The seeds of a new, big technological shift are emerging, predicts Carlota Perez. KARLIN LILLINGTONreports
'PERHAPS YOU don't understand how you are seen in the world, but you are quite an example," says Prof Carlota Perez.
Addressing an audience of academics, researchers and senior policymakers in Dublin, the Venezuelan is referring to the way in which Ireland's economic success - which she sees as closely wedded to the way the State has ridden the technological boom since the 1990s - has become an inspiration to other countries.
If this is the case, it is in part due to Perez herself. She is the influential author of Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages, a book published in 2002 that picks apart the relationship between technological revolutions, finance and economies.
However, Perez's early work - a series of papers published in the 1980s - were read by the policymakers formulating Ireland's national development plans back in 1988. Her belief that governments should invest in intangibles like research and development and technology infrastructure, even when little cash was in the coffers, may well have helped provide the foundation of policy that launched Ireland's growth economy.
Now a visiting senior research fellow at Cambridge University, professor of technology and socio-economic development at the Technological University of Tallinn, and a consultant to national governments, the EU, OECD and the UN, Perez believes technological revolutions, and the way economies and societies react to them, pass through predictable stages.
Understanding this should enable societies to make constructive choices in managing what might seem random and volatile forces, she argues. The problem is that most policymakers and economists look only to recent history when planning for the near future.
"The easiest way to make a mistake about what will happen in the near future is to think it will be like the recent past," she says.
Instead, the situation we see today is actually what would have been the "bold anticipations" of the past. As examples, she casts back to the stagflation and moribund world economies of the 1970s and 1980s. "If anyone had said then that the 1990s would bring a booming economy and the greatest bull market in US history - well!" she laughs.
Likewise, in the Depression, an era of worker powerlessness, who would have predicted the next decade would launch 20 years of prosperity, home ownership and a mass consumer market?
Instead, look to the distant past to understand what will come in the near future, she says.
Her basic premise is that the modern world has witnessed five clearly defined technological revolutions and each has gone through the same two stages: a build-up "installation" phase as the technologies are developed, and then a "deployment" phase, when they spread through society and deliver widespread benefit.
"Installation is the shock of the new. Deployment is when the new becomes normal," she says.
The five revolutions are: the industrial revolution that began in 1771; the age of steam in 1829; the age of steel and engineering in 1875; the age of the automation, oil and mass production in 1908; the information and communications technologies (ICT) revolution that began in 1971.
Each lasts 40-60 years and goes through distinct phases, she says. Each revolution takes about 50 years to spread across the world. And each contains the seeds of the next technological revolution.
Hence, the invention of the transistor at the tail end of the last revolution - something at first seen only as an innovation that enabled cheap mass-market products like radios - was the catalyst for the creation of the microchip and the dawn of the ICT revolution, which itself is only half-way through its cycle, Perez says.
She predicts the seeds for the next revolution are already emerging - probably nanotechnology, biotechnology and related areas.
One of her more intriguing theories is that the installation phase is driven by, and benefits, the world of financial capital, while the deployment phase is driven by and benefits what she calls "production capital" - entrepreneurs and management.
As the first phase evolves into the second, there's always about a decade of transition, which can be volatile and unpredictable. She believes we are in such a precarious economic wobble and have been since 2000, after the dynamic financial growth of the installation phase of the ICT revolution.
Managing the transition period is extremely difficult, she says. Give too much power to the world of finance capital and the result will be faltering economies, greed and corruption, and paper rather than real wealth.
Failure to control finances after the Nasdaq bubble has led to the economic problems we are experiencing now, Perez says.
But understanding that financial capital needs tighter control, while production capital needs greater support from governments and international organisations, will help a transition to a "golden era" of deployment, when society reaps the benefits of the ICT revolution and sees increased economic stability, she argues.
"Intelligent regulation is indispensable," she says. Will we emerge safely from this transition period?
"The power of the financial community is so overwhelming" now that she isn't sure.
Policymakers spent time with her after her lecture, hoping she will again be able to offer insight into how a small country can steer through turbulent times.
Going by her lecture, one thing such a country cannot do is use yesterday's successful policies in tomorrow's world.
