Theory of Great Surges

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The theory of great surges is explained in detail in Carlota Perez's book “Technological Revolutions and Financial Capital” published by Edward Elgar.

According to her model, long-term development looks like the relentless advance of technology; however, progress takes place by overlapping surges (each surge lasts approximately 40-60 years). “A great surge of development is…the process by which a technological revolution and its paradigm propagate across the economy, leading to structural changes in production, distribution, communication and consumption as well as to profound and qualitative changes in society” (Perez, 2002, p. 15). Following her analysis, during last two centuries civilization has experienced five technological revolutions:

-the industrial revolution (initiated in 1771, birthplace: Britain; machines, factories and canals)

-the age of steam, coal, iron and railways (1829, Britain)

-the age of steel and heavy engineering (1875, Britain, USA, and Germany)

-the age of automobile, oil, petrochemicals and mass production (1908, USA)

-the age of information technology and communication (1971, USA)

Each of these processes evolves “from small beginnings in restricted sectors and geographic regions”, and ends up “encompassing the bulk of activities in the core country or countries and diffusing out towards further and further peripheries, depending on the capacity of the transport and communications infrastructures” (Perez, 2002, p. 15).

A great surge of development consists of five phases, which, although not strictly separated, can be identified as sharing common characteristics throughout history. To be more concrete, firstly we have irruption (technological explosion) that is the initial development of the new technologies in a world where the bulk of the economy is made of old, maturing and declining industries; then frenzy follows, which is a very fast development of technology that needs a lot of finance (this is when the financial bubbles are created). These two first phases constitute the installation period, when finance and greed prevail in a free market atmosphere. Next, turbulent times come (i.e. collapse, recession and instability) in what she calls the turning point, when the institutional changes are made for the deployment period to begin. A lot of institutional innovation takes place and economies are enabled to take full advantage of the new technology in all sectors of the economy and to spread the benefits of the new wealth creating potential more widely across society. These synergies occur in the early stage of Deployment (synergy phase) until they approach a ceiling (maturity phase) in productivity, new products and markets. When that ceiling is hit, there is social unrest and confrontations while the conditions are being set for the installation of the next revolution.

According to this, we are now at the Turning Point and, although recession is the immediate future, what lies ahead may be a Golden Age.

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See also Technological Revolutions and Financial Capital