Carlota Perez

**Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages

Carlota Perez

https://carlotaperez.org

W. Brian Arthur, a pioneer of complexity economics, offered this high praise for Carlota Perez’s work:

“Perez shows us that the arrival of technological revolutions in history has a clear regularity, and that the economy reacts to them in predictable stages. Her views provide a fresh perspective not just on history, but on our own times—especially the age of the information technology revolution.”

Key Concepts in Arthur’s Endorsement:

• Regularity: The idea that these massive shifts aren’t random but follow a recurring structural pattern.
• Predictable Stages: Validating her four-stage model (Irruption, Frenzy, Synergy, Maturity).
• Fresh Perspective: Moving beyond static economic data to see the “Long Waves” of human progress.

Would you like me to find more scholarly critiques or similar endorsements from other economists like Mariana Mazzucato?

Technological Revolutions

The Core Framework of Carlota Perez: Technological Revolutions and Financial Capital

The central premise of Perez’s work is that every long-term period of economic growth is driven by a great technological revolution.

1. The Five Technological Revolutions

1. The Industrial Revolution (1771): Mechanization of the cotton industry in Britain.
2. Age of Steam and Railways (1829).
3. Age of Steel, Electricity, and Heavy Engineering (1875).
4. Age of Oil, Automobiles, and Mass Production (1908).
5. Age of Information and Telecommunications (ICT) (1971): Marked by the birth of the Intel microprocessor.

2. The Dynamic Model: From “Great Surge” to “Golden Age”

Perez divides each revolution into two distinct periods, which explains why institutional investors (like James Anderson) value her work so highly:

• Installation Period: A time of “creative destruction” where the new technology emerges, dominated by Financial Capital. This phase is characterized by intense speculation, bubbles, and frantic investment (e.g., the Dot-com bubble of 2000), often leading to a widening wealth gap.
• Turning Point: The bubble bursts, the market crashes, and society enters a period of turbulence. At this juncture, government intervention is required to shift the focus from “Financial Capital” to “Production Capital” through policy and institutional restructuring.
• Deployment Period (The “Golden Age”): The new technology truly permeates every corner of the real economy, leading to widespread increases in social productivity and genuine economic prosperity.

3. The Four Stages of the Technology-Financial Lifecycle

Perez further refines the diffusion of a “Techno-Economic Paradigm” into four specific stages within the Installation and Deployment periods:

I. Installation Period (The Battle for the New)

• Irruption Phase (The Age of Technology): As the old paradigm reaches maturity and market saturation, idle capital seeks new outlets. New products and technologies show immense potential backed by financial capital. This phase is marked by “The Great Divide”—a rupture between innovative firms showing explosive growth and nostalgic firms clinging to the past.
• Frenzy Phase (The Age of Finance): Financial capital dominates the system. The “virtual economy” decouples from the real economy, and the “leisure class” (as described by Thorstein Veblen) sees wealth concentrate at the top. This is a period of trial-and-error investment, eventually leading to over-investment, asset inflation, and the formation of a financial bubble.

II. The Turning Point

Not a single event, but a process of transition lasting months to years. It requires resolving the unsustainable tensions created during the Frenzy Phase. New regulations and institutional reordering must occur to move from financial speculation toward full economic expansion.

III. Deployment Period (The Age of Growth)

• Synergy Phase (The Age of Production): This is the true “Golden Age.” Infrastructure is in place, conditions for economies of scale are met, and growth becomes stable and harmonious. Technology is viewed as a positive force for social progress, providing jobs and hope as the benefits of growth are more widely distributed.
• Maturity Phase (The Age of Complacency and Questioning): Markets reach saturation and technologies mature. Profit growth is limited by productivity ceilings. Companies turn to mergers and acquisitions (M&A) or export capital to unsaturated foreign markets. As capital accumulates with fewer domestic investment outlets, the stage is set for the next technological revolution.

Why Does Baillie Gifford Value Her Theory?

Baillie Gifford (specifically the SMT fund) focuses on “identifying extreme non-linear growth that can change the world.”

• Historical Depth: Perez’s model provides a macro-lens. When markets panic due to a bubble bursting, Perez’s framework suggests this is merely the “Turning Point” pain, and the most significant “Deployment” returns are yet to come.
• Alignment of Philosophy: Her emphasis on “Production Capital” and “Long-termism” aligns perfectly with the investment firm’s core philosophy.

Current Outlook: Perez believes we are currently in the “Turning Point” of the Fifth Revolution (ICT/Internet). While the technology is mature, the global “Golden Age” has not yet fully arrived. She advocates for a “Green Transition” and a “Digital Welfare State” to trigger the next era of prosperity.