Technological Revolutions and Financial Capital

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Book: TECHNOLOGICAL REVOLUTIONS AND FINANCIAL CAPITAL. The Dynamics of Bubbles and Golden Ages. Carlota Perez. Edward Elgar, Cheltenham, UK, 2002


Introduction at ; Conclusion at


From a working paper that is very similar to the book:

"Ever since Kuznets published his review of Business Cycles questioning the sudden clustering of entrepreneurial talent that was supposed to accompany each technological revolution, Schumpeter's followers have felt uneasy about this unexplained feature of his model. Yet apparently no one has stopped to question Schumpeter's treatment of the clustering of 'wildcat or reckless banking', dismissing it as a random and unnecessary phenomenon to be excluded from his model, together with speculative manias.

Keeping Schumpeter's basic assumptions about innovations based on credit creation as the force behind capitalist dynamics, this chapter will present an alternative model of the process of propagation of technological revolutions. On that basis it will propose:

a) An explanation of the clustering and the spacing of technical change in successive revolutions;

b) An argument for the recurrence of clusters of bold financiers together with clusters of production entrepreneurs and

c) An interpretation of major financial bubbles as massive episodes of credit creation, associated with the process of assimilation of each technological revolution

The model is a stylized narrative, based on a historically recurring sequence of phases in the diffusion of each technological revolution, from its visible irruption after a long period of gestation, through its assimilation by the economic and social system to the exhaustion of its innovation potential at maturity. But it is not merely descriptive. It is constructed through the identification of possible causal chains between agents and spheres in capitalist society. What the model attempts to do is identify the repetition of certain underlying patterns and to propose plausible explanations. The reader is asked to keep this purpose in mind, together with the additional caveat that neither the evidence nor much subtlety can be included in the limited space of a chapter. Suffice it to say that this model is not a straitjacket to be forced upon history. Rather than ignore the immense richness of historical evolution, it emphasizes the uniqueness of each occurrence and recognizes the many irregularities and overlaps that cannot be captured by abstraction. Its only claim is to serve as a useful heuristic tool for historical exploration and as a framework for theoretical analysis." (

(Short) Summary of the key ideas

Randal Jackson Wellington:

"The model is one of historically recurring phases in the diffusion of technological revolutions, through to their assimilation by the economic and social system to maturity.

Perez suggests that what distinguishes a technological revolution from an individual technology system is its all-pervasive character, its capacity to go beyond the industries it creates and to provide generic technologies that modernise the whole economic structure.

Historically, these revolutions have lasted around 50 years. Each becomes a standard only after overcoming the resistance of the preceeding model.

Perez lists the technological revolutions as: the industrial revolution, highlighted by the invention of the mechanised cotton industry, wrought iron and machinery, with associated infrastructure such as canals, waterways, turnpike roads, and water power; the second was the age of steam and railways; the third, the age of steel, electricity and heavy engineering; the fourth, the age of oil, the automobile and mass production; and the latest, from 1971, the age of information and telecommunications.

Finance is the driver. Decisions to invest are taken by entrepreneurs, often backed by financial agents.

The agents of production capital and those of financial capital will act in unison to fund growth and innovation as long as they are successful and profitable, Perez says.

Society, she says, influences the path taken by the revolution. The concept stretches far beyond the economy to encompass societal and even cultural change.

Perez says a financial bubble usually characterises the final phase of change: “canal mania” in the 1790s, “railway mania” in the 1840s, the “roaring 1920s” and the bubble of the 1990s.

The installation period ends with a financial collapse, having done among other things replaced old industries, until there is a general acceptance of common-sense criteria for best practice in the new paradigm.

New policies generally tend to regulate financial practices and to contribute toward the expansion of markets through public demand and income redistribution, she says.

Industries and technology systems of a revolution don’t meekly disappear when they reach maturity. Perez says they remain stubbornly fighting for survival during the installation of the next, and only gradually modernise, adopting the new principle when they are forced to by the market superiority of the new paradigm." (

Long Summary

Geoff Mulgan's description includes the illustrative example of the Great Depression in the 30's:

"To find insights into how the current crisis might connect to these longer-term trends we need to look not to Marx, Keynes or Hayek but to the work of Carlota Perez, a Venezuelan economist whose writings are attracting growing attention.

Perez is a scholar of the long-term patterns of technological change. In Perez’s account economic cycles begin with the emergence of new technologies and infrastructures that promise great wealth; these then fuel frenzies of speculative investment, with dramatic rises in stock and other prices. During these phases finance is in the ascendant and laissez faire policies become the norm. The booms are then followed by dramatic crashes, whether in 1797, 1847, 1893, 1929 or 2008. After these crashes, and periods of turmoil, the potential of the new technologies and infrastructures is eventually realised, but only once new institutions come into being which are better aligned with the characteristics of the new economy. Once that has happened, economies then go through surges of growth as well as social progress, like the belle époque or the postwar miracle.

Before the great depression the elements of a new economy and a new society were already available—and encouraged the speculative bubbles of the 1920s. But they were neither understood by the people in power, nor were they embedded in institutions. Then, during the 1930s, the economy transformed, in Perez’s words, from one based on “steel, heavy electrical equipment, great engineering works and heavy chemistry… into a mass production system catering to consumers and the massive defence markets. Radical demand management and income redistribution innovations had to be made, of which the directly economic role of the state is perhaps the most important.” What resulted was the rise of mass consumerism, and an economy supported by new infrastructures for electricity, roads and telecommunications. During the 1930s it wasn’t clear which institutional innovations would be most successful (fascism, communism and corporatism were all contenders), but after the second world war a new model of state regulated capitalism emerged characterised by suburbs and motorways, welfare states and macroeconomic management, which underpinned postwar growth.

Seen in this light the great depression was both a disaster and an accelerator of reform. It helped to usher in new economic and welfare policies in countries like New Zealand and Sweden that later became the mainstream across the developed world. In the US it led to banking reform, the New Deal and the GI Bill of Rights. In Britain depression, as much as war, led to the creation of the welfare state and the NHS.

One implication of Perez’s work, and of Joseph Schumpeter’s before her, is that some of the old has to be swept away before the new can find its most successful forms. Propping up failing industries is in this light a risky policy. Perez suggests that we may be on the verge of another great period of institutional innovation and experiment that will lead to new compromises between the claims of capital and the claims of society and of nature. In retrospect these periodic accommodations are as integral to capitalism as financial crises—indeed it’s only through crisis and institutional reform that capitalism adapts to a changing environment and rediscovers the moral compass that is so vital for markets to work well. The late 19th century accommodation came in response to fear of revolution and gave us state pensions, universal schooling, trade unions and universal suffrage, putting paid to the ideals of 19th-century liberalism. A second accommodation came 50 years later out of depression and war, and made variants of social and Christian democracy the norm in every rich country, pushing up states’ share of GDP and introducing visible hands to guide the markets’ invisible one." (


Cycles of Technological Change

  • The industrial revolution – 1780
  • Steam and railways – 1830
  • Heavy engineering – 1870
  • Automotive and mass production – 1920
  • Information and Communication – 1971 (microprocessor)

Next cycle

  • Nanotechnology – 2050

Paul Budde:

"Listening to Professor Carlota Perez ( we can learn that what actually happens in these longer-term cycles. Our interpretation of this is that infrastructure development follows the principle of ‘build and they will come.

Carlota talks about three distinct periods with each of these revolutions;

  • Installation
  • Transition
  • Deployment


At the start of any new technological revolution people see glimpses of the future; they see the massive potential of these changes. However, without the required infrastructure the real benefits of the emerging ‘techno-economic revolution’ cannot be achieved. What happens then is that those who can recognise the potential move into a frenzy of activity in what Perez calls the ‘installation period’ of that new technology cycle.

We are very familiar with this technology hype. It actually drives the installation phase and during this period paper-based fortunes can be made at the stock exchange. Without this initial financial stimulation either nothing at all would eventuate, or progress would be very, very slow. We only have to look at the slow pace of human development in prehistoric and early modern times.


Most of the time the early frenzy and hype ends in a crash. Now intelligent intervention of the state is necessary to shift the reward structure from financial capital to investment capital that allows real deployment to occur. This heralds the start of the ‘transition period’. In order to move forward we now need to begin replacing the investment-driven installation phase with a manufacturing-driven ‘deployment’ phase. This involves replacing old technologies and transforming the old way of doing things.

This often generates periods of massive disruption, with great economic, political and social upheaval.

By the time the transition point is arrived at sufficient infrastructure for the new deployment environment to move forward will generally have been installed. This will allow the ‘builders’ in the society to take over, and new ‘real’ investments are made by real builders in what Perez calls the ‘deployment period’.

This is often assisted by over-investments in infrastructure that have been made in the installation period. Assets therefore can often be bought by the builder at a good price and the investment can thus be taken further.

These ‘new’ investments are no longer based on the creation of paper-based wealth – they are focused on earning dividends on the investment. Also, government funds are often now directed at these investments, which can lead to a full deployment that generates economic advances for the whole society, not just the happy few that were involved in the early installation period.

According to Perez, in order for a successful deployment period to start it is essential that the financial systems must stop rewarding financial capital and promote the use of capital to create infrastructure and move ICT into the deployments state.

Furthermore, she finds that there have been 4 transitions lasting between 2 and 13 years. We are now in the fifth that has lasted nearly nine years.


To see what can happen in periods of transition we only have to look at the massive infrastructure projects that were undertaken during the depression in the 1930s, which followed the installation period (1908-1929) and, after WWII, which led to unprecedented economic prosperity in the developed world – the deployment period (1950-1970).

Installation periods are essential and because many people make enough money during such a period these will always attract new investments, despite the fact that many people will also lose a lot of money. Those who study and understand these long-term cycles are, in general, the people who do well; it is the uninitiated, attracted by the frenzy, who are often bitten.

What this shows is that both phases – the installation period, driven by financial gains, and the deployment period, driven by dividends – are necessary parts of the development of any techno-economic cycle." (

Source: Paul Budde. Global - Investing in the Communications Revolution. 2008

P2P Scenarios for Future Transitions

This was written as a response to an Invitation to respond to “Global MegaCrisis: Four Scenarios on the Future of Progress”, for a Special Issue, Journal of Futures Studies, Dec 2011

Michel Bauwens:

“The world today is confronting not one crisis, but possibly several at the same time. Each crisis has different temporal aspects, but all are involved in different subphases of development.

The most evident crisis is the crisis of one form of the capitalist system, which I would like to correlate with the Kondratieff cycles. As outlined in Carlota Perez’ book, TECHNOLOGICAL REVOLUTIONS AND FINANCIAL CAPITAL, Kondratieff cycles have a positive and productive high-growth phase, and a financialized, predatory, non-productive phase of decline and slow growth, with the totality of these two subphases ending with a “Sudden Systemic Shock”. Examples of such crisis were 1873, 1929, and 2008. What we witnessed was the end of one such Kondratieff cycle, which means that the old synergy of productive elements cannot possibly work in the next phase. Typically, Sudden System Shocks are followed by on average 15 years of dislocation, delveraging, social crisis and chaos, until they are superseded with a new constellation of productive elements, forming a new logic of accumulation. Such a scenario would mean that we have entered such a period of chaos, but that we may get out of it after a certain period of pain.

The second crisis is a crisis of capitalism itself, and this crisis has many different aspects. One aspects is a growing energy crisis, i.e. Peak Oil which was reached in 2006, with competing opinions of whether renewable energies are able to compensate for declining fossil fuels in time to relaunch a new form of productive capitalism. It has been questioned whether industrial capitalism can cope with ever increasing prices of energy, and whether it can reformulate itself around some form of green capitalism. The second aspect of the crisis of capitalism is the emergence of a new hyperproductive system of value production, i.e. peer production. As Marx posited, a system of production will likely be replaced, if it has exhausted its possibilities and a more productive alternative is on the horizon. These two conditions are now fullfilled, albeit in seed form. This brings us to the issue of temporality. Both the energy crisis and the emergence of an alternative, are only in a emergent stage. The positive hypothesis then becomes: if we assume that capitalism finds both an answer to the energy crisis (green capitalism), and some form of adaptation to the new productive system (not unlikely, as both the Roman system and the feudal system susccessfully composed with proto-elements of their successor systems for at least two centuries). Then we may see emerge, after the period of chaos described above, some Kondratieff wave in a renewed form of capitalism, which would have green and p2p elements as part of the new mix.

However, there is a third aspect of the crisis which may derail the above possibility in the mid-term (say maximum three decades). Indeed, if we take a pessimistic view of the energy crisis (no answer to Peak Oil as renewables cannot replace lost fossil fuels), coupled with the emerging severity of the biospheric crisis, and with the inability of the current financial predatory class to solve any of the issues at hand; then, in that case, a fundamental and successful re-orientation of the capitalist system would be impossible. In this case, the current period of inter-Kondratieff chaos, eventually followed by a rather short capitalist green-p2p accomodation; would be followed by a severe crisis of civilization, i.e. of its current industrial and capitalist form, and a fundamental reorientation to a new civilization and political economy.

Here we have to outline two possible subscenarios:

  1. the high road scenario, the development of a new globalism under peer production, preserving the best elements of industrial-capitalist civilization, and finding sustainable ways to maintain relatively high living standards;
  2. a low road scenario, in which the dislocation is of such depth, and of such duration, that the p2p phase transition can only occur in a context of intensive relocalization and breakdown of globality; though substantial aspects of a global cultural commons of cooperation may subsist, if we are able to save the essential aspects of the inter-networks. As a historical analogy, think the end of the Roman empire and the long time needed for the new feudal system to reach some stable point of take-off.

So here is the timeline that we propose:

  1. a period of chaos and dislocation following 2008, which may possibly lead to a revival (2020) of social movements, and two a structural reform of capitalism to a green/p2p upswing with capitalism; after two-three decades this (2040-2050) adaptation is superseded by the deepening biospheric and social crises related to Peak Oil and Climate Change, and the stage is prepared for a phase transition, in ‘high road’ or ‘low road’ mode, of a p2p-commons centered civiilzation; or failing that, a breakdown of civilization into nightmarish realities
  2. if capitalist adaptation fails, we go straight from the end-of-Kondratieff to the end-of-capitalism and end-of-industrial civilization chaos; but the possibilities to high-road/low-road/dislocation transition remain; However, a failure of capitalism to integrate green/p2p elements would in my view make the transition more painful.”

More Information

The theory of great surges

Carlota Perez on Technological Revolutions and Financial Capital