Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages
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'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 centuries: 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.
and Financial Capital inflation sets in while debt mounts at a reckless rhythm; much of it to enter the casino. Thus grows the vast disproportion between paper wealth and real wealth, between real profits or dividends and capital gains. But the illusion cannot last forever and these tensions are bound to end in collapse. This can happen in a series of partial crises in one market after another, in one huge crash or a combination of both; however it happens, the bubble needs to burst. Collapse
larger players increase their margins. The other route for imagination is diverting finance from wealth creation and simply finding whatever objects of speculation are at hand. Investment in real estate, gold and other precious metals (varying in different historical periods), futures markets, art, ‘pyramids’ of loans, hedge funds and many other instruments of financial manipulation can serve the purposes of using the money that cannot find profitable use in productive activities. Real estate is
[being sure] that some still greater fool could be depended on to take the property off their hands and leave them with a profit’.138 As the various assets go up in price, confidence grows that they will continue to do so. Gradually the notion of ‘fundamentals’, so dear to the financiers at other times, is set aside and price/earnings ratios augment out of all proportions. Ironically, this creates a favorable climate to bring back all sorts of firms to the stock market. New and old, revolutionary
oil-based fuels, electricity and road transport gave positive support to the very high growth rates of national mass markets. It is likely that in the fifth, this growth-enhancing role will be played by the ever-lower cost and ever-wider use of microelectronics and telecommunications. The specific manner in which innovation is financed during this period can also change. In the fourth surge the R&D laboratory became a feature of most large corporations and state-funded laboratories, either
seeking separately to promote their ends are too ignorant or too weak to attain even these.231 These differences in – real and perceived – individual and social interests are particularly acute at the end of the installation period. The collapse of the bubble and the ensuing recession – even depression – can be very painful for both the rich and the poor; the former can see a good part of their wealth evaporate, the latter are likely to sink even deeper in their misery. Yet, this brutal way in