment opportunities that generate good returns. So in this maturity phase it will start finding ways to find returns.
Two recognizable ways it will try this is by flowing into real estate and into emerging markets. In real estate this can cause trouble by inflating house prices.
In emerging markets it will try to find places where the dominant paradigm is not as matured yet, and where there are still productivity gains and higher returns to be found through deployment of the dominant paradigm.
Eventually some of the excess cash will find its way to a new technological revolution.
- Until a paradigm matures it is likely not possible for a new techno-economic paradigm to form, as all financial capital, all investment, as well as the socio-institutional framework is focused on the current paradigm and the productivity gains still to be reaped. It's an immensely strong flow everything goes along with.

- Excess capital of a matured paradigm is what ends up funding the next paradigm and the cycle will repeat.
Interesting here is the concept of cash no longer finding high returns in the dominant/matured paradigm, and not finding enough either in things like real estate or emerging markets, is what enables the funding of the next paradigm.
This could be considered as a rare pro argument for excesses of capital and wealth concentration with the few.

- Within a techno-economic paradigm many mini-paradigms can be identified, for example: gig-economy (also leading to social friction with for example uber drivers, and regulation that follows), EV and AV, metaverse. All these could look like paradigms on their own, but ultimately all are built upon the technological revolution of the semiconductor, which gave rise to the current techno-economic paradigm, in which we are in the deployment phase and beginning to look like we could enjoy a golden age going forward.

- Thinking about the next possible technological revolution I can only come up with one breakthrough: superconducting materials at room (or higher) temperatures.

[Walter Cavinaw · Rating 5 out of 5]

## Summary

Perez describes a model for technological revolutions and how the behavior of financial capital relates to the phases of revolutions.

Technological revolutions are a feature of capitalism that occur as successive techno-economic paradigm shifts. A techno-economic paradigm describes the organization of businesses and the economy using best practices that have been established as a result of a cluster of new technologies. The paradigm diffuses across the economy in phases and eventually creates a permanently higher level of productivity. The behavior of financial capital changes with each phase of the technological revolution, depending on the availability of capital, the needs of entrepreneurs and expectations of investors. Each phase also comes with social changes and pressures as a result of the changing economy and markets. ^f17c63

#### Historical Revolutions
There have been 5 technological revolutions starting with the industrial revolution in the 18th century:
1771 - Industrial revolution, factory production and mechanization
1829 - Age of Steam and Railways, machine-made machines, standardization
1875 - Age of steel, electricity and heavy engineering
1908 - Age of oil, the automobile, and mass production
1971 - Age of Information and Telecommunications

Each revolution has historically lasted 40-70 years and occurs in 6 phases with the end stages overlapping with the beginning of the next revolution: gestation, irruption, frenzy, synergy, maturity, peripheral diffusion.

#### Maturity of the old & Gestation of the new paradigm
There is a low rate of productivity improvement and an excess of capital is trying to find a home. Progress is slowing, capitalism is being questioned and unrest is growing (in particular among the young). With the exhaustion of the current paradigm there is an appetite for new ideas. This opens the door for the next technological revolution.

This new appetite and excess capital allows financial capital to fund new entrepreneurs, speculative ventures and non-value added extractive financial schemes. The technology of the next revolution already exists and is gestating. Excess capital also finds its way into peripheral economies where the diffusion of the current paradigm can still create growth but also leads to future debt crises as some of the capital is not deployed productively.

#### Irruption of the new & Peripheral Diffusion of the old paradigm
As the last technological paradigm is still diffusing into the periphery, the new techno-economic paradigm starts to take shape and its successful applications are developed. The cluster of new technologies opens up a vast new design space creating new products and starts the reorganization of businesses and the economy.

The financial world begins a love affair with the new paradigm. It will be one of the first to adopt the new technologies and will also (re)invent financial techniques in order to facilitate the growth of the new technology. Towards the end of this phase the market begins to expect this level of growth and profitability from all investments which kicks off frenzy, fraud and financial engineering.

#### Frenzy
The technologies are diffusing rapidly and a lot of money is being made by the newly rich (adopters), while the rest get left behind. There is a focus on individualistic wealth generating behaviour and ethical rules soften.

The recognition of this new paradigm creates a frenzy in financial markets to realise all the new possibilities. These are the gilded ages in history, when speculation runs rampant and markets disconnect from reality. The high returns achieved so far result in a demand for ventures promising further high returns. This becomes a period of fraud and financial engineering in order to meet this demand. There is a mania in funding the new technology leading to overcapacity allowing the further dissipation of the technology in the future.

#### Turning Point & Synergy
After the frenzy comes a crash or a series of crashes. The evaporation of wealth leads to the introduction of regulation that ties financial capital back to productive uses in the economy. A number of frauds or highly speculative ventures collapse and ethical standards tighten.

After financial capital is recoupled to productive uses comes the synergy phase, when the productivity improvements from the paradigm become widespread and socio-institutional frameworks are adapted to the paradigm. These become the golden ages in history. As the improvements in productivity slow and product adoption cycles are shorter and shorter, political unrest grows because expectations are not being met, transitioning once again to the maturity phase.

#### Implications
Throughout the revolution there is tension between private interests and public interests. Private interests and creative freedom allow for the creation of new technologies and the profit oriented proliferation, yet this hits a limit during the frenzy. After this society needs to ensure the fruits of individual achievement can become widely used.

The dynamics and phases also facilitate the uprising of different economic theories and narratives depending on the phase of the cycle and what appears to be working at that time. We are seeing the emergence of MMT (and anti-capitalism) today at the same stage when Keynesianism emerged. On the other hand, free markets and individualism are popular during the irruption and frenzy stages when the possibilities of the techno-economic paradigm are widely explored.

## Review
The model of technological revolutions was fascinating and provided a new perspective, for me, on changes in technology, markets and society. Generally when I read about historical periods I have a hard time seeing the overarching story. I have been seeking out narratives, frameworks and models that put a scaffolding under these disparate pieces of historical information. In that respect, this book provided a way of thinking about history I hadn't seen anywhere else, and some forecasts that have since come to fruition. I have spent a lot of time internalizing the dynamics of the model because I find it so insightful.

My main criticism of the model is that it comes in the form of a stylized narrative, constructed from the author's deep knowledge of history. To build more confidence in this model I would like to see quantification of the diffusion of the successive paradigms, and more discussion of the historical episodes.

[Richard Marney · Rating 4 out of 5]

The author provides an enlightening complement to Minsky’s financial instability theory, by expanding the discussion to cover technological change (revolution) and the interaction between surges in technology, its application, enterprise development, market/social transformation and financial cycles. From the ashes of reoccurring financial downturns/crises, rises economic progress building on the advances that perhaps only “frenzied” investment can fuel(?).

[Alex Daifotis · Rating 3 out of 5]

Very mixed feelings about this one. Definitely a powerful set of ideas and intuitions, but it felt painfully, and I mean excruciatingly painfully self-congratulatory. I'm happy I got the ideas but this could have been a long article rather than a book, and the quality of the historical case studies felt low to me. Underwhelmed overall.

[Monik · Rating 4 out of 5]

Especially useful for those interested in tech startups & venture capital.

[Jon C. · Rating 5 out of 5]

Changed the way I look at the world. Automatic five stars. Plus graphs and tables so you can pretend you read if you didn't!

[S]

Recommended by Fred Wilson at https://avc.com/2015/02/the-carlota-p...

[Stuart Berman · Rating 5 out of 5]

Confused by the social turmoil we see around us today? You think you know why? Do you know we have been seeing this cycle for around 250 years? Do you think 'business cycles' are bad or need to be prevented?

The thesis of Carlota Pérez research is that since the beginning of the first industrial revolution 250 years ago, there have been regular technology revolutions lasting 50-60 years each, or about the length of our adulthoods (how long people remember history and our individual experiences).

Each cycle is divided into two halves, the first is described as 'the Installation Period' where technological innovation is adopted and the seconds as 'the Deployment Period' where technological innovation is brought into the mainstream. The transition between periods she calls a 'Turning Point' and historically represents the time of greatest social and institutional turmoil. The beginning/end of each cycle overlaps with the previous cycle and is also a period of turmoil but often to a lesser extent.

She looks at three spheres of change that dynamically interact to make up these cycles: Economic Change (the financial capital systems she understands as an economist); Technological Change (the scientific innovation applied to production systems); and Institutional Change (socio-political reactions).

Each period is also divided into two parts:

The installation period consists of the Irruption Phase and the Frenzy Phase.
In the current cycle she refers to as Age of Information and Telecommunications we see this beginning in 1970 with the wide spread adoption of electronics into every part of our personal and business lives. Later in the Frenzy Phase we see the wild financial speculation leading to the various bubble bursts such as the 'dot com' and housing bubbles.

The Turning Point would be the period from 9/11 to the Great Recession of 2008. (The book was written in 2002.) This is where income inequality is most observable as people's skills sets are required to change to meet the new technological changes. Some have gotten very wealthy from these changes, such as Google, Facebook and Amazon founders as well as the investors.

Today we are at the beginning of the 'Deployment Period' which has two phases as well:
The 'Synergy Phase' and the 'Maturity Phase'.
In the synergy phase we are seeing productivity being harnessed from innovation, today we can readily see that in the areas of cloud computing, Internet of Things (e.g. Apple Watches and smartphones), big data and artificial intelligence and ubiquitous networking and edge computing as 5G is being heralded. As the society and technology enters into a mature period the easy profits have been made and capital is fining it hard to find new investments in the former innovation. At this point we start all over again with new innovation that had been largely ignored in the former 'Age'.

Some important quotes from the book that give us a glimpse into the near future:

"The current revolution presents what might be an even greater challenge for the financial world. To begin with, knowledge, experience and information have become capital goods. This time, it is not the way of purchasing that defines them as such, but the fact that - although intangible - they can create new value, which can also be intangible."

AND

"Maturity brings merger time again, but not to escape price competition, as during Frenzy, but to amass market share in search of economies of scale to boost falling profits, due to stalling productivity and market saturation.
Thus arrives Maturity [2035-2045?] the late phase of the Deployment Period, with its superficial brilliance and its political turmoil. The workers organize and demand, sometimes very actively, the benefits that had been promised and not delivered."

I find that her book is refreshingly free of political bias trying to present historical trends with the analysis of an economist looking at system interactions. She sees how political and social considerations have to be taken into account to deal with the turmoil caused by change, as such how the Keynesian models were adopted to constrain the rate of change when it became intolerable to a large portion of the public (Great Depression) and became obsolete by 1960 in the postwar boom.

Applying her thesis, I can see how in the US as Democratic Party was ignoring economic change in the society (and sticking with their ideology) they lost power. As we approach the US 2020 elections, political figures will succeed where they can understand the social changes and articulate a vision that addresses that change with the economic reality of the times.

I find this book to be brilliant but also technically deep and difficult at times as it spans the three change areas of economics, technology innovation and social and political history. It is well worth the effort to those who want to understand the world we live in and the danger of trying to suppress these tidal forces.

[Peter Fox · Rating 4 out of 5]

I am going to start with the negative and then move onto the content of the book. There is no way that whoever published this book in the Kindle version had any respect for the readers of e-books or was in a hurry to generate an electronic version. The formatting was poor and looked as though it was scanned (quickly and without care) then uploaded simply so that there was an alternate version. The presentation detracts from the book's astounding contents and themes while undermining the integrity of the author's amazing work. If you are going to read this book in the Kindle form, then please grit your teeth or just get a real book and enjoy the prose.

Carlota Perez has written an amazing book with a level of detail that i would expect from both a distinguished academic and insightful economist. I first came across a reference to her work when i was reading Mariana Mazzucato's - The Value of Everything, where she noted the amazing and insightful work of Perez. Mazzucato's recommendation was as accurately qualitative as any of her other work that i have read.

Perez does not have the greatest prose style i have read but she is nowhere near the bottom half of academic authors that i have read over the years. Perez though does lay out a logical and systematic approach to understanding the four technological eras that have seen the world's societies and technologies grow and develop through a range of cycles. The boom bust and consolidation phases that see the different countries, geographical and economic zones pushing to look for the new opportunity while the previous phase is at its peak is not just insightful but meticulously researched and supported by a wealth of examples, charts and tables.

The reality that we are most likely starting to enter the fifth phase kept drawing me deeper into what was written as much as what was not written. Perez goes into the detail of the finances that support these cycles as an economist but not to the level of a financial analyst who would break down the number ranges. This is not a complaint but a reminder that economics is a social science not a financial and banking focused business. There is though, a framework developed by Perez that helps the reader to understand the differences between the money moving into the new technology to help grow and develop it and the old money that is smart enough to get out before the bubble bursts in the new technological era.

This has been evident throughout 2022 with the big tech can't do wrong companies and the crypto escapologists who have been beaten up and devalued back to where they should be. Yes, i am one of those sceptics before i read Carlota Perez's compelling work but to see it in real time and to watch Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages unfold before my eyes has been an honor and a privilege which has certainly not run its course or has even come close to completing the expansion of its bubble. AGI (artificial general intelligence) has not yet run hit full stride and is still working from the old data sets and APIs that are now considered to be a minimum standard for any company that wants to manage its data to a higher level of degree.

Perez concludes her amazing addition to the knowledge base of our society by making a prediction of what may come to pass in the future years, and considering the book went to the press in June 2002, i can say that she summarized the next two decades with a high level of accuracy. I will admit that there has been two new facets of research and focus that have entered my investing process since i read this book. One of them i had always given a minor consideration but it has now been moved into one of the key positions of check and balance to ensure that i understand what is happening form a technological perspective without being gutted in a bubble due to my greed and lack of awareness.

If you are interested in reading insightful works written by a curious intellect, then you should be reading this book. This book is no different to a good bottle of wine - it tastes wonderful today, it will age well no matter how long it is left but you will only know how delicious the contents are when you take the time to open it and then sit back and appreciate the richness that each chapter has to offer.

[Nishu · Rating 5 out of 5]

I found this book both informative and highly relevant to the political unrest the United States (and other countries) have seen 2016 - 2021. Dr. Perez generally outlines the boom bust cycles of new technological revolutions and the relationship financial capital has with each new "techno-economic" paradigm. For me, this helped contextualize our current technological age - which she calls the "Age of Information and Telecommunications". The book outlines how this age started around the 1970s with the advent of the microprocessor and shows how an initial "Irruption" phase, where rapid experimentation with the new technology led to new firms, resulted in a "Frenzy" in which financial capital over-speculated on technology's promise and led to the 2001 crash. She highlights how in other ages, the next phase of "Synergy" is when production capital is in control (which mirrors 2001 - 2008) and finally ends in a "Maturity" phase where the new paradigm and its firms have taken hold, government regulation steps in, and financial capital begins to look elsewhere for growth.

First off, this book does a marvelous job of pattern matching across different ages in the lifetime of capitalism. My clear takeaway was that we're arriving at an inflection point in the next 5 to 10 years where the information revolution will fully mature and we'll begin to see the next big bang. I have been trying to predict what field that might come in: AI or bioengineering are two that come top of mind. Regardless, it seems that government regulation of technology will be a required next step, potentially coming only after a burst in the technology stock bubble and potential geopolitical conflict. With these events, the socio-institutional frameworks that come from that can setup the next big bang.

My outstanding question: this book covers the phases of democratic capitalism. If China takes the world stage and is at the forefront of the next irruption, what does this model look like under state capitalism where financial and productive economies are controlled by the government? I wonder if this model still holds.

[Oneeb · Rating 4 out of 5]

A technological revolution is a cluster of new technologies, products and industries causing an upheaval in the economy and propelling a long term surge in development.

The 5 technological revolutions of the past 2 centuries happened every 50 years and they were:
1. Industrial revolution 1771
2. Steam engine railway 1829
3. Heavy engineering, steel , electricity 1875
4. Oil, automobile etc 1908
5. It, telecom, Intel, microprocessor 1971
6.FinTech cryptocurrency 2020 ??

4 phases of financial growth model:
1. Irruption: Highest intensity, early stages of growth (installation period)
2. Frenzy: Attract funds, inflate assets, financial capital entranced with itself building casino economy (installation period)
3. Synergy: Supportive innovations to accompany growth (deployment period)
4. Maturity: Accompany diffusion of paradigm, escape regulatory control and product saturation (deployment period)

Types of financial innovation:
1. Invest in new products/ services: venture capital for radical innovations, joint stocks for large investments
2. Help growth or expansion: production expansion domestically and abroad (bonds), govt funding (war, infrastructure investment)
3. Modernise financial services themselves: new service to clients (e-banking etc), incorporating new technologies ( comms, transport)
4. Profit taking and spreading risk: attracting small investors (mutual funds, IPOs, facilitate risk taking, derivatives, hedge funds)
5. Re-finance obligations or mobilize assets: reschedule debts, buy production assets (M&A, takeover)
6. Questionable innovations: Legal loopholes, making money from money, making money without money( pyramid scheme, insider trading)

I found the book and the financial growth model to be more product and innovation focused/entrepreneurial rather than finance specific.

[Siarhei Kukharenka · Rating 3 out of 5]

This book is a good summary of Neo-Schumpeter views as they were actual back in 2002 (post-dot-com bubble). It can be recommended as a quick curriculum reading to familiarize oneself with the whole class of cycle/wave/period ideas in economy. Written by an author from academia, the book has proper references to direct a reader to other main sources - from Kitchin to Kondratiev.

The book is focused on introducing author's view on cycles in economy and society associated with technological revolutions - Carlota Perez uses a term a "Great Surge". In subsequent chapters the author touches on interaction of Productive and Financial capital along different phases on a Surge.

The author sketches out a review of five technological revolutions of the Western history of XVIII-XX centuries and claims that a universal pattern can be distilled. The whole material reads very much as Popper's "pseudoscience" - the author carefully picks fitting historical facts, and barely dwells on ones that don't fit. As such, the approach may be a useful mental model, but doesn't bring substantial contribution to one's foresight ability.

Accepting that the approach is a mere mental model, it still has, in my modest opinion, a substantial simplification:
In author's explanation, all Surges are conceptually similar, have same structure, and same duration 40-60 years. The author doesn't give any explicit credit to the fact that every subsequent Great Surge starts in a world that became vastly more complex and interconnected after a previous Great Surge. A more complex and interconnected system has, using Ken Wilber's view, a vastly increased capability to change causing both quantitative and structural improvements in how a system was able to change before. In simplest form, it's fair to expect that length of Surges reduces, they start to overlap and cause interrelations with each other.

[Emma · Rating 4 out of 5]

stylistically difficult to get through, but relevant insights that bear the test of time.

Irruption, frenzy, synergy, maturity.

installation (2-3 decades), turbulent, separation of financial capital and production capital. massive financial speculation, rich get richer, poor get poorer, institutional creative destruction over mounting social and economic pressures.
deployment (2-3 decades), synergy of financial capital and production capital. regulations introduced.


"When production capital at
the end of a surge becomes conservative, due to having so much investment
and experience tied to it, financial capital will break loose and end up either
helping the initial big-bang of the next revolution or following it up by backing
the new entrepreneurs in spreading it. When financial capital, during the
period of installation of the new paradigm, takes the economy on a frenzied
ride up a paper-wealth bubble, the new and modernized production capital
will be ready to take over and lead a more orderly growth process, in the ‘golden
age’ that sees the full deployment of that revolution.
This changeover is aided by the institutions of governance and constitutes
the turning point of the surge. It usually occurs after the bursting of the bubble
and in the midst of the recession that follows."

[Celine Nguyen]

Planning to read this on the basis of two very strong recommendations. First: the technology theorist Douglas Rushkoff, in Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity , writes that Carlota Perez has 'conducted the most comprehensive analysis of how entire economies respond to technological revolutions'.

Second: there's a very good synopsis & review over at Stratechery ('The Death and Birth of Technological Revolutions', published 12 Oct 2021) describing Perez's research on the Industrial Revolution (early 19th cent.); the age of steam and railways (19th cent.); the age of steel and electricity (late 19th cent.); the age of oil, automobiles, and mass production (early 20th cent.), and the age of information and telecommunications (late 20th cent.). There's a very good figure describing how each technological revolution went through 4 stages (via the Stratechery post):



Seems like an informative and theoretically/historically exciting book!

[Adam Cronkhite · Rating 5 out of 5]

Pérez lays out a compelling mental model of how the world actually operates: every half-century or so, a new technological paradigm detonates, finance overshoots, institutions lag, and politics unravels until a new “common sense” finally emerges. What makes the book feel so timely is that we’re likely at the dawn of a sixth age—driven by AI and electrification—yet the institutional software running the West is still written in the logic of the fifth. The result is exactly the turbulence Pérez would predict: a political center struggling to articulate itself, both left and right improvising heavy-handed alternatives, and a public that senses the ground shifting beneath it. While it’s impossible to map the sixth age ex-ante, the book makes clear that the chaos we’re living through is the institutional vacuum that appears whenever one era ends and the next begins.

What Pérez does especially well is present a holistic view of technology’s role in reshaping economics, politics, and society. To borrow George Box’s line—“all models are wrong, but some are useful”—this one is undeniably useful. It comes with its limitations and caveats, but it gives you a clear, intuitive framework for understanding the current moment and thinking seriously about what comes next.

[Chris Finlayson · Rating 5 out of 5]

The author paints a compelling picture of the nature and spread of technology in long waves. Her views on the interplay of financial capital, production capital and the socio-political system were particularly interesting.

The Casino Capital frenzy phase typically results in a crash, flowing an installation period of 40 years when the technology has its real impact on society. This spread reshapes the real economy and the disruption creates pressure for political reform.

The trouble with long wave theory is that it is, by its nature, short on examples. It’s difficult to paint the theory with a fine brush with only 5 examples over the last few hundred years. This makes the theory harder to apply to the current situation in practice, as the unique features of each revolution make formulating a generalized theory harder to do. Is bitcoin the beginning of a frenzy or a blip within the greater information technology long wave? The book provides a powerful framework for thinking about this question, but cannot be prescriptive enough to provide answers.

That said, this book is a must read for people invested in technological change.

[Daniel Gusev · Rating 3 out of 5]

Carlota Perez is a respected economist proposing a neo Shumpererian view to sources of economic growth embellished in new Golden ages facilitated by underlying inventions. The book can be a nice if heavy supplement to other business / management treatises like Innovators Dilemma or Crossing the Chasm.

The problem is the author’s being too liberal with historical facts to prove a concept. Several notable historians of economic growth and history of science would disprove certain notions used - be that the microprocessor or real first stage of the industrialisation of Britain.

Also, the drivers mentioned - capital and technology - exclude another being labour (element mentioned in Solow model) and also researched heavily by both Gordon and Mokyr. Diffusion of knowledge and building of science is a major contributor to industrialise a single experiment - more often than not yielding a frothy speculative bubble.

Take caution and check / refer with other notable publications. But again, an interesting theory.

[Benji · Rating 4 out of 5]

CP : 'When I talk about a possible European way of life, I imagine multiple innovations that define different variants of the aspirational “good life” with lots of technology and human-based services, plus health and creativity. That is even easier for Europeans than adopting a standardized American way of life (which they happily did). But to say “smart green growth” should be the general direction, as I would suggest, opens all the space in the world for variety while fostering convergence in skills, suppliers, scientific and technological capabilities, services for business models, and so on.'