What I am trying to do in this post is to determine exactly where we are in the Information & Communication Technology Revolution. Is it over, are we half done, or is the best still to come. Is it as Professor Carlota Perez suggests a "Sustainable Global Knowledge Society Boom" that we find ourselves in? And if so where are we in terms of that boom? Much of our research in the past six years has been on the faith that Professor Perez' theories would, eventually, become valid. It is now very clear, to me, that she is exactly right. Therefore, where is it precisely that we stand in terms of this Information & Communication Technology Revolution (ICTR) and transition, here in January 2010.
The 35 posts that have been written on Professor Perez' work can be aggregated on this label. I recall reading many times that she did not believe the 2000 dot com meltdown was violent enough to cause people to want to change. She consistently suggested that more would have to happen in the finance area, and that housing would probably be the area that it did show. This going back to at least 2005.
This paper argues that the two boom and bust episodes of the turn of the century—the internet mania and crash of the 1990s and the easy liquidity boom and bust of the 2000s—are two distinct components of a single structural phenomenon. They are essentially the equivalent of 1929 developed in two stages, one centred on technological innovation, the other on financial innovation. Hence, the frequent references to that crash, to the 1930s and toBretton Woods, are not simple journalistic metaphors for interpreting the ‘credit crunch’ and its solution, but rather the intuitive recognition of a fundamental similarity between those events and the current ones. The paper holds that such major boom and bust episodes are endogenous to the way in which the market economy evolves and assimilates successive technological revolutions. It will discuss why it occurred in two bubbles on this occasion; it examines the differences and continuities between the two episodes and presents an interpretation of their nature and consequences. p. 779
1. Introduction
This previous quotation is text that to my mind is the same since we started following her theories. Accurate and prescient. Perez parses down the nature of this dual crash into what she calls Major Technology Bubbles (MTB) and Easy Liquidity Bubbles (ELB). Both are necessary in order to impose the scale of changes necessary to make society move on to the higher value economic order based on, in this case, the Information & Communication Technology revolution (ICTR).
This paper proposes to distinguish major technology bubbles (MTBs) as a special class of bubbles that constitute a recurring endogenous phenomenon, caused by the way the market economy absorbs successive technological revolutions. They are different both in nature and consequence from the bubbles induced by excess liquidity from whatever source and from thePonzi finance moments identified by Minsky. p. 780
and
History has given us the ideal laboratory: an MTB—the 1997–2000 internet mania—followed by the easy liquidity bubble (ELB) of 2004–07. The fact that they took place in rapid succession provides us with clearly comparable and compatible data. Yet it also suggests that they are strongly connected and interrelated. p. 780
In terms of where we stand today, we are overcoming the immediate consequences of both of these market collapses. These phenomena are thankfully "complete" in Professor Perez' mind. Complete in the sense that they do not require any further market collapse in order for the changes be made in the marketplace. If there is no other shoe to drop, we can continue on this journey knowing that the pain will not escalate from here.
2. Major technology bubbles as endogenous phenomena
The computer industry has been profitable, and a major part of our lives for the past 40 years. Are these past 40 years the benefits that we should expect as the effects of theICTR? I hope not. If this were the end of the ICTR we should expect to have our dog food delivered from the fine people at www.pets.com. Not the type of value that I think the Users andCISP need to provide the oil and gas producers.
An MTB is not an accidental event. It regularly occurs midway along the process of assimilation of each technological revolution. It is the paroxystic culmination of 20 or 30 years of market experimentation, centred on new breakthrough technologies and spurred by the extraordinary profits produced by them. p. 780
To think that we are only half way is the news that shows we have a long time left to travel on the ICTR. A specific technology that we are using now is the agile development methodology. One in which the writing of software is up to 500% faster then just a few years ago, a methodology which was substantially faster then the previous iteration. From a development point of view, we are only beginning to develop software much faster and that is much more usable. Reflecting that there is more to come from theICTR.
The ensuing collapse not only results in the return to more sensible real values and a reconnection with the real economy; it also signals the end of a period when financial capital is in control of investment to a period in which control passes over to production capital. p. 780
As Perez predicted, financial capital grew too large in terms of its share of the global economy. With not enough work to do, they found ways to amuse themselves and the consequences are reflected in today's economy. Perez had consistently stated that financial capital would recede to be replaced by "production" capital to fuel the remainder of theICTR.
The process follows a basic stable sequence: irruption of the revolution, two or three decades of a turbulent installation period ending in a major bubble collapse, then arecomposition of the socio -institutional framework that regulates finance and sets the conditions for the final deployment period, a time of more organic growth that lasts until maturity and exhaustion are reached, setting the stage for the irruption of the next technological revolution (Perez, 2002 [2003], 2007). p. 781
Perez is clear
how this will happen.
It is because of human resistance to change and organisational inertia in existing institutions that the introduction and diffusion of the new technologies and their best practices has to be forced by ferocious competition and by the high profit pressures imposed by the stock market. p. 781
Review of the ideas that comprise the
Draft Specification. The strategy and business model of this software development. The User and CISP focus on creating a community, having that community direct the development of the software. Are all built upon using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. Producers that join us will have a higher level of performance vs. those that remain in their current form. Software firms such as SAP and Oracle will have difficulty meeting the demands of an innovative producer. Competition in both the performance of the producer and the systems that support them will be the means in which change is exercised.
From the confrontation between them will emerge the novel leaders and the industries that will serve as engines of growth of the economy. At the same time, the experience in using the new technologies, especially the new infrastructures, will result in a different set of best practice principles for efficiency—a new techno-economic paradigm—applicable to all other industries and serving to overcome maturity and increase productivity across the whole economy through more efficient equipment, better organisational models and much wider market reach. p. 781
So competition is
how the benefits of the Information Technology Revolution (ITR) come about.
When will this happen?
2.3 The unwitting role of the MTB
Did we miss it? Are we too late, or too early? Here is where I think some confusion is a natural course of the events we have been through. There are two boom bust cycles occurring at the same time. We are finishing off the Deployment phase of the WWII boom driven by the age of the automobiles, oil and petrochemicals. And secondly transitioning from the Installation to the Deployment phase of theICTR.
Technology has been a big part of the problem. Over building the worlds fiber optic networks was a large part of the demise of many companies on the NASDAQ exchange. This was necessary, but also not part of the real advantages that society would garner. Those advantages would occur as the existing industries used the fiber optic cable in new and innovative ways.
So that is how the market system revitalises the economy every half century or so. When a set of new technologies reaches exhaustion of products, productivity increase and markets (as mass production did in the late 1960s and early 1970s), financial capital abandons its old clients and joins the new entrepreneurs, giving strong support to technologies that had been in gestation for years but limited by the prevailing paradigm (Perez, 2002 [2003], pp. 27–32). The financial success of this process leads to theMTB , which not only intensifies the full experimentation with the new technologies and the modernisation of most industries, but also fosters over-investment in the new infrastructures. p. 789
What Professor Perez is saying is that their can't be "not enough fiber optic networks". There can only be too many or none at all.
These usually need to reach full coverage to be effective and thus require high up-front investment and take time to become profitable. It is the switch to short-term gains during the bubble that attracts the necessary capital to be poured into the infrastructural networks of each revolution. p. 789
Google, Apple, Oracle and Cisco are new-era companies that became household names in the run up to the dot com meltdown. Perez suggests these firm make for a new and necessary aspect of the modernization of the economy.
When the boom and bust of the MTB mark the end of this installation period, most of the economy has been modernised, ample coverage of the new infrastructure is in place and new corporate giants are ready to lead the expansion by taking full advantage of the new potential. But by this time, the financial world will have acquired the habit of being in control of investment and of getting constant high returns. Quarterly profits will have become the main measure and production companies will find themselves forced to avoid long term projects and to constantly deliver short term gains. For this reason, the golden age of more harmonious growth—or deployment period—that follows in the last two or three decades of each surge of development will depend on the capacity of the State to restrain the financial casino that typifies the bubble and to hand over power to production capital, allowing its longer term horizons to guide investment once more. This has usually involved changes in the financial architecture and in the incentive structure of investment. pp. 789 - 790
We see a clear definition of the time frame that we are in. New leaders have established themselves. The MTB and ELB have occured. The installation and overbuilding of the networks and technologies to drive the future. The continued pressure to performance based on quarterly earnings. The need for financial reform, hopefully only started last week. Everything that is difficult seems to be behind us. The harmonious growth of the golden age is upon us and we will use these technologies to the benefit of society, people and organizations.
On this occasion, such regulatory and institutional changes have had to wait until the collapse of a second, much greater and more global boom and bust. p. 790
These points are clear in Professor Perez' writings, what is different this time, to the four other great surges, is that it occured in a two step process, the dot com meltdown and the financial crash of 2008.
5.2 The double bubble and the full consequences
The unique characteristic of having two bubbles collapsing has consequences of its own.
What came after the internet bubble collapse was not the restructuring of the real economy that tends to occur in the aftermath but a casino revival that only fulfilled part of that task. p. 800
and
After the meltdown of this second bubble, the actors in the real economy—both producers and consumers—see themselves as the direct victims of the false promises of the casino and its disastrous consequences. Finance has done its job and overstayed its welcome at the helm of investment; it is time for production capital to take over and to fully unleash across the world the wealth-creating potential already installed. This will require governments to once again design appropriate policies and provide the general guidelines. pp. 800 - 801
Right here, right now. This is where People, Ideas & Objects and the Community of Independent Service Providers, the user groups and the innovative oil and gas producer all fit. Now is the time to begin this journey and build the applications defined in the
Draft Specification. That is what is at stake, and that is the opportunity.
Nevertheless, the conditions are not necessarily all set for this change. Several authors have pointed out that finance has come to dominate the economy to an extent that could be termed ‘financialisation’ (see Arrighi, 1994; Dore, 2008; Krippner, 2005; van Treeck, 2009) and that this constitutes a fundamental change in the market economy. p. 801
This last point doesn't necessarily apply directly to these communities. However it is interesting to see that these technology giants, Oracle, Apple, Cisco and Google do not see their enhanced role in the economy.
On the other hand, the emerging leaders of the new production capital, the new ICT giants that would serve as engines of growth of the world economy and shape the deployment period, are yet to recognise and wield their power and influence in the course of events, nationally and globally. If in the fourth surge the chief of General Motors could rightly say that what was good for GM was good for the USA and viceversa; today the global ICT companies could say that what is good for them is good for the world economy. Yet they do not seem to be questioning the leadership of finance or vying for a place at the top. Whatever their participation, the outcome will be resolved in the political arena. p. 802
What's good for Apple or Oracle or Google or Cisco is good for the economy.
6. Conclusion: the special nature of MTBs and the policy challenge
The fundamental implication of the interpretation presented here is that what we are facing is not just a financial crisis but rather the end of a period and the need for a structural shift in social and economic context to allow for continued growth under this paradigm. Both globalisation and national prosperity will depend upon and be shaped by the longterm solutions implemented to face the challenges posed by the current recession. p. 803
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